01/08/2008
CONTACT: Melissa Sharp, 202-314-2068
Washington, D.C.--Should a city be allowed to offer tax subsidies to a single developer while passing the costs of the tax rebate onto local constituents, small businesses and their patrons? The National Federation of Independent Business Legal Foundation thinks not and is joining an Arizona lawsuit to protect small employers from this unfair practice.
The case is Turken v. Gordon. Six Phoenix-based small-business owners have filed a lawsuit against the city of Phoenix, arguing that the tax-rebate contract the city signed violates three provisions of the Arizona Constitution: the Gift clause, the Equal Privileges and Immunities clause, and the Special Laws clause. NFIB's Legal Foundation filed an amicus brief in this case supporting the small-business owners.
Specifically the issue in this case is whether a city violates the Arizona Constitution when it provides a 50 percent sales tax-rebate to a single corporate developer if the rebate does not support a substantial public purpose, and if the rebate is not made available to all similar developers within the city.
The majority of NFIB members in Arizona do not believe that the government should provide tax incentives to businesses to locate or relocate to a particular city or town. When a municipality commits to providing substantial tax-rebates to a single entity, it must make up lost revenue by increasing the tax burden across the board. The effect of such development incentives is that small businesses and their patrons are forced to subsidize their competitors.
"As tax subsidies to out-of-state developers have become increasingly common, it's become apparent that they often cause greater harm than good," said Karen Harned, executive director of NFIB's Legal Foundation. "Payment of taxpayer dollars in the form of subsidies to a select few businesses is not sound public policy and is not fair to the small businesses who foot the bill."
A small-business victory in this case would provide state constitutional precedent for Arizona small businesses challenging similar tax-rebate incentives in other jurisdictions across the state.
