Arizona lawmakers move to eliminate city taxes on food, rentals

Arizona lawmakers are moving to strip cities and towns of their ability to tax residential rentals and grocery store food.

The votes Wednesday by the Senate Commerce Committee came despite objections from mayors and lobbyists for the majority of communities that have the levies. They told senators their budgets are dependent on the revenues.

Those claims drew derision from Sen. Anthony Kern, R-Glendale, who said most cities and towns have a surplus.

The sponsor of the measure to phase out the tax on rentals, Sen. Steve Kaiser, R-Phoenix, said the bill is crafted to ensure that tenants get the benefit of the mandated reduction.

But that drew a skeptical response from Sen. Mitzi Epstein, D-Tempe.

“Whatever the market price is, that’s what the rent will be,” she said. All SB 1184 will do, she said, is allow landlords to pocket what they no longer have to forward to cities in taxes.

Nick Ponder, lobbyist for the League of Arizona Cities and Towns, told lawmakers that SB 1063, the companion measure to eliminate local taxes on food purchased for home preparation and consumption, won’t reduce overall taxes.

He pointed out that state lawmakers, facing an initiative, voted in 1980 to exempt state sales tax on food.

But three years later, facing a deficit, Ponder noted the Legislature raised the overall state sales tax on all remaining items from 4% to 5%, an increase that never was repealed. He suggested that cities, facing a similar loss of one source of revenues, may have to follow suit.

And he said that cities where the decision was made to eliminate these taxes have a higher overall sales tax rate than others where the levies remain. He cited in particular Tucson, where shoppers pay 3.5% on everything else they buy.

Ponder said the decision on what to tax is best left to local elected officials and their voters.

Not all communities levy rent or food taxes, but they can be a big part of what communities collect.

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In Nogales, for example, the tax on food is nearly 14% of total sales tax collections. It’s close to 16% in Cottonwood, 17.6% in Douglas, 18.5% in Safford, 19.9% in San Luis and 35.2% in Taylor.

Overall, the levy amounts to more than $161 million a year statewide.

Rental taxes are a smaller percentage of sales taxes in most communities, though they total nearly $180 million statewide for affected communities.

The food tax repeal is being proposed by Sen. Sonny Borrelli, R-Lake Havasu City.

“To be taxing food, essential items that are consumed at home, not only is it unreasonable, it’s outrageous,” he said.

But Globe Mayor Al Ganeros told lawmakers that the levy, which is paid not only by residents but folks from outside the city who drive into town, helps his community cover its costs. Citing, for example, the $1.5 million to $2 million it will take to replace a 35-year-old ladder truck at the fire department.

One argument by proponents of both measures is that the cities are getting more money now from the state.

Ponder said it is true that lawmakers are now giving local communities 18% of the revenues they collect, up from 15%.

But he pointed out that occurred only when lawmakers voted two years ago to cut income taxes by more than $1 billion a year by enacting a flat income tax. All the higher share did, Ponder said, is keep the actual revenue-sharing dollars from declining.

The party-line 4-3 votes by the Republican-controlled committee send both measures to the full Senate.

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