The short version
Arizona does not technically have a sales tax. It has a transaction privilege tax (TPT), a tax on the seller for the privilege of doing business in the state. Sellers almost always pass it along at the register, so it feels like a sales tax, but the business is the one on the hook. The state rate is 5.6%, and 0.6 points of that is the Prop 301 education tax voters approved in 2000. In Scottsdale, Maricopa County adds 0.7% and the city 1.7%, for 8.0% on most purchases. Hotel guests also pay a 5% city bed tax.
The state’s other big tax is on income. Since the 2023 tax year Arizona has had a flat 2.5% income tax. Arizona cities do not levy income taxes of their own; they get a share of the state’s instead.
The money that comes back
The state shares four revenue streams with its cities, dividing most of it by population:
- Income tax: 18% of net state income tax collections, paid out two years after they are collected.
- Sales tax: a quarter of a designated slice of state TPT.
- Vehicle license tax: a share of the annual tax on registered vehicles, which Arizona charges in place of a property tax on cars.
- Gas tax: a share of the Highway User Revenue Fund (HURF), which can be spent only on streets.
In the city’s proposed budget for fiscal 2025/26, state-shared income tax (about $46 million), sales tax (about $39 million) and vehicle license tax (about $12 million) made up more than a fifth of Scottsdale’s general fund revenue, and HURF added about $20 million for streets. The city’s own sales tax brought in far more, about $171 million to the general fund. The Scottsdale budget guide covers how the city spends it.
Why Scottsdale leans on visitors
Arizona’s constitution makes the property tax a hard tool for cities. The primary property tax on a home, counting every government that levies one, cannot exceed 1% of its limited value, and since Prop 117 in 2012 that taxable value can grow no more than 5% a year. Cities’ primary levies are held to slow growth too. Schools and special districts take most of the property tax bill anyway, as the Maricopa County property tax guide explains.
That leaves sales tax, and Scottsdale is unusually good at collecting it from people who don’t live there. Resort stays, shopping at Scottsdale Fashion Square, car auctions, spring training and the WM Phoenix Open all generate city TPT, and hotel stays add the bed tax that funds tourism promotion and events. Every dollar a visitor pays is a dollar residents don’t have to raise through their own property tax.
The limits on spending
A separate 1980 amendment caps what each city may spend, using its 1979–80 budget adjusted for population and inflation. Voters can adopt a four-year home rule option or a permanent base adjustment. Scottsdale has taken the second route, most recently with Prop 491 in November 2024, which is why spending questions show up on the city ballot.
Where the formulas came from
Revenue sharing is older than most of Scottsdale. Voters created urban revenue sharing by initiative in 1972, giving cities 15% of state income tax collections in exchange for staying out of the income tax business themselves. The bargain held for half a century, until the income tax itself changed. When the Legislature adopted the flat 2.5% rate, first scheduled in the 2021 budget and in effect for the 2023 tax year, city leaders warned that their share would shrink with the tax. Lawmakers raised the cities’ share to 18% beginning in fiscal 2024. Because the payout lags collections by two years, fiscal 2024 distributions jumped, but the higher percentage was meant to cushion the smaller tax base, not to grow city revenue over time.
A tax that keeps being tweaked
The TPT rate has moved less than its uses. Voters raised it temporarily to 6.6% with Prop 100 from 2010 to 2013 to get through the recession, then let it fall back to 5.6%. The Prop 301 education penny was set to expire in 2021; a 2018 law extended it through June 2041. The Legislature has also narrowed what cities can tax. Since January 1, 2025, no Arizona city may levy TPT on residential rent, a change that removed a revenue stream from the many Valley cities that had taxed apartment rents. The preemption guide explains why cities could not stop it.
Scottsdale’s own choices inside the rules
Within that framework Scottsdale has asked its voters for dedicated sales taxes rather than property tax increases. The best-known built the McDowell Sonoran Preserve, and when the older 0.2% Preserve tax expired on June 30, 2025, voters had already approved a 0.15% tax for parks and the Preserve starting July 1, dropping the city rate from 1.75% to 1.7%. The city’s expenditure limit has been reset three times by voters, in 1998, 2006 and 2024, rather than switched to home rule, which would require a new vote every four years.
The result is a city budget that rises and falls with tourism and retail. That made 2020 painful and the 2021–22 rebound lucrative, and it is why the health of the resort economy is also a question about police staffing and park maintenance. The Legislature sets the rules each session, and a change to the income tax, the TPT base or the sharing formulas reaches Scottsdale’s budget within a year or two.