Model City Tax Code… … is designed to assist the business community in determining which items are taxed by each individual city and town and which items are exempt from taxation.

History Before 1984: Each city and town created and maintained its own code, making multi-jurisdictional business increasingly complex. 1984: State and Phoenix Chambers attempt preemption of local sales tax authority. Legislature creates the Municipal Sales Tax Study Commission, includes policy makers and business leaders.

History Continued Municipal Sales Tax Study Commission: Joint Licensing Joint Auditing Coordination of State & Local Sales Tax Regulations Model Tax Reporting Form Model City Sales Tax Code 1985: First draft completed. Business community rejects draft. Second draft completed.

History Continued 1986: State Chamber attempts to mandate a uniform base through preemption legislation Third Draft distributed to cities and business community 1987: Preemption bill fails All cities adopt Model City Sales Tax Code

History Continued 1988: Legislature creates Model Sales Tax Code Commission, includes city representatives, business leaders, and the Director of DOR. Business community agrees to 4 years of peace 1993: Tucson Chamber creates bill to place Model City Tax Code in statute. Bill fails. ATRA and business community pursue preemptive legislation for 1994 session.

History Continued 1994: ATRA bill fails Negotiations produce compromise: Cities adopt set of amendments for manufacturing and TP rights 5 years of no preemption legislation. 1999: Limited municipal authority to go outside the Model City Tax Code Form Joint Legislative Study Committee to pursue elimination of the Model City Tax Code.

History Continued 2000: Study Committee gives no substantial recommendations Non-program cities agree to administrative changes: Joint auditing at the taxpayer’s option (MJAC) Consistency between cities and interpretations Establish Municipal Tax Hearing Office for Appeals. Continuing Themes: Business community dislikes complexity Cities want to maintain local authority Bipartisan support for change Proactive approach is critical Few states allow this much local control

Summary Sections and Regulations Main Goal: Provide a greater degree of simplicity and uniformity to ease the burden on businesses.

Index Article I – General Conditions and Definitions Article II – Determination of Gross Income Article III – Licensing & Recordkeeping Article IV – Privilege Taxes Article V – Administration Article VI – Use Tax Article VII – See Prescott, Williams, Winslow and Yuma individual pages; Access to Care Sections and Regulations

Summary Appendices Retain the right of individual cities and towns to determine the items taxed, and exemptions granted. Examples: Tax food Residential Rental Use tax

Index Appendices Appendix I – Modifications to Model City Code for Cities and Towns in the State Collection System Appendix II – Model Options Appendix III – Local Options Appendix IV – Modifications to the Model City Tax Code for Cities and Towns in State Collection System Performing Supplementary Local Audits

Model Options Appendix II & III: The Options Allows Cities and Towns to omit language from the Model City Tax Code. Local Options Allows Cities and Towns to add or substitute language to the Model City Tax Code.

Option Charts Displays every option that each city has chosen in a concise and comprehensible way.

Unified Audit Committee The UAC is a group of local tax officials and DOR representatives that coordinate joint audit activities among the various jurisdictions. The UAC also publishes uniform guidelines that interpret the Model City Tax Code.

Summary Municipal Tax Code Commission The MTCC considers important business related to the Model City Tax Code and creates an annual report for legislative leadership. 10 members: 1 representative from the Department of Revenue 9 Mayors or Councilmembers from various cities Five are appointed by the Governor, and two each from the Senate President and the Speaker of the House. No more than two members may be from the same city or town, and each have a term of 3 years.

What is on the Horizon? HB2111 HB2111 Model Code Update Efforts Model Code Update Efforts

HB2111: Effective 1/01/2015 Three Key Aspects:  State Administration  One point of contact  One tax return; one point of collection  Online portal  Single Audit  All audits cover all jurisdictions  State & City auditors; administered by ADOR  Audit Manual; Training; Certification  One appeals process  Contracting  Shift taxation of Repair Contracting to tax materials at the contractor’s point of purchase

Model Code Update We continue to seek ways to simplify the tax code and bring us closer to uniformity with the State code while retaining the authority of local jurisdictions to adapt the code to the local economy.  Ongoing elimination of Green Page items  Changes to the Retail classification  Uniform Licensing  Separation of Residential & Commercial Rental  Manufactured Housing  Reduction and Reorganization of Options

1820 W. Washington Street Phoenix, AZ 85007www.azleague.org ModelCityTaxCode.az.gov Lee Grafstrom Tax Policy Analyst