HB 2512: Decentralization or Privatization?

Posted: March 30, 2010 in Government

The Arizona Tax Research Association (ATRA) has come out with a paper supporting passage of Arizona House Bill 2512:

http://www.arizonatax.org/publications/positions/2010/2010hb2512.pdf

This bill would have the effect of preventing third-party tax administration, auditing, or collection for cities or counties.  Its immediate effect would be to prevent Revenue Discovery Systems (RDS) from contracting with cities or counties in Arizona.  (I used to work for this company.)  In addition, it would also presumably sever contractual ties between RDS and Bullhead City.

ATRA starts off by complaining about the additional administrative burden that is placed on businesses by Arizona’s two-track sales tax system.  In their view the current system requires businesses to keep “two sets of books for the payment of sales tax — one for the state and another for municipal tax obligations.”  They claim that if third parties do tax collection for the cities, it will make the situation worse.

This is misleading, however.  In Arizona, we have two different types of cities: program cities and non-program cities.  The non-program cities are self-collecting — mainly larger cities such as Phoenix, Tempe, Scottsdale, or Tucson.

Program cities are not self-collecting.  They are usually smaller cities who depend upon the Arizona Department of Revenue to collect taxes for them.

In the nature of the case, businesses will still have to keep “two sets of books” regardless of whether they file to the State or to a third-party.  On the Arizona sales tax return, it says “City tax for ‘program’ cities is also reported on the Form TPT-1.”  The instructions for the column B Region Code “identifies the county or city in which you conduct business.”  See:

http://www.azdor.gov/LinkClick.aspx?fileticket=QNowY3CNLDo%3D&tabid=264&mid=868

http://az-elmirage2.civicplus.com/documents/Finance/Business%20License/TPT_1%20%20Instructions.pdf

So in actual fact, even with State collection of city taxes, businesses have to keep “two sets of books” in order to keep track of income earned in each jurisdiction.  So if businesses file with RDS, it will be no different from what they already do with the State.

A recurring complaint from ATRA is the “potential administrative burden” of audits.  They cite the Georgia Director of the Department of Revenue (DOR) as saying “it doesn’t make sense to require businesses to file a separate return for each county in which they do business.”

In addition, they cite the Director’s complaint that if the Georgia DOR collected for profit, collectors would be on “every corner interfering with legitimate business operations….”

This complaint is misdirected.  If RDS does the tax collections for Arizona’s program cities, businesses would not be filing returns with each city.  They would file only one return, viz. an RDS tax form.  The RDS form is much the same as the State’s TPT return, wherein the cities and counties are listed.  Thus, fears of overburdening business with excessive filing are not based on factual grounds.

ATRA speaks of “wrapping an extraordinarily bad idea” in the term “privatization.”  They believe the term is misapplied in that privatization “actually saves taxpayers money” whereas “contracting with RDS is an added cost to cities for a service that is currently free.”

However, the issue is not privatization, and I don’t know whether it would save money or not.  The issue is not money; it’s decentralization.  This is the true conservative position that I mentioned in my previous article “What Has Government Done to Our Money?”  The writer of ATRA’s article is confusing the libertarian idea of getting rid of government with the conservative view of decentralized government.

ATRA ends up with a reference to a class-action lawsuit filed in Alabama against RDS for a “series of violations to the Alabama Taxpayer Bill of Rights.”  I cannot comment on this lawsuit, since I don’t know the particulars, and couldn’t relay confidential information in any case.

However, ATRA’s claim leaves the impression that RDS is guilty of violating the law.  My response is that lawsuits are filed all the time by disgruntled taxpayers against taxing authorities — IRS and State revenue departments.  By ATRA’s reasoning, we should stop IRS and State tax collections for the same reason.

The issue here is not overburdening business, or the legality of third-party collections, or pending court cases.  It’s whether we are going to reaffirm a commitment to the conservative ideal of decentralization of government, or whether we will continue on the path of centralization and unresponsive, unaccountable bureaucratization.

Despite our current political circumstances involving socialized medicine, I believe the wave of the future will be decentralization.  It is too bad ATRA prefers to stand in the way of that out of a misguided sense of loyalty to the business community.

In the long run, decentralization would encourage both greater responsiveness by the cities to the business community and greater competition between the cities, thus lowering both administrative burdens and taxes.

Vern

3/29/10

For follow up, see:

http://www.bullheadcityaz.govoffice2.com/vertical/Sites/%7B1990D1CC-9371-444D-89E1-C42F66407C45%7D/uploads/%7B8C816B5C-5C75-4600-B0B6-62A2598EFF2E%7D.PDF

Note:  Revenue Discovery Systems does not give prior approval to any writings or links on this blog, nor is notified in advance of any writings or links on this blog, nor is responsible in any way whatsoever for any content expressed in any writings or links on this blog.   The views expressed above are my own opinions.

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