ARIZONA DEPARTMENT OF REVENUE

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ARIZONA DEPARTMENT OF REVENUE

• An Economic and Agency Update

Georganna Meyer Chief Economist Office of
Economic Research Analysis Arizona Department
of Revenue
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PUBLIC SERVICE ANNOUNCEMENT

• URGENT SWINE FLU UPDATE
• The Center for Disease Control has issued this
  alert
• Please discontinue the following activity

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• he Center for Disease Control has issued this
  alert  Please avoid the following activity

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OFFICE OF ECONOMIC RESEARCH ANALYSIS

• Elaine Smith
• Karen Jacobs
• Darlene Teller
• Diane Sosinski
• Nick Buta

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WHAT OERA CAN PROVIDE TO YOU

• Numbers
• Numbers
• Numbers
• Assistance
• Numbers
• Numbers

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Former Texas deputy comptroller Billy Hamilton
tax related definitions

• Tax Theory versus Tax Practice
• Tax theory is when you think you know something
  but it doesnt work.
• Tax practice is when something works but you
  dont know why.
• Typically, governments combine theory and
  practice so that nothing works and no one knows
  why.

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A little national economic perspective
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STATE COINCIDENT INDEXES

• The Federal Reserve Bank of Philadelphia produces
  a monthly coincident index for each of the 50
  states.
• The coincident indexes combine four state-level
  indicators to summarize current economic
  conditions in a single statistic.
• nonfarm payroll employment,
• average hours worked in manufacturing,
• the unemployment rate,
• wage and salary disbursements deflated by the
  consumer price index (U.S. city average).
• The trend for each states index is set to the
  trend of its gross domestic product (GDP), so
  long-term growth in the states index matches
  long-term growth in its GDP.

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JANUARY 2007
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JANUARY 2008
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JUNE 2008
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JANUARY 2009
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MARCH 2009
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MAY 2009
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JUNE 2009
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STATE BY STATE JOB GROWTH

• Stolen from Elliott D. Pollack Company

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Job Growth 2006
Source US BLS
10
7
9
5
1
4
3
15
22
8
2
11
6
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Job Growth 2007
Source US BLS
7
8
15
5
11
2
28
1
10
36
6
22
20
9
4
3
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Job Growth 2008
Source US BLS
8
2
15
34
42
7
1
11
46
17
10
45
9
4
47
14
6
3
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Job Growth Update Arizona Falls to 49th
Alaska 1
YTD May 09 v YTD May 08
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2
10
46
45
6
4
9
48
22
28
36
11
5
49
14
3
7
Hawaii
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Employment Growth Top 10 States

• Alaska
• North Dakota
• Louisiana
• Wyoming
• Oklahoma
• South Dakota
• Texas
• Minnesota
• Nebraska
• Montana

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THE BIG THREE REVENUE SOURCES
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TAXES ACCORDING TO BILLY HAMILTON

• Considered to be one of the 2 inescapable
  certainties of life, the other being death.
• The primary distinction between the 2 is that
  lawmakers dont meet every year to make death
  worse.

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THE BIG 3 GENERAL FUND REVENUE SOURCES
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THE BIG 3 GENERAL FUND REVENUE SOURCES
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COMMENTS ABOUT REVENUE FORECASTING

• REVENUE FORECASTING GUESSING
• BILLY HAMILTONS DEFINITION OF REVENUE ESTIMATING
• An endeavor undertaken by the government to
  project future income for budgeting purposes, the
  only certainty of which is that the projection
  will be wrong.
• A wild guess dignified by mathematics
• NO ONE, NOBODY, AT NO TIME CAN PREDICT THE
  ECONOMIC TURNS
• Rob Robbs January 7 2007 article

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• It takes quite a bit of strain to work up some
  bad news about the state budget. Nevertheless, a
  group of outside experts who advise the
  Legislature about revenue projections has managed
  to do it. Over the past 3 budget years, state
  General Fund revenues have increased 11, 19 and
  20. So far this budget year., revenue growth
  is running 9.
• So whats the expert consensus on revenue
  growth for next years budget? Just 5. The
  governors budgeteers have indicated that they
  are also ingesting large doses of castor oil and
  will come up with a similarly pessimistic figure.

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PER CAPITA COLLECTIONS FOR THE BIG 3
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TRANSACTION PRIVILEGE TAX
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TRANSACTION PRIVILEGE TAX TAXABLE SALES BY CLASS
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TOTAL TAXABLE SALES BY COUNTY
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CONTRACTING TAXABLE SALES BY COUNTY
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RETAIL TAXABLE SALES BY COUNTY
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A FEW COMPONENTS OF RETAIL SALES
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A BIGGER PICTURE OF MOTOR VEHICLE DEALERS
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TRANSACTION PRIVILEGE TAX

• ADOR collects and distributes city and county
  imposed taxes in addition to the state TPT.
• FY09 - 1.2 billion in city and county taxes
• We collect for all 15 counties and 75 cities and
  towns.
• The collection and distribution of city and
  county taxes includes auditing and collection of
  compliance money, including A/R, billing and
  collections.

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TRANSACTION PRIVILEGE TAX SERVICES TO
COMMUNITIES

• Provide Transaction Privilege Tax licenses to
  businesses
• Around 200,000 monthly, quarterly and annual
  filers
• Revenue sharing estimates for proposed
  annexations and incorporations
• Tax base estimates for proposed annexations and
  incorporations

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TRANSACTION PRIVILEGE TAX

• Cities and Towns received 13.4 less in TPT
  revenue sharing in FY2009 than they received in
  FY2008. 447M down to 387M
• Of the 75 cities and towns for which ADOR
  collected city sales tax in FY08 and FY09, the
  total collected declined 12.1

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TRANSACTION PRIVILEGE TAXCITY SALES TAX

• 15 of the 75 cities/towns actually had increases
  in their city sales tax collections
• Douglas (tax increase), Duncan, Eagar, Gila Bend,
  Mammoth, Pima, St. Johns, San Luis (tax
  increase), Springerville, Superior, Taylor,
  Tolleson, Wellton, Willcox, Winslow
• All 3 cities in Apache County? Whats up with
  that?

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TRANSACTION PRIVILEGE TAXCITY SALES TAX

• The cities and towns with declines (60 of the 75)
• Ranged in decline from (0.4) in Thatcher
• To (44.6) in Maricopa
• 9 with declines of greater than 20
• 20 with declines of 10 to 20
• 20 with declines of 5 to 10
• 11 with declines of 0.4 to 5

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TRANSACTION PRIVILEGE TAX COUNTY REVENUE SHARING

• 627.2M shared in FY09
• 724.4M shared in FY08 decline of 13.4
• But the share of TPT revenues a county gets in a
  fiscal year varies based on several factors so
  some counties fared better than others

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TRANSACTION PRIVILEGE TAX COUNTY REVENUE SHARING
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TRANSACTION PRIVILEGE TAX COUNTY REVENUE SHARING

• Good News No county received less revenue
  sharing in FY08/09 than they did in FY03/04.
• Bad News FY07 was a bubble. It burst. Its
  gone.

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TRANSACTION PRIVILEGE TAX- How a city can
maximum revenue sharing

• Pursue a certified Census count update when you
  annex property with population.
• Populations used for revenue sharing are from
  years ending in 0 and 5.
• Promote compliance with the next decennial
  Census.
• If you do not make efforts to take advantage of
  any gains you have in population, you will lose
  revenue sharing

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TRANSACTION PRIVILEGE TAX How a city can
maximize city privilege tax collections

• Provide ADOR with rate change information
  IMMEDIATELY.
• We no longer have the budget to send notification
  of rate changes to taxpayers. If you are willing
  to pay for notification, we can still send them.
• We will update our website and so should you!

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TRANSACTION PRIVILEGE TAX How a city can
maximize city privilege tax collections

• Understand the delay that occurs between a rate
  going into effect and money being distributed to
  you.
• If the taxpayer isnt told early enough, you
  wont get your money right away.
• Pay attention to the amount of money you receive
  each month.
• Pay attention to which taxpayers that are not
  paying.

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INCOME TAX

• INDIVIDUAL INCOME TAX COLLECTIONS

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Billy Hamilton again

• Income Tax
• A tax levied on the income of individuals and
  businesses and only made bearable by the fact
  that the alternative the absence of income is
  worse.
• The hardest thing in the world to understand,
  according to Albert Einstein. Replaces the
  previously hardest thing in the world to
  understand, the opposite sex.

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URBAN REVENUE SHARING

• 15 of net individual and corporate income tax
  two years prior
• 2004-05 365.1M
• 2005-06 373.1M
• 2006-07 425.2M
• 2007-08 684.5M
• 2008-09 727.7M
• 2009-10 628.6M
• 2010-11 474M estimated

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INDIVIDUAL INCOME TAX

• Income tax abstract by city and county
• Tax year 2004 is on our website
• Tax year 2005 will be on our website within a
  month

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INCOME TAX CREDITS

• Maybe you pay no attention to income tax credits,
  but are you aware that income tax credits can
  bring money into your community, promote
  purchases in your community?
• We have an abundance of tax credits in Arizona
  for a variety of different purchases or
  donations.
• Downside reduces income tax collections which
  reduces urban revenue sharing

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SOLAR INCOME TAX CREDITS

• Individual Solar Income Tax Credit
• Tax credit for the lesser of 25 of the cost of
  solar equipment installed on your home or 1000.
• Commercial Industrial Solar Income Tax Credit
• Tax credit for the lesser of 10 of the cost of
  solar energy devices installed for commercial or
  industrial purposes in the taxpayers trade or
  business or 25,000

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SOLAR INCOME TAX CREDITS

• Solar Hot Water Heater Plumbing Stub-Outs
  Electric Vehicle Recharge Outlets Credit
• 75 for each installation of solar hot water
  heater plumbing stub-outs or electric vehicle
  recharge outlets.
• Renewable Energy Tax Incentive
• Legislation just passed this last session
• Refundable income tax credit and property tax
  incentives for certain capital investment levels
  and creation of new jobs in Arizona for
  manufacturers of solar energy equipment.

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WHAT WE ASK FOR

• Bonded Indebtedness/Lease Purchase Reports
• Letters sent out annually in July
• Nagging occurs till early November
• Then we give up if you havent reported and put
  you down as noncompliant.
• All cities and towns reported bonded indebtedness
  and lease purchase information for fiscal year
  2008/2009

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INDIVIDUAL INCOME TAX CREDIT FOR CHARITIES THAT
PROVIDE ASSISTANCE TO THE WORKING POOR

• Individual income tax credit for donations to
  charities that provide basic needs to low income
  families

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INCOME TAX CREDIT FOR EMPLOYMENT OF TANF
RECIPIENTS

• Credit for businesses that increase their
  qualified employment of recipients of temporary
  assistance for needy families.

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ENTERPRISE ZONE CREDIT

• Income tax credit for net increases in qualified
  employment positions of Arizona residents by a
  qualified business located in an enterprise zone.
• Parts of every county in the state is an
  enterprise zone
• All of some counties in this state are an
  enterprise zone

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WATER CONSERVATION SYSTEMS CREDIT

• Credit for installing a graywater recycling
  systems or a rainwater harvesting system
• 25 of the cost of the system, up to 1000
• Last year 60 of the credit approvals were for
  residents of Tucson.

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PRIVATE SCHOOL TAX CREDIT

• Individual income tax credit for donations to
  school tuition organizations that provide
  scholarships to private schools
• No restrictions as to who can receive the
  scholarships
• Corporate income tax credit for donations to
  school tuition organizations that provide
  scholarships to private schools
• Income restrictions on scholarship recipients

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PRIVATE SCHOOL TAX CREDIT

• 63 of the scholarships, 35.8M, went to schools
  in Maricopa County in 2008
• None of the scholarships went to Greenlee County
• Are there no private schools in Greenlee County?
• 677 in scholarships went to La Paz County
• Just because the majority of the money is donated
  in Maricopa County doesnt mean that the
  scholarships have to stay in Maricopa County

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PUBLIC SCHOOL EXTRA CURRICULAR ACTIVITY CREDIT

• Credit for donations to public schools for extra
  curricular activities
• 63 of the donations went to Maricopa County
  schools

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HEALTH INSURANCE PREMIUM TAX CREDIT

• Provides a tax credit for insurance companies
  that provide insurance premium reductions for
  individuals or small businesses which have been
  certified by the Arizona Department of Revenue
  and have obtained health insurance within 90 days
  after certification is issued. Certifications are
  issued on a first come, first served basis and
  may be reissued up to two times.

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HEALTH INSURANCE PREMIUM TAX CREDIT

• For individuals, the premium reduction is the
  lesser of 1000 for single person coverage, 500
  for child coverage or 3000 for family coverage
  OR 50 of the health insurance premium. For small
  businesses, the premium reduction is the lesser
  of 1000 for single person coverage or 3000 for
  each employee electing family coverage OR 50 of
  the health insurance premium.

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HEALTH INSURANCE PREMIUM TAX CREDIT

• Eligible applicants include AZ small businesses
  in existence for at least 1 calendar year with 2
  to 25 employees in the most recent calendar year
  and that have not provided health insurance to
  their employees for at least 6 consecutive months
  before the application. Individual applicants
  must earn less than 250 of the federal poverty
  level, must be a legal resident of AZ and a U.S.
  citizen or a legal resident alien, has not been
  covered under a health insurance policy for at
  least 6 consecutive months before application and
  is not enrolled in AHCCCS, Medicare or any other
  state or federal government health insurance
  program.

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OTHER TASKS OERA FOR WHICH OERA IS RESPONSIBLE
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PROPERTY TAX OVERSIGHT COMMISSION

• Property Tax Oversight Commission requirements
• Must notify PTOC in writing within 10 days of
  receiving your levy limit worksheet agreement or
  disagreement with the final worksheet
• Few ever comply with this
• Involuntary torts due to us on or before the
  first Monday of July
• Within 3 days of a truth in taxation hearing, you
  must mail a copy of the notice, a statement of
  its publication and the result of the governing
  bodys vote.

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PROPERTY TAX LEVY LIMITS

• Crib sheets for property tax levy limits
• Technical Assistance
• Including help with truth in taxation
• The September 2008 meeting
• Sierra Vista did not limit their 2008 levy as
  required for not holding a truth in taxation
  hearing in 2007
• Pima over-collected by 790
• Casa Grande over-collected by 39,751
• Coolidge over-collected by 58,343

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PROPERTY TAX LEVY LIMITS

• September 2008 meeting
• Truth in taxation violators
• Benson, Douglas, Miami, Gila Bend, Holbrook,
  Mammoth, Superior, Apache County
• Call us for help!!!!!!!!
• New task effective next property tax year
• Fire District Secondary Levy Limits

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ECONOMIC ESTIMATES COMMISSION -- EXPENDITURE
LIMITATIONS

• OERA is responsible for staffing the Economic
  Estimates Commission which is responsible for
  calculating expenditure limitations for cities
  and counties.
• Likewise, we are responsible for reducing your
  share of urban revenue sharing when the Auditor
  General determines you have spent more than your
  limitation.

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DEBT OVERSIGHT COMMISSION

• OERA is responsible for staffing the Debt
  Oversight Commission
• The Debt Oversight Commission is supposed to
  review OERAs work in compiling information on
  debt for all political subdivisions in the state
• Counties
• Cities
• Community Colleges
• School districts
• Special districts
• State Agencies

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BONDED INDEBTEDNESS/LEASE PURCHASE DATA

• Outstanding debt by county

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BONDED INDEBTEDNESS/LEASE PURCHASE DATA

• Per Capita Debt by County

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BONDED INDEBTEDNESS/LEASE PURCHASE DATA

• City debt as of 6/30/2008
• Phoenix 6,310,662,171
• Mesa 1,154,446,000
• Scottsdale 1,114,224,960
• Tucson 1,009,012,144
• Glendale 926,447,502
• Tempe 651,395,000
• Gilbert 383,845,000
• Chandler 351,435,000

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BONDED INDEBTEDNESS/LEASE PURCHASE DATA

• City debt as of 6/30/2008
• Clifton 40,000
• Pima 105,000
• St. Johns 147,853
• Huachuca City 151,000
• Colorado City 190,205
• Patagonia 217,931
• Jerome 261,896
• Tombstone 534,000

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BONDED INDEBTEDNESS/LEASE PURCHASE DATA

• No debt as of 6/30/2008
• Carefree, Dewey-Humboldt, Gila Bend, Globe,
  Hayden, Litchfield Park, Mammoth, Maricopa,
  Miami, Springerville, Star Valley, Wellton,
  Winkelman, Youngtown

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CONSTITUTIONAL DEBT LIMITS

• Who is closest to their debt limit for general
  obligation bonds?
• Tolleson 69.8 of debt limit used
• Goodyear 65.4 of debt limit used
• Tempe 65.3 of debt limit used
• Glendale 43.8 of debt limit used
• Phoenix 33.6 of debt limit used
• Lake Havasu City 31.2 of debt limit used
• Scottsdale 30.5 of debt limit used

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BONDED INDEBTEDNESS/LEASE PURCHASE DATA

• Per Capita City Debt as of 6/30/2008
• Cave Creek 10,078
• Williams 9,485
• Queen Creek 8,320
• Sedona 6,472
• Tolleson 6,246
• Cottonwood 5,221
• Scottsdale 4,640
• Tempe 3,880

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TRANSFERS FOR WHICH OERA IS RESPONSIBLE

• Rio Nuevo
• Phoenix International Raceway
• Tribal Community Colleges
• Phoenix Convention Center
• Sports and Tourism Authority

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A few words on budget cuts
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• The greater the number of auditors and collectors
  at ADOR, the better the enforcement of tax laws
  and the higher the enforcement collections.
• ADOR budget cuts seriously impacted the audit and
  collections process.
• Money still came in because it was in the
  pipeline already.
• However, nothing new was funneled into the
  pipeline.
• Received 3M for this fiscal year only to hire
  collectors to reduce the backlog of collections
  (more than 400 million).

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AUDIT COVERAGE

• 1997
• 600 auditors and collectors
• 8,417 residents per auditor/collector
• 2008
• 500 auditors and collectors
• 14,211 residents per auditor/collector
• 2009
• 258 auditor s and collectors
• 25,062 residents per auditor/collector

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ONE MORE BILLY HAMILTON-ISM

• STARVE THE BEAST
• A philosophical approach to government in which
  the government is deprived of revenue to carry
  out its basic functions so that when it fails to
  carry out those functions because of
  underfunding, it provides evidence of its
  ineffectiveness, thus warranting further cuts in
  funding.

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