By Robin Barker
If your business received a letter from the Arizona Revenue Department (ADOR) informing you that the $50 Transaction Privilege Tax (TPT or sales tax) license is now $2, I’ll bet you were thrilled. But wait, there’s more… you will have to go to the City Clerk’s office here in AJ and get your $50 business license for 2018.
Oh, I know. Blame it all on the greedy city; however, let’s look at the entire story before passing judgment.
First, a bit of background: Because the city doesn’t have a property tax, the programs and events the city offers are funded primarily by TPT funds, along with grants, etc. And about half of the city’s general fund is comprised of TPT funds.
Since 1979, the city has charged for annual TPT licenses for all those doing business in Apache Junction. All local TPT went through the city, was deposited into the General Fund and reported to the state. The system worked and ensured that the city had access to business information to make TPT collection and audits as painless as possible, as well as making sure TPT funds were deposited into the General Fund in a timely manner, making all the city’s services, programs and events possible.
The system worked.
In 2013, however, the state legislature, in all its wisdom, decided to “simplify” collection of TPT by providing a single point of collection: the Arizona Department of Revenue (ADOR). Now, of course, the state couldn’t possibly do this without a complete revamp of the ADOR, and who, but the cities, should pay for the privilege?
It took three years of one-step-forward, two-steps-back for the ADOR to get the system up and running. Collection by the agency began in January of 2017, routing the city’s $50 TPT fee and taxes through the state, which then collected “operation fees” of about $78,000 from the city for their services as middle-man.
Ummm… Thank you?
All this wouldn’t be so bad if the collected funds got back to the city in a timely manner; however, city staff report payment is about a week or two behind. At one point, some $101,000 simply disappeared! Some of the money has even gone to other jurisdictions, and it is up to the city to find the mistake.
There is also the problem of doing the single jurisdiction audits—audits for businesses that are located in only one jurisdiction: Apache Junction. Doing the audit under an IGA with the state and tracking down misplaced funds requires almost the same manpower as the collection of TPT when we did it ourselves. In other words, the city is now paying double for the privilege of “simplifying” the collection of TPT.
Add to all of that the continued lay-off of state auditors. There are now only six auditors…one for every 192,000 taxpayers. Though no one wants to be audited, the monies recovered go to cities and the state to pay for the services we all take for granted.
During the past fiscal year, the sections of the auditing department that had produced large financial returns for the state in the past instead showed steep declines.
- Revenue from corporate audits fell from $33 million in 2016 to about $6 million.
- Revenue from checking business sales-tax licenses dropped from $41 million to $7 million.
- Taxes owed for having an in-state business presence dropped from $57 million to $38 million.
Economists say the auditor staff reduction could cost the state (and cities) as much as $100 million in uncollected taxes.
You might be asking, “What does all this have to do with a $50 business license?” The fee and the information collected from businesses will give the city a more accurate picture of the business community and the sales tax our customers pay, and help ensure that money comes back to the city for the services, programs and events that we all utilize and enjoy.
We’ve all heard the saying, “If it ain’t broke, don’t fix it,” but when the state insists on fixing something that wasn’t broken to begin with, it’s up to the city to find a patch to keep the services funded and working smoothly to the benefit of the citizens we represent.