Mesa could lose more than $1 million next fiscal year under a legislative proposal that could prevent the city from collecting sales tax on some vehicles.
City Council members at a routine budget meeting Thursday morning ended up debating the possible change in state law that would in effect bar cities from auditing sales and licensing tax exemptions for nonresidents when they buy a car, truck or recreational vehicle in Arizona.
City budget director Chuck Odom said the change could leave the city short of between $800,000 to $1.2 million in fiscal year 2008-09 and about $250,000 a year after that.
Odom told the council the city could expect continued "downward pressure" in terms of sales tax collections over the next few years. Aside from a drop in general sales tax revenue, lawmakers are currently debating a measure that could affect taxes collected on recreational vehicles and automobiles sold to out-of-state residents.
In 2004, the state put in place an incentive for nonresidents that exempted them from taxes on vehicles purchased in Arizona. Buyers have to provide a driver's license showing an out-of-state address and the vehicle has to be delivered out of state. They also have to purchase a 90-day temporary license plate permit allowing them to drive it.
But city audits found that some people bring the vehicle back to Arizona. The vehicles are insured here and the buyers also own property here, said Mesa government relations coordinator Brent Stoddard.
If auditors determined the buyer didn't meet the nonresident criteria, the city could then collect taxes from the vehicle dealer.
An amendment to the bill, HB2732, which is currently in the state Senate, would effectively prevent that auditing process, because dealers would no longer have to verify the documents. As long as the buyer follows through with the nonresidency requirements, the dealer wouldn't have to check whether or not the vehicle is registered in Arizona, Stoddard said.
The bill is retroactive to 2004, a clause that Mesa projects would cost it as much as $1.2 million next year.
"It kind of just locks us down from making any types of audits on those exemptions," Stoddard said.
He also noted that the loss of collecting taxes on RV sales, which sell for hundreds of thousands of dollars, would particularly hurt Mesa financially, given the concentration of their dealerships.
Vice Mayor Claudia Walters questioned why RVs were exempt. Stoddard said lawmakers had decided it would be an economic generator that would get people to come to Arizona and spend money here.
Councilman Scott Somers later said it's a shame to let people, especially snowbirds, abuse the system by letting them get the tax benefit and still use city services such as police and fire.
He also noted that there should at least be a study to see how much this exemption really benefits the state.
Councilman Tom Rawles said the system "was just designed to increase sales activity of RV dealers."
"They're the ones who're benefiting," Rawles said. "It was a pure corporate welfare opportunity that penalizes the residents of this state versus people living out of state."