Arizona lawmakers considering sales tax simplification plan

February 28, 2013

Governor Jan Brewer has made simplifying the state’s sales tax system a top priority for this legislative session. She convened a task force last year to come up with recommendations on how to do that. And now, a bill based on those proposals is moving through the legislature. As KJZZ’s Mark Brodie reports, this issue is also key for Arizona’s business community.

Arizona Capitol State lawmakers are debating a plan to simplify Arizona's sales tax system.(Photo by Mark Brodie - KJZZ)

MARK BRODIE: If you use the phrase “tax policy,” eyes glazing over probably wouldn’t be the most surprising response you’d get. But, for people like Mark Giebelhaus, it’s a pretty big deal. He’s the President of Marlin Mechanical in Phoenix, which has been in business for 31 years. It’s mainly a plumbing company, but he says it also services heating and AC units. Giebelhaus, who also chairs the National Federation of Independent Business’ Leadership Council, sends his techs all over the Valley…which means lots of different sets of rules.

MARK GIEBELHAUS: Every jurisdiction that we’re in has different tax requirements, so we have to be very careful, especially for our service techs who are out calling at, your house in Glendale or wherever you may be. We have a sheet for them, so they know what the tax rate is in each individual jurisdiction that they have to charge. Then we have to collect that and track it and then pay all of those jurisdictions separately.

BRODIE: Giebelhaus says dealing with all of that isn’t gonna put him out of business, but it does take an employee several hours each month to deal with it. He says it would be a lot easier if he could send all sales tax money to the state, and let it handle the rest.

And, under the plan put forward by the governor, that’s pretty much what would happen. The state Revenue Department would collect all of the sales taxes, and then distribute the money to cities. As it stands now, some cities already allow the state to collect their taxes, while others do it themselves.

The proposal would also streamline the audit process. Right now, the state can audit a business to make sure it’s paying the right amount of sales tax, as can every city in which the company operates. Under the new plan, only the state would be allowed to conduct audits. The League of Arizona Cities and Towns opposes this, saying getting rid of local auditing would reduce compliance. But, James Busby, a CPA and tax attorney with the firm Gallagher and Kennedy, says the current system is a complex problem.

JAMES BUSBY: In order to collect taxes from your customers, if you’re Circle K, for example, you have to get a license from the taxing jurisdiction. You have an obligation to report taxes on a monthly basis. In addition, after you’ve filed those returns, you’ve got to make separate payments. You’re paying the state, and if you’re engaged in business in one of these cities that collects their own taxes, you have to pay the cities separately, too.

BRODIE: There’s another contentious issue. The bill moving through the legislature would change how contractors pay sales tax. Under that plan, contractors would be taxed on the materials the buy, where they buy them. Right now, they pay, based, in part, on where the project is being built. Cities have a few concerns about that, including the worry that they’d lose out on sales tax money, unless they have building supply stores. But, simplification supporters, like Mark Giebelhaus, say the plan would make it easier to do business in Arizona.

GIEBELHAUS: From our day-to-day operations, it would probably be a benefit to us because employees’ time that’s dedicated to all this tax collecting stuff could be used somewhere else. Something profitable, maybe, instead of overhead.

BRODIE: More plumbing, less paperwork?

GIEBELHAUS: Yeah, exactly.

BRODIE:The sales tax simplification bill cleared its first legislative committee earlier this month - another house panel will take it up, likely after the measure undergoes some changes. If the bill is OK’d there, it’ll go to the full house for debate.