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ARIZONA STATE SENATE
Fifty-Seventh Legislature, First Regular Session
food; municipal tax; exemption
Purpose
Subject to voter approval, statutorily caps, retroactive to January 1, 2025, the tax or fee that a city, town or other taxing jurisdiction may impose on the sale of food and certain beverage items intended for home consumption at 2 percent of the base, subjects the adoption or increase of the tax or fee to voter approval and prohibits the adoption or increase of the tax or fee from occurring in the 24-month period preceding June 30, 2027.
Background
If a city, town or other taxing jurisdiction imposes a transaction privilege tax (TPT), sales, use, franchise or other similar tax on the sale of food items intended for human consumption or on ready-to-drink, nonalcoholic beverages contained in a closed or sealed bottle, can or carton that is intended for home consumption (home consumption beverages), the tax must be applied uniformly and an additional tax or fee may not be assessed on any specific food item.
A city, town or other taxing jurisdiction may not levy a TPT, sales, use, franchise or other similar tax or fee on the manufacture, wholesale or distribution to or among any wholesalers, distributors or retailers of food items intended for human consumption, home consumption beverages or food for consumption on the premises (A.R.S. § 42-6015).
All gross receipts are subject to tax under 1 of the 16 TPT classifications unless specifically exempted or excluded by statute. Statute exempts the gross proceeds of sales or gross income derived from sales of certain tangible personal property from the retail classification of TPT and use tax (A.R.S. Title 42, Chapter 5, Articles 2 and 4). Except for the gross proceeds of sales or gross income from the sale of food for consumption on the premises, the imposed TPT does not apply to the gross proceeds of sales or gross income from sales of food by: 1) a retailer who conducts an eligible grocery business; 2) a retailer who conducts a business whose primary business is not the sale of food but who sells food which is displayed, packaged and sold in a similar manner as an eligible grocery business; 3) a retailer who sells food and does not provide or make available any facilities for the consumption of food on the premises; 4) a retailer who is a street or sidewalk vendor and who uses a pushcart; and 5) vending machines and other types of automatic retailers (A.R.S. § 42-5102).
There is no anticipated fiscal impact to the state General Fund associated with H.C.R. 2021 since the state does not levy TPT on food for home consumption; however, there may be a change to municipal TPT collections.
Provisions
1. Specifies that for a city, town or other taxing jurisdiction that has approved a TPT, sales, use, franchise or other similar tax or fee on food items intended for home consumption or home consumption beverages on or before January 1, 2025:
a) if the tax or fee is levied at a rate of less than 2 percent of the base, any increase of the tax or fee must be approved by the voters and may not be more than 2 percent of the tax base;
b) if the tax or fee is levied at a rate of 2 percent or more of the base, the city, town or other taxing jurisdiction may not increase the rate; and
c) an increase of the tax or fee may not occur in the 24-month period preceding June 30, 2027.
2. Specifies that for a city, town or other taxing jurisdiction that has not approved a TPT, sales, use, franchise or other similar tax or fee on food items intended for home consumption or home consumption beverages on or before January 1, 2025:
a) the adoption and any subsequent increase of the tax or fee must be approved by the voters and may not be more than 2 percent of the tax base; and
b) the adoption or subsequent increase of the tax or fee may not occur in the 24-month period preceding June 30, 2027.
3. Prohibits a city, town or other taxing jurisdiction from levying a TPT, sales, use, franchise or other similar tax or fee on the sale of food items intended for home consumption or home consumption beverages unless the city, town or other taxing jurisdiction complies with the requirements outlined above.
4. Makes technical and conforming changes.
5. Requires the Secretary of State to submit the proposition to the voters at the next general election.
6. Becomes effective if approved by the voters and on proclamation of the Governor, retroactive to January 1, 2025.
House Action
WM 2/12/25 DP 5-4-0-0
3rd Read 3/4/25 37-21-2
Prepared by Senate Research
March 20, 2025
MG/ci