NOW: contracts; tax
adjustment
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Committee on Transportation |
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Caucus and COW |
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X |
As Transmitted to the Governor |
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Provides that contracts entered into before the effective date of the transaction privilege tax increase approved by the voters in November, 2000 are not subject to the increased rate. Also requires public works contracts to provide a cost adjustment for the increased tax rate.
Arizona’s transaction privilege tax is imposed on the privilege of transacting business in this state. It differs from a sales tax in that the tax burden is imposed on the business, not the purchaser. However, almost all businesses will pass along this tax burden to the purchaser, in the same manner as a sales tax.
As a result, confusion may arise regarding the timing of the tax burden. This is especially true when a tax increase occurs and transactions take place before the tax is increased, but are not paid for until after the tax increase occurs.
With the passage of proposition 301 at the 2000 general election, this scenario is likely to occur. Proposition 301 will impose an increase to the state’s transaction privilege tax and use rate of six-tenths of a percent beginning on June 1, 2001. In order to avoid confusion, the bill clarifies what rate to apply to certain transactions.
Provisions
· Any gross proceeds of sales or income from a business is not subject to the increased transaction privilege tax (TPT) approved by voters at the November, 2000 election if the contract was entered into before June 1, 2001 (effective date of the increase). This does not apply to any contract that contains a provision to allow the contractor to pass the additional tax on to the purchaser. However, after December 31, 2001, all contracts are subject to the increased tax rate.
· Allows DOR to implement the tax rate differences as a credit against the liability established under the higher tax rate and also allows DOR to issue a refund.
· Requires contracts to provide for a cost adjustment in the case of an increase or decrease in any state or local TPT. Applies the cost adjustment to any contract for construction or reconstruction of Arizona Department of Transportation facilities, public building, design-build and any contract that is subject to the procurement code unless the contract is entered into by a city, town or an officer, board or commission of a city or town.
· Limits the application of the adjustment to changes in the tax rate enacted after the bid opening and only for the months during which the increase or decrease is in effect during the contract period.
· Requires the contractor to accept the tax adjustment as full compensation for any additional costs related to an increase in the rate of the tax.
· Beginning November 1, 2002, prohibits any increase or additional increment in the TPT from applying to the gross proceeds of sales or gross income derived from contracts entered into prior to the effective date of the increase or the statewide election date authorizing the increase unless the contract provides for a cost adjustment regard the tax increase.
· Requires the prime contractor to provide sufficient documentation to verify that the contract was entered into before the effective date of the increase or the election date.
· Contains blending language related to pest control and the tourism and sports authority.
· Contains an emergency clause.