Gov. Brewer’s Sales Tax Reforms Hurt Growing Communities and Likely Reduce Overall Revenue

February 14, 2013

Governor Jan Brewer at a press conference on Monday introduced HB2657 to reform the state’s sales tax system (technically a Transaction Privilege Tax or TPT) and make it more efficient.   The Grand Canyon Institute overall applauds the general mission of the bill, but finds two critical short-comings.  The bill undercuts revenues for communities that are growing despite doubling the share that goes to municipalities in the distribution base for contracting, because growing communities will no longer be assured of collecting a similar portion of local taxes on contractors.  In addition, the Grand Canyon Institute has concerns about the net revenue impact.  The Transaction Privilege Simplification Task Force made a better case scenario assumption regarding revenues.  A switch to materials-based point of sale taxes for contracting could reduce total state revenues (including shared revenues) from contracting by either a small amount or upwards of 20 percent (or $140 million annually).  Due to shared revenue formula changes, the General Fund impacts would be even greater.  Better data is needed, so the fiscal impact is better known.