Sales tax hikes would affect cities differently

East Valley Tribune
May 4, 2010
Michelle Reese

Depending on where you shop in the East Valley, 7.8 cents to 8.55 cents of every dollar goes to taxes.

That would add $8.55 to a $100 clothing purchase in parts of Queen Creek or $7.80 to that same purchase in Gilbert.

Those tax dollars are divided between municipalities which each have their own tax rate, in addition to county and state taxes.

And they may be on the way up.

Final school contracts hinge on sales tax vote

On May 18, Arizona voters are being asked to approve Proposition 100, a temporary 1 percent increase in the state sales tax to raise funds for education, health care, public safety and social services. And two East Valley communities are asking for a sales tax increase of their own as well.

Those tax increases could impact the overall price you pay depending on what you buy and where you make the purchase.

Not only do tax rates vary by community, they vary by transaction. Some communities charge a different city sales tax rate for restaurants and bars than for rental property and retail.

As it stands now, Chandler and Gilbert have the two lowest municipal sales tax rates in the East Valley, both at 1.5 percent. Queen Creek has the highest at 2.25 percent.

Gilbert, Tempe seek tax hikes

On May 18 both Gilbert and Tempe are seeking approval from voters for city sales tax increases.

Click for full version

While the rates will be known following the vote in two weeks, it’s unclear how approval of these measures will impact buyers’ decisions.

Chandler resident Debbie West said she doesn’t consider it now, but “maybe I should,” she said. When she goes shopping, depending on which side of the street the store is on, she’s spending money in Chandler or Gilbert.

“It doesn’t make me shop in one place or another because of the city. I really should. I like Chandler. We like how the government is structured. I love the school district,” West said.

Arizona technically has a gross receipts tax, known as a transaction privilege tax, not a sales tax. But it’s commonly referred to as a sales tax.

The rate is currently at 5.6 percent of every retail dollar spent. The rate would go up to 6.6 percent for three years if voters approve Prop. 100. It would raise about $1 billion in every year of the tax, with two-thirds of those funds planned for education.

Meanwhile, Gilbert is seeking a .25 percent sales tax increase through Proposition 406. It would bring the city transaction privilege tax to 1.75 percent. The town council put the measure on the ballot to raise funds for public safety.

And, Tempe is seeking a four-year, temporary city sales tax increase by .20 percent, to 2.0 percent, through Proposition 401. The tax would not apply to food purchased for home consumption.

If both municipal measures pass, Gilbert’s sales tax rate would equal Mesa’s at 1.75 percent. Tempe would equal Phoenix, at 2.0 percent, but both would still sit below Queen Creek and Apache Junction.

Several cities in the state already have total sales taxes — including state, county and city – that hover near or above 10 percent, according to data from the League of Arizona Cities & Towns and the Arizona Department of Revenue.

If the state measure is approved, several more cities will join them, including Carefree, Cave Creek, El Mirage, Gila Bend, Guadalupe, Litchfield Park and Youngtown in Maricopa County.

“We’re a very high sales tax state. Our rankings in that category — as they have for the last 25 years — we always rank in the top 10 in sales tax, but on the flip side, low in income (taxes) and mid-range on property (taxes),” said Kevin McCarthy of the Arizona Tax Research Association.

Sales tax more acceptable to voters

According to The Tax Foundation, a nonpartisan educational organization, Arizona ranked 40th among all states for its state and local tax burden in 2008, the most recent year available in the report.

The average state and local sales tax rate in Arizona is 7.92 percent, ranking the state No. 9 in the country. But the state is ranked No. 39 in both property taxes as a percentage of a median home’s value and individual income tax collections, according to The Tax Foundation.

“In terms of all of our tax burden items and this issue of Proposition 100, people wonder why we’re pushing a sales tax when that’s the one we’re moderately high in. The answer is simple: if you poll the Arizona electorate in any kind of taxation, there is one and only one form of taxation where you have a remote chance of the Arizona electorate backing an increase,” said economics professor Dennis Hoffman, director of the L. William Seidman Research Institute at the W. P. Carey School of Business. “It’s literally from polling data the Arizona electorate has said, ‘Don’t ask us about any other tax. We might consider a sales tax, but that’s it.’”

Hoffman estimates that 55.2 percent of the state’s general fund budget comes from sales taxes while 38 percent comes from income taxes and 6.8 percent comes from the corporate income tax.

Usually an opponent to tax increases, the Arizona Tax Research Association is supporting Prop. 100, the state sales tax increase. McCarthy said the tax can be a “management tool” to help the state get to the point of having a true balanced budget and move away from “gimmicks” such as debt refinancing and shifting of payments.

State lawmakers have passed two budgets for next fiscal year, which begins July 1 — one with the increased sales tax and the additional $1 billion in revenues, and one with $862 million of conditional spending reductions.

“We would like to see the state have a multiple-year plan that guarantees as we come out of the temporary tax in 2014 that there’s light at the end of the tunnel and we’ve got a balanced budget,” McCarthy said. “The taxpayers of the state ought to demand that much and if they agree to the tax increase they certainly have every reason to expect the money is not going to increase spending so when we get to (2014) they say ‘We still have a $3 billion deficit.’”

The Goldwater Institute, a think-tank based in Phoenix, opposes the increase of the state sales tax, stating it will not only have a negative impact on the economy, but will keep the state from making necessary cuts to state spending.

“More than 300,000 jobs have been lost in the economy,” said Le Templar, communications director for the institute. “Raising taxes will cost more jobs in the private sector. Everybody agrees on this. It’s too damaging on the economy to do it."

Having so many communities approaching a 10 percent total sales tax is not surprising given what’s happened in the recent past, Templar said.

“Communities go out and on a piecemeal basis say, ‘Don’t you want these things to be better? Well to pay for that you have to raise the sales tax.’ And in a few years they say, ‘Don’t you want these things to be better?’ Gradually the taxes go up,” Templar said. “Then the county or the state raises taxes and suddenly you’re at 10 percent or higher. It really hits people really hard.”