Cities and towns in Arizona are partners with the State in a shared revenue program which passes through funds to Arizona municipalities from a few State revenue sources. The following are sources of shared revenue.

State Transaction Privilege Tax (Sales Tax)

The current rate of the State sales tax is six and six-tenths percent (6.6%). (The voter-approved 1% increase passed in 2010 does not translate into additional state-shared revenue and will be repealed at the end of three years). Cities and towns share in a portion of the collection total. A municipality receives its share of the State shared sales tax based on the relation of its population to the total population of all incorporated cities and towns in the State according to the decennial census. This money may be expended for any municipal public purpose; outside of this stipulation, there is no restriction on the expenditure of these revenues. 

State Income Tax

A 1972 citizen’s initiative gave the cities and towns a 15% share of the state income tax. This source of money is officially called urban revenue sharing. This money is distributed to a city or town based on its population in relation to the total population of all incorporated cities and towns according to the decennial census. The annual amount of urban revenue sharing money distributed is based on income tax collections from two years prior to the fiscal year in which the city or town receives these funds. There is no restriction on the expenditure of urban revenue sharing funds, except that they must be expended for a municipal public purpose.

Highway User Revenues

This revenue source is commonly referred to as the gasoline tax; however, there are a number of additional transportation related fees including a portion of vehicle license taxes which are placed in the highway user revenue fund. Cities and towns receive 27.5% of the highway user revenues. One-half of the monies which a city or town receives under this formula is distributed on the basis of the municipality's population in relation to the population of all incorporated cities and towns in the State according to the decennial census. The remaining half of the highway user revenue monies is allocated on the basis of “county of origin” of gasoline sales and the relation of a municipality's population to the population of all incorporated cities and towns in the county. (The “county of origin” factor used in the formula is determined on the basis of the gasoline and other fuel sales in a county in relation to the sale of gasoline and other fuels in other counties in the State). The intent of the distribution formula is to spread a portion of the money across the State solely on the basis of population while the remaining money flows to those areas with the highest gasoline and other fuel sales. 3% of the State portion of this fund is directed to cities with a population of over 300,000. Also, 7.67% of the State portion is allocated to certain projects in Maricopa and Pima Counties.