Sales tax reform for contractors sails through committee

sales_tax_image_vintage_cash_registerBy Phil Riske | Managing Editor

(STATE CAPITOL)—Sales tax simplification pushed by the Gov. Jan Brewer administration went into affect Jan. 1, but it didn’t make things simpler for the construction industry.

In a move to simplify matters for an industry said to be more complex all the time, an original sponsor of the 2013 TPT (transaction privilege tax) reform has proposed legislation this year (SB 1446) to reform Arizona tax law for contractors.

The bill’s sponsor, Sen. Debbie Lesko, told the Senate Finance Committee Wednesday that until Arizona tax law for contractors conforms with what 46 other states have enacted, she will seek to fix problems created for the industry by the 2013 law, which was delayed until this year because of concerns in the business community.

The committee slam-dunked the Lesko bill 5-0. No one testified against it.

Under the new law construction is taxed the old way: the tax on materials is included into the final price of the completed job.
The tax on materials purchased for repairs and maintenance are collected at the point of purchase.

Changes brought about by the new law have led to confusion about how to deal with the subcontractors’ existing inventories, who are now required to pay the tax where the materials are purchased.

SB 1446 deals with that inventory, proposing that if subcontractors maintain a TPT prime contracting license, they would still buy materials tax-free, and when the materials are used for new construction, the tax would be folded into the final price of the service.

The bill also:

• Prohibits a city, town and board of supervisors from requiring an applicant for a building permit to hold a TPT or business license as a condition for the issuance of a permit.

• Permits a city or town to require a person that has been issued a building permit, and does not hold a business license from the city or town, to apply for a business license within 30 days after the issuance of a building permit.

• Removes the requirement that an applicant possess a TPT license in order to obtain or renew a contractor’s license.
Kevin McCarthy, director of the Arizona Tax Research Association, said current TPT law “has been a huge problem for contractors.”

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February 2015