House of Representatives

HB 2499

sales tax rates; preexisting contracts

Sponsors: Representatives Cooley, Pierce, Graf, Avelar, et al

DPA	Committee on Commerce and Economic Development
DPA	Committee on Appropriations
DPA	Caucus and COW
X	Third Read
	As Passed the House

*****REVISED*****

HB 2499 exempts construction contracts entered into before November 7, 2000, from the six-tenths of one percent increase in the transaction privilege tax that began June 1, 2001, unless the contracts contain reimbursement provisions for the additional tax.

Current Status

HB 2499 was amended in the Commerce and Economic Development Committee to clarify the language and make the provisions retroactive to taxable years beginning June 2001.

The bill was amended in Appropriations Committee with clarifying language and to include only the State, counties and improvement districts.

The Committee of the Whole adopted the committee amendments, a Proposition 105 Rules Committee amendment and further added a conditional enactment clause to include an exemption for future contracts and bids.

History

Arizona’s transaction privilege tax (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 rate is increased, but are not paid for until after the tax rate increase occurs.

With the passage of Proposition 301 at the 2000 general election, this scenario occurred. Proposition 301 imposed an increase to the TPT rate of six-tenths of a percent beginning June 1, 2001. In order to avoid confusion, the bill clarifies what rate to apply to certain transactions.

During the 2001 regular session, the Legislature passed HB 2376. That bill was similar to HB 2499. It would have provided contracts entered into before the effective date (June 1, 2001) of the TPT increase approved by the voters to pay the TPT at the lower rate, 5% instead of 5.6%. The governor vetoed HB 2376.

Provisions

· Exempts construction contracts or written bids signed prior to November 7, 2000, from the additional TPT rate imposed as a result of Proposition 301.

· Stipulates that any future increase in the TPT enacted either by the Legislature or by a vote of the people does not apply to contracts and written bids entered into before the enactment. The prime contractor must provide documentation to verify the applicable date.

· Specifies that any increase in the transaction privilege, sales, gross receipts, use, franchise or other similar tax or fee that is levied by any municipality or other taxing jurisdiction does not apply to construction contracts entered into prior to the date of the rate increase. There must be supporting documentation to verify the date of the contract or written bid.

Amendments

HB 2499 was amended in the Commerce and Economic Development Committee:

· Clarifies language

· Contains a retroactive clause for clarification purposes.

HB 2499 was amended in the Appropriations Committee as follows:

· Makes the bill's provisions applicable to only tax increases effected through elections by the voters, the State Legislature, or the county, including improvement districts [no longer applies to municipalities].

· Requires the documentation for exemption to be in a form and manner approved by DOR.

The Committee of the Whole adopted the following amendments:

· The CED and Appropriations Committee amendments.

· The Rules Committee amendment that added a Proposition 105 clause.

· A conditional enactment clause that exempts contracts and bids from any future such legislation.

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· 45th Legislature

· Second Regular Session 2 April 1, 2002

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