Public Hearing followed by discussion and possible action on any and all matters regarding the First Reading of Ordinance No. 357.  An ordinance of the Mayor and City Council of the City of San Luis, Arizona, amending the Tax Code of the City of San Luis by adding Subsection 7A-610 (e) relating to the Use Tax Rate for Purchases of Tangible Personal Property; making a technical correction to Ordinance No. 348 while retaining its effective date of June 1, 2016;  establishing an effective date for Ordinance No. 357; repealing any conflicting provisions; and providing for severability.  (Kay Marion Macuil, City Attorney)

A. Open Public Hearing
     1. Staff Presentation
     2. Call to the Public on this Item
B. Close Public Hearing
C. Action on First Reading of Ordinance No. 357 by title only

Background

City Council passed Ordinance 348,  amending the San Luis Tax Code and providing for a tiered sales tax rate of 1.5% on single items costing $2,500.00 or more while the sales tax on remaining items of lesser value have no change at 4%.  This item has returned to City Council due to technical changes required by the Arizona Department of Revenue (ADOR).  These changes do not change the substance of the ordinance creating a tiered tax.  However, an additional Ordinance No. 357 is required to include a tiered tax for use tax to comply with the Federal Constitution on interstate commerce.  Ordinance No. 357 will not affect construction taxes for the City.  Ordinance No. 357 also corrects the section numbers in Ordinance No. 348 while retaining its effective date of June 1, 2016. 

These corrections were attempted in Ordinance No. 354.  Those corrections were rejected by ADOR and so Ordinance No. 354 was repealed.

This Ordinance No. 357 has been properly noticed in the newspaper as required under Arizona law. 

State Law Requirements for Tax Codes
Under State Law, city tax codes must go through review by ADOR for uniformity through-out the State.  This is done so that those who are subject to taxes in multiple cities can more easily understand their tax responsibilities with every city having the same organization of their tax codes.

Use Tax on Tangible Personal Property

Use tax is similar to sales tax, in that it is a tax collected in relation to sales made to Arizona customers. However, it is different from sales tax in that for sales tax, the primary consideration is whether or not the sale occurred in the state, while for use tax it is whether the property purchased out-of-state is brought into the state for use, storage or consumption.  In general, the purchaser, rather than the out-of-state vendor, is liable to the Arizona Department of Revenue for use tax.  Out-of-state vendors do not generally charge sales tax, so cities must determine what the sales tax would have been on the purchase. The purpose of a use tax is to prevent the avoidance of sales tax made possible by purchasing tangible property from out-of-state vendors. The use tax also applies to purchases on which another state's sales tax or other excise tax was imposed if the rate of that tax is less than the Arizona use tax rate.

Recommendation
Staff recommends approval of the first reading in order that it may be set for the next regular meeting for the second reading and  passage in compliance with the State and Federal requirements for tax codes.