TPT Reform Update

League Annual ConferenceAugust 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 ContractorsAll new construction, home and commercial builders, road builders

– This group MUST KEEP their TPT License

• Contractors that do both MRRA and Prime ContractingMost remodelers, most subcontractors, pool contractors

– This group MUST KEEP their TPT License

• Contractors that only do MRRA workHandymen, 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 UpdateAlterations: Non-ResidentialALL 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/Towno Major issues: Audit, Closing Agreements, Taxpayer

Confidentiality, New Reports, “SLUG”, etc.o Permanent, Required by Statute

• New MOU between DOR and Municipalitieso DOR Performance Measures/Standards/Reportso 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 Renewalo Capture SSN/EIN for Match & Mergeo Renewal fees are one per owner, not locationo 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