Ted Simons: The Governor announced a plan to simplify the Maricopa County tax system. The legislation will give business owners a single point of contact for payment and audit. The Governor, along with the bill's sponsor and a businessman talked about the changes at a press conference today.
Ted Simons: Here now to help explain what Arizona's transaction privilege tax is and what these changes might bring is Arizona State University economist Dennis Hoffman. Good to see you again.
Dennis Hoffman: Great to be here, Ted.
Ted Simons: Tax system needs reform?
Dennis Hoffman: Oh, yes, true. I was not an official member of the task force, but I did chair a working group so I was down there for a lot of these meetings. A lot of the theme, Ted, is around the costs to businesses. People may hear this, well, okay, I see that our businesses have to sort this out and it's onerous. And this testimony I think was very illustrative. People have to remember, those business costs get passed down to consumers. When there's distortions during the proceedings, it's when businessmen and women have to allocate resources inefficiently so as to comply with tax rules and administration. That's what we have going on in Arizona.
Ted Simons: The Governor wants one form, one point of contact, one audit. Obviously it's more complicated than that right now. What are folks looking out for here?
Dennis Hoffman: Well, you know, the history of this, I really think it's a situation where actually a minority of the cities in the state, the big ones, by the way, these cities took it upon themselves to audit and administer taxes in their own right. And there was no clear legislation coming down from the legislature that prevented them from doing that. It resulted in just this very complex array of different structures, administrative rules, audit rules, audit triggers. It really is complex. This is not overstating it. We're one of four states out of step in the union. I think of the four others Arizona is probably the most complex. I think this representative is right on the mark. Ours is the worst in the nation.
Ted Simons: I know cities and towns are not exactly excited about this. If you lose an extra point, they could be the backup, and plus money they might get could be lost in the system or never get there in the first place.
Dennis Hoffman: I get it, I heard that argument. I caution the cities if they block this somehow. I guess the adage would be, they might be throwing the baby out with the bath water here. They might be giving up some very good things if they decide that they want to block this. I say if the efficiencies could be seized in this particular system, if resources could be allocated more efficiently, certainly there's going to be price relief coming through the market to our consumers, and those businesses will be able to hire more people to produce the products and services that they are good at. Finally it opens up the door to online and remote sales.
Ted Simons: Talk more about that, it seems like a big deal.
Dennis Hoffman: That is a very big deal.
Ted Simons: What exactly are we talking about here?
Dennis Hoffman: Our brick and mortar retailers are the biggest advocate for opening up taxation of online and remote sales. Quite logically, they are at a disadvantage, it may be just more efficient to market on line, warehouse it, and then ship it to another state. The economics side on the side of the online and remote as it stands. Then up add on the tax differential. You've got a cost advantage and then you layer on this tax advantage.
Ted Simons: But correct me if I'm wrong, Congress would have to okay eventually --
Dennis Hoffman: True, but it appears to be moving in that front. They can open up the door to online and remote taxation. If we don't take the steps to simplify our tax code, we're not going to be eligible for this.
Ted Simons: Cities and towns will not be upset with this and they are not crazy about it. Food, advertising, commercial leases, contracting, these sorts of things. Once this is implemented, and it looks like it has bipartisan support in the legislature --
Dennis Hoffman It does.
Ted Simons: -- we are going to see radical changes in city revenues?
Dennis Hoffman: I think this lays the groundwork for a more stable, predictable sales tax regime. The big debate in this proposal is about the contractor tax, and some of the fast-growing cities are afraid they are going to lose some of the contracting revenues that they have been counting on. But Ted, a rational city has got to base their budget on a more predictable revenue stream than contractor. It's lost 60% since the mid 2000s. You've got to have a more rational, sensible way of paying for the services people want. I think that's what the city should be doing.
Ted Simons: Thanks for joining us.
Dennis Hoffman: Great to be here, Ted.