Does Oro Valley Really Need Three New Taxes?

Why some say approving three new taxes now may be premature
Yesterday we reported that town staff have asked the Oro Valley Town Council to consider approving three new taxes—a commercial rental tax, a telecommunications tax, and a use tax—that together are projected to generate between $930,000 and $1.88 million annually. 

Tonight, the council will consider approving these taxes.  While staff argue the taxes are needed to address long-term financial pressures, some believe approval may be premature based on what has and has not been analyzed to date.

Today, we present the alternative case for caution.

The projected funding gap is based on assumptions that may or may not come to fruition... alternative scenarios not considered
The current discussion was triggered by a long-range financial forecast presented last year that identified a potential structural funding gap beginning in fiscal year 2029–30. That forecast was based on a host of assumptions related to future spending growth, revenue trends, and service levels. Forecasts are widely used as planning tools, but they are not predictions. Some suggest that policy decisions with long-term consequences, such as new recurring taxes, should be informed by a range of alternative projection scenarios that explore different “what if” conditions.

Cost-control efforts are described but not fully documented...perhaps "reengineering" is needed
Town staff state that budget reductions have already occurred and will continue, and that reallocations within existing funds have been used to manage rising costs. However, the materials provided to Council do not document a zero-based budgeting review, a department-by-department operational analysis, or an independent efficiency or performance audit. Without this level of detail, some believe it is difficult to assess whether current services are being delivered as efficiently as possible or whether additional internal adjustments could be considered.

New revenue is proposed before structural changes are evaluated
The proposed taxes would create new, ongoing revenue streams. Once adopted, such taxes are rarely reduced or eliminated. Some argue that before committing to new permanent taxes, the Town could examine whether structural changes—such as staffing models, program scope, technology use, or service prioritization—might slow long-term cost growth or improve efficiency.

Business impacts are not fully explored
Two of the three proposed taxes—the commercial rental tax and the use tax—would primarily affect businesses, while the telecommunications tax would affect both residents and businesses. The staff materials do not include an economic impact analysis, a competitiveness review, or an evaluation of how the proposed taxes might influence business behavior over time. Some note that even relatively modest taxes can affect business location, expansion, and investment decisions, particularly when layered onto existing costs.

Alignment with other towns is context, not analysis
Staff note that neighboring communities already impose commercial rental, telecommunications, and use taxes, and that Oro Valley is an outlier in not doing so. While this comparison provides useful context, some believe alignment alone does not constitute a full justification. Communities differ in service expectations, cost structures, and fiscal strategies, and comparisons do not address whether Oro Valley has fully examined other available options.

Projected revenue generated is de minimus ... could be "covered" without any change in service levels
The amount of revenue projected from the proposed taxes is relatively small when viewed in the context of the Town’s overall budget, roughly $2 million within a $150 million budget. Some suggest this scale raises the question of whether improvements in operational efficiency or adjustments to non-essential spending could address the projected 2030 shortfall before new taxes are adopted.
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Town Staff Advocate For Three New Taxes

Staff provides council with lengthy discussion of why new taxes are needed now
This Wednesday, the Oro Valley Town Council will consider whether to move forward with three new taxes: a commercial rental tax, a telecommunications tax, and a use tax. According to staff estimates, the three taxes together would generate between $930,000 and $1.88 million per year, with $1.88 million as the upper bound. The commercial rental tax would apply to leased commercial property and primarily affect businesses, as the Town already charges a 2% rental occupancy tax on residential rentals. The telecommunications tax would apply to communication services and would affect residents and businesses alike. The use tax would apply to Oro Valley business purchases made outside Arizona for which a sales tax should have been collected but was not. These are items a business buys for its own use.

Town staff believe new taxes are necessary at this time for seven reasons.

Projected revenue shortfall in fiscal 2030

The immediate trigger for this discussion was a long-range financial forecast presented last year by Finance Director David Gephart, which showed that, based on a host of assumptions, the Town could face a structural funding gap beginning in fiscal year 2029–30. The forecast indicated that existing revenue sources may not be sufficient to sustain current service levels over the long term as growth-related revenues slow and operating costs continue to rise. Staff identified the need to evaluate potential new, ongoing revenue sources well in advance of that timeframe, leading to the current discussion of possible tax options.

Rising operating and infrastructure costs
Town staff point to sharply rising costs as a primary justification for the new taxes. Inflation has increased the cost of providing core services, including police, parks, public works, and planning. Staff report that General Fund program costs have increased substantially since 2015, while pavement preservation and public safety costs have risen particularly quickly in recent years. According to staff, these cost pressures are ongoing and cannot be addressed through one-time solutions.

Slowing or constrained revenue growth
Staff also cite weakening revenue trends. Sales tax revenues, which fund a large share of Town operations, have shown little growth in recent years and have declined slightly. At the same time, Oro Valley is nearing residential build-out, which limits future growth-related revenues. Staff argue that this combination creates a structural imbalance between revenues and expenditures that must be addressed with new recurring revenue sources.

State actions limiting local revenues
Another justification raised by staff involves actions taken by the State Legislature. Changes to state income tax rates have reduced the amount of state-shared revenue flowing to municipalities, including Oro Valley. Staff emphasize that these decisions are outside the Town’s control and have permanently reduced an important General Fund revenue source.

Unfunded obligations and capital pressures

Staff also highlight new and existing obligations that lack dedicated funding. These include increased transfers to the Highway Fund to offset rising road maintenance costs and the recent purchase of a new police headquarters that currently has no funding identified for reconfiguration and build-out. Staff state that without additional revenue, these pressures will continue to strain the General Fund.

Alignment with neighboring communities’ tax structures
Finally, staff argue that Oro Valley is an outlier among nearby communities. Marana, Sahuarita, and Tucson already impose commercial rental taxes, telecommunications taxes, and use taxes. Oro Valley currently does not. Staff contend that adopting these taxes would align the Town’s tax structure with neighboring jurisdictions and capture revenues that other communities already rely on.

Staff believe they are doing all they can to keep spending under control
In their materials to Council, staff state that budget reductions have already occurred, according to staff, and will continue as part of the upcoming budget cycle to address what they describe as structural imbalances. Staff cite reallocations within existing funds, ongoing efforts to manage rising costs through the annual budget process, and steps taken to absorb inflation-driven increases in areas such as pavement preservation and public safety. While acknowledging that costs continue to rise, staff maintain that these measures are necessary but not sufficient on their own, leading them to recommend new revenue sources to sustain current service levels.

Tomorrow: An alternative case for further analysis and consideration

To date, no organization or individual has presented a clear, comprehensive case against the proposed taxes. An alternative perspective can nevertheless be developed from the existing record, and LOVE will present that perspective in tomorrow’s article.

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Oro Valley Council Continues Discussion On Adding Three New Taxes

Three new taxes continue to be under consideration
The Oro Valley Town Council met October 15 to continue its study session on three proposed taxes — a use tax, a telecommunications tax, and a commercial rental tax. These taxes are already collected by Tucson, Marana, and Sahuarita. Town staff said they would help maintain services as costs rise and state-shared revenues flatten. We have reported on the council's four previous discussions of this item.

Estimated annual revenue impact of up to $2 million
Finance Director David Gephart said the three taxes could generate between $930,000 and $1.9 million annually:

• Use tax: $375,000 to $600,000
• Telecommunications tax: $130,000 to $280,000
• Commercial rental tax: $425,000 to $1,000,000

He said the goal is to diversify the Town’s revenues, reduce dependence on sales tax, and avoid introducing a property tax.

Staff would like to see funds dedicated for capital spending

If adopted, staff recommends that revenue from the new taxes be earmarked by Council for capital projects such as the newly acquired Police Department building, which currently lack a dedicated funding source. Final money dedication would require Council action (ordinance, fund setup, or budget transfer). Otherwise the funds can be used for any town operating or capital need. Council has not taken a position on this.

Businesses say new taxes would hurt competitiveness
Oro Valley Chamber of Commerce President Kristen Sharp told the Council that the commercial rental tax would make it harder for local businesses to remain competitive when operating costs in Oro Valley are already higher than in surrounding areas. She said businesses are “operating on tight margins” and warned that higher costs could discourage new tenants or drive existing ones away.

Commercial real estate broker Robert Tomlinson presented data showing Oro Valley’s retail vacancy rate at 12.8%, more than double the Tucson-area average of 5.9%. He said the new tax could further weaken the retail sector and increase vacant space.

Move would diversify Oro Valley's revenue stream
Joyce Garland, a 25-year Oro Valley resident and former Chief Financial Officer for Tucson, supported adopting all three taxes. She said state-shared revenues are declining because Oro Valley’s population is growing by less than one percent a year while new cities, such as San Tan Valley, are being incorporated. That means Oro Valley’s share of the statewide revenue “pie” continues to shrink. Garland said a broader mix of local revenues would give the Town flexibility and protect services from future shortfalls. The Budget and Finance Commission, which she chairs, voted September 16 to recommend approval of the proposals.

Implementation of taxes would not happen until July of 2026 if they are approved by council
Gephart plans to bring implementation proposals back for another study session before any vote. He explained that the Arizona Department of Revenue recently changed its reporting process for municipal tax code updates, and Oro Valley is the first community to use it. Because of that, there are questions about timing and notification requirements that must be resolved before moving forward. He said staff may recommend a phased implementation beginning in July 2026. 

Council weighs fairness and economic impacts
Councilmember Robb said she supports the use tax because it applies broadly and fairly but remains undecided about the other two. Vice Mayor Barrett questioned whether the rental tax would truly harm competitiveness, noting that neighboring towns already have similar taxes. Councilmember Nicolson said that because most Oro Valley commercial centers are owned by large, out-of-state corporations. These are landlords who are unlikely to pass the added cost on to their tenants — many of whom are small, locally owned businesses. He explained that these are landlords operate under corporate financial models that prioritize maintaining profit margins, leaving little flexibility to adjust lease terms or absorb new costs locally.

Next step: Up for public hearing with council vote on November 5
No formal action was taken at this session. At the beginning of the meeting, Finance Director David Gephart said staff intends to bring the three proposed taxes back to the Council for possible action at its next regular meeting on November 5.

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Oro Valley Considers New Local Taxes to Fund Potential Future Revenue Gap in 2029-30

Town looks to close future "way out" projected revenue gap
Oro Valley is considering adding several new local taxes in response to projections by tow staff that the Town will face a revenue shortfall by 2030. At last week's council study session, Town staff outlined three possible new taxes for the council to consider: A use tax, a telecommunications tax, and a commercial rental tax. These taxes are already in place in nearby communities such as Tucson, Marana, and Sahuarita, but are not currently collected in Oro Valley. The main goal is to generate additional revenue to help maintain the Town’s financial stability in the years ahead.

Understanding the Use Tax: Who pays and how it works
The proposed use tax would apply to goods purchased out of state or online and brought into Oro Valley for use. Technically, both businesses and individual residents are responsible for paying this tax if the seller did not collect Oro Valley sales tax at the time of purchase. In practice, most compliance comes from businesses, since they are subject to tax audits and must routinely report these purchases. For individuals, use tax is mainly self-reported and rarely enforced, except for large items like vehicles, where tax collection is linked to registration. The Town acknowledges that use tax collection from individuals is challenging and not always realistic. The primary intent is to create a level playing field for local retailers and generate new revenue for capital improvements. Based on the town’s projections, the use tax could generate from $375,000 to $600,000 annually. 

Telecommunications Tax would impact local consumers
A telecommunications tax is also being considered, which would add a charge to every cell phone bill in Oro Valley. This tax is already common in other Arizona towns. If adopted, it would mainly affect local residents, since the fee is typically passed directly to the consumer. Vice Mayor Barrett noted that many residents are already seeing several fees and taxes on their phone bills and expressed concern about adding another cost. Town staff estimate this tax could bring in about $650,000 each year. 

Commercial Rental Tax would affect businesses and individuals
The commercial rental tax would apply to all businesses renting commercial space in Oro Valley, including offices, retail stores, and self-storage units. In most cases, business tenants would pay the tax, but those renting storage units—often individuals—would also be affected. Council members, including Mayor Winfield and Councilmember Murphy, raised concerns about the impact on small businesses, especially given other rising expenses. The projected annual revenue from the commercial rental tax is about $1.1 million. 

Council shows mixed reactions to the new taxes
Council members expressed a range of reactions to the proposed taxes. Mayor Winfield was clear about his reservations regarding the commercial rental tax, stating that it "gives me the most heartburn" because of its potential impact on small businesses. Councilmember Murphy also emphasized the need to protect local entrepreneurs. Vice Mayor Barrett expressed strong concern about the telecommunications tax, noting that "many residents are already seeing several fees and taxes on their phone bills." While there was less direct opposition to the use tax, it was generally regarded as more feasible, since it brings Oro Valley in line with neighboring towns and primarily targets out-of-town and online purchases.

LOVE's Opinion: There is no need at this time for the town to implement new taxes..there is much the town can do to meet the spending challenge in other ways

Staff is recommending new taxes when there is no immediate need. The need, according to them, is based on a forecast they developed about a possible revenue shortfall in 2030. It is their forecast—a point estimate that makes many assumptions and could be completely wrong by then. In addition, the Council should not approve new taxes until it has undertaken an independent, third-party study, reporting directly to Council, on efficiency and potential ways to reduce spending and costs. It has been many years since the last such independent study was done—specifically, in 2008—and much has changed now that the Town has matured as a community. It is not possible for staff to “do surgery on themselves.” Like most organizations, they do not have the ability to critically examine and remove activities that are no longer needed. Therefore, the study must report directly to the Council. Finally, the only area that might be excluded from such a study is the police department. The reason is not that the police department should never be reviewed, but that including it would create unnecessary anxiety in the community among those who strongly support our police force. That is exactly what happened with the 2008 study.

You need to get involved
As we reported last week, you need to get involved. Last week, Town staff emphasized that a community engagement process is underway to gather feedback on these proposed taxes before any final decisions are made. A series of online public meetings and outreach events are scheduled for July, but several council members raised concerns that holding sessions during the middle of summer could limit participation, as many residents are away or may not be aware that important tax changes are being considered. Council members also noted that many residents may not fully understand the details or impact of the proposed taxes, and they encouraged staff to expand and improve the outreach effort to reach a broader audience. The engagement process will include online sessions and feedback opportunities, with additional input to be sought through town boards and commissions, leading up to council consideration later this year. LOVE will continue to follow this issue and will report on any other fee or revenue changes being proposed.

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Next Tuesday: Stormwater Fee Changes In the Offing

Next Wednesday: Increases in Facility Use and Rental Fees Are On The Table

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