Tax plan could be ‘devastating’ for Maricopa


January 16, 2013 - 1:10 pm
Maricopa City Council heard state task force plan Tuesday that would take tax revenue away form the city. File photo

A tax plan proposed by Gov. Jan Brewer’s tax simplification task force could cost the city an estimated $1.5 million.

Paul Jepson, assistant to the city manager, told members of the Maricopa City Council Tuesday a proposal by the governor’s tax simplification task force would “more than likely become a bill” and the impact on Maricopa would be “devastating, simply devastating.”

The estimated $1.5 million of lost revenue would impact city services and capital improvement projects.

“We can start picking who’s going to lose it,” Mayor Christian Price said. “Is it police, is it fire? Whoever it is, it’s going to hurt and it’s not going to be fair.”

The task force’s plan proposes changing where builders are taxed, and what they are taxed. It also would take away the city’s ability to audit builders.

Construction sales tax would be paid where materials are purchased, not where a project is built.

“So wherever the builder, if they’re building in Maricopa, buys his lumber wholesale or whatever, that’s where they pay the sales tax … not the city of Maricopa,” Jepson said.

“I don’t know exactly where those big lumber yards that they buy this lumber at are, but I know they’re not Maricopa, and so we won’t see a penny of that,” he said.

Under the proposal, instead of paying taxes on 65 percent of the total cost of the project – the percentage of the project made up of building materials – builders would be taxed on 41 percent of the total project cost.

The proposal’s lower rate for builders is based on a study by Arthur Anderson, LLP that said the lower percentage was a more accurate division of materials and labor on a given project.

Another reason for changing where builders are taxed is based on the task force report’s estimate that 31 percent of builders do not pay the construction sales tax they should, either because they do not understand the tax system or are nonlicensed contractors who avoid the tax completely.

The proposal hopes to capture those lost taxes by taxing builders when they purchase their materials.

Third-party audits to check on whether construction companies are paying taxes would be restricted under the plan. Currently, the city can use an independent auditor to check whether construction companies are paying taxes, said Tom Duensing, the city’s director of finance and administration.

“And the reason we do that is because the Arizona Department of Revenue focuses on big state construction companies,” Duensing said. “We really lose out when there’s no local focus.”

The governor’s proposal seeks to avoid companies from getting audited twice, but Duensing said there’s already a mechanism in place to keep that from happening.

The estimated $1.5 million could be just beginning, Jepson said.

“As we get going and building spurs up, we’re going to have so much more going on, and that will be lost,” he said.

The total impact translates into 21 percent of Maricopa’s sales tax revenue, 5 percent of the city’s total general revenues.

The city supports some aspects of the proposal, Jepson said, such as the standardization of rates.

“Whether they’re building in Gilbert or Maricopa or Avondale, everything is pretty much standardized, you don’t have to recalculate every time you go somewhere,” he said.

Price said he spoke to state Rep. Adam Kwasman, R-Tucson, about the subject and encouraged the public to contact him.

The mayor also encouraged the public to contact District 11’s other representatives, Rep. Steve Smith, R-Maricopa and Sen. Al Melvin, R-Tucson.

Click here to read the task force’s proposal.




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