Pinal County’s new sales tax to fund transportation projects has been found illegal by Arizona Tax Court. 

Passed by a slim margin last November, Proposition 417 allowed for the collection of a sales tax to pay for infrastructure improvements and road construction. However, a lawsuit brought by the Goldwater Institute argued that this new tax violated state law and created a confusing set of tax rules for taxes that would ultimately hinder economic development in the county. Furthermore, Pinal County maintained that the new tax applied only to retail sales at below $10,000, meaning that the tax would fall disproportionately hard on the day-to-day purchases of lower-income citizens rather than expensive items like new cars and jewelry.

In March, Arizona Tax Court denied an injunction that would have halted collection of the tax; as a result, the tax collection began on schedule on April 1. However, now that the tax has been found to be illegal, Pinal County must refund the tax dollars that have already been collected, which had been put in an escrow account pending the lawsuit’s outcome.

Today’s decision found that the county violated the law when it told voters that it would impose the tax only on retail businesses—which state law doesn’t allow—and then changed its mind and told state tax officials to collect the tax on all businesses in the county—which voters didn’t approve. “Thanks to the Court’s decision, Pinal County taxpayers are the real winners today,” Goldwater Institute Vice President for Litigation Timothy Sandefur said. “Had this sales tax gone forward, the damage to taxpayers’ wallets and to economic opportunity in Pinal County would have been immense. We applaud the Court for siding with taxpayers against this illegal tax.”

Read more about the case, Vangilder v. Arizona Department of Revenue, here.