Taxing Inequities

The city's new use tax will give some car buyers an unwanted surprise.

Hardly anyone likes to pay taxes. But when some people are required to do so, while others avoid them because of a loophole, those bearing the burden can get legitimately upset.

This could be especially true in pro-business Tucson if its companies are being taxed while individuals can skip out on their bills.

Beginning on July 1, the city of Tucson's new 2 percent "use tax" goes into effect. Approved in May by a 4-3 vote of the City Council (with members Kathleen Dunbar, Jose Ibarra and Fred Ronstadt dissenting), the additional levy is expected to add at least $4 million to cash-strapped local government coffers during the next 12 months.

Much of that money will come from businesses that buy vehicles and equipment outside the city limits and don't pay Tucson's existing 2 percent sales tax. Starting next week, if they're not charged a municipal sales tax at the point of purchase, they will be subject to the local use tax.

To ensure that the additional tax is paid, the city's Finance Department has been notifying businesses of this new requirement. They will also check for compliance when they periodically audit companies.

Not unexpectedly, the new tax is creating controversy even before it goes into effect. Tucson Electric Power Company has asked for an amendment that could reduce the tax obligation for itself and similar firms by more than $1 million a year, and the proposal was considered by the City Council on Monday.

Another group that could be significantly impacted by the new tax, though, hasn't even been contacted by the city--and probably never will be. Many Tucson residents who buy cars or motor homes outside the city limits will be legally obligated after July 1 to pay the use tax. Theoretically, once the Finance Department has checked Motor Vehicle Department records, if the buyer lives in the city and hasn't paid a municipal sales tax on the purchase, they could be getting a surprise tax notice.

But that process has a major loophole. MVD records only indicate who paid state sales tax on a vehicle purchase; they don't distinguish down to the local sales tax level. Thus, it is only people who bought vehicles outside of Arizona who will probably ever be contacted by the city about the use tax. Any Tucson resident buying a car or RV in unincorporated Pima County likely will never hear about it and won't pay the tax.

These purchasers, however, are still legally obligated for the amount due, according to Gary Tasky, taxpayer assistance supervisor for the city of Phoenix, where there's a similar tax. But, he admits, because of the lack of information from MVD, Phoenix doesn't bill people on vehicles purchased in unincorporated Arizona--so the tax isn't paid.

Locally, the result of this use tax collection problem will be a dichotomy of taxpayers. While Tucson businesses might be audited by the city to determine if they have paid the tax, most individuals buying vehicles outside the city limits will be able to avoid the new charge.

Despite that difference, there could be a political plus to this disparate collection system for City Council members.

"The voters will be kind of pissed off," motor vehicle dealer Bob Beaudry predicts of the reaction Tucson car and RV buyers would have if the tax bill ever did arrive in the mail.

The view from another area car dealer also questions the use tax. Even with the pending change, "No City Sales Tax" is still used to advertise Oracle Ford located far north of town. A spokeswoman for the agency says they are uncertain of the impact of the new tax on their business since the city of Tucson's ability to collect it is in doubt.

Public confusion is also one reason why Councilmember Dunbar voted against the new tax.

"There was not an appropriate amount of time to explain it to the community or to receive public comments on it," she says, "and there are a zillion misconceptions about it. My office is getting calls from Pima County residents (mistakenly) thinking it applies to them."

While stressing that Tucson is one of only a few cities in the state that doesn't have a use tax, when asked what she thought the public's response to the new levy would be when they found out about it, Dunbar facetiously responded.

"RV and car buyers will be real pleased. They'll immediately head down to City Hall and drop off their checks," she joked.

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