Municipalities turning out to be not-so-business-friendly
Friday, May 10, 2013
Posted by: Rhette Baughman
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
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
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