David Smith: Time for real tax reform in Scottsdale

For several years during the recession, the Scottsdale City Council has applauded itself for not increasing our property taxes by the legally allowed 2 percent, an action that has saved the average citizen about $2.25 per year. What is never mentioned in the same discussion is the increase in the city’s sales-tax collections compared with six years ago, reality that has cost the average citizen about $53.25 per year.

Considered together, despite the good intentions of council, the average citizen is paying a lot more in city taxes. These two taxes impact individual citizens quite differently. Property-tax relief primarily benefits owners of the highest-value properties, particularly businesses. Sales-tax assessments, on the other hand, fall most heavily on those least able to pay.

Scottsdale has one of the lowest sales-tax rates of any city in the Valley (ours is 1.65 percent, even including the 0.35 percent temporary tax earmarked to acquire preserve lands). Still, the more a taxable purchase is needed by everyone, the more regressive the tax is. Suppose our council embarked on a mission bolder than just saving the average citizen $2.25 a year. Imagine a commitment to address some of the regressive and inequitable features of our city finances. Here are some ideas for real tax reform in Scottsdale:

— Sales tax on food: Probably the most regressive of all regressive taxes is the sales tax we impose on food (consumed at home, not in a restaurant). In Scottsdale, the tax on food-store purchases generates 7.5 percent of all city sales-tax receipts; for a family of four, the tax on food amounts to about $175 a year. Neither the state nor Maricopa County tax food; Mesa doesn’t tax food; neither does Surprise; Phoenix taxes food at only 1 percent — and even that tax is temporary. Suppose Scottsdale stopped taxing food? We could phase the tax out over time, as other tax revenues rebound, or phase in a small sales-tax increase on other goods and services to earn the same revenue.

— Tax on rental properties: While some city taxes are regressive, others seem downright punitive. Consider the taxes we impose — directly or indirectly — on renters. The owner of every apartment building or rental house pays property taxes and passes that expense along to his tenants as part of their monthly rent. But the city also imposes a 1.65 percent tax on the rent collected by the landlord and that tax also is passed along to tenants as part of their monthly rent. Somewhat the same thing happens in many of our retirement-village facilities.

Tax on utilities (sometimes): Some Scottsdale city taxes are discriminatory on the basis of geography. About a quarter of Scottsdale residents are served by Salt River Project and their monthly bills include a 1.65 percent tax on their utility purchases. The other three-quarters of our population are served by Arizona Public Service, whose customers are not taxed on their purchase.

It’s easy to promise tax reform; what really matters, though, is understanding existing tax structures and developing workable plans for tax reform.

David N. Smith is a former Scottsdale city treasurer and chief financial officer and current candidate for Scottsdale City Council.

Article source: http://www.azcentral.com/story/news/local/scottsdale/2014/10/17/time-real-tax-reform-scottsdale/17432777/