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Tax simplification should not hurt cities

The East Valley Partnership recognizes the need to streamline and improve our state’s tax system. That is why we support the major tenets of Gov. Jan Brewer’s plan to reform Arizona’s Transaction Privilege Tax (TPT) that is currently burdensome for businesses and puts local merchants at a disadvantage to out-of-state Internet retailers.

But our strong support for this simplification plan comes with a
caveat: Any legislation that seeks to streamline the tax system must not punish cities and towns. Unfortunately, one part of the current proposal would do just that.

Our coalition of business, political, civic and educational leaders — representing 17 East Valley communities — believes that cities are one of the key factors to our economic well-being and quality of life.

Municipalities and businesses working together play a vital role in attracting and facilitating economic development, creating premier communities and delivering vital services to residents.

We believe that continued negotiations are needed to identify the best solutions to hold cities and towns harmless in this otherwise smart, common-sense plan for TPT simplification.

The proposal to replace the construction sales tax with a “point-of- sale” retail tax on materials would simply be too risky for our communities. For instance, the fiscal impact on the East Valley communities alone would be more than $38 million annually, according to analysts at the League of Arizona Cities and Towns. On the state level, legislative budget analysts also estimate these changes could blow a $100 million hole in our state’s general fund every year. We believe any proposal should safeguard both city and state finances.

The impact would be especially troublesome for our fast-growing communities that lack retail centers that sell bulk construction materials. In other words, communities that lack these facilities would simply lose out on the revenue that currently flows to them under the system that has been in place for decades. Small towns, such as Queen Creek, would be hammered by that provision. Every Southeast Valley municipality we have talked to estimates significant losses from this shift in tax policy.

To be sure, the East Valley Partnership commends the TPT taskforce for its hard work and recommendations. We strongly support business- friendly changes to the tax system, including an online portal that would make it easier for businesses to file taxes in different jurisdictions, as well as the collection of taxes from Internet retailers. These changes would lift administrative burdens on businesses, reduce costs and put local merchants on a level playing field.

However, more work needs to be done on the construction sales-tax portion of the plan. It is our sincere hope that any changes to the construction tax system be revenue-neutral for local communities and the state. Let’s pass real tax reform that helps our state prosper now and long into the future.

— Roc Arnett is president and CEO of the East Valley Partnership, an alliance of governments, businesses, educators and corporate partners

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