Arizona mayors: Sales tax changes could be financially ruinous - East Valley Tribune: Apache Junction

Arizona mayors: Sales tax changes could be financially ruinous

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Posted: Tuesday, February 19, 2013 6:41 pm | Updated: 8:52 am, Thu Feb 21, 2013.

A series of mayors told lawmakers Monday that proposed changes in sales tax laws will mean financial ruin for their cities.

Sharon Wolcott of Surprise said HB 2657 would cut her city's revenues from contracting taxes from $4.4 million this past year to just $700,000.

"That is not sustainable,'' she told members of the House Ways and Means Committee.

"We have only one place left to cut,'' Wolcott continued. "That is police and fire.''

Christian Price, mayor of Maricopa, told a similar story.

"If you don't really want to see some of these towns becoming ghost towns, like the city of Maricopa, you really need to consider what we're saying here,'' he told lawmakers in objecting to the legislation.

And Tom Schoaf of Litchfield Park said that, even with an amendment to redistribute some of the revenues to faster-growing communities, the legislation would make up only a fraction of what would be lost.

"We're literally being asked to trade $80,000 for $1.3 million'' now collected, he said.

The legislation limits what cities can taxes beyond what the state itself does and ensuring that businesses do not face multiple audits from multiple cities. But it was the change in how contracting would be taxed that caused the most heartburn from city officials.

Despite those objections, committee members unanimously approved the measure. But that is far from the last word.

Democrats on the panel like Rep. Bruce Wheeler of Tucson warned the Republican majority that the concerns of the cities have to be addressed. And Republicans will need to take that seriously.

Several GOP lawmakers, having been contacted by mayors in their district, already have made it clear they will not go along with the measure without significant changes. And that would leave the legislation without the necessary 31 votes needed to gain full House approval.

Rep. Debbie Lesko, R-Glendale, the sponsor of the legislation, promised to consider future changes.

The fear surrounds a controversial change that would scrap the existing laws where contractors pay sales taxes for their projects in the community where the project is constructed. Instead, they would pay the regular state and local sales taxes on their building supplies at the time of purchase.

More to the point, the taxes would be paid where the items were bought.

"Lowe's and Home Depot simply don't exist in Maricopa,'' Price said.

That means all the supplies will be bought elsewhere and the taxes paid elsewhere.

Lesko, R-Glendale, disputed the horror stories the cities were telling.

She said the change will mean less "leakage'' with contractors avoiding taxes entirely. Lesko also said there will be more state revenues shared with localities.

And Rep. J.D. Mesnard, R-Chandler, crafted an amendment to provide additional cash for rapidly growing cities.

But Price pointed out that ignores a simple fact: Many cities collect their own local sales taxes on contracting, above the state levy. The cash from that will disappear entirely, he said, and cannot be made up from any tweaking of state revenue sharing.

The big question that remains is what it would take to neutralize opposition of the 91 cities and towns throughout the state -- assuming that is even possible.

Lobbyist Marc Osborne told lawmakers that the rapidly growing community of Queen Creek brings in $2.5 million a year.

"We believe a great majority of that would be lost'' under the legislation, he said.

Lesko insisted there will be plenty of money to spread around.

She cited figures from the Department of Revenue estimating that the $168 million Arizona collects each year on contracting taxes represents perhaps only 69 percent of what is really owed. The presumption is that contractors are misusing the certificates they have exempting them from paying taxes on building supplies they purchase.

Going to a point-of-sale tax, Lesko said, will capture the remaining 31 percent.

But Price, who said he is a financial adviser, cautioned against adopting a major change in state law based on that presumption.

"What if they're wrong?'' he asked lawmakers. Price said if the "leakage'' is only 10 percent it's going to leave cities like his starving for cash.

"We're down to the bone here,'' he said. "There's nothing else to cut.''

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