Committee advances bill to exempt tips from Arizona gross income after debate on fiscal impact

The Arizona House Ways and Means Committee voted to return House Bill 2081 with a due-pass recommendation as amended after debate over targeting, potential abuse and fiscal impact.

House Bill 2081, sponsored by Representative Gail Griffin, would add tips to the list of subtractions from Arizona gross income. Griffin said the measure is intended to relieve tipped workers from tax on gratuities: "Gift, taxes, in my opinion, as being a former waitress is a gift on the service that you provide, and I don't feel that it should be taxed," she told the committee.

Research staff Douglas Dexter explained the bill and an amendment in the chairman's name that would strike the word "cash" from the bill language so that tips received by cash or electronic payment would be treated the same. The committee adopted that amendment by voice vote.

Witnesses offered competing views. Joseph Palomino of the Arizona Center for Economic Progress testified in opposition, saying the bill would provide little benefit to most low- and moderate-income workers, could make Arizona's flat tax more regressive and might cost more than the static fiscal estimate because of behavioral changes. "Less than 4% of workers earning less than $25 an hour received tipped income," Palomino said, summarizing available data; he also told the committee a fiscal note estimate would be published and that the static estimate was about $31 million.

Jeremy Garrett of Our Voice Our Vote Arizona testified in support, saying the bill would ease a burden on low-wage tipped workers. Representative Sean McCarthy (director of fiscal policy) noted the committee requested a fiscal note and referenced an estimated $31,000,000 static impact that members discussed during questioning and debate.

Committee members voiced both fiscal-responsibility concerns and policy sympathy for tipped workers. Representative Veil Carter supported the bill, saying it would remove a reporting burden and avoid penalizing workers who underreport tips; Representative Cruz and Representative Mariana Sandoval said they opposed the measure without stronger targeting or offsets. Representative Blattman said he supported the intent but would vote no unless the bill is amended to better target lower-income workers and address the revenue loss.

By roll call the committee returned HB 2081 as amended with a due-pass recommendation by a vote of 5 ayes, 3 nays and 1 absent. The committee recorded the following votes: Aye — Representative Veil Carter; Representative Livingston; Representative James Taylor; Vice Chair Comfort; Chairman Justin Olsen. No — Representative Blattman; Representative Cruz; Representative Mariana Sandoval. One member was absent (name not specified). The amendment struck "cash" from the statutory language and the bill as amended would subtract tips from Arizona gross income regardless of payment method.

The bill will proceed to further House action consistent with the legislative calendar.