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Posted by: Maricopa Lawyers on Feb 14, 2013

Arizona currently has the 2nd highest combined state and local sales tax rates in the United States, according to a new report from the Tax Foundation.

The combined rate of 9.16 is second only to Tennessee, whose residents have a 9.44 percent combined sales tax rate. This high percentage has led Governor Jan Brewer to start a crusade that aims to simplify the way the government collects sales tax. House Bill 2657 was formally introduced to the house earlier this week and has some Arizona cities complaining that the measure could result in a loss of millions of revenue and reduce oversight to prevent tax fraud.

The plan, created by a tax force formed in 2012, would create one point of contact for businesses, one payment and one audit. Businesses collect their sales taxes from the government but for years have been mired in red tape dealing with multiple levels of government. The new measure would simplify the process.

HB 2657 would send payments through one state-run agency and disperse them to the proper government agencies either city, county or state. Cities have complained the plan would deprive them of millions in tax dollars because it would change the way the prime-contracting sales tax is levied. The new bill would end the system where taxes on construction and other kinds of contracting are collected where the work is done. Under this new plan contractors would determine the price of the job and then pay taxes on 65 percent of that, presumably for materials.

Contractors would pay the sales tax on the materials the buy at the point of purchase. However some legislators are arguing that many of those materials could be bought in other jurisdictions or out of the state.  The City of Phoenix has estimated such a shift could cost $11 million to $25 million a year.

Brewer has said that she is hoping that the legislature will be able to hammer out a compromise on this new bill.