Plan Moves To Revamp State Sales Tax System

Mar 21, 2013

A Senate panel gave the go-ahead this week to revamping the state sales tax system despite warnings from affected cities. Arizona Public Radio's Howard Fischer reports.

There is no real dispute over the concept being pushed by Governor Jan Brewer to simplify the system. That essentially involves limiting the ability of cities to tax products and services beyond a specified list. And the cities are even willing to agree to ensure that businesses face only a single audit of their books, not separate reviews by the state and each affected community. Those are important changes, and not only for affected businesses.

Representative Debbie Lesko pointed out that Congress is weighing a proposal that would allow states with simplified tax systems start charging their own sales taxes when residents and businesses buy items on the Internet. Lesko said, "we may very soon have this federal legislation. We don't know. But Arizona needs to get prepared for it. Right now, Arizona has met non, absolutely none of the requirements that are needed to implement the 2000 Marketplace Fairness Act."

The hang up, though, is with the third part of the measure. As originally crafted, it would require contractors to pay sales taxes on their supplies when and where they buy them. But that means not paying either the state or local tax on new construction in the community where that occurs.

That alarmed Christian Price, mayor of Maricopa. He said the supplies for the construction in his rapidly growing community are being purchased elsewhere. "If this is allowed to stand as is, this would reduce the city of Maricopa's budget by over 20% in the next three fiscal years," Price said. "I don't know about you, but if you had 2 years to plan for a 20% reduction in your household income, I'd be interested to see how you do it."

In an effort to blunt opposition from the state's more than 90 cities, gubernatorial aide Michael Hunter offered a deal: Cities could collect a tax on new construction. But Litchfield Park Mayor Tom Schoaf said that's not an answer. "The problem is that right now we also tax the trades," Schoaf said. "So when somebody comes in and replaces a roof or replaces any kind of major remodeling or replaces water heaters, we have a tax on that also."

Schoaf said this legislation would not let cities tax those activities. He proposed that lawmakers shelve that part of the tax simplification plan this year and revisit it after working out a better deal.

But Michael Hunter told the Senate Finance Committee that delay is not an option. "The newspapers, I'm guessing," Hunter said, "and a lot of retailers out there will want to know why couldn't  you accomplish this? Why couldn't you get the job done? So I think the stakes are as high as I could ever imagine them being."

That message did not go unnoticed by Senator Steve Farley. With Congress possibly poised to approve the Marketplace Fairness Act, he said the state should not delay - and not only because it would mean more dollars from taxing Internet sales. "Our brick and mortar retailers in this state are being hurt dramatically with a nearly 10% price disadvantage to online retailers because we're not collecting that sales tax," Farley said. "And we know that we're going to be able to get that tax right away if we create a bill that is going to be able to conform with that. We've got to make it happen."

And Senator Bob Worsley said lawmakers can revisit the issue next year if it turns out that the change results in some cities losing money. The measure still needs approval of the full Senate and House.