A wooden gavel

A Scottsdale businesswoman is taking on the newly voter-approved proposition that adds an income tax surcharge to wealthy wage earners to fund public education.

Ann Siner, CEO and founder of My Sister’s Closet, headquartered in Scottsdale, and retired Maricopa County Superior Court Judge John Buttrick were to announce plans to file a lawsuit challenging the constitutionality of Proposition 208.

Although their joint press conference was to be held after the Progress’ print deadline Friday, an announcement about it called Proposition 208 “the largest tax increase in state history that disproportionally impacts job creators such as Siner.”

Buttrick, a Harvard Law graduate, also was a federal magistrate. 

They are being represented by Rose Law Group in Scottsdale, which said the suit will be filed Dec. 1.

“It doesn’t make sense to impose a massive tax hike on job creators at a time when businesses have been crushed and the state needs jobs,” Siner said in an emailed statement. “The best way to generate more revenue for schools is to create more taxpayers not fewer. 

“Remember, teacher salaries were increased two years ago without a tax increase in our state. We are all for more resources for education but not at the expense of our economy.”

Buttrick called Prop 208 “the wrong way to increase education funding and it violates the rights of Arizona taxpayers. It is unconstitutional and bad for the economy. Taxing and spending state funds are the responsibility of an elected legislature that can be held accountable by voters.”

With more than 3.2 million ballots cast in the election on the proposition, unofficial final results showed 51.75 voted in favor of it while 48.25voted against it.

Proposition 208 would alter the state’s top income tax rate.

Right now individuals earning at least $250,000 pay 4.5 percent for any earnings above that figure. The same cutoff exists for couples making more than $500,000 a year.

The initiative proposes a 3.5 percent surcharge on top of that, bringing the effective tax rate on those top earnings to 8 percent.

Opposition, led by the Arizona Chamber of Commerce and Industry, argued that would be among the highest tax rates in the nation.

But foes pointed out that the levy affects only those earnings above the threshold. So a couple with taxable income of $550,000 a year would pay that extra 3.5 percent only on $50,000, or an additional $1,750 a year.

Foes also said that about half the levy would be paid by the owners of certain small businesses. These are firms organized under sections of the Internal Revenue Code which pay no corporate income taxes but instead have the net earnings passed through to the individual owners.

The counter argument was that the higher tax did not apply to a firm’s gross earnings but only what was left in profits for the owner after paying all expenses for payroll, rent, supplies and even any money set aside in retirement plans.

Joe Thomas, president of the Arizona Education Association, said the results show that Arizonans are willing to act to provide more dollars for schools when state lawmakers balk.

Thomas said the additional dollars -- an estimated $940 million a year -- will not only raise teacher pay but also provide dollars to hire more instructors, reducing the average number of students in classrooms. Arizona has among the highest student-to-teacher ratio in the nation.

But it will take some time for the dollars to start flowing.

The higher tax rates are effective with income earned in 2021. And even with some people making estimated tax payments during the year, the big infusion won’t come until the spring of 2022.

According to the most recent financial disclosure reports, proponents and opponents spent a combined $30 million as of two weeks before the election.