Voluntary Disclosure Systems  State and City Voluntary Disclosure Procedures Should be Uniform  Procedures, Requirements, and Allowances Should be Codified Within the Taxpayer’s Bill of Rights for both the State and MCTC  Application for Voluntary Disclosure to One Jurisdiction Should Result in Disclosure for All Jurisdictions

Model City Tax Code Simplification By December 31, 2013:  Eliminate All “Green Page” Exceptions  Complete Reduction of Current Options 27 Options Presently Identified for Removal 14 Options Identified for Incorporation into the Standard Language Renumber the Remainder in a Single Series  Classification Changes: Separate Food for Home Consumption; Split Residential & Commercial Rental; Replace Transporting for Hire with the State’s Pipeline & Transportation Statutes

Retail Classification Standardization  Make All Immediately Feasible Changes to the State and MCTC Retail Classifications, Effective July 1, 2013  Identify Differences Requiring Fiscal Impact Research & Gather Data Needed for Further Consideration  Be Prepared to Act on Any Remaining Differences If Congressional Action Allows Taxation of All Remote Sellers.

Standardize City TPT Licensing By June 30, 2013; Effective January 1, 2014  Reform Article III of the MCTC Single License Fee Per Jurisdiction Annual License Renewal Quarterly Proration for First Year Uniform Temporary License Provisions Add Penalty Waiver Provisions  Retain Permanent License Option For Now

Online Portal Project  Expedite Portal Creation to be Online ASAP  Revised Goal: Operational Target Date of January 1, 2014 for Self-Collecting Cities  Single Point to File Returns and Pay  Single Point of Licensing and Renewal  Detailed Reporting Capability for Revenues and Exemptions by Tax Classification  Automate Upload Capability for Taxpayers  Once Vetted, Add the State Return and Licensing to Create a Single Point of Administrative Contact

State Administration  DOR will absorb all responsibility for the 18 cities that collect their own sales tax, passed by 6/30/2014, in place 1/1/2015  Self-collecting cities cover 74% of the State’s population; 77% of city revenues  Unlike self-collecting cities, DOR cannot provide segregated, detailed information about city taxpayers and revenues  No guarantee that the legislature can or will fund DOR at an adequate level

Single Point of Audit  Make DOR the sole auditing authority, eliminating all local audit programs  Adequate audit activity ensures a level playing field and keeps tax rates low  Local audit programs invest in taxpayer education; work closely with local business owners; address local issues  DOR’s focus is required to be on larger taxpayers and statewide issues  Multi-jurisdictional auditing (MJAC) is a proven system offering single audits available to all businesses in Arizona

Eliminate Contracting Tax  Replace with a Retail tax on construction materials, paid at the point of purchase  We are NOT opposed to sensible changes to simplify Contracting, HOWEVER:  A massive tax break for the Contracting industry, dressed up as simplification  Dismantles 80 years of solid public policy developed to address reliance on growth.  Jeopardizes State and local budgets, primarily relying on data from a 1999 study, without current information indicating the true impact on revenues

Eliminate Contracting Tax (cont’d)  Without additional data, the level of noncompliance is purely speculative. Lack of accurate information could significantly impact the State’s General Fund  Shifts revenues away from the local demands created by growth  Statewide, municipalities will lose up to $168M in local sales tax.  Cities, towns, and counties will not make up this loss through Retail taxes.

Eliminate Contracting Tax (cont’d)  Construction is essentially a manufacturing and repairing process. Under this proposal, the product will be treated differently than all other manufactured products.  Giving preferential treatment to the Construction industry ultimately comes at the expense of all others  SOLUTION: Commission a study by third party to gather information and model impacts proposed by policy change.

Conclusions DOR is strapped for resources. Given the many strains on the General Fund, cost-free alternatives should be utilized. State Administration demands a significant funding increase to work. Local auditing supplements State activity. Losing local audits leads to lower revenues, lower compliance, and rising taxes, without improving on the current multi-jurisdictional system. Much more information and study is needed before fiscal stability is risked, simply to give one industry a big tax break.