Governor’s task force making right moves on sales tax
One of the Arizona Chamber of Commerce & Industry’s top legislative priorities for 2013 is to simplify our state’s sales tax system. Our sales tax is so complicated that you might be surprised to learn that Arizona does not technically have a sales tax. Rather, we have a transaction privilege tax (TPT), something that requires certain merchants to pay for the “privilege” of selling taxable items and a use tax, which is aimed at consumers who purchase certain goods to pay.
Thanks to the leadership of Gov. Jan Brewer and the state Legislature, we have made tremendous progress in tax reform over the past two years. Our corporate income tax rates, capital gains tax rates, business equipment and property assessments are all being reduced to put the state in a better competitive position and to win back the jobs we lost in the Great Recession.
But when it comes to the TPT and use tax, the state is out of kilter. After the expiration of the temporary one-cent sales tax in June 2013, our overall sales tax burden (state and local) will be among the 15-highest in the country. However, perhaps even more problematic than the tax rate will be the incredible complexity of the system, which places substantial administrative burdens on companies – particularly small businesses – and also leads both to willful and inadvertent tax avoidance.
Gov. Brewer on May 11 wisely issued an Executive Order establishing the Transaction Privilege Tax Simplification Task Force, premised on the following three points:
- Arizona has one of the most complex sales tax systems in the country;
- Taxpayers have expressed a clear desire to see reforms enacted that will modernize and simplify the TPT; and
- It is in the interest of taxpayers and state and local governments to make the tax code easier to understand, comply with and administer.
Lead by one of the state’s smartest and savviest tax and policy experts, the governor’s director of policy, Michael Hunter, the task force recently released a draft report. The report, which in an easy to digest 22-page document captures the group’s 17 meetings conducted over a five-month period. The key recommendations:
- State law should allow only a single audit, in accordance with existing statutory schedules, including a multi-jurisdictional audit if applicable.
- The current tax structure for contracting activity is a mess and should be transitioned to a tax on materials at the point of sale, which if done properly should ease compliance and increase the overall pot of tax dollars available to local communities.
- The State Legislature should act to ensure that Arizona is well-positioned to benefit from the taxation of online retail and remote sales.
- The state, cities and towns should standardize TPT licensing
- When fully implemented, the online portal required by legislation authored by Rep. Rick Gray (HB 2466) should be expanded to issue all TPT licenses and allow for all TPT tax returns to be filed through the portal.
These are all sound, commonsense ideas. While there is much work to be done to implement all of these recommendations, it is exciting that we have taken the first step to simplify a tax system so complicated that few Arizonans even know what it’s called.
Glenn Hamer is the president and CEO of the Arizona Chamber of Commerce & Industry