Payson Mayor Kenny Evans says he’s “scared to death” about the town’s budget prospects, especially with a proposed state overhaul of the sales tax still unresolved.
Payson could lose $20,000 a month if Gov. Jan Brewer pushes through her plan to make changes in the state’s sales taxes, including the elimination of a provision that gives towns a cut of the sales tax for construction materials bought elsewhere but used locally, he said.
Payson’s tentative budget has a nearly $13 million general fund to operate most town departments and a reserve fund of just $380,000, said Evans, even after the town council’s controversial decision to eliminate the fire marshal’s position.
But the town could lose up to $400,000 annually according to some estimates if Gov. Brewer’s original proposal goes through.
“That would just wipe us out,” said Evans.
The governor’s proposal contained in a bill sponsored by Rep. Debbie Lesko (R-Peoria) would simplify the tax code by treating construction materials like any other item, with the local share of the sales tax going to the town where the contractor buys the materials. That could hurt towns like Payson if builders ever resume construction, since contractors often haul building materials in from the Valley or elsewhere.
The tax on contractors and other business transactions known as the Transaction Privilege Tax accounts for $3.8 billion of the $8.6 billion in state revenue. Currently, the town in which the building is actually done gets 35 percent of the sales tax for construction and materials.
However, Gov. Brewer’s proposal remains snarled in the state budget standoff between House Republicans and both the governor and the Senate. After months of delay, the Senate adopted a trimmed down version of the budget Gov. Brewer proposed in January, which would provide medical coverage for more than 300,000 additional people through the federally funded Arizona Health Care Cost Containment System (AHCCCS). The House budget committee this week finally took up its own version of the budget, but in the meantime fiscal bills have stalled.
Gov. Brewer argued that Arizona has the state’s most complex sales tax system. The state and most cities rely on the sales tax for the bulk of their funding, which is one reason the recession had such a dramatic impact on their budgets.
The League of Arizona Cities and Towns has lobbied fiercely against the sales tax bill, especially the shift in the “transaction tax” on construction materials. Advocates for towns say the net effect of the changes will cost towns money while shifting control to an unresponsive state bureaucracy that won’t efficiently collect the taxes owed.
Lesko has accepted several changes in her bill in an attempt to answer those objections. She insists that overall the changes will increase the amount of state-collected sales taxes shared with local government. The Joint Legislative Budget Committee has estimated that cities could lose between $2.3 million and $19 million, which advocates for the cities like Evans have dismissed as a wild underestimate of the likely impact.
Responding to the protests of cities, Gov. Brewer and Lesko shifted to a plan to leave the construction sales tax alone, but allow tradesmen like plumbers and air conditioning repairmen to pay sales tax just on parts where they buy them, which failed to satisfy the critics.