10.C.
City Council Meeting - FINAL
- Meeting Date:
- 02/07/2017
- Co-Submitter:
- Rick Tadder
- From:
- Sandy Corder, Interim Revenue Director
Information
TITLE:
Consideration and Approval of Contract: Modification to Intergovernmental Agreement (IGA) Between The State of Arizona Department of Revenue and City of Flagstaff (related to State Administration of Local Sales Tax)
RECOMMENDED ACTION:
Approve Modification to IGA with Arizona Department of Revenue effective July 1, 2016.
Executive Summary:
Beginning in July 2016 the Arizona Department of Revenue (ADOR) made software system changes that enabled our local taxpayers to file City transaction privilege taxes (also referred to as local sales taxes) through the state portal. This modified Intergovernmental Agreement (IGA), retroactively effective to July 1, 2016 allows ADOR to answer common questions on the Model City Tax Code without first having to consult with the City of Flagstaff.
Financial Impact:
If the City chooses to not approve the IGA, this may delay the receipt of local tax revenues collected by ADOR.
Policy Impact:
Connection to Council Goal and/or Regional Plan:
COUNCIL GOALS:
8) Improve effectiveness of notification, communication, and engagement with residents, neighborhoods and businesses and about City services, programs, policies, projects and developments
8) Improve effectiveness of notification, communication, and engagement with residents, neighborhoods and businesses and about City services, programs, policies, projects and developments
Has There Been Previous Council Decision on This:
Yes. The City has approved:
December 5, 1990 Agreement to Establish a Unified or Coordinated Audit Program and Exchange of Information
January 28, 2015 Modification to IGA between the State of Arizona and City/Town (related to audits/1990 agreement)
January 28, 2015 Agreement between the ADOR and the City/Town of Flagstaff (local TPT licensing to continue until 1/1/17)
June 16, 2015 IGA Between the State of Arizona and the City/Town of Flagstaff (state and local roles for administration, audits)(in effect)
December 5, 1990 Agreement to Establish a Unified or Coordinated Audit Program and Exchange of Information
January 28, 2015 Modification to IGA between the State of Arizona and City/Town (related to audits/1990 agreement)
January 28, 2015 Agreement between the ADOR and the City/Town of Flagstaff (local TPT licensing to continue until 1/1/17)
June 16, 2015 IGA Between the State of Arizona and the City/Town of Flagstaff (state and local roles for administration, audits)(in effect)
Options and Alternatives:
- Approve the Modification to the IGA;
- Do not approve the Modification, possibly delaying the receipt of revenues due to the City of Flagstaff collected by ADOR.
Background and History:
The City has its own local taxing authority. Historically the 91 cities and towns in Arizona have levied and collected their own local transaction privilege taxes, per the 1987 Model City Tax Code. In 2013, the Arizona Legislature adopted a new law requiring the Arizona Department of Revenue (ADOR) to administer and collect all local transaction privilege, use and licensing taxes, in addition to all state taxes (a single point of return). Starting January 1, 2017 ADOR is administering all local taxes. All businesses now must file both state and local tax returns with ADOR.
State law requires that ADOR and the City enter into an intergovernmental agreement regarding their respective responsibilities. ADOR and the City entered into an IGA dated June 16, 2015. This IGA became effective July 1, 2015 and automatically renews for one year terms.
The proposed Modification to this IGA will be effective retroactively to July 1, 2016, at which time ADOR began to allow local returns to be filed with ADOR. The Modification allows ADOR to answer common questions on the Model City Tax Code without consulting the City. The Modification was discussed and understood to be necessary for a smooth transition in regular teleconferences held with ADOR and the Arizona League of Cities and Towns.
Additional History:
In May, 2012, then Governor Jan Brewer issued Executive Order 2012-01 calling for the creation of a Transaction Privilege Tax Simplification Task Force. The Task Force was charged with: " ...reviewing, identifying, or developing proposals that would simplify the TPT code and TPT practice in order to alleviate taxpayer frustration, improve compliance, and avoid redundancies. Specific areas of focus shall include, but not be limited to:.. a. options for a single point administration to avoid redundancies; b. identification of differences between state statute and the Model City Tax Code; c. standardization of definitions of taxable transactions between taxing authorities."
The Task Force completed its work and made recommendations.
In 2013, 2014, 2015, and 2016 the Arizona Legislature adopted new laws related to tax simplification and local taxes. The local tax on construction contracting was overhauled. Also, exemptions and deductions from local tax were enacted. The ADOR and City have provided training and information on these changes
ADOR originally was to start administration and collection of local tax on January 1, 2015. It was necessary for the ADOR to move the date to January 1, 2017. This additional time helped ADOR and the cities and towns purchase improved software for ADOR to handle all the returns, among other things.
The City has been working with ADOR, other municipalities, and taxpayers to support a smooth transition. City Finance staff has offered and will continue to offer trainings to assist with the changeover.
State law requires that ADOR and the City enter into an intergovernmental agreement regarding their respective responsibilities. ADOR and the City entered into an IGA dated June 16, 2015. This IGA became effective July 1, 2015 and automatically renews for one year terms.
The proposed Modification to this IGA will be effective retroactively to July 1, 2016, at which time ADOR began to allow local returns to be filed with ADOR. The Modification allows ADOR to answer common questions on the Model City Tax Code without consulting the City. The Modification was discussed and understood to be necessary for a smooth transition in regular teleconferences held with ADOR and the Arizona League of Cities and Towns.
Additional History:
In May, 2012, then Governor Jan Brewer issued Executive Order 2012-01 calling for the creation of a Transaction Privilege Tax Simplification Task Force. The Task Force was charged with: " ...reviewing, identifying, or developing proposals that would simplify the TPT code and TPT practice in order to alleviate taxpayer frustration, improve compliance, and avoid redundancies. Specific areas of focus shall include, but not be limited to:.. a. options for a single point administration to avoid redundancies; b. identification of differences between state statute and the Model City Tax Code; c. standardization of definitions of taxable transactions between taxing authorities."
The Task Force completed its work and made recommendations.
In 2013, 2014, 2015, and 2016 the Arizona Legislature adopted new laws related to tax simplification and local taxes. The local tax on construction contracting was overhauled. Also, exemptions and deductions from local tax were enacted. The ADOR and City have provided training and information on these changes
ADOR originally was to start administration and collection of local tax on January 1, 2015. It was necessary for the ADOR to move the date to January 1, 2017. This additional time helped ADOR and the cities and towns purchase improved software for ADOR to handle all the returns, among other things.
The City has been working with ADOR, other municipalities, and taxpayers to support a smooth transition. City Finance staff has offered and will continue to offer trainings to assist with the changeover.
Key Considerations:
The IGA and this Modification clarify the responsibilities of ADOR and the City related to local sales tax administration.
Community Benefits and Considerations:
None
Community Involvement:
Inform