Sales-tax compromise expected to reduce towns' loss of revenue

2013-07-14T00:00:00Z 2014-07-08T11:22:03Z Sales-tax compromise expected to reduce towns' loss of revenueBecky Pallack Arizona Daily Star Arizona Daily Star
July 14, 2013 12:00 am  • 

A last-minute compromise on a bill to change the way sales taxes are collected protected millions of dollars of tax revenue for local towns.

The bill, which overhauled the state's sales-tax collection system, was signed into law by Gov. Jan Brewer last month.

Now, construction and contracting sales taxes are collected at the place where the work is done. But the bill in its original form sought to shift sales tax collection to the place where the building materials were purchased.

That would have cut up to $6 million a year in tax revenue for Marana, up to $11 million a year for Sahuarita and up to $8 million a year for Oro Valley.

That's because local builders would pay taxes elsewhere for items like roof trusses, which aren't made locally.

In a deal brokered by the League of Arizona Cities and Towns, only trade and service workers will make the change.

That means a large plumbing contractor who installs plumbing in a new home will still pay taxes where the home is built, but a small plumbing repair company will pay taxes at the store where it buys parts.

Small towns will still lose some revenue; "however, it was not nearly as severe as the bill first contemplated," said Tom Belshe, deputy director at the League and a member of the governor's sales tax simplification task force.

Sahuarita now expects to lose about $200,000 in revenue, said Town Manager Kelly Udall.

Oro Valley isn't sure yet how much the impact will be on the town's budget, but it will be significantly less than originally thought, said Town Manager Greg Caton.

And Marana expects the change to be "negligible," said Town Manager Gilbert Davidson, because repair and maintenance firms will likely buy some parts at home improvement stores in town limits.

The city of Tucson expects to lose $1.3 million to $1.6 million related to the changes, said Tucson Assistant City Manager Kelly Gottschalk.

The new law also opens the door to taxing online sales in the future, which could help small towns make up for the loss, Udall said.

Contact reporter Becky Pallack at bpallack@azstarnet.com or 573-4251. On Twitter @BeckyPallack.

Copyright 2014 Arizona Daily Star. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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