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home : latest news : latest news February 26, 2015

2/6/2013 10:50:00 AM
Proposed contractor tax changes spark controversy
Spencer Kamps, a lobbyist with the Home Builders Association of Central Arizona, talks Thursday about proposed changes in construction sales taxes.Photo Courtesy Ken Hedler
Spencer Kamps, a lobbyist with the Home Builders Association of Central Arizona, talks Thursday about proposed changes in construction sales taxes.

Photo Courtesy Ken Hedler

Ken Hedler
Special to the BBN

A proposed tax reform plan that includes changing the formula in which contractors pay sales taxes sparked a heated discussion Thursday. Spencer Kamps, vice president for legislative affairs with the Home

Builders Association of Central Arizona in Phoenix, fielded a number of questions during the meeting in the Prescott Valley Library auditorium. He verbally sparred on occasion with Prescott City Councilman Len Scarmado and former councilman Tom Reilly, both building contractors.

Contacted after the session, Reilly said he would plan to organize opposition if the proposal made it to legislation in the state Capitol.

"If you have 40 to 50 people show up at a hearing, this would be dead," Reilly said.

Reilly, Scarmado and others in attendance raised questions about a proposal that would replace a formula in which contractors for years have paid sales taxes based on 65 percent of the amount that contractors charge customers (excluding labor costs).

The recommendation from Gov. Jan Brewer's Transaction Privilege Tax Simplification Task Force calls for charging contractors for buying materials at the point of purchase.

The task force also recommended state administration of sales taxes for all municipalities, and one that would require the Arizona Department of Revenue to conduct sales tax audits, according to the League of Arizona Cities and Towns.

The league has gone on record against those recommendations and the one to change the formula for contractors.

In an "action alert," the league stated the Department of Revenue lacks the resources necessary to absorb the responsibilities of the cities that currently collect their sales taxes.

"It would take a significant budget increase to DOR in order to ensure proper administration," the alert states.

A memo to the Prescott City Council from Deputy City Manager Alison Zelms dated Dec. 18 estimates the city would lose $1.3 million a year from construction sales taxes even with offsetting state revenue sharing.

The Town of Prescott Valley estimates a loss of $1 million a year in construction revenue, according to an email from Finance Manager Heidi Derryberry, a certified public accountant. The estimate could increase to as high as $3 million if the economy improves, she explained.

Local government officials fear revenue losses in part because their communities would not receive sales tax proceeds if contractors bought materials elsewhere.

Amid those concerns, Kamps, a lobbyist, showed up at the meeting at the invitation of Sandy Griffis, executive director of the Yavapai County Contractors Association, which has at least 300 members.

Kamps, who did not serve on the task force, told his audience of 14 people that Brewer created the committee with the goal of simplifying taxes.

The panel came up 10 recommendations, said Kamps, who acknowledged the proposal on changing the formula for contractors has stirred controversy.

Scarmado said charging at the point of purchase is appropriate for merchandise such as shoes, not materials for contractors.

Responding to a comment from Scarmado, Kamps said labor costs do not apply in the current formula of 65 percent. "I'm not trying to win you over," Kamps said. He added 46 states use the materials formula.

Responding to Reilly, Kamps said, "I almost feel bad talking to you about this. There are a lot of issues that need to be worked through."

He said the proposal has not been drafted in state legislation yet.

Scarmado expressed concerns about the Legislature "taking away our ability to have a tax base."

Responding to a question from Kamps, Reilly said the question needs to be whether the proposed tax on the sales of materials is fair to the contractors, municipalities and voters.

Kamps said, "I'm not arguing with you. I am just creating a debate."

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