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Item # 4.

Town Council Regular Session

Meeting Date:

04/08/2026

Submitted By:

David Gephart, Finance

Department:

Finance

SUBJECT:

DIRECTION AND POSSIBLE ACTION REGARDING ARIZONA DEPARTMENT OF REVENUE'S FAILURE TO TIMELY AMEND THE ORO VALLEY MODEL TAX CODE THEREBY VOIDING THE ACTION OF COUNCIL ON JANUARY 14, 2026 AS IT RELATES TO THE USE TAX

RECOMMENDATION:

N/A - this item is for informational purposes only.

EXECUTIVE SUMMARY:

N/A

BACKGROUND OR DETAILED INFORMATION:

Town staff has been informed by the Arizona Department of Revenue (AzDOR) that Ordinance No.(O)26-02, passed by Town Council on January 14, 2026, was not changed in the "official copy of the model city tax code" within the 10-day period specified in ARS 42-6052(I)1 and 2. Therefore, Ordinance No. (O)26-02 is void and has no effect.

Below is a history of relevant communications with the Arizona Department of Revenue:

History of Relevant Communications Regarding Use Tax with Arizona Department of Revenue:
October 15, 2025 – Notified Arizona Department of Revenue of potential tax code changes.
January 8, 2026 – Provided draft ordinance and associated red-line exhibits to Arizona Department of Revenue
January 14, 2026 – Use Tax Ordinance No. (O)26-02 passed by Town Council
January 20, 2026 – Ordinance No. (O)26-02 signed and executed by all necessary signatories
January 22, 2026 – Executed Ordinance No.(O)26-02 emailed to Arizona Department of Revenue
February 26, 2026 – Received notice from Arizona Department of Revenue that Form 5021 was not submitted, therefore causing a delay in processing and “confusion” in their review. Staff was informed Ordinance No. (O)26-02 would need to be re-signed and re-submitted.
March 2, 2026 – Town staff emailed Arizona Department of Revenue and inquired why the executed use tax ordinance would need to be re-signed and re-submitted. Form 5021 was completed and emailed to the Arizona Department of Revenue as requested.
March 6, 2026 – Arizona Department of Revenue insists that Ordinance No.(O)26-02 would need to be re-signed and re-submitted. They copied and pasted ARS 42-6052(I)1 and 2 as their reply.
March 9, 2026 – After discussing with legal counsel, staff re-signed (backdated) and re-submitted Form 5021 in lieu of re-signing and re-submitting Ordinance No. (O)26-02.
March 13, 2026 – A meeting request was received by Town staff from the general counsel and assistant director of Arizona Department of Revenue.
March 23, 2026 – Town Legal Director and Chief Financial Officer met remotely with Arizona Department of Revenue general counsel and assistant director. During the meeting, the Arizona Department of Revenue took the position that the Town now needs to present a replacement use tax ordinance before Town Council for re-approval.

To summarize, Town staff filed Ordinance No. (O)26-02 within the 10-day timeframe requirements of ARS 42-6052, notifying the Arizona Department of Revenue 8 days after passage. Further, AzDOR even had pre-notification on January 8 of the draft ordinance and proposed changes to the Oro Valley tax code. Finally, at no point in the process did AzDOR communicate with staff how much time they needed to effectuate such a change. Despite the tax code changes being boilerplate use tax language applicable to all cities/towns statewide, the Arizona Department of Revenue failed in its duty to make necessary changes to the official copy of the model city tax code according to Arizona law.

Due to this circumstance, it is necessary to repost the public notification of a potential tax change and for the Town Council to re-adopt its intent. Staff intends to bring this item back to Town Council at its June 17, 2026, meeting.

FISCAL IMPACT:

N/A

SUGGESTED MOTION:

I MOVE to authorize the Town to begin the process of passing the Use Tax again.

Attachments

No file(s) attached.