TPT Simplification - Task Force Recommendations
To: Governor Janet Brewer, State Senator Don Shooter, State Representative Steve Montenegro, State Representative Darin Mitchell
Re: Petition from Litchfield Park Residents │ TPT Simplification Task Force Recommendations
Date: January 19, 2013
As residents of the City of Litchfield Park, we would like to share with you our concerns regarding the recommendations of the Governor’s TPT Task Force and its financial impact upon Litchfield Park.
We believe that there are three recommendations which are very alarming due to the negative impact upon our city budget and the ability of Arizona Department of Revenue (ADOR) to efficiently administer and collect sales tax. We are concerned that some of the recommendations impinge upon local control and will significantly affect the day to day operations of Litchfield Park. The three recommendations which we urge you to strongly oppose are:
1. Require state administration of sales tax for all municipalities.
• The recommendation assumes that the legislature will fund the ADOR for the added workload and responsibilities. There is no assurance that the legislature will do that or, if they do, that they will continue to fund this adequately in future years. The legislature three years ago stripped the ADOR of funding. Local communities have a strong incentive to fund this activity because it provides a significant return on the investment.
• The ADOR is not adequately trained or prepared to perform this recommendation.
• The ADOR computer system does not provide for even the most basic reporting requirements needed by municipalities. Additionally, municipalities need to track tax collections by regions and for development agreements.
• Municipalities will not be able to audit or collect revenues from auditors whether employees or on contract. The financial impact of this results in significant revenue loss to municipalities. The League of Arizona Cities and Towns is compiling this information for all municipalities. In Litchfield Park, tax assessments from local audits for the last 3 years are $525,000 and collections of $442,000 compared to approximately $5,000 from ADOR audits.
• Noncompliance will rise with less auditing abilities.
2. Require the Department of Revenue (DOR) to conduct all sales tax audits.
• This proposal is not taxpayer friendly, one of the Task Force missions. Taxpayers currently have the option to convert a single jurisdictional audit into a complete audit of all jurisdictions. We understand that local experience is that 1 out of 100 audits requests a multi-jurisdictional audit. Taxpayers do not want to be burdened with the additional time, effort, and costs of an extended audit. The current system works well.
• ADOR is not prepared to handle this requirement and has stated so in Task Force meetings.
• ADOR is focused on large, statewide taxpayers; they do not focus on small, local businesses. Moving to statewide auditing will make it difficult for cities and towns to have their individualized needs met.
3. Eliminate the construction sales tax to be replaced by a retail sales tax at the point-of-sale of construction materials.
• This recommendation will eliminate all construction tax revenues from Litchfield Park. The financial loss represents approximately 45% of our local TPT tax revenues and 20% of Litchfield Park’s general fund revenue. Even if a plan to distribute the loss in construction revenue is included, we believe that the revenue loss will be at least 20% because the tax base is at least 20% less.
• The revenue loss to the State will also be significant and there is no plan in place to replace that revenue.
• The Task Force provided 2 scenarios which appear to be flawed. In Scenario #1 the Task Force assumes a 31% noncompliance rate. This may be true for state tax because the State does not monitor building permits like a municipality does. Litchfield Park’s sales tax auditor’s experience shows that noncompliance in construction TPT is less that 10%.
• In Scenario #2 the same noncompliance rate is used; however, it assumes a huge revenue gain from online retailers. That assumption is also subject to question as there are numerous studies with differing results. It is our opinion, and that of our sales tax auditor, that the revenue gain from online retailers will be less than anticipated for the simple reason that the big national retailers are already submitting tax on their online sales.
• This recommendation is a direct attack on rural and small town Arizona. This change will lead to huge budget losses and will send that revenue to urban Arizona or out of state.
Please consider our comments and oppose the three recommendations noted above. The TPT revenue is a primary source of both local and state revenue; and one which the City of Litchfield Park heavily relies upon. The referenced three recommendations represent a threat to the economic viability of Litchfield Park and all cities and towns in Arizona. We would appreciate your support of our position to oppose the three recommendations referenced above.
Thank you for your consideration in this regard.
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