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News & Press: Arizona Business News Updates

Municipalities turning out to be not-so-business-friendly

Friday, May 10, 2013   (0 Comments)
Posted by: Rhette Baughman
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Perhaps one of the most important and contentious business issues to face the Arizona Legislature in many years is sales tax simplification. Up until recently, Arizona’s complicated sales tax system flew under the radar while other issues took center stage at the Legislature. I am sure you are now well aware that Arizona has arguably one of the most complicated tax systems in the U.S. as much has been written about it.

Arizona is one of only four states that doesn’t have a uniform tax policy system that allows one point of contact and one point of audit for small businesses to pay the tax.

Fortunately, the time has finally arrived to fix a broken system that should have never gotten to be as bad as it is today. The Transaction Privilege Tax Simplification Task Force aimed to clear up the confusion and had drawn up 10 proposals for overhauling Arizona’s sales tax system. Only three of the 10 proposed changes require legislative action, but those three are now being opposed by many Arizona cities who promote themselves as being friendly toward business.

The tax overhaul is necessary to not only create a better economic development climate, but to also allow Arizona to take advantage of federal legislation to collect remote sales taxes from online transactions. This has been estimated to be in the hundreds of millions of dollars.

The bill includes a proposal to have the Arizona Department of Revenue collect sales taxes for all cities in Arizona, including 18 that currently collect their own transaction privilege taxes, and it would eliminate cities’ abilities to conduct their own transaction privilege tax audits of businesses. That function would also shift to the Department of Revenue.

Currently, a company that conducts business in multiple cities in the state is required to determine the tax rate, fill out the paperwork and pay the taxes for each municipality. For service related businesses, filling out the paperwork for the privilege to pay taxes has become a huge burden and a large part of monthly overhead. Some are remitting taxes to several jurisdictions every month.

For a state that proclaims that it is pro-small business, this is an odd way of showing it.

But cities have been worried about the measure’s impact on their finances. Currently, tax revenues are split with the municipalities where construction activity is taking place. Meanwhile, we have witnessed Arizona mayors delivering a single message to the legislature: We want our money! For them it’s not about easing the burden on their local businesses or running a more efficient city government. It has simply been about protecting what money they have.

The governor’s proposal has since been amended to allow municipalities to continue to tax construction activity while the tax on materials would be collected at stores wherever construction materials are purchased. So in theory, a subcontractor will pay the full retail tax on the materials at the store where they’ve been purchased, just as it happens with everybody else. The cost of the labor would then be rolled into the final and total cost of the construction, which would be subject to municipal taxation, which helps keep the municipalties’ revenue neutral.

While this compromise was expected to alleviate the cities’ concerns on lost revenues, municipalities smelled blood in the water and now want more. They say they want to have the authority for audits within their jurisdictions rather than turn over all audit authority to the state. It turns out municipalities are worried they might have to lay off their audit staffs so they’re advocating to keep that authority.

Unfortunately, this Legislative session has proven municipalities are not at all about tax simplification. They continue to hold their hand out for taxing hard-working small businesses generate.

Not all municipalities are joining this effort; Phoenix, for example, is not aggressively pursuing changes. But officials in Tucson, Oro Valley and Marana are doing nothing to distance themselves from the effort.

I encourage you make your own decision as to whether leaders of their local municipality truly have the best interests of your business in mind.

Rick Murray is CEO of the Arizona Small Business Association, which has a Southern Arizona office at 4811 E. Grant Road, Suite 262, in Crossroads Festival.


Source: Inside Tucson Business

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