AZ legislature closes out session in flurry, approve sales tax overhaul - East Valley Tribune: Business

AZ legislature closes out session in flurry, approve sales tax overhaul

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Posted: Thursday, June 13, 2013 10:04 pm | Updated: 2:48 pm, Wed Jun 19, 2013.

State lawmakers were moving toward finally adjourning their 151-day session late Thursday -- but not before setting the stage for constituents to have to start paying taxes on what they buy from catalogs and on the World Wide Web.

The legislation given final approval sets up a streamlined system of how businesses collect and pay their sales taxes, known in Arizona as transaction privilege taxes.

What's important for consumers is that change, along with some language on how businesses get their books audited for compliance, puts the state in a position to take advantage of pending federal legislation that would finally let states impose their own taxes on Internet sales.

Passage had been held up amid concerns from cities that a key change in how contractors pay their sales taxes, pushed by Gov. Jan Brewer, would have left them millions of dollars in the hole.

A deal was engineered after Brewer dropped part of that demand. And while the final plan still could cause financial losses to cities, they agreed to go along after concluding that this was as good a deal as they were going to get.

The action came in a somewhat harried last day, on the heels of final House and Senate approval of the $8.8 billion budget and Medicaid expansion. (See related story.) With those out of the way, that cleared the path for lawmakers to make a last push for priorities.

One measure with potential tax savings for parents and grandparents will nearly triple an existing tax deduction.

Federal law allows establishment of what are called 529 accounts, named for the section of the Internal Revenue code, to set aside money for higher education. While there is no federal tax benefit for contributing, like a 401(k) retirement account, the earnings can be taken tax-free if used for education.

Arizona sweetens the deal a bit by providing a deduction from income of $750 for individuals and $1,500 for couples. For a married couple with adjusted earnings of $50,000 to $100,000 a year, that reduction in taxable income could be worth about $60.

This change in law increases the deduction to $2,000 for individuals and $4,000 for couples.

Other measures approved on the last day of the session include:

- Allowing companies being sued a chance to escape "class action'' status early in the legal process, reducing their incentive to settle;

- Restricting the ability of cities to force builders to set up homeowner associations in new developments;

- Requiring schools to stock auto-injectable epinephrine to deal with children and adults who suffer an allergic reaction;

- Spelling out that all energy drinks sold for off-premises consumption are considered "food'' and therefore not subject to sales taxes.

Lawmakers also gave final approval to key changes in state election laws, including allowing people to be removed from a permanent early-voter list which automatically sends them ballots and restricting who can take someone else's early ballot to a polling place.

But a few measures appeared headed to the scrap heap as they were lacking the necessary votes.

One would have allowed state health officials to inspect abortion clinics without first having to get a warrant. The same measure would have imposed new restrictions on the ability of Planned Parenthood to treat Medicaid patients.

The issue of taxing Internet sales stems from a 1992 U.S. Supreme Court ruling which says states can impose their sales taxes only on companies with a physical presence there.

Local "brick and mortar'' retailers contend that places them at a competitive disadvantage with Internet retailers who, exempt from collecting state and local tax, can offer price differences close to 10 percent. But it also allowed companies like Amazon.com to escape taxes while an identical item purchased from Target.com is taxable because that chain has local stores.

The federal Marketplace Fairness Act being considered by Congress lets states impose their local taxes -- but only if they have a streamlined tax system. HB 2111, approved Thursday, would do that.

What caused heartburn, though, was insistence by the governor to take that simplification a step farther and have all building supplies taxed when -- and where -- purchased.

That alarmed city officials.

Right now contractors pay a tax on any supplies they use in the community where a project is constructed. The change Brewer wanted would have meant major financial losses for some cities if their contractors bought their supplies and paid their taxes in one city and trucked them to the construction site.

Brewer eventually dropped the demand, at least for big projects. But she refused to budge in her demand that those doing routine home repairs pay taxes when they buy their supplies. And the cities eventually backed down.

That should put Arizona law in line with what is being considered by Congress.

Lake Havasu City Mayor Mark Nexsen, who was involved in working to get a deal, was philosophical.

"Do I think Lake Havasu City is running a risk of losing some of our construction tax?'' Nexsen said. "Yes.''

But he said this plan is far better than what was being offered -- and what he and other mayors feared might be forced on them if they did not go along.

"Compromise is not a dirty word,'' Nexsen said.

Sen. Al Melvin, R-Tucson, who has been pushing to have the state start taxing Internet sales, said the change in law will go a long way toward helping Arizona businesses.

The plan has another key benefit for local firms. It provides a single point for them to pay sales taxes to the state and each city in which they do business and ensures that they will not face multiple audits from each community.

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