Arizona Could Lose $137 Million or Gain $19 Million in Sales Tax Change



Simplifying Arizona's sales tax just got a whole lot more complicated.

While lawmakers worked on sealing the deal on HB 2657's most continuous issue, construction tax, the Joint Legislative Budget Committee ran some numbers.

What they came up with varies, by a lot.

The committee ran two scenarios one that mimics the Department of Revenue’s methodology and another scenario that Rep. John Kavanagh, R-Fountain Hills, described as more of a “worst-case” situation.

The result is a fiscal note that estimates that the general fund could gain around $19 million or lose $137 million because of the bill.

It’s a level of uncertainty that’s troubling and creates yet another obstacle, Kavanagh said.

The bill relies on three different assumptions, which the committee took into account: how many people are not complying, how much materials cost, and how much retail will increase.

Looking at different possibilities was necessary since the odds of the Department of Revenue's numbers being right are so low, Kavanagh said.

The cities lose at in both scenarios, with the local transaction privilege tax revenue net loss being either $24 million or $61 million.

They would however see a gain in what they get from shared revenue, either $50 million or $102 million, according to the estimates.

There's going to have to be a way to protect the fun, Kavanagh said.

There are lot of options as to how to go about doing that, he said, noting that the more options there are to choose from the longer something will take.

Kavanagh also said he's hoping that cities' issues with auditing will be sorted out before he hears the bill in the House Appropriations Committee, which he chairs.

Rep. Debbie Lesko, R-Glendale, the bill's sponsor, said she and the cities are currently at an impasse when it comes to auditing.

“[Construction] was their big issue before and now they are on to another issue so it makes me wonder if they want to compromise on any of it,” Lesko said

She said she doesn’t like the idea of “deputizing” city auditors into state auditors.

Auditing is an issue for cities since what the Department of Revenue might see as a small amount of money lost could be a big loss for a city.

For Tucson, which does its own auditing, having the state take over all auditing could mean job losses of about 25 people, maybe more, said Andrew Greenhill, assistant to the city manager of Tucson.

In an attempt to compromise, backers of the bill proposed allowing the cities to pay the Department of Revenue for extra auditors for their cities. She said the cities told her that many city auditors used to work for the Department of Revenue and know that it doesn’t pay as much as the city does.

Lesko said she made it quite clear that she isn’t going to hold up the bill because auditors want more pay.

“I said ‘Well, you know what, over 50 or 70 auditors not getting their pay, that’s not going to hold up that bill. That’s not a good excuse to me,” Lesko said.

For an in-depth look at the bill, click here

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