Judge: Arizona must refund millions from rental-car tax that pays for stadiums

A key funding mechanism for Valley sports stadiums took another hit Wednesday as a judge ruled the state must refund a rental-car tax that was declared unconstitutional last summer.

The ruling by Judge Christopher Whitten of Maricopa County Superior Court could cost the Arizona Department of Revenue tens of millions of dollars in refunds and reduce funding for the Arizona Sports and Tourism Authority.

The authority relies on revenue from the 3.25 percent rental-car tax and a 1 percent hotel-bed tax to make debt payments on the University of Phoenix Stadium, fund tourism promotion and pay for Cactus League stadiums.

The refunds could cost the state about $160 million when all the claims from various companies are taken into account, said Shawn Aiken, a Phoenix attorney representing Saban Rent-A-Car LLC, which filed its claim in 2010.

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“There used to be a (dark) cloud, now for sure there’s been a hole blown in that funding for the stadium,” Aiken said.

Whitten’s ruling follows a decision in June 2014 by Superior Court Judge Dean Fink that the rental-car tax was unconstitutional. Fink said that taxes on vehicles must be used for highway-related purposes.

If the rulings are upheld, the authority could lose $12 million a year in revenue, or about a third of its yearly revenue.

Whitten said state law requires the Department of Revenue to repay the rental-car agencies but said the agency can recover the rental-car revenue it already paid to the sports and tourism authority.

Sarah Strunk, general counsel for the authority, said an appeal is likely once the final rulings are made in the case.

Meanwhile, the tax is still being collected and the authority is paying its bondholders, she said.

“This is business as usual,” Strunk said.

An attorney for the Department of Revenue could not be reached for comment.

Aiken said the refund would go to about 105 Maricopa County rental-car companies that collected the tax from customers. Aiken’s original case had sought a refund for rental-car customers.

An appeal could take about two years to resolve and could still be subject to a review by the Arizona Supreme Court, Aiken said.

If it stands, the ruling could force state lawmakers to come up with a new tax to pay the stadium debt over the next 20 years.

Funding for Cactus League stadiums and practice facilities, tourism promotion and youth sports also would suffer.

The rental-car tax and hotel tax in Maricopa County together account for about 60 percent of the authority's annual revenue. Other major revenue sources come from rental fees and sales taxes collected at University of Phoenix Stadium and a state income tax on Arizona Cardinals operations.

Voters approved the rental-car and hotel taxes in November 2000, shifting much of the stadium funding costs to tourists.

Stadium tax dispute

A dispute over the rental-car tax to fund the University of Phoenix Stadium in Glendale and other facilities goes back more than a decade:

May 1999 — Mesa voters reject a sales tax to pay for an Arizona Cardinals stadium in the city.

January 2000 — A 35-member task force recommends a hotel bed tax and a rental-car tax in Maricopa County to pay for the football stadium, Cactus League ballparks and tourism promotion.

November 2000 — Voters approved the taxes aimed at tourists to raise an estimated $1.8 billion for a football stadium and Cactus League facilities.

2004 — Phoenix attorney Shawn Aiken files a lawsuit to overturn the rental-car tax to fund the stadium.

August 2006 — University of Phoenix Stadium is completed.

2010 — The rental-car tax lawsuit is refiled, this time on behalf of rental car agencies instead of rental-car customers.

June 17 — Maricopa County Superior Court Judge Dean Fink rules the rental-car tax is unconstitutional because it is not being used for highway-related projects.

Wednesday — Judge Christopher Whitten rules that the rental-car taxes already paid must be refunded to the rental car companies.