Governor pushes ahead with sales tax reform

Arizona Capitol Times
Thursday, May 16, 2013
Luige del Puerto

Arizona Gov. Jan Brewer is pushing ahead with a modified proposal to simplify the state’s sales tax system, one of her key goals this year.

But in a major concession to cities, the governor proposes to mostly maintain the current system for taxing construction activity.

Details of the governor’s proposal emerged today, even as the Senate is debating a budget plan that assumes the passage of legislation to overhaul the state’s sales tax system.

Under the governor’s plan, trade or service providers, such as plumbers and air-conditioning repairmen who work directly for a property owner, would no longer be subject to the state or city contracting tax.

Instead, they will pay a retail tax on materials.

Meanwhile, a trade or service provider who is hired as a subcontractor must obtain project-specific exemption certificates from the state to buy materials that are not taxed.

“As a concession to city and town opposition, taxes on all other construction activity will remain as they are now,” the governor’s office said in a news release today.

Additionally, the governor proposes to hold smaller towns “harmless” for five years – meaning the state will ensure they get the same revenue levels from prime contracting taxes that are collected between fiscal years 2012 and 2014.

The governor is advocating two other key changes, whose broad outlines appear to have the buy-in of local governments.

Her updated plan creates a single point of collecting taxes, allowing businesses to remit through a single return and make a single payment, either through a state-administered web portal or via paper.

It also creates a single standardized audit system, which the Department of Revenue will manage.

Under the proposal, businesses that exist in multiple jurisdictions will be audited by the state, and companies in a single location may be audited by the city, whose auditors must be certified by the revenue department. The Office of Administrative Hearings will receive all audit appeals – not municipal tax hearing offices.