Proposition would cap Arizona grocery taxes at 2%

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(The Center Square) - An Arizona proposition would cap the grocery sales tax on unprepared food products.

On Nov. 3, Arizona voters will determine the fate of Proposition 316, which would prevent local governments from charging more than 2% in sales taxes on food products at stores.

The state does not impose a sales tax on unprepared food products, but most of Arizona's incorporated municipalities do. Those without the tax include three cities with bigger populations -  Phoenix, Tucson and Mesa.

The proposition would allow local governments that now charge above 2% to keep their current sales tax.

If the proposition passes, local governments without a grocery sales tax on unprepared food products before 2025 couldn’t implement one until July 1, 2027. Local governments with a grocery sales tax in place before 2025 couldn’t raise it until July 1, 2027.

Voters in areas with a tax below 2% would give their approval before any increase happened, according to the proposition.

Senate President Warren Petersen, R-Gilbert, called Proposition 316 a “good measure” that keeps “politicians from making taxes too high.”

“I don’t think we should have taxes on groceries at all,” he said.

In fact, most states, including California, Washington, Texas, New York and Florida, don't tax unprepared food items such as fruits, vegetables, meat, milk and baking staples.

Petersen noted the Arizona Legislature passed Senate Bill 1063 in 2023, which would have eliminated local governments’ grocery sales taxes, but Gov. Katie Hobbs vetoed the bill.

In her veto letter, Hobbs said she heard from local leaders who raised concerns about what the potential cuts could do to their ability to provide governmental services. She also noted eliminating grocery sales taxes could lead to higher property taxes.

The Center Square reached out to the Governor’s Office, but it did not respond before publication time.

The Republican-dominated Legislature decided to put the question to Arizona voters after Hobbs, a Democrat, vetoed the bill.

In 2025, when the Legislature debated HCR 2021, which became Proposition 316, the Legislature made a compromise: a 2% cap rather than eliminating grocery sales taxes altogether, Petersen said. The Legislature approved the bill in 2025.

Without the 2% cap compromise, the Senate president said the bill would not have passed.

Chandler Mayor Kevin Hartke, former president of the League of Arizona Cities and Towns, said he used to go to the Legislature to testify that removing the grocery sales tax “would not be equally distributed across cities.”

According to Hartke, the grocery sales tax is one of the primary revenue sources for small cities in Arizona. Chandler has a population of more than 290,000 people, which is a smaller number than the 1.6 million people who live in Phoenix, a city without the tax.

Ending the tax in the state's smaller cities “would be a huge blow to them and their ability to supply much-needed services,” such as law enforcement, infrastructure repair and water services, he explained.

Chandler has a 1.5% sales tax on groceries. Hartke, a Republican, said a future mayor of the Arizona city could raise the sales tax up to 2%.

Hartke told The Center Square he has not considered lowering the 1.5% grocery sales tax, noting if he did, he would have to find another area to raise taxes to make up for the lost income.

In Fiscal Year 2025-2026, Hartke said Chandler received more than $16 million in grocery sales tax revenue.

He explained the money the city receives from the sales tax goes into its general operating budget, which helps pay for city services such as law enforcement and infrastructure repair.

Hartke said Chandler’s general operating budget is $535 million.

In comparison, Hartke said the city receives around $19 million in sales tax from bars and restaurants.

Hartke said the proposition does not prevent local governments from raising sales taxes on non-food-related items bought at a store.  

This means local governments could raise sales taxes on items such as cleaning supplies, paper towels, pet products and personal care products.

Levi Gibson, the city of Glendale’s budget and finance director, told The Center Square that the city’s grocery sales tax rate is 2.5%, which will be grandfathered in. The city has a population of about 260,000.

Gibson said he doesn’t expect the Glendale City Council to propose lowering Glendale’s grocery sales tax. He added that the city has also not considered raising sales taxes on non-food-related items.

During fiscal year 2025-2026, Glendale collected around $23 million from the sales tax, Gibson said.

Gibson called the sales tax revenue “very important” because it funds government services such as law enforcement, libraries, parks and the fire department.

Losing the grocery sales tax revenue would “represent a significant hit to the city," Gibson said. “Having this source of revenue helps [Glendale] continue to deliver services essential to the community."

The grocery sales tax represents around 10% of the total sales tax revenue Glendale receives, he noted.

Gibson said Glendale collects between $183 million and $200 million in sales tax revenue depending on the year.