If you were to move across the state of Arizona, certain things wouldn’t change. Traffic laws would be the same, for instance. But what you pay taxes on might change. That’s because the sales tax base in Arizona differs from city to city. Something that is not taxable in one jurisdiction may indeed be taxable in another.
A prime example is rent. When you sign a lease in Phoenix or Tempe, you pay sales tax. Do so in other places, like Flagstaff, and you wouldn’t. Meanwhile, rent paid by tenants is not taxable by state government.
Differences like these not only lead to confusion for residents, but the increased complexity increases the cost of compliance for businesses. A business that operates in multiple cities not only has to keep track of each sales tax base, but they can also be subject to multiple audits – by the state and each local government – for the same set of transactions within the same year.
This isn’t the case in all states. In fact, two of our biggest economic competitors – Florida and Texas – have a uniform sales tax base throughout the state.
The numerous tax bases throughout the state have long been noted by the business community as something that inhibits our state’s competitiveness. To make Arizona more competitive, it is vital that all jurisdictions within the state operate under a unified sales tax base. If the state decides something should or should not be taxed, local governments should abide by that decision, too. The only thing that should vary among cities is what additional sales tax rate a locality may want to assess in addition to the state rate.
There are many things Arizona can change in its tax policy to be more competitive when attracting companies, one of the first should be to address this fundamental flaw.
Goldwater Institute: A New Tax Plan for a New Economy: How Eliminating the Income Tax Can Create Jobs
State of Arizona: Governor Brewer’s Transaction Privilege Tax Simplification Task Force