Arizona Gov. Katie Hobbs Vetoes GOP Bill Eliminating Food Tax Amid Skyrocketing Inflation

Arizona Gov. Katie Hobbs delivers her State of the State address at the Arizona Capitol in Phoenix on Jan. 9, 2023. Ross D. Franklin/AP Photo

Arizona Gov. Katie Hobbs on March 28 vetoed a Republican-led bill that would have banned municipalities from taxing groceries, granting some relief to Arizonans struggling with soaring inflation.

Senate Bill 1063 (pdf) was sponsored by Majority Leader Sonny Borrelli and passed the Republican-majority Legislature last week.

The bill echoed promises made by Republican gubernatorial candidate Kari Lake, who proposed eliminating all taxes on groceries as well as rent in the state last year during her unsuccessful run for governor.

Republicans had said the bill would put money back into the pockets of hard-working Arizonans who are battling with rising inflation and being forced to splash out between 15 to 45 percent more on many essential grocery items.

They pointed to data showing that an average family of four on a low-cost grocery budget currently spends around $1,000 per month on food alone amid rising prices.

Specifically, the GOP-led bill would have removed the municipal Transaction Privilege Tax (TPT), stopping cities from levying a tax on food and beverage items intended for home consumption. However, the measure would not have taken effect until July 2025.

Currently, 65 of Arizona’s 91 cities and towns levy a sales tax of up to 4 percent on food for home consumption, according to Republicans. None of the state’s three largest cities—Phoenix, Tucson, and Mesa—tax groceries, according to the League of Arizona Cities and Towns.

Hobbs Vetoes Bill

However, Democrats opposed the bill, as did cities across the state. They argued that the measure would be problematic for city budgets by cutting off revenue they generate from food sales, forcing them to either raise taxes elsewhere or cut spending on services to make up for the loss.

A legislative analysis (pdf) found that the bill would reduce municipal TPT by up to $182.9 million in the fiscal year 2024, $189.3 million in FY 2025, and $195.6 million in FY 2026.

Hobbs on Tuesday ultimately sided with cities across the state after listening to their concerns.

On Twitter, the Democrat governor said she vetoed the bill after hearing from “dozens of local leaders about the impact this legislation would have on municipalities.”

“From potential cuts to service–including public safety–to increased property taxes, it’s clear that this bill doesn’t actually eliminate costs for our residents. It simply moves those costs around,” Hobbs wrote.

“The bill, originally unveiled as a way to mitigate inflation, does not take effect for more than two years. What’s more, it does nothing for the more than 800,000 Arizonans who use SNAP [Supplemental Nutrition Assistance Program] and WIC [The Special Supplemental Nutrition Program for Women, Infants, and Children] benefits for their groceries, as these constituents are already exempt from the tax,” she continued.

‘Saddened but Not Surprised’

“Let’s work together to provide real relief for Arizonans struggling with higher costs,” Hobbs added.

Senate Republicans shared their “extreme disappointment” at the governor’s veto of the measure in a statement on Tuesday.

“This veto is a disgraceful windfall for cities and an absolute gouge for families,” said Borrelli. “We’re not only paying inflated prices to feed our families, but we’re also paying more in taxes as the cost of food rises. Food is not a luxury; it is a necessity. A tax on our groceries is regressive and hurts everyone.”

“Over the next four fiscal years, cities and towns are estimated to receive an average of $2.3 billion per year in state-shared revenues, which is an increase of $844 million more than the average for the last four fiscal years. And yet the governor vetoed this bill, only padding cities’ bloated budgets instead of leaving more money in the wallets of hardworking taxpayers,” Borrelli added.

Lake also criticized the move on Twitter, writing that she was “saddened but not surprised” to see the bill had been vetoed.

“It’s clear that Hobbs has no desire to improve the quality of life for our families,” Lake wrote.

The latest veto comes after Hobbs last month vetoed another GOP-led bill that would have eliminated rental tax amid soaring housing costs. At the time, the governor said she had done so because the bill “does nothing to ensure relief will be passed along to renters,” and would instead force local governments to increase taxes elsewhere to offset the loss.