
An effort to allow some Arizona business owners to avoid paying the voter-approved income tax surcharge for education is being proposed by a veteran state lawmaker.
PHOENIX — An effort to allow some Arizona business owners to avoid paying the voter-approved income tax surcharge for education is being proposed by a veteran state lawmaker.
The proposal by Sen. J.D. Mesnard, R-Chandler, would create an entirely new alternate tax category for small businesses, generally those organized in a way so their income passes through to the owners. That means the owners compute what they owe the state on their personal income tax forms after deducting all business expenses.
Janelle Edmonds, a teacher at Marana High School, creates the best-possible learning experience for her students as she navigates both remote and in-person instruction during the coronavirus pandemic of 2020-2021. Video by: Mamta Popat / Arizona Daily Star
What makes that significant is that Proposition 208 imposes a 3.5% surcharge on adjusted personal income of more than $250,000 for individuals and $500,000 for married couples filing jointly. That is on top of the current 4.5% rate that applies for income above those figures.
Mesnard’s SB 1783 would give business owners the option of instead paying a 4.5% tax on their adjusted business income.
That means the surcharge in Proposition 208 would not apply because this new tax category did not exist at the time voters approved the measure. So business owners could compute their tax liability using both the existing formula or the new one — and then choose the one that costs them less.
Creating this new category makes sense because it will allow lawmakers to craft special tax provisions targeted at helping small businesses, Mesnard told Capitol Media Services.
He acknowledged, though, that a prime reason was to help business owners escape paying that new voter-approved surcharge. Mesnard said that’s justified.
“We heard time and time again this will not or is not meant to impact small businesses,” he said. “And so what this is doing is ensuring that’s the case.”
But David Lujan who helped organize the Proposition 208 fight, said Mesnard isn’t telling the whole story. The way Lujan sees it, the initiative does not target small business.
Lujan points out that what’s subject to the tax is not the gross proceeds of any business. It’s what’s left after an owner pays all expenses, from employee salaries to equipment purchases. It’s also what remains after any other deductions, like money a business owner puts into a 401(k) retirement account.
What that leaves, he said, is the net income the owner pockets. And Proposition 208 kicks in only on any net earnings above $500,000 for a married couple.
Lujan also pointed out that SB 1783, which awaits a vote of the full Senate, doesn’t just set a new optional tax category for small business. It also creates this same 4.5% tax rate for income from estates and trusts.
All this leaves the issue of whether it’s legal to effectively alter what was the intent of the voters to subject certain income to the higher levy.
Attorney Roopali Desai, who represents the Invest in Ed committee that put Prop. 208 on the ballot, acknowledged that lawmakers do have the power to alter the state tax code and create new categories.
“The question is whether the Legislature is able to pass legislation that directly or indirectly changes the voter-protected law that was put in place through Prop. 208,” she said.
That goes to the Voter Protection Act, which bars lawmakers from repealing or making changes in anything approved at the ballot. The only exception is for amendments that “further the purpose” of the original law, and then only with a three-fourths vote.
Desai said courts have concluded that legislation runs afoul of the Voter Protection Act even if it doesn’t directly repeal the measure approved at the ballot.
“You can do something more surreptitious and more malicious by going to make other changes elsewhere (in the statutes) that would have the same effect, which is to undermine the ultimate will of the voters,” Desai said.
What isn’t known is how much would be lost from the anticipated income for education if lawmakers approve the measure.
Estimates of what the initiative, as originally crafted, would raise have ranged from $827 million to $940 million a year. So far legislative budget analysts have not produced a fiscal impact statement of SB 1783, which was approved earlier this month by the Senate Finance Committee on a party-line vote.
Lujan noted that there was some IRS tax data brought into court last year by business interests who tried, unsuccessfully, to keep the measure off the ballot. The expert suggested that close to half of tax filers in that income category claim at least some of their income from businesses that pass their earnings on to owners.
Still, Lujan who heads the Arizona Center for Economic Progress, said that doesn’t necessarily translate into a dollar-for-dollar loss for the education programs that Proposition 208 is designed to fund.
“That doesn’t tell you if it is 100% of their income or do they just have a side business,” he said. “So it’s hard to gauge.”
But Lujan said SB 1783 is likely to affect a “significant portion” of the revenues.
Half of whatever is raised is earmarked for schools to hire teachers and classroom support personnel, a category that also includes librarians, nurses, counselors and coaches. Those dollars also could be used for raises.
Another 25% would be for support services personnel. That covers classroom aides, service personnel, food service and transportation.
There’s 12% for grants for career and technical education programs and 10% for mentoring and retaining new teachers in the classroom. The last 3% is for the Arizona Teachers Academy, which provides tuition grants for people pursuing careers in education.
No date has been set for Senate debate on the measure.
Photos: 2020 General Election in Pima County and Arizona
Ballot processing in Pima County

An election worker stacks ballots to be processed at the Pima County Elections Center, Tucson, Ariz., November 5, 2020.
Ballot processing in Pima County

An election worker prepares ballots to be fed into her machine as ballot processing continues at the Pima County Elections Center, Tucson, Ariz., November 5, 2020.
Ballot processing in Pima County

Workers process ballots as the count goes on at the Pima County Elections Center, Tucson, Ariz., November 5, 2020.
Ballot processing in Pima County

An election worker looks over some ballots being processed at the Pima County Elections Center, Tucson, Ariz., November 5, 2020.
Ballot processing in PIma County

Election workers continue their work in preparing ballots in order for them to be counted later in the day the Pima County Elections Center on November 5, 2020. Photo by Mamta Popat / Arizona Daily Star
Ballot processing in PIma County

Deputy Scott Woodworth, left, and Deputy Andrew Conrad of the Pima County Sheriff's Department stand outside of the Pima County Elections Center on November 5, 2020. Due to some gatherings around the country at election offices, deputies are on site to help keep the peace. Photo by Mamta Popat / Arizona Daily Star
Ballot processing in PIma County

Election workers continue their work in preparing ballots in order for them to be counted later in the day the Pima County Elections Center on November 5, 2020.
Ballot processing in PIma County

Adrian Gomez, an election worker, feeds ballots into a machine which opens the envelopes automatically in preparation for them to be counted later in the day at the Pima County Elections Center on November 5, 2020. Photo by Mamta Popat / Arizona Daily Star
Ballot processing, Pima County

An election worker calls a voter to confirm a signature on a ballot at the Pima County Elections Office located at 6550 S Country Club Rd, on Nov. 4, 2020.
Ballot processing, Pima County

An election worker scans a ballot while doing the first check of the signature while processing ballots at the Pima County Elections Office located at 6550 S Country Club Rd, on Nov. 4, 2020. If the signature matches what the office has on file the ballot will move on to be counted. If the signature does not match it will be moved to a special desk where workers investigate the signature by following up with the voter.
Ballot processing, Pima County

An election worker scans a ballot while doing the first check of the signature while processing ballots at the Pima County Elections Office located at 6550 S Country Club Rd, on Nov. 4, 2020. If the signature matches what the office has on file the ballot will move on to be counted. If the signature does not match it will be moved to a special desk where workers investigate the signature by following up with the voter.
Election Day, Pima County and Arizona, 2020

Mark Kelly, right, Democratic candidate for U.S. Senate, waves to supporters along with his wife Gabrielle Giffords, second from right, and daughters, Claire Kelly, far left, and Claudia Kelly, second from left, during an Election Night watch party on November. 3, 2020 at Hotel Congress in downtown Tucson, Ariz.
Election Day, Pima County and Arizona, 2020

The crowd gathers in St. Philip's Plaza for a Republican supporters party on election night, Tucson, Ariz., November 3, 2020.
Election Day, Pima County and Arizona, 2020

Election night wears on as Republican supporters stay up late waiting for numbers at a party held at St. Philip's Plaza, Tucson, Ariz., November 3, 2020.
Election Day, Pima County and Arizona, 2020

Fox News declares Joe Biden the winner over Donald Trump in the state of Arizona behind the night's entertainment, singer Buck Helton, at a Republican supporters' party at St. Philip's Plaza, Tucson, Ariz., November 3, 2020.
Election 2020 Senate Kelly

Mark Kelly, Democratic candidate for U.S. Senate, speaks during an Election Night gathering at Hotel Congress in downtown Tucson, Ariz. on November 3, 2020.
Election 2020 Senate Kelly

Mark Kelly, right, Arizona Democratic candidate for U.S. Senate, waves to supporters along with his wife Gabrielle Giffords, second from right, and daughters, Claire Kelly, left, and Claudia Kelly, second from left, during an election night event Tuesday, Nov. 3, 2020 in Tucson, Ariz. (AP Photo/Ross D. Franklin)
Election Day, Pima County and Arizona, 2020

District 10 senate candidate Justine Wadsack moves through the crowd at a Republican supporters party at St. Philip's Plaza, Tucson, Ariz., November 3, 2020.
Election Day, Pima County and Arizona, 2020

Arizona house candidate Brendan Lyons speaks to the Republican party supporters gathered at St. Philip's Plaza, Tucson, Ariz., November 3, 2020.
Election Day, Pima County and Arizona, 2020

Gabby Saucedo Mercer, candidate for Pima County Board of Supervisors, watches polling numbers roll in at a Republican supporters party at St. Philip's Plaza, Tucson, Ariz., November 3, 2020.
Election Day, Pima County and Arizona, 2020

A woman in the crowd reacts as the first numbers of the night come up on network news showing Joe Biden well ahead of Donald Trump in Arizona during a party for Republican supporters at St. Philip's Plaza, Tucson, Ariz., November 3, 2020.
Election Day, Pima County and Arizona, 2020

The crowd of Republican supporters celebrate as news organizations declare Texas for Donald Trump during an election party at St. Philip's Plaza, Tucson, Ariz., November 3, 2020.
Election Day, Pima County and Arizona, 2020

Mark Kelly, Democratic candidate for U.S. Senate, speaks during an Election Night gathering at Hotel Congress in downtown Tucson, Ariz. on November 3, 2020.
Election Day, Pima County and Arizona, 2020

President Trump supporters wave a flag during an election watch party, Tuesday, Nov. 3, 2020, in Chandler, Ariz. (AP Photo/Matt York)
Election Day, Pima County and Arizona, 2020

Maria Miranda waves to drivers as she waves her sign while stumping for 2nd Congressional candidate Brandon Martin outside the polling site at Desert Gardens Presbyterian Church, 10851 E Old Spanish Trail, Tucson, Ariz., November 3, 2020.
Election Day, Pima County and Arizona, 2020

Voters wait in line to cast their ballots at Gideon Missionary Baptist Church, 3085 S. Campbell Ave., in Tucson, Ariz. on Nov. 3, 2020.
Election 2020 Arizona Voting

A poll worker wearing a face shield and mask checks outside for voters in need of assistance at the polling station at Tucson Arizona Boys Chorus, 5770 E. Pima St., in Tucson, Ariz. on Nov. 3, 2020.
Election 2020 Arizona Voting

A short line forms outside of the Drexel Heights Community Center, 5220 S San Joaquin Ave., polling place on November 3, 2020.
Election 2020 Arizona Voting

A voter glances at voting signs while approaching the Donna R. Liggins Neighborhood Center polling place located at 2160 N 6th Avenue, on Nov. 3, 2020.
Election Day, Pima County and Arizona, 2020

Poll volunteers work the final half hour of the night at the Dusenberry-River Branch Library, one of the voting sites in Tucson, Ariz., November 3, 2020.
Election Day, Pima County and Arizona, 2020

Election Protection Arizona's Chris Griffin sits just outside the exclusion area at the Christ Lutheran Vail Church polling site, Vail, Ariz., November 3, 2020.
Election Day, Pima County and Arizona, 2020

Voters file into the polling site at Christ Lutheran Vail Church, 14600 E. Colossal Cave Rd., as voting takes place across the nation, Vail, Ariz., November 3, 2020.
Election Day, Pima County and Arizona, 2020

A poll worker gestures a couple of voters inside the Desert Gardens Presbyterian Church, 10851 E Old Spanish Trail, one of polling sites across the area, Tucson, Ariz., November 3, 2020.
Election 2020 Arizona Voting

Trump supporters greet another arriving Trump supporter arriving outside of the Living Word Bible Church voting station in Phoenix, Ariz., on Election Day, Tuesday, Nov. 3, 2020. (AP Photo/Dario Lopez-MIlls)
Election 2020 Arizona Voting

Trump supporters greet voters arriving in their cars at the Living Word Bible Church voting station in Phoenix, Ariz., on Election Day, Tuesday, Nov. 3, 2020. (AP Photo/Dario Lopez-MIlls)
Election Day, Pima County and Arizona, 2020

A line forms outside the polls at Continental Ranch Community Center located at 8881 N Coachline Blvd., on Nov. 3, 2020. According to Poll Marshal Judy Burns, the place had a line zigzagging through the parking lot when doors opened and a steady number of voters throughout the day.
Election Day, Pima County and Arizona, 2020

A line forms outside the polls at Continental Ranch Community Center located at 8881 N Coachline Blvd., on Nov. 3, 2020. According to Poll Marshal Judy Burns, the place had a line zigzagging through the parking lot when doors opened and a steady number of voters throughout the day.
Election Day, Pima County and Arizona, 2020

Voters put on masks outside the Avra Valley Fire District Station 191 before casting ballots, on Nov. 3, 2020.
Election Day, Pima County and Arizona, 2020

A voter prepares a ballot outside the Avra Valley Fire District Station 191 polling place, on Nov. 3, 2020.
Election 2020 Arizona Voting

A voter leaves the polling place at Tucson Arizona Boys Chorus, 5770 E. Pima St., in Tucson, Ariz. on Nov. 3, 2020.
Election 2020 Arizona Voting

A woman walks towards the Drexel Heights Community Center 5220 S San Joaquin Ave. to cast her vote on November 3, 2020.
Election 2020 Arizona Voting

Campaign signs adorn an area just off the property at Drexel Heights Community Center 5220 S San Joaquin Ave. on November 3, 2020.
Election Day, Pima County and Arizona, 2020

A voter puts on a face covering before entering the Himmel Park Library polling place, on Nov. 3, 2020. Photo by Josh Galemore / Arizona Daily Star
Election Day, Pima County and Arizona, 2020

A polling worker welcomes a voter to the Himmel Park Library polling place, on Nov. 3, 2020. Photo by Josh Galemore / Arizona Daily Star
Election Day, Pima County and Arizona, 2020

A voter drops off their ballot on Election Day outside State Farm Stadium early, Tuesday, Nov. 3, 2020, in Glendale, Ariz. (AP Photo/Matt York)
Election Day, Pima County and Arizona, 2020

A voter, November 3, 2020, at the Islamic Center polling place, 12125 E Via Linda, Scottsdale, Arizona.
Election Day, Pima County and Arizona, 2020

Voters wait in line, November 3, 2020, at the Tempe History Museum polling place, 809 E. Southern Ave., Tempe.
Election Day, Pima County and Arizona, 2020

Voters stand in line outside a polling station, on Election Day, Tuesday, Nov. 3, 2020, in Mesa, Ariz. (AP Photo/Matt York)
Election Day, Pima County and Arizona, 2020

Voters stand in line outside a polling station, Tuesday, Nov. 3, 2020, in Mesa, Ariz. (AP Photo/Matt York)
Election Day, Pima County and Arizona, 2020

A school crossing guard stops cars for voters entering a polling station, Tuesday, Nov. 3, 2020, in Phoenix. (AP Photo/Matt York)
Election 2020 Arizona Voting

A line forms outside the Dr. Martin Luther King Jr. Neighborhood Center just over an hour after the polls opened Tuesday morning, Nov. 3, 2020, in Yuma, Ariz. (Randy Hoeft/The Yuma Sun via AP)
Election 2020 Arizona Voting

Voters arrive at the Dr. Martin Luther King Jr. to cast their vote in the general election early Tuesday morning, Nov. 3, 2020, in Yuma, Ariz. (Randy Hoeft/The Yuma Sun via AP)
Election 2020 Arizona Voting

A woman walks into the St. Margaret Mary's Church, 801 N Grande Ave. to cast her ballot on November 3, 2020.
Election 2020 Arizona Voting

An election worker processes early voting ballots at Pima County Elections Center, 6550 S. Country Club Rd., in Tucson, Ariz. on Nov. 3, 2020.
Election 2020 Arizona Voting

An election worker processes early voting ballots at Pima County Elections Center, 6550 S. Country Club Rd., in Tucson, Ariz. on Nov. 3, 2020.
Election Day, Pima County and Arizona, 2020

The television news network, MSNBC, is projected onto screens at the Mark Kelly Election Night watch party for friends and family at Hotel Congress in downtown Tucson, Ariz. on November 3, 2020. Kelly is the democratic candidate for the U.S. Senate.
Election Day, Pima County and Arizona, 2020

Chairs are set up on the patio for friends and family at Hotel Congress for the Mark Kelly Election Night watch party in downtown Tucson, Ariz. on November 3, 2020. Kelly is the democratic candidate for the U.S. Senate.
Election Day, Pima County and Arizona, 2020

The sun begins to set behind a voting sign at Gideon Missionary Baptist Church, 3085 S. Campbell Ave., in Tucson, Ariz. on Nov. 3, 2020.
Election Day, Pima County and Arizona, 2020

Poll workers check their phones as they wait for voters at a local polling station Tuesday, Nov. 3, 2020 in Tucson, Ariz. (AP Photo/Ross D. Franklin)
Judge throws out lawsuit, finds no fraud or misconduct in Arizona election
PHOENIX — A judge tossed out a bid by the head of the Arizona Republican Party to void the election results that awarded the state’s 11 electoral votes to Democrat Joe Biden.
The two days of testimony produced in the case brought by GOP Chairwoman Kelli Ward produced no evidence of fraud or misconduct in how the vote was conducted in Maricopa County, said Maricopa County Superior Court Judge Randall Warner in his Friday ruling.
Warner acknowledged that there were some human errors made when ballots that could not be read by machines due to marks or other problems were duplicated by hand.
But he said that a random sample of those duplicated ballots showed an accuracy rate of 99.45%.
Warner said there was no evidence that the error rate, even if extrapolated to all the 27,869 duplicated ballots, would change the fact that Biden beat President Trump.
The judge also threw out charges that there were illegal votes based on claims that the signatures on the envelopes containing early ballots were not properly compared with those already on file.
He pointed out that a forensic document examiner hired by Ward’s attorney reviewed 100 of those envelopes.
And at best, Warner said, that examiner found six signatures to be “inconclusive,” meaning she could not testify that they were a match to the signature on file.
But the judge said this witness found no signs of forgery.
Finally, Warner said, there was no evidence that the vote count was erroneous. So he issued an order confirming the Arizona election, which Biden won with a 10,457-vote edge over Trump.
Federal court case remains to be heard
Friday’s ruling, however, is not the last word.
Ward, in anticipation of the case going against her, already had announced she plans to seek review by the Arizona Supreme Court.
And a separate lawsuit is playing out in federal court, which includes some of the same claims made here along with allegations of fraud and conspiracy.
That case, set for a hearing Tuesday, also seeks to void the results of the presidential contest.
It includes allegations that the Dominion Software voting equipment used by Maricopa County is unreliable and was programmed to register more votes for Biden than he actually got.
Legislative leaders call for audit but not to change election results
Along the same lines, Senate President Karen Fann and House Speaker Rusty Bowers on Friday called for an independent audit of the software and equipment used by Maricopa County in the just-completed election.
“There have been questions,” Fann said.
But she told Capitol Media Services it is not their intent to use whatever is found to overturn the results of the Nov. 3 election.
In fact, she said nothing in the Republican legislative leaders’ request for the inquiry alleges there are any “irregularities” in the way the election was conducted.
“At the very least, the confidence in our electoral system has been shaken because of a lot of claims and allegations,” Fann said. “So our No. 1 goal is to restore the confidence of our voters.”
Bowers specifically rejected calls by the Trump legal team that the Legislature come into session to void the election results, which were formally certified on Monday.
“The rule of law forbids us to do that,” he said.
In fact, Bowers pointed out, it was the Republican-controlled Legislature that enacted a law three years ago specifically requiring the state’s electors “to cast their votes for the candidates who received the most votes in the official statewide canvass.”
He said that was done because Hillary Clinton had won the popular vote nationwide in 2016 and some lawmakers feared that electors would refuse to cast the state’s 11 electoral votes for Trump, who won Arizona’s race that year.
“As a conservative Republican, I don’t like the results of the presidential election,” Bowers said in a prepared statement. “But I cannot and will not entertain a suggestion that we violate current law to change the outcome of a certified election.”
Photos of the 2020 General Election voting, election night and ballot processing in Pima County, Maricopa County and throughout Arizona.