Government Finance Officers
Association of Arizona
August 6, 2014
Arizona Tax Research Association
Arizona Tax Research Association
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Only statewide taxpayer organization
representing both businesses & individuals
before policymakers at the state & local level
Advocates for sound public finance and tax
legislation at the Capitol
Goal is to have efficient state & local
government and the effective use of tax
dollars through sound fiscal policies
Arizona Tax Research Association
Arizona Tax Research Association
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Local government budgeting processcounties, community colleges, some cities
ATRA publications
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Property Tax Rates & Assessed Values
An Explanation of Arizona Property Taxes
Arizona Tax Digest
School Finance Primer
Legislative Review
ATRA Newsletters
Budget Reviews
Major Ballot Issues
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Prop 107 – Income Tax Repeal (2000)
Ballot Box Budgeting
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Prop 200 – Tobacco/AHCCCS (1994)
Prop 204 – Quality Ed & Jobs Act (2012)
Prop 301 – Education Sales Tax (2000)
Prop 108 – 2/3’s Vote (1992)
Prop 117 – Property Value Limits (2012)
Proposition 117
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Makes a major change to Arizona’s property
valuation system
 Reduces the number of taxable values from two
to one
 Eliminates secondary and primary values
 Taxpayers will have one limited net assessed
value
Assessor will value property at the market value (full
cash value)
Annual growth in limited net assessed value
capped at 5%
Effective valuation year 2014 and tax year 2015
Arizona Tax Research Association
Actual Value Growth vs. 5% Limit
Proposal (1992-2012)
100
Net Assessed Value (Billions)
90
80
70
60
Actual NAV
Limited NAV
50
40
30
20
10
0
1992
1994
1996
1998
2000
2002
Tax Year
2004
2006
2008
2010
2012
States
Three Legs to Most State & Local Tax
Stools
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50 - Property
46 - Sales
43 - Individual Income
46 - Corporate Income
Arizona Tax Research Association
There Has Been On-going Debate
About The Efficacy of our System for
Decades
Many Study Committees
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Fiscal 2000 - 1999
CFRC - 2004
TRAC – 2004
Governor Brewer’s TPT Task Force - 2012
Usually jump-started for two reasons:
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Impetus for real tax reform
Cover for tax increases
Combination of both
Arizona Tax Research Association
Total State and Local Taxes in Arizona
Sales
Property
Income
Subtotal
Other Taxes*
Total
FY 2013
$9,398,151,182
$6,555,794,961
$4,060,928,175
$20,014,874,318
$1,330,983,037
$21,345,857,355
*Based on FY 2011 actual tax collections.
Arizona Tax Research Association
Total State & Local Taxes
National Rankings
Total State & Local Taxes
Total Tax Collections-State and Local
FY 2011
State
ARIZONA
Per Capita
Amount
Rank
$3,340.61
40
U.S. Average
$4,295.48
Arizona Tax Research Association
Per $1,000
of Income
Amount
Rank
$95.10
39
$105.37
Snapshot of AZ’s Tax System
Average Overall Reliance (typically)
•High Sales Taxes
• Average Property Taxes
High Business Property Taxes
Low Homeowner Property Taxes
• Low Personal Income Taxes
Arizona Tax Research Association
Property Tax
National Rankings
Total State & Local Property Taxes
Property Tax Collections-State & Local
FY 2011
ARIZONA
Per Capita
Amount
Rank
$1,095.94
32
U.S. Average
$1,422.56
State
Arizona Tax Research Association
Per $1,000
of Income
Amount
Rank
$31.20
26
$34.90
Property Tax-Major Issues
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Arizona’s system has generally been
regarded as one of the most complex in
the country
Several aspects of the property tax system
have created significant policy problems:
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High Business Property Taxes
1% Residential Cap
Accountability
Arizona Tax Research Association
Disparate Tax Treatment between
Businesses & Residential Properties
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Shift taxes within classification system
Businesses pay approximately twice as much
as residential
Disparate treatment leads to industries
seeking tax incentives
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Create greater equity instead of rifle-shot relief to
selected industries
Arizona’s Classification System
(Tax Year 2013)
Class
1
2
3
4
5
6
7
8
9
Description
Commercial, Industrial, Utilities & Mines
Agricultural & Vacant Land
Owner-occupied Residential
Rental Residential
Railroad, Private Car, Airline Flight
Residential Historic, Enterprise & Foreign Trade Zones
Commercial Historic
Rental Residential Historic
Possessory Interests
Assessment
Ratio
19.5%
16%
10%
10%
15%
5%
1%
1%
1%
*The assessment ratio for class one property will decline to 19% in 2014, 18.5% in 2015, and
18% in 2016.
Arizona Tax Research Association
2012 Effective Tax Rates
Class
1
Commercial, Industrial, Utilities, and Mines
2
Agricultural and Vacant Land
3
Owner-occupied Residential
4
Rental Residential
5
Railroad, private car, airline flight
6
Rd historic, enterprise & foreign trade zones
7
Commercial historic
8
Rental residential historic
9
Possessory Interests
Total
Total Taxable
Full Cash Value
109,285,983,323
25,277,600,480
254,706,920,931
55,482,733,037
1,614,204,100
5,681,532,496
35,609,615
11,287,618
135,126,357
452,230,997,957
Percent of
Total
24.17%
5.59%
56.32%
12.27%
0.36%
1.26%
0.01%
0.00%
0.03%
100.00%
Arizona Tax Research Association
Source: Arizona Tax Research Association – Tax Year 2012 Property Tax Model
Total Yield
2,451,471,481
436,660,735
2,516,565,936
658,373,285
26,852,575
32,969,178
736,457
113,395
150,836
6,123,893,879
Percent of
Total
40.03%
7.13%
41.09%
10.75%
0.44%
0.54%
0.01%
0.00%
0.00%
100.00%
Effective
Rate
2.24%
1.73%
0.99%
1.19%
1.66%
0.58%
2.07%
1.00%
0.11%
1.35%
Equity
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Considerable success:
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2005 Legislation: 10-year phase down in class
one assessment ratio to 20%
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2007 Legislation: accelerated reduction to six
years-assessment ratio reduced to 20% by 2011
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2011 Legislation: reduced the assessment ratio
on class one from 20% to 18% in half-percent
increments beginning in 2013
Arizona Tax Research Association
Sales Taxes
National Rankings
Total State & Local General Sales Taxes
General Sales Tax Collections - State and Local
FY 2011
State
ARIZONA
46-State avg. + D.C.
Per Capita
Amount
Rank
$1,267.89 10
$989.73
Arizona Tax Research Association
Per $1,000
of Income
Amount
Rank
$36.09
7
$24.25
Sales Tax (TPT) - Major Issues
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Arizona’s state & local TPT system is also
one of the most complicated and
administratively burdensome in the country
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Lost sales tax revenue to online retail a
growing problem
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Arizona’s chaotic system led to major TPT
reform in 2013 (more still needed)
Arizona Tax Research Association
Taxable Business Classifications
(State)
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Retail
Transporting
Utilities
Telecommunications
Publication
Job Printing
Pipeline
Private Car
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Transient Lodging
Personal Prop Rental
Mining
Amusement
Restaurant
Prime Contracting
Owner Builder Sales
Commercial Lease
Arizona Tax Research Association
Model City Tax Code
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Arizona is one of a few states in the country that
allows for an independent, municipal sales tax
system
The tax base at the city level does not mirror the
state base
Examples: Advertising, Speculative Builders, Rental
Occupancy, Food, Commercial Leases
Interpretation of exemptions a major issue
Independent municipal system has created
significant administrative and compliance issues for
taxpayers in Arizona
Arizona Tax Research Association
PRE HB2111
Most States
Arizona
One payment, one audit
Multiple payments, multiple audits
One payment
One audit
State Tax Base
City Tax Base
One payment
One audit
State
Sales Tax
County
Sales Tax
State
Sales Tax
Municipal
Sales Tax
One uniform sales tax base
County Sales
Tax
Program
City Sales
Tax
Non-Program Cities
One payment
One audit
Apache Jct.
One payment
One audit
Phoenix
One payment
One audit
Avondale
One payment
One audit
Prescott
One payment
One audit
Chandler
One payment
One audit
Scottsdale
ARIZONA TAX RESEARCH A SSOCIATION
One payment
One audit
Douglas
One payment
One audit
Tempe
One payment
One audit
Flagstaff
One payment
One audit
Tucson
One payment
One audit
Glendale
One payment
One audit
Bull he ad Ci ty
RDS
One payment
One audit
Mesa
One payment
One audit
One payment
One audit
Nogales
One payment
One audit
Sedona
Somer ton
RDS
RDS
One payment
One audit
Peor ia
One payment
One audit
Willcox
RDS
Major Sales Tax Reform
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Governor’s TPT Simplification Task Force-2012
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“Arizona has one of the most complex transaction privilege
tax systems in the country”;
“taxpayers have expressed very clearly their desire to see
reforms enacted that will modernize and simplify the TPT”;
and
“it is in the interest of taxpayers and state and local
governments to make the tax code easier to understand,
comply with, and administer.”
HB2111 – Passed in 2013
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Single Point of Administration
Single and Uniform Audit
Trade/Service Contracting Reform
POST HB2111
Most States
Arizona
One payment, one audit
One payment
One audit
State Tax Base
City Tax Base
One payment
One audit
State
Sales Tax
County
Sales Tax
Municipal
Sales Tax
One uniform sales tax base
State
Sales Tax
County Sales
Tax
City Sales
Tax
Maintains multiple tax bases
Arizona Tax Research Association
Sales Tax Issues
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Base “Uniformity” still needs to be resolved
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System still not in compliance with Marketplace
Fairness Act
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How should uniformity be pursued…major effort or
piecemeal?
Impediments to Uniformity
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Major money associated with some city base
exemptions:
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Food for home consumption
Advertising
Residential Rental
Commercial Lease
Still unclear how Marketplace Fairness
impacts uniformity effort
Uniformity-continued
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An identified tax base – in state statute- has
been a goal of the Arizona business
community for decades
A single, identifiable state and local TPT base
in statute will create certainty and
consistency in the administration of Arizona’s
sales tax
Individual Income Taxes
National Rankings
Total State & Local Individual Income Taxes
Individual Income Tax Collections-State & Local
FY 2011
ARIZONA
Per Capita
Amount
Rank
$441.75
42
44-State Average
$1,116.57
State
Per $1,000
of Income
Amount
Rank
$12.58
41
Arizona Tax Research Association
$27.17
Corporate Income Taxes
National Rankings
Total State & Local Corporate Income Taxes
Corporate Income Tax Collections
FY 2011
State
ARIZONA
46-State Average
Per Capita
Amount
Rank
$86.42
33
Per $1,000
of Income
Amount
Rank
$2.46
32
$150.39
Arizona Tax Research Association
$3.68
Corporate Tax Rate Reductions
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1990 – 9.3%
1997 – 9.0%
1998 – 8.0%
2000 – 7.968%
2001 – 6.968%
2014 – 6.5%
2015 – 6%
2016 – 5.5%
2017 – 4.9%
National ranking improves from 7th to 43rd
Note: $50 minimum tax
Arizona Tax Research Association
ATRA Tax Policy Position
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Historically, ATRA has supported broad-based low
taxes that are fair and equitable towards businesses
and individuals. ATRA has generally opposed
deviations from these principles for economic
development
ATRA has also opposed targeted tax breaks or
changes to the property tax system that carve out
special treatment for one industry over others
ATRA has opposed organized efforts to eliminate
the income tax or property tax
Current Issues
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School finance equity challenges:
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Litigation – Three Lawsuits
Prop 301 Case
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State may owe up to $2.8 Billion
HB2111 TPT Implementation (1/1/15)
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Non-Program City Transition
Trade/Service Contracting