Arizona Sales Tax Reform

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Governor Jan Brewer’s Transaction Privilege Tax Simplification Task Force is set to start working on recommendations for simplifying Arizona’s sales tax code. Hear what Arizona Horizon’s own panel of experts thinks the task force should focus on. Guests include Executive Director of the Arizona Retailers Association Michelle Ahlmer and tax attorney James Busby of Gallagher and Kennedy.

Ted Simons: A governor's task force set to start work on recommendations for simplifying Arizona's sales tax code. Here to discuss what the task force should do is Michelle Ahlmer, Executive Director of the Arizona Retailers Association, and tax attorney James Busby of the law firm Gallagher and Kennedy. Thanks for being here. What exactly is this task force tasked charged to do?

Michelle Ahlmer: The big picture is to simply our privilege tax and the way it's administered, collected. That's a big hurdle. It may not sound that complicated to the average citizen, but it's a huge undertaking. We have one of the most complicated tax regions in the nation.

Ted Simons: It sounds as though something needs to be simplified. Does something need to be simplified?

James Busby: Absolutely, Ted. Arizona is one of just a few states in the nation that requires separate reports for some cities. We collect taxes for the Department of Revenue from any taxpayers. Then we have cities collecting taxes from the very same taxpayers. It's a very burdensome system.

Ted Simons: How'd that system come into play? Why is it like this?

James Busby: It's actually better than it used to be. In 1987, the Municipal Tax Code Commission was created and they created a model city tax code so today our city selects from an option of items that are taxable or exempt. It used to be before this tax code that every city could have a completely different tax code so it made some steps in the right direction but with over 52 options to choose from we have too much complexity.

Ted Simons: So a standard for state and local governments would be a nice start?

Michelle Ahlmer: It would be terrific. Right now Arizona's among four states that cost more if you operate on a nationwide basis. Arizona and three others cost more to collect than the rest of the nation combined. That's a huge hit to businesses that are operating nationally.

Ted Simons: I asked how this came into play now let me turn it around. Why hasn't this been addressed a long time ago? Sounds like this is a lose/lose situation. Who is slowing this down? What's the impediment?

Michelle Ahlmer: Arizona has a strong bent toward local control. So any time you go in and you want to take away some authority from the cities, that's a big challenge. It's not that we don't want local control, but a centralized collection point, one point of collection would be really significant along with one point of auditing. When you do that, and we have such a commerce that is moved from one city to the next without a lot of regard to where they purchased it, for instance if you return something, does that return apply to the city that you bought it in or to the city that's receiving it if you don't take it back to the same exact store? Things like that that will be very complicated to work out but it's workable. It has worked in other states that have undertaken it or never had it. So there's ways to fix it.

Ted Simons: Talk about the dynamic between states, cities, town, states. Sounds like a mishmash but everybody seems to know, but it's like a messy house but you know where all the stuff is.

James Busby: That's right. We have 91 cities in the state of Arizona that decided to collect a sales tax. Of those 91, 78 are collected by the state of Arizona but there's -- I'm sorry, 73. That leaves 18 cities still out there collecting their very own taxes. So each month you have to prepare a separate report and that's both to the city as well as the state.

Ted Simons: That's a cost to the state, isn't it that extra work?

James Busby: It's a cost to the taxpayers to begin with then of course a cost to the state. We have duplicate systems where the Department of Revenue will collect taxes and they'll do it for free for any city that wants them too but the cities have the option to opt out of that central collection system and collect their own. So we have duplicate systems in place.

Ted Simons: Is a streamlined sales tax movement afoot nationally. What's that all about?

James Busby: That started back in the year 2000. I remember when that came -- when there was first discussion about that I thought this is going to be a great thing. So far there are 24 states that have adopted this streamlined sales tax code. They went through and came up with uniform definitions that apply not just in a state basis but nationwide. But to implement those definitions the state legislatures had to change their respective state laws. So today we have only got 24 state legislatures that have done that. They only represent about 31% of the national population, which means the large states, the California's, the Texas's, New York's, the Florida's, haven't come close to complying nor has the state of Arizona.

Ted Simons: Why not Arizona? It can't be done in Arizona? Is it viable?

Michelle Ahlmer: The streamlined sales tax project, probably not.

Ted Simons: How come.

Michelle Ahlmer: Because of the complicated nature that we have. To make those changes some of it would be very controversial. While I believe that task force that's going to be meeting can make great strides towards that, I think what will really happen instead of the streamlined sales tax project taking effect everywhere eventually at some point perhaps years from now, the federal government may act but if they do, it will say streamlined states you can start collecting, but if you have not adopted streamline these are the requirements. Some will be addressed by the task force meeting. We're grateful. We appreciate the governor for taking this initiative. It's a big job, but I'm grateful that they are able to take the challenge and do it.

Ted Simons: A big issue is internet and catalog sales tax revenue. That's just a whole big can of worms here. What do you want to see the task force do in addressing that?

James Busby: You're absolutely right. That's a huge issue. States lose billions of dollars every year for failing to collect taxes on internet sales. It's actually an issue that affects not just Arizona but it's a nationwide issue. The problem is that under the commerce clause of the U.S. supreme Constitution, you have to have a certain physical presence in the state before a state can reach out and have the authority to tax you. If we have these companies that don't have any physical presence in the state of Arizona under current law it's very difficult for any state to reach out and collect taxes from them or touch them in any way that affects their legal rights and responsibilities.

Ted Simons: One thing you want to see the task force recommend?

James Busby: Simplification in the sense we want a uniformed tax base between the state and the cities.

Ted Simons: What would you like? One thing?

Michelle Ahlmer: We want it all. You brought up online sales. I think changing the definition of a presence is key to fixing some of the problems. We don't buy things the same way we did when that definition was created. We believe there's a presence for an online retailer, so we have been told that that will be a significant issue that will be addressed.

Ted Simons: Very good. Good to have you here. Thanks for joining us we appreciate it.

Michelle Ahlmer:Executive Director, Arizona Retailers Association; James Busby:Tax Attorney, Gallagher and Kennedy;

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