Part of sales tax simplification plan called devastating to cities

Gov. Jan Brewer formally proposed an extensive revamp of how Arizona collects sales taxes, drawing immediate fire from cities who fear major financial losses.

The city of Yuma supports the simplification of sales taxes in several areas as proposed by Brewer's task force, said City Administrator Greg Wilkinson. “But some areas we could not live with.”

He said he has two major areas of concern.

The most controversial part would scrap the system in which taxes on construction and other kinds of contracting are collected where the work is done. In essence, contractors now determine the price of the job and then pay taxes on 65 percent of that, the part that is presumed to be for materials, with the beneficiary being the city where the work is done.

With the proposed change, contractors would pay state and local sales taxes at the time of purchase on the materials they buy — and to the retailer, who might be in another city or even state entirely.

“We believe Yuma could lose $1.5 million a year in revenue,” Wilkinson said.

If the materials were purchased in the Phoenix area, that would mean even Yuma County would lose out on the revenue. And if the materials are bought in California, for example, or Mexico, the state would not get anything, he said.

The League of Arizona Cities and Towns has come out with the statement that it “supports a majority of the recommendations presented by Gov. Brewer's TPT Simplification Taskforce, but we strongly oppose others including the elimination of the construction sales tax, which we believe would be devastating to cities and towns, as well as to the state.”

Wilkinson said he also has a concern about the proposal to consolidate all collections and audits with the Arizona Department of Revenue.

“They would need a massive expansion,” Wilkinson said. “It would mean a significant increase in state government.”

He said Phoenix and some other entities now collect their own sales taxes, and Yuma collects its 2 percent hospitality tax.

The less controversial part of the measure deals with limiting the differences among cities in what they tax.

In its simplest form, the proposed legislation would limit the ability of individual cities to decide on their own what items are taxable. Creation of a “uniform tax base'' would allow Arizona to begin collecting taxes on Internet sales if Congress ever gives its approval.

It also would ensure that businesses would face only a single audit from the state to determine if they had paid the correct amount, eliminating separate reviews by each city.

Andrew John, one of the owners of John's Refrigeration in Mesa, said his staffers do work in 10 different cities from in the Phoenix, Scottsdale, Mesa and Gilbert area. He said that means 10 different price books, each of about 50 pages, “just to collect the right tax from each customer at the time we're there.'' He said that is not only confusing but time consuming.

It is that issue the Brewer hopes to use to sell the package. She said it will “wring some of the complexity out of this system, allowing business owners to focus less on paperwork and more on what they do best: creating jobs.”

“I want Arizona to be the easiest place in the country for small business owners to set up shop,'' she said.

Brewer said anyone with problems with the plan will have a chance to register objections as the bill makes its way through the Legislature.