In what looks to be a long session for the Arizona Legislature, town officials in Marana and Oro Valley are nervously waiting to find out the outcome of House Bill 2657.
The bill is part of Gov. Jan Brewer’s ordered to the legislature to create a simpler sales tax system for the state this year. However, while HB 2657, known as the transaction privilege tax (TPT) changes, might address many of the state’s sales tax issues, the unintended results of some of the language inside the bill could cost communities like Oro Valley and Marana upwards of $2 to $3 million per year.
According to local town officials, the TPT changes could make it where sales taxes for a home being built in Oro Valley or Marana could go to another community where the supplies to build the home are purchased.
“We are seriously concerned about certain elements of House Bill 2657, the Transaction Privilege Tax bill,” said Oro Valley Town Manager Greg Caton. “We remain supportive of the original concept, which is to simplify the payment process for our business community. However, the legislation as drafted would decrease Oro Valley’s annual revenues by $2 million.”
Marana Town Manager Gilbert Davidson had similar concerns.
“If it goes forward as originally proposed, we’re talking millions of dollars of impact based on today’s current gross numbers,” he said. “This revenue source really has an impact on things like road improvements and infrastructure improvements, and is a very important revenue stream for capital projects. If it is taken away, it will have a direct effect on such things.”
The bill has yet to go before a vote, as District 9 Rep. Ethan Orr said lawmakers continue to negotiate the text inside the bill through committees.
In a letter to Orr, Oro Valley Councilman Joe Hornat asked that he not support the bill.
“To small, fast growing communities like Oro Valley, planning and developing adequate infrastructure is a major challenge,” Hornat wrote. “Both state statute and local ordinances mandate that the developers of new commercial spaces and residential subdivisions must make a proportional contribution to the cost of infrastructure that is needed to serve that development. As has been state policy for decades; growth must pay for itself.
“The construction sales tax is the primary mechanism with which cities and towns implement this policy. Construction sales taxes are one-time revenues to the Town, and fund one-time expenditures, such as roadway improvements, or construction of police substations. Removing this funding source runs counter to decades of legislative action, represents a massive giveaway to the construction industry, and will have an immediate and severe impact on the Town of Oro Valley.”
While town officials are concerned, Orr and District 11 Rep. Adam Kwasman said they are confident the bill will be reworked to protect the interests of communities like Oro Valley and Marana.
However, besides language in the TPT bill saying communities wouldn’t be able to charge a tax for developers, it also adds some concern with language on how communities could carry out audits of local businesses.
Orr said the way the tax structure currently works a business owner who owns five franchises that spread over multiple counties could be subject to multiple audits without any of the counties sharing information.
In HB 2657, Orr said it would streamline the system and the state would oversee all audits, which is also a concern to communities throughout the state who currently employ auditors.
Town mayors have raised objections over losing local control over the audit process, and losing town staff to auditors employed by the state.
According to a legislative update in March, the bill has been recommended to be opposed until language provides for simplification of the sales tax system without compromising local revenues and auditing functions.
Town officials in Oro Valley, Marana and other communities throughout the state continue to work with the Arizona League of Cities and Towns to negotiate appropriate amendments to the bill.