The city of Phoenix will be paying close attention to the way Arizona simplifies its tax system. Some changes could have negative impacts on the city, according to the city’s Finance Department.
In May Gov. Jan Brewer formed a Transaction Privilege Tax Simplification Tax Force, to make the state’s tax system simpler. After 18 meetings the task force came out with 10 recommendations. Those recommendations are expected to be formed into one or multiple bills and go before the state Legislature during this year’s session. It’s unknown just how the recommendations will go from recommendations to bills.
Seven out of 10 of the recommendations are endorsed by Phoenix’s Finance Department while the remaining three could have negative impacts. Jeff DeWitt, director of the city’s Finance Department, said recommendations to stop taxing construction or contracting activities and instead tax materials, allow the state to do all audits, and allow the state to collect all sales taxes would cost the city millions in revenue.
DeWitt said the task force and the Department of Revenue believes stopping taxing construction activity and instead taxing materials would have no impact on revenue, but according to the city’s estimates it could cost the city $11 to 25 million at current construction levels. Some businesses may choose to get materials from the county to avoid those taxes or may purchase materials out of state. DeWitt said he’s open to discussing other options that might make the process easier for smaller businesses but have less impact on overall revenue.
If the state took over all audits, Phoenix would see a large impact, DeWitt said. The city of Phoenix staff did $10 million in audits last year, while the state collected $2,000 worth of audits on behalf of the city.
Phoenix would also lose revenue in interest if the state collects sales taxes on its behalf. The state can take weeks to deliver the revenue to the cities. If the city collects its own taxes staff can take the money right away and invest it.
“Over a year, given the size of our city and the size of our tax base, that’s about $5 million in lost interest that we’re going to incur and about $2 million in license fees that we have on behalf of paying the cost of licensing our tax payers,” DeWitt said.
City staff is also concerned that some information may be harder to get from the state because their program does not allow cities to look up specific information they need.
The city does support standardizing the tax base between state and city and keeping it standardized in the future. Phoenix did have members of staff on the task force. Sen. John McComish of Ahwatukee was a key player on the task force.
Phoenix will also be watching bills that deal with political subdivision entities, like the League of Arizona Cities and Towns and Maricopa Association of Governments. House Bill 2005 would require these entities to post all meeting notices online and comply with open meetings and public record laws. House Bill 2006 would clarify that all future employees would not be eligible to enter the state retirement system.
At the council’s Policy Session on Tuesday, city staff did not recommend any action on HB 2005 or 2006.
Phoenix city staff did receive approval from the City Council to continue working with private sector groups to clarify language in a bill dealing with licensing and inspections. The city will not take a formal position until the final language of the bill is presented to the City Council.
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