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Arizona Governor Urges Better Local Sales Tax Uniformity

1 min readBy: Joseph Bishop-Henchman

Last month, a blue-ribbon panel in Arizona appointed by Gov. Jan Brewer (R) recommended (PDF) significant simplification of the state's sales taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. , called there a Transaction Privilege Tax. (Legally, the sales taxA sales tax is levied on retail sales of goods and services and, ideally, should apply to all final consumption with few exemptions. Many governments exempt goods like groceries; base broadening, such as including groceries, could keep rates lower. A sales tax should exempt business-to-business transactions which, when taxed, cause tax pyramiding. in Arizona is owed by vendors, not consumers, but vendors may pass it onto consumers. In most states, the sales tax is legally owed by consumers.)

The state's 6.6 percent sales tax rate consists of:

  • A base rate of 5 percent, which is divvied up as follows:
    • 3.6898 percent goes to the state general fund
    • 0.7616 percent is distributed to counties, based on population, secondary net assessed value, and point of sale
    • 0.0486 percent is distributed to counties, based on population and point of sale
    • 0.5 percent is distributed to cities and towns, based on population
  • An additional 0.6 percent for education, set to expire on June 30, 2021.
  • An additional 1.0 percent temporary sales tax, set to expire on May 31, 2013.

Local jurisdictions can add their own sales taxes, which average about 2.52 percent additional.

State and city sales tax bases can differ, particularly with regard to food, advertising, rentals, commercial leases, licenses, jet fuel, brokers, and hotel tax. Definitions are not consistent. Aside from the state, 18 different cities (including Flagstaff, Glendale, Phoenix, Scottsdale, Tempe, and Tucson) have their own authority to auditA tax audit is when the Internal Revenue Service (IRS) conducts a formal investigation of financial information to verify an individual or corporation has accurately reported and paid their taxes. Selection can be at random, or due to unusual deductions or income reported on a tax return. vendors, leading to inconsistent results and redundant and huge compliance burdens. Licenses are required from multiple jurisdictions. The state is currently establishing a method of online sales tax payment for all jurisdictions, rather than the current method of filing different forms with all the different jurisdictions.

The panel recommended uniformity in sales tax baseThe tax base is the total amount of income, property, assets, consumption, transactions, or other economic activity subject to taxation by a tax authority. A narrow tax base is non-neutral and inefficient. A broad tax base reduces tax administration costs and allows more revenue to be raised at lower rates. , definitions, and adminstration. These common-sense recommendations got a boost from Gov. Brewer, when she urged action on them in her State of the State address this week. Arizona legislators will now consider the recommendations.