TPT Reform Update League Annual Conference August 19, 2015 Presented by Lee Grafstrom, Tax Policy Analyst – League of AZ Cities & Towns Ken Jones, Deputy City Manager/Chief Financial Officer – City of Tempe

TPT Reform Update Where Are We Now? Delayed State Administration Single Audit – New rules began January 2015 Contracting issues addressed through legislation (SB1446) – Refer to TPN 15-1

TPT Reform Update Auditing Cities can do any “local” or City-Tax-Only audits DOR will do all “multijurisdictional” audits Technically, DOR “leads” all audits City auditors may perform any audit functions and work on behalf of DOR

TPT Reform Update Contractor Types and Licensing Contractors that never do MRRA work – Prime Contractors All new construction, home and commercial builders, road builders – This group MUST KEEP their TPT License Contractors that do both MRRA and Prime Contracting Most remodelers, most subcontractors, pool contractors – This group MUST KEEP their TPT License Contractors that only do MRRA work Handymen, residential electrical, plumbing, HVAC, etc. – All of the pick-up trucks with a magnet or hand painted sign on the door – This group MAY CANCEL their TPT license (and they can also keep it if they are uncertain)

TPT Reform Update Contracting – “MRRA” An Exclusion from Contracting Taxed based on materials purchase price only MRRA is an acronym for activities taxed on materials: M – Maintenance, to keep things in working order R – Repair, of an existing part or unit R – Replacement, of the same component or system A – Alteration, changes to existing real property

TPT Reform Update Alteration: Residential Original Contract Value must be no more than 25% of the Full Cash Value per the County Assessor If the Full Cash Value changes between the bid and the contract, the higher value is always used Final Contract Value can overrun by 25%

TPT Reform Update Alterations: Non-Residential ALL THREE criteria must be met: 1.Original Contract is < $750,000 AND, 2.Scope of the job ALTERS < 40% of the existing square footage, AND, 3.Scope of the job ADDS < 10% of the original square footage as new sq. ft. to the building Roads and heavy construction jobs subject to a public procurement process are ALWAYS taxed as Contracting

TPT Reform Update New Agreements New IGA between DOR and each City/Town o Major issues: Audit, Closing Agreements, Taxpayer Confidentiality, New Reports, “SLUG”, etc. o Permanent, Required by Statute New MOU between DOR and Municipalities o DOR Performance Measures/Standards/Reports o Ongoing, came out of Budget Talks

TPT Reform Update Taxpayer Data Match & Merge: Identifying City accounts to the DOR accounts, verifying demographics All City and Town taxpayers need to be represented in the DOR system Data Extracts – Due dates for matching to DOR; Monthly updating; Iterative process Must be completed before we can “Go Live”

TPT Reform Update 2016 License Renewals Non-program cities do their own License Renewal o Capture SSN/EIN for Match & Merge o Renewal fees are one per owner, not location o Overlap with State license renewal request DOR will handle license renewals for all Program city and town business locations

TPT Reform Update New Reports to Cities and Towns Weekly Distribution Reconciled to Cash Disbursements By taxpayer, business location and business activity

TPT Reform Update New Reporting to the Cities New License Report License Update Report City Payment Journal / Summary Reports No-Money Report Deduction Report Fund Distribution / Summary Reports