Purpose

Specifies that, beginning June 1, 2001, when the transaction privilege tax (TPT) is due on a transaction, the applicable rate will be based on the rate in effect on the date of the sale.

Background

Arizona’s TPT 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 situation is likely to occur. Proposition 301, passed by the voters in the 2000 general election, levied an additional six-tenths of a percent TPT and use tax (“sales tax”) beginning July 1, 2001. To address this potential situation, the strike everything amendment to S.B. 1258 specifies that, beginning June 1, 2001, the applicable rate will be based on the rate in effect on the date of the sale.

According to the Department of Revenue (DOR), there will be some fiscal impact to Proposition 301 educational funding and other funds impacted by future sales tax increase, in the form of unrealized revenue.

Provisions

1. Specifies that, beginning June 1, 2001, when a state, county or municipality has a TPT increase, the tax rate will be computed based on the rate in effect on the date of the sale.

2. Defines “date of sale” as one of the following:

· The date that a contract, lease or similar document is executed by all parties;

· The date that the transfer of title or possession of property for a sale occurs;

· The first day of the calendar month following the effective date of the tax rate increase for utilities or telecommunication activities; and

· If not covered by any of the above, then it is the date the business activity occurs.

3. 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.

4. Defines “model city code” and “transaction privilege tax.”

5. Provides for a general effective date.

Amendments Adopted by Committee

Adopted the strike everything amendment.

Senate Action

FIN 3/8/01 DPA/SE 7-1-0-0

GH/jas