Thoughts on Tax Reform…

A few weeks ago, I wrote a newsletter discussing tax collections in Scottsdale. I made a couple of comments that I hope resonated with readers; First, I “ran the math” on the Council’s much-lauded vote to not increase property taxes by the legally allowed 2%…an action that saves the average citizen about $2.25 per year. Second, I calculated the increase in sales tax collections compared to six years ago…a reality that costs the average citizen about $53.25 per year.

 

An observation I did not make (but should have) is the different impact these two taxes have on various citizens. Property tax relief is of greatest benefit to owners of the highest-value properties, particularly businesses. Sales tax assessments, on the other hand, fall most heavily on those least able to pay. We have one of the lowest sales tax rates of any city in the valley (ours is 1.65% and includes the 0.35% temporary tax earmarked to acquire preserve lands.) Still, the more a taxable purchase is needed by everyone, the more regressive the tax is.

 

Suppose your 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. Let me share some ideas I have for real tax reform in Scottsdale.

 

sales-taxSales 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% of all city sales tax receipts; for a family of four, the tax on food amounts to about $175 a year.

 

It doesn’t have to be this way. Neither the State nor Maricopa County tax food; Mesa doesn’t tax food; neither does Surprise; Phoenix taxes food at only 1% – 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% tax on the rent collected by the landlord and that tax is also passed along to tenants as part of their monthly rent. If an apartment building flips to condo, each condo owner pays their own property tax bill and the sales tax assessment goes away. That doesn’t seem right!

 

Somewhat the same thing happens in many of our retirement village facilities. Even when fixed-income retirees make a significant up-front payment for “ownership” of their living unit, they usually pay a monthly fee as well. Although the monthly charge may be for rent and meals, it is taxed by the city.

 

Tax on Utilities (sometimes!): Oddly, some Scottsdale city taxes are discriminatory on the basis of geography. About a quarter of Scottsdale residents are served by SRP and their monthly bills include a 1.65% tax on their utility purchases. The other three-quarters of our population are served by APS, whose customers are not taxed on their purchase.

 

It’s easy for politicians to promise tax reform; what really matters, though, is whether they understand existing tax structures and can develop workable plans for change. Experience matters! I understand the finances of the city and am committed to pursue real tax reforms for the citizens of Scottsdale. I would appreciate receiving one of your three Council votes on November 4.