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Ariz. governor touts sales tax overhaul bill

Bob Christie, Associated Press

PHOENIX (AP) -- A proposal from Arizona Gov. Jan Brewer designed to ease the burden on businesses hamstrung by one of the nation's most complex sales tax systems was greeted with great fanfare by supporters Monday, but one major provision also was met with stiff opposition from some lawmakers and cities and towns who argue it will decimate their revenue streams.

Brewer's plan to completely overhaul Arizona's sales tax collection system aims to set a statewide tax base and administration, eliminating the need for businesses to file returns and undergo audits in every municipal and county entity they serve. It also sets the stage for the state to begin collecting sales taxes on internet sales if Congress passes a proposal that allows such collections.

But the most sweeping overhaul applies to the construction tax, which currently is collected on 65 percent of the value of new buildings. Much of that tax now flows to the community where the building is done, helping offset increased costs of providing services.

The proposal championed by Brewer and set to be introduced by Rep. Debbie Lesko, R-Glendale, would collect sales tax where the goods are purchased, stripping many growing communities of that revenue, opponents said.

"There's huge impacts on communities like Gilbert, Queen Creek, even places like Paradise Valley that have a huge increase in building that have no places where there's retail sales taxes (from) construction materials," said Ken Strobeck, executive director of the League of Cities and Towns. "The shift is really a fundamental problem for us."

The changes would also limit sales taxes to just sales, and exclude labor and overhead. That means a drop from 65 percent of total price to about 41 percent. The governor's task force estimated that would be made up by increasing collection from those who currently evade the tax. Strobeck doubts that.

"I don't believe that you can go from taxing 65 percent of a particular item to 41 and say that there's going to be an increase in the amount collected," he said. "The numbers just don't add up." There's also concern that large builders will buy materials out of state and pay no sales tax at all.

Republican Sen. John McComish, the majority leader, said he's heard the criticism but thinks it is overblown. He also is open to some tweaks in the construction sales tax proposal, but not at the expense of the overall bill, and pointed to a doubling in shared state revenue that will flow to the cities and towns. He also said he knows some municipalities will lose revenue and he is open to easing in the new rules.

"Maybe there's a way to provide a glide path for them for several years that somehow it can be backfilled so they can adjust to the new way of doing business," he said.

McComish urged the League to come to the Legislature with suggestions on changes.

"Instead, at this point they're kind of saying, 'No, we don't want to do this,'" he said, "Well, I think it's going to happen, so come to us with your suggestions how can we make it better without making another complicated system."

The bill will face opposition from lawmakers who feel the heat from cities and towns in their districts, even if they generally support the overhaul.

"I certainly support streamlining the process for our businesses, taking away unnecessary aspects," said Rep. John Kavanagh, R-Fountain Hills. "But there are several deal-killers in this bill," the biggest being the construction tax.

"There is no way I will vote for the package with that revenue loss for all of my municipal entities in it," Kavanagh said. "I hope that they don't sacrifice the good parts of this bill for the bad ones, assuming they can't provide remedies."

Brewer's news conference Monday was stacked with business and legislative leaders, part of an effort to show her proposal has strong support despite the criticism it has received.

"I'll tell you, this has been a long time coming," Brewer said. "For the 30 years that I've held elected office in Arizona we've known that our sales tax code is too cumbersome."