Carefree Truth

Issue #286, November 15, 2013

 

 

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The first reading of the proposed Use Tax Ordinance took place at the November Council meeting.  As it was the first reading, it was for discussion only, and no action was taken.  There will be a second reading at the December meeting, at which time action will be taken.  A Resolution to declare the Use Tax Section of the Model City Tax Code (MCTC) as public record, as required for legal advertisement/notice requirements, was also part of the agenda item.  The MCTC adoption would make the Ordinance, if adopted, available for public viewing. 

 

 

 

Gary Neiss began by citing the presentation from the previous Council meeting by Al Holler, a sales tax auditor who represents over two dozen communities throughout Arizona, including Carefree and Cave Creek.  Mr. Holler had reviewed the purpose of the Use Tax and the MCTC.  Mr. Neiss felt that a tangible point raised was that this tax protects local businesses by removing the competitive advantage of Internet based businesses via applying a uniform tax code.  

 

 

 

He also pointed out that Carefree is missing out on receiving the Use Tax large retailers pay for purchases on national contracts, such as store fixtures.  For example, if Lowes or CVS purchase new shelves, that is done through the national corporate organization and is subject to a use tax.  Mr. Holler stated that Cave Creek's budget anticipates $100,000 in use tax this fiscal year, which provides a benchmark from a similar municipality, in a similar geographical location, with similar businesses.

 

 

 

Councilman Mike Farrar asked, "What is the downside; why would any municipality not want to adopt an Ordinance like that?"  Mr. Neiss replied that there is a disadvantage to your respective businesses in not adopting it.  Mr. Farrar said his understanding is that a use tax would allow Carefree to receive funds for required additional taxes, providing a conduit.  Mr. Neiss confirmed that was correct.

 

 

 

Councilman John Crane asked Mr. Neiss to explain the $1000 exemption, and how it applies to the residents.  Mr. Neiss explained that there is an exemption from the use tax within the MCTC for purchases under $1000.  Mr. Crane asked if that is cumulative or per line item.  Mr. Neiss said it is per line item.  Mr. Crane asked how the Town collects it, and Mr. Neiss told him it is collected through the state.  

 

 

 

Mr. Neiss then said adoption of the MCTC Resolution would make the Use Tax Ordinance, if adopted, available on the public record.  It is a 20 page long boilerplate tax code.  When advertising a new Ordinance, it must be done exactly as written, but if lengthy it can be advertised with a reference to the public record.

 

 

 

Vice Mayor Les Peterson asked what percentage of the country utilizes the use tax.  Mr. Neiss did not know offhand.  Councilman Glenn Miller stated that of the 91 cities and towns in Arizona, 51 utilize it.  Mr. Peterson asked who handles enforcement if people don't put it on their income tax returns.  Mr. Neiss explained that it doesn't address individuals; it is aimed at corporate entities, and said the Town is not looking to enforce it on individuals.

 

 

 

Mr. Farrar said, "Just so I'm clear, if I go into a store and we pass this, I'm not going to see anything on my receipt showing an increased price.  This is money that is already collected by the state.  We're just now allowing a portion of it to come to us."  Mayor David Schwan replied, "This is not for in-state purchases.  This is stuff purchased outside of Arizona that's shipped in, so note that many of the big Internet retailers have begun to collect the sales tax, for example, Amazon."

 

 

 

The Resolution to adopt the Model City Tax Code was passed unanimously.          

https://www.youtube.com/watch?v=7wEWS_i79ZQ

 

 

 

 

At the annual Town Hall meeting on Saturday, Nov. 9th, Al Swanson, from Venues Cafe, brought up the subject of the proposed use tax.  Mayor Schwan stated that it is directed at high value property brought into Arizona when no sales tax is paid at the source.  It was initiated years ago because people were buying cars out of state to avoid the sales tax, and bringing them into Arizona.  

 

 

 

He informed the audience, most of whom had not attended the November Council meeting, that there is a $1000 exemption for individuals.  He told them it is aimed at large corporations, many of whom have a national buying organization that makes purchases and ships them to the various stores around the country.  The use tax protects local vendors, meaning vendors within Arizona, including those in Carefree.  Remote vendors now have an advantage because local vendors must charge sales tax.

 

 

 

Mayor Schwan said it is suspected that many large vendors are already paying the use tax, and because it is not on Carefree's books the Town is not getting what it should be getting.  He reiterated Al Holler's statement that Cave Creek's budget anticipates $100,000 of income collection via use tax from those not paying sales tax at the origin.  The use tax simply replaces the sales tax.  

 

 

 

An audience member asked if we were just getting "up to speed" with the communities around us.  Mayor Schwan confirmed that is the case.  All the sales tax flows through the state, and we are just trying to get up to speed with everybody else and get our fair share of the action.

 

 

 

Mr. Swanson asked if it applied to goods shipped out of the state.  Mayor Schwan said it did not.  Mr. Swanson asked, "How do you control that?"  Mayor Schwan replied, "We don't.  There's no tax on it."  Mr. Neiss said, "It's the receiving state that has the opportunity to do something about that."

 

 

 

Jim Van Allen said that Carefree merchants receive no direct benefit from the UT, and asked if that was a correct statement.  Mayor Schwan answered, "No.  They get to compete on an equal opportunity with merchants outside of Arizona that would sell the product without charging tax."  Mr. Van Allen pointed out that you can't buy electronics in Carefree, so no one but the Town would benefit if a TV is shipped in from Texas.  Mr. Neiss said the thinking on this is directed towards the long term.  At one time, there was a Radio Shack in Carefree.  Things change, and perhaps we will have an electronics store here in the future.  The audience member who had spoken previously (I apologize for not knowing his name) commented that it would level the playing field. 

 

 

 

Mayor Schwan reiterated that large retailers are already charging the tax, and that Congress is considering legislation that would have everyone charging sales tax.  He reminded the audience that there is a $1000 exemption for individuals.  Mr. Van Allen asked, "If I were to buy 3 parts for my TV that I already have, each of which is $30, it doesn't mount up to $1000, I would pay no tax on those individual pieces?"  Mayor Schwan said, "Correct.  It isn't aimed at individuals; it's aimed at the big corporations who bring stuff in."  

 

http://www.youtube.com/watch?v=hFOjyhfQKEM

 

 

(Lyn's note: As per Arizona Statute, Use Tax does not apply to items specifically exempt from transactions privilege tax such as prescription medicines and medical devices for in-hone use, most food items purchased at a grocery store, casual sales, and sales for resale.

http://www.azdor.gov/LinkClick.aspx?fileticket=grFbHzrstZ0%3D)

 

 

Lyn Hitchon

 

 

 

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