The Arizona Legislature adjourned sine die on April 29, and the policy achievements of the 49th Legislature get a mixed review from a taxpayer’s perspective.
Faced with a multibillion-dollar budget deficit, the Legislature and Gov. Jan Brewer were able to pass a fiscal 2011 budget that marked the first meaningful progress to reduce state spending. However, even with those reductions and the passage of Proposition 100, Arizona still faces a major structural deficit.
In addition to some positive progress on the Arizona Tax Research Association’s recommendations on meaningful deficit reduction, the Legislature passed a number of ATRA-backed bills that will benefit taxpayers.
S1188: K-12 Primary Property Tax Oversight, sponsored by Sen. John Huppenthal, a Republican from Chandler, provides much needed oversight and accountability over the $2.4 billion in primary property taxes levied annually by K-12 schools. Existing state law requires county school superintendents to determine the amount of primary property taxes levied by each district and extends oversight over these important property tax rate calculations to the Property Tax Oversight Commission (PTOC). Right now, the PTOC has oversight over the constitutional levy limitations of counties, cities and towns, and community colleges.
H2287: County Accommodation School Tax Authority; Prohibition, sponsored by Rep. Frank Pratt, a Republican from Casa Grande, prohibits a county accommodation school district from levying either primary or secondary property taxes.
H2257: City/County Tax Limitation; 60 Day Notice, sponsored by Sen. Frank Antenori, a Republican from Tucson, prohibits a county, city or town from levying or assessing any new or increased taxes or fees unless written notice is provided on the county or city website at least 60 days before the tax or fee increase is approved or disapproved.
H2504: Government Property Lease Excise Tax Reform, sponsored by Rep. Rick Murphy, a Republican from Glendale, was the result of several years of work by ATRA staff and key legislators to reform Arizona’s laws limiting the ability of cities to use their tax-exempt status to shield private development from property taxation.
H2676: University Athletic Facilities District, sponsored by Rep. Warde Nichols, a Republican from Gilbert, is, from a tax-policy perspective, clearly one of the worst bills of the session. It creates a new special taxing district for state universities. Arizona State University successfully advocated for a new special taxing district for financing improvements on existing intercollegiate athletic facilities. Once formed, an in-lieu property tax is levied against the lessees of the property owned by the Board of Regents located within the contiguous, exterior boundaries of the district. This new district sets a dangerous precedent by denying other taxing entities equal access to the property tax. Like most tax increment-financing schemes, the property taxpayers end up being the biggest losers as a result of higher tax rates imposed by schools, counties and other local governments.
The biggest disappointment this year was the Legislature’s rejection of H2512: Municipal Taxes; Auditors and Collectors, sponsored by Murphy. H2512 would have pre-empted cities from entering into contracts with a third party for the collection, administration or processing of transaction privilege or affiliated taxes levied by the city or town and from employing third-party auditors on a contingent fee basis.
Opposition to the bill was led by Rep, Nancy McClain, a Republican from Bullhead City, the only city to have signed a contract with a for-profit company to collect and audit its local sales taxes.
Opponents wrapped what is an extraordinarily bad tax policy into a policy that is generally supported by many policymakers: privatization, which provided ample cover for those looking to support the city position.
The only positive to come out of the defeat of H2512 is that, for the first time, many state policymakers were exposed to the reality that Arizona businesses are faced with complying with one of the worst sales tax structures in the country. Unlike most states, Arizona’s independent municipal sales tax system requires many businesses to maintain two sets of books and also face the potential burden of audits from state and municipal auditors.
— Kevin McCarthy is president of the Arizona Tax Research Association