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ARIZONA HOUSE OF REPRESENTATIVES
Fifty-first Legislature – First Regular Session
Minutes of Meeting
House Hearing Room 1 -- 2:00 p.m.
Chairman Lesko called the meeting to order at 2:27 p.m. and roll call was taken by the secretary.
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Mr. Cardenas |
Mr. Olson |
Mr. Kwasman, Vice-Chairman |
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Mr. Gallego |
Mr. Petersen |
Mrs. Lesko, Chairman |
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Mr. Mesnard |
Mr. Wheeler |
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None |
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HB2332 – HELD HB2657 – DPA (8-0-0-0) |
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CONSIDERATION OF BILLS
HB2332 – qualifying charitable organization credit; certification – HELD
Chairman Lesko announced that HB2332 will be held.
HB2657 – transaction privilege tax changes – DO PASS AMENDED
Stephanie Jaffa, Majority Research Analyst, explained HB2657 makes numerous changes to the structure and administration of the transaction privilege tax (TPT) and affiliated taxes, including elimination of the prime contracting classification, modification of sourcing rules, establishment of uniform, state-level administration of tax-related activities, and permission for counties to impose a use tax (Attachment 1).
Ms. Jaffa explained the Mesnard two-page amendment to HB2657 dated 02/15/2013 (Attachment 2) prescribes a formula that the Department of Revenue (DOR) will be required to use to calculate an alternative retail distribution amount that will take into account new construction in localities. The amendment also exempts the sale of a motor vehicle to either of the following from municipal sales tax:
· A nonresident of this state if the nonresident’s state does not allow a corresponding use tax exemption to the tax imposed on retail sales by the Model City Tax Code and if the nonresident has secured a special 90-day nonresident registration permit for the vehicle pursuant to statute.
· Enrolled member of an Indian tribe who resides on the reservation established for that tribe.
Chairman Lesko, sponsor, conveyed how this bill came about and thanked the efforts of the task force, the coalitions, and the bipartisan support that she has had in sponsoring this bill. She stressed that Arizona has the most complicated sales tax system in the entire nation and currently 46 other states do what this legislation is proposing. Arizona’s current sales tax system does not comply with the Marketplace Fairness Act of 2013, which Congress just passed, and is a burden on businesses, employers and taxpayers. HB2657 will help taxpayers free up business capital and hire more workers. The Mesnard amendment will relieve the concerns of growing cities and counties.
Mr. Mesnard explained his two-page amendment to HB2657 dated 02/15/2013 (Attachment 2) and stated the most controversial part of this bill is the prime contracting element. This amendment attempts to take construction into account and proposes taxes be collected at the point of sale. It also proposes to distribute revenue based not on population but on construction, which is tracked. He elaborated that fiscal information will be forthcoming and it is unknown how specific cities will fare until more information is collected.
Michael Hunter, Director of Policy, Governor’s Office, spoke in support of HB2657 and expressed the Governor’s support of the Mesnard amendment and the Legislative proposal. He explained why the bill was introduced in this form and stated that over 7,000 jurisdictions in the United States impose a sales or use tax. All of those jurisdictions are administered by the state except Alabama, Colorado, Louisiana and Arizona. The Arizona Department of Revenue (DOR) administers the sales tax in 73 of 91 cities and in all 15 counties, but 18 of those cities do their own administering. This legislation will cause Arizona to no longer be an exception state and to be in line with other states where businesses have one point of contact, one payment, and one audit. This is in contrast to the current system of multiple licensing contacts, multiple audits, multiple tax returns, and multiple state and local tax bases. The most controversial part of the bill deals with contracting: taxing construction at the point of sale as retail.
Mr. Hunter addressed Members’ concerns and emphasized the benefits of HB2657 which will bring Arizona into compliance with the Marketplace Fairness Act of 2013. A bill passed last session (HB2466), accommodated the existing structure; HB2657 will provide a portal or electronic means of remitting information to DOR, free of charge, to any business. With the simplification of the system and bringing the noncompliance rate down, administration of the process could be handled between DOR and city auditors. Mr. Hunter reiterated several reasons to simplify the tax code, including the ability to compete in an international economy and conduct in-state commerce.
Sal DiCiccio, representing self, spoke in support of HB2657 and stated he was on the original Tax Code Commission in the 1990s trying to solve the same problem and is hearing the same arguments and questions. He endorsed the single payment, single audit, and point of sale for construction tax and stated that in this global economy and to compete in a global market, Arizona needs to have a workable tax structure, or be left behind.
Linda Stanfield, representing self, spoke in support of HB2657 and expressed how small businesses, such as Benjamin Franklin Plumbing, would benefit by the simplification of the tax system.
Sharon Wolcott, Mayor, City of Surprise, spoke in opposition to HB2657 because of the lost revenue Surprise’s bedroom community would suffer based on information from the Transaction Privilege Tax Task Force Report.
Discussion ensued with Members and Mayor Wolcott as to the facts, figures, and overall effects on revenue to the City of Surprise with this proposed legislation and amendment.
Lisa A. Atkins, Vice President for Public Policy, Greater Phoenix Leadership, spoke in favor of HB2657 and recognized that reform of the current system is critical for the state.
Farrell Quinlan, State Director, National Federation of Independent Business (NFIB), stated that NFIB represents 7,500 small business members throughout the state and spoke in favor of HB2657 which will create a level retail playing field.
Vince Perez, Deputy Director,
Department of Revenue (DOR), addressed questions by
Mr. Gallego and Mr. Wheeler regarding alternative collection of taxes by others
than DOR and the increased staff required to handle additional duties. Mr.
Perez explained that, during the task force meetings, DOR acknowledged it would
need additional resources to fulfill the duties with the passage of this
legislation and are adequately prepared.
Christian Price, Mayor, City of Maricopa, spoke in opposition to HB2657 and stated that it comes down to numbers (Attachment 3) and encouraged communications with the cities. He added that a lot of assumptions are being considered from a 14-year study and cities such as Maricopa do not have the retail to support the loss of the construction tax. Mr. Price acknowledged that Mr. Mesnard’s amendment has not been analyzed as to the impact, due to the timing and said he hopes it does address some real concerns.
Discussion ensued with Members and Mayor Price as to the facts, figures, and overall effects on revenue to the City of Maricopa with this proposed legislation and amendment.
John Arterburn, Pinnacle Peak Ace Hardware, spoke in favor of HB2657 and stressed the advantages of buying locally. There are 117 privately owned Ace Hardware stores, one of which is doing well in Maricopa, which would all benefit from a simplified tax system.
Thomas Schoaf, Mayor, City of Litchfield Park, spoke in opposition to HB2657 but stated support for 7 out of the 10 items and understands how complex the TPT system is. He discussed the construction sales tax issue, which has multiple parts, but trying to solve the problems with one solution will not work. Mr. Schoaf added Litchfield Park has no retail income to compensate for the loss of the construction tax.
Discussion ensued
with Members and Mayor Schoaf as to the facts, figures, and overall effects on
revenue to Litchfield Park with this proposed legislation. Mr. Mesnard
suggested his amendment takes into consideration the city’s situation. Mayor
Schoaf responded to
Mr. Cardenas’ question of an auditor and stated that the City of Litchfield Park
has its own auditor hired in 2007, to collect the TPT that were not being paid
by businesses. As a result, there has been an increased collection of $150,000 annually.
Matt Beckler, Vice President, Apollo Group, spoke in support of HB2657 and stated that his company files tax returns monthly in every state; approximately 125 are sales and use tax returns, 25 of which are Arizona TPT returns. The Arizona returns account for only 20 percent of their filed tax returns but take up 60 percent of their resources. This legislation would solve some of the problems, discrepancies, and time challenges currently faced.
Craig McPike, representing self, spoke in support of HB2657 and stated he was the chairman of the contracting work group for the Governor’s Tax Simplification Task Force. At Chairman Lesko’s request, he deliberated about the process, considerations, etc., by the task force.
Gretchen Kitchel, Senior Public Affairs Representative, Salt River Project (SRP), spoke in favor of HB2657 and expressed that the biggest problem with the TPT system is the contracting classification. SRP operates in 20 jurisdictions; 11 are program cities and 9 are non-program cities so there are continual disputes over the definition, classification, and payment of taxes.
Jennifer Stielow, Vice President, Arizona Tax Research Association, spoke in favor of HB2657 and referenced a comparison chart of other states to Arizona with its multiple tax base (Attachment 4). She explained the complications and collection rate differences under the current system and answered Members’ questions on the data.
Steve Barela, State & Local Tax Manager, Arizona Public Service (APS), spoke in favor of HB2657 citing that he served as a member on the task force. APS operates in all 15 counties and experiences the complexities in the payment of TPT and use taxes. APS supports the passage of this bill, even though it might cost more in use tax, to simplify the state tax system.
Chad Heinrich, Greater Phoenix Chamber of Commerce, spoke in favor of HB2657 and explained the economics of small businesses and the competition or attraction of choosing a state in which to locate to.
Garrick Taylor, Vice President, Arizona Chamber of Commerce and Industry, spoke in favor of HB2657 and reiterated the great progress Arizona has made in improving the tax system over the last few years. He stated that now is the time to address simplification of the TPT system and the Chamber is in complete support.
Marcus Osborn, Public Affairs Specialist, Town of Queen Creek, spoke in opposition to HB2657 and pointed out that Queen Creek has a unique setup with a special construction sales tax that funds transportation and infrastructure. Queen Creek issues about 500 permits a year and is still a new growth city which generates about $2.5 million in sales tax revenue. Changing to a point of sale model would not make up for the loss of revenue. He requested that more discussion for these types of cases and the city can be held harmless with regard to Mr. Mesnard’s amendment.
Discussion ensued with Members and Mr. Osborn as to the facts, figures, and overall effects on revenue to the Town of Queen Creek with this proposed legislation. Mr. Osborn explained that Queen Creek is a program city but administers its own audit functions on construction sales tax. He questioned how HB2657 will affect the audit situation between cities and the state.
Craig Sullivan, County Supervisors Association, neutral on HB2657, asked that three areas of concerns be addressed in this legislation:
Spencer Kamps, Deputy Director, Home Builders Association of Central Arizona, spoke in support of HB2657 and stated that simplification is long overdue. He reiterated the main points of debate in this legislation are single audits, single payments, and a materials tax at the point of purchase. He stated that no one has claimed that the current system is great or working, because it is not. Mr. Kamps addressed Members’ questions and concerns about impact fees, effect of past legislation and distribution of taxes in special situations of cities and counties.
Tim Lawless, Executive Director, National Association of Industrial Office Properties, Arizona Chapter (NAIOP), spoke in favor of HB2657 and addressed the issue of taxing internet sales.
Rick Murray, Chief Executive Officer, Arizona Small Business Association, spoke in favor of HB2657 and stated that this bill will benefit Arizona’s small businesses and the revenue generated from online sales will present some challenges.
Stephen Slivinski, Senior Economist, Goldwater Institute, spoke in favor of HB2657 and emphasized that 46 states do exactly what is being proposed. He advised that to compete on a level playing field, all ten of the points laid out in the Governor’s Task Force recommendations are needed. Mr. Slivinski expressed appreciation of bipartisan support.
Ann Seiden, Manager, Corporate Public Affairs, Southwest Gas Corporation, spoke in favor of HB2657 and discussed the number of checks and filings the company does in each state, with Arizona being the highest and most time-consuming state.
Michelle Ahlmer, Executive Director, Arizona Retailers Association, spoke in favor of HB2657 and stated that it costs more time and money to collect from those single four states, including Arizona, than all the other states combined.
Michael DiMaria, Director of Legislative Affairs, CenturyLink, spoke in favor of HB2657 and answered Members’ questions about working with multiple cities and being in compliance with the federal Main Street Fairness Act.
Vince Perez, Deputy Director, Department of Revenue, returned to the podium and spoke in favor of HB2657. He advocated the overall goal is simplification of the tax structure for the taxpayers in Arizona. Mr. Perez discussed Members’ questions concerning the percentage rate of non-compliance, collection of data for the computation of and certificates of exemption issues.
Kevin McCarthy, President, Arizona Tax Research Association, spoke in support of HB2657 and discussed the battle that has been going on for over ten years to simplify Arizona’s tax system. Debates have been centered on local control versus taxpayer simplicity for business and he commented on the benefits of Mr. Mesnard’s amendment. It is a fact that some companies will benefit switching from a prime contracting to a retail tax base, and some will not.
Vice-Chairman Kwasman announced the names of those who signed up in support of HB2657 but did not speak:
Courtney Gilstrap LeVinus, Arizona Multihousing Association
Mark Dreher, representing self
Don Snyder, representing self
Sami Khnanisho, representing self
Sean Laux, Legislative Liaison, Department of Revenue
Jeff Sandquist, National Association of Industrial and Office Properties - NAIOP
Adam McAnally, Public Affairs & Economic Development Coordinator, Greater Phoenix Chamber of Commerce
Michael Stull, Manager, Government Affairs, Cox Communications
Allison Bell, Senior Government Affairs Representative, APS
Gayle Shanks, representing self
Ken Quartermain, Arizona Technology Council
Joe Salkowski, Manager of Government Relations, Tucson Electric Power
Walter F. Dudley, Accountant, Arizona Society of Practicing Accountants
Mary Ann Miller, Tempe Chamber of Commerce
Trish Hart, Lobbyist, Arizona Food Marketing Alliance
John Mangum, Walgreens
Mark Minter, Executive Director, Arizona Builders' Alliance
Don Isaacson, Amazon
Marcus Dell'Artino, Apollo Group
Lyn White, Manager, Government Relations, Arizona Mining Association
Bas Aja, Director of Government Relations, Arizona Cattlemen’s Association
Scot Mussi, Free Enterprise Club
Brett Jones, Vice President of Operations, Arizona Construction Association
Janet Underwood, Director, Pharmacy Affairs, Arizona Community Pharmacy Committee Norman Moore, Amazon
Dave Kopp, Manager, Americans for Prosperity
Stan Barnes, Southern Arizona Home Builders Association
Mike Hiltner, Manager, Government Affairs, Best Buy
Brad Kiesling, Director, Government Affairs, Pet Smart
Chris Brin, Owner, St. Mary's Ace Hardware
Steve Godber, Almond Brothers
Reuben Minkus, Owner, Minkus Advertising Specialties
Chuck Miller, Macy's
John Piccoli, Owner, Oro Valley Ace Hardware
Michael Maddaloni, Vice President, Beal's Outlet
Joe Hughes, Director of Government Affairs, US Airways
David Rhude, Owner, Cactus Ace Hardware
Julie Buchkowski, Paul's Ace Hardware
Misty Redman, Manager, Government Affairs, Sears Holding Company
Bill Powell, Ace Hardware
Eric Douglas, Senior Director, Government Affairs, CVS Caremark
Steve Helm, Senior Manager, Property Management, Scottsdale Fashion Square
David Karsten, Karsten's Ace Hardware
Jim Wennersten, Owner, Ace Hardware and Rental
Joseph Abate, Counsel, AT & T
Leanne Musket, Manager Government Affairs, JC Penney
Tina Danloe, Pima Ace Hardware
Joshua Phair, Manager, State Government Affairs, Wal-Mart
Kathy Tilque, Chief Executive Office, Gilbert Chamber of Commerce
Jeremy Lilly, Owner, Arizona Pool Supplies
David Kimball, Gallagher & Kennedy
Jerry Fuentes, representing self
Kevin Earle, Executive Director, Arizona Dental Association
Tracey Hester, Manager, Government Affairs, Target
Ray Pohlman, Vice President, Government Affairs, AutoZone
Chairman Lesko announced the names of those who signed up as neutral on HB2657 but did not speak:
David Wells, Faculty ASU; Grand Canyon Institute
Bobbi Sparrow, Government Relations Director, Arizona Automobile Dealers Association
Vice-Chairman Kwasman announced the names of those who signed up in opposition to HB2657 but did not speak:
Nichole Check, Mayor, Town of Jerome
Anthony Smith, Pinal County Supervisor, District 4
Diane Joens, Council Member, Mayor, City of Cottonwood
Alison Zelms, representing self
Greg Wilkinson, City Administrator, City of Yuma
Connie Scoggins, Assistant City Attorney, City of Yuma
Benjamin Bitter, Management Analyst, City of Casa Grande
Shirley Gunther, Intergovernmental Affairs Manager, City of Avondale
Amber Wakeman, Intergovernmental and Public Relations Manager, City of El Mirage
Adriana Marinez, Intergovernmental Relations Coordinator, City of Tucson
Doug Von Gausig, Mayor, Town of Clarkdale
John Salem, Mayor, City of Kingman
Charlie Cassens, ICA Manager, Lake Havasu City
Brad Lundahl, Government Relations, City of Scottsdale
Brent Stoddard, Director of Intergovernmental Programs, City of Glendale
Ken Strobeck, Executive Director, League of Arizona Cities and Towns
Scott Butler, City of Mesa
Greg Stanton, representing self
Danny Ortega, Mayor, City of Douglas
Lisa Garcia, President, Arizona Municipal Clerks’ Association
Charles Montoya, Manager, City of Florence
Tom Rankin, Mayor, Florence
Ruth Osuna, City Manager, City of Eloy
Phillip Hubbard, Town of Buckeye
Gilbert Lopez, Vice Mayor, City of Coolidge
Doug Cole, Lobbyist, City of Tucson
Patrice Kraus, Intergovernmental Affairs Coordinator, City of Chandler
John Lewis, Mayor, representing self
Leah Hubbard, Intergovernmental Relations Coordinator, Town of Gilbert
Matthew Busby, Assistant to the City Manager, City of Apache Junction
Ryan Harper, Triadvocates LLC, Town of Marana
Kenny Evans, Mayor of Payson, Town of Payson
Vice-Chairman Kwasman moved that HB2657 do pass.
Mr. Mesnard moved that the Mesnard two-page amendment to HB2657 dated 02/15/2013 (Attachment 2) be adopted. The motion carried.
Vice-Chairman Kwasman moved that HB2657 as amended do pass. The motion carried by a roll call vote of 8-0-0-0 (Attachment 5).
Without objection, the meeting adjourned at 6:12 p.m.
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Tracey Gardner, Committee Secretary
March 28, 2013
(Original minutes, attachments and audio on file in the Office of the Chief Clerk; video archives available at http://www.azleg.gov)
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COMMITTEE ON WAYS AND MEANS
2
February 18, 2013
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