Construction Sales Tax Issue a Big Deal for Small Business

GILBERT – Just three weeks ago, Gilbert’s Mayor Lewis presented his State of Business in Gilbert video presentation at a Gilbert Chamber of Commerce luncheon. Afterward, there were many positive comments made by local business owners about the Town’s focus on helping small businesses grow. Imagine how surprised they were when they read a recent editorial from the Mayor suggesting that proposed changes to the taxing of construction were catering to “special interests.”

After nearly a decade of studies, meetings, and failed attempts, Arizona is on the cusp of passing true reform to its Transaction Privilege Tax (TPT), better known as sales tax, which will directly benefit small businesses across the state. This reform is a result of the Governor’s TPT Simplification Task Force. According to the task force’s report, Arizona has one of the most complicated TPT systems in the country. This complexity, which disproportionately impacts smaller businesses, can be a deterrent to future growth and puts Arizona at a competitive disadvantage compared to other states.

Did you know that plumbing, heating and air conditioning, roofing and computer services businesses can be considered contractors under the current TPT system? Did you know that ten pages of the eighty-eight page bill, recently introduced at the State Legislature, was devoted to striking out the complexities of how to collect a tax if your business happens to slip into the current definition of prime contracting?  Under the current taxing system, the definition of what services are taxable and applicable rates can vary from city to city. Most of these businesses serve customers in multiple cities, meaning their employees can spend a considerable amount of time trying to figure out how much tax to collect. Business owners must devote time to training their employees on tax collection that could be used to provide another repair for customers. Some business owners have reported having to pay for additional employees just to handle this tax and others have discontinued offering certain services to avoid having to handle the TPT associated with contracting activities. These disincentives to small business are delaying the recovery of the local economy. That type of growth has the opportunity to generate more tax revenues; the revenues that cities need to operate and provide their services.

The cities and towns of Arizona have a legitimate concern about how the proposed changes to taxing construction activity may impact local revenues. The goal of the proposed TPT reforms is not to lessen tax revenues for the cities and towns but to make it easier for businesses to manage their day-to-day responsibilities.  By limiting the focus of the issue to the impact associated with new home and building construction, the needs of our smaller, local businesses will once again be overlooked. Rather than lose this opportunity to give our small businesses a boost, let’s look for solutions that will provide the needed simplification and continue to direct appropriate level of tax revenues to the cities and towns. By helping push forward in this direction, the Town of Gilbert can show that it truly believes in supporting local businesses.

Jon Olson currently serves as the Chairman of the Board of Directors of the Gilbert Chamber of Commerce and has been an active member of the Chamber’s public policy committee since 2006. Olson is the First Vice President of Arizona Business Bank located as 1757 E. Baseline Road in Gilbert. He can be reached by e-mail to jolson@azbizbank.com.