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2:57 PM Fri, Jan. 18th

Lawmaker seeks end to sales tax exemptions

Faced with a financial crisis in state government, Gov.

Jane Hull has urged cities and counties to cut their share of state sales taxes by 4 percent.

However, at least one state lawmaker is urging his peers instead to eliminate exemptions from state sales taxes that cost the state more than $5.5 billion a year in revenue.

Freshman state Rep.

Henry Camarot, D-Prescott, said he belongs to a study group that is preparing recommendations on possibly eliminating many exemptions.

The exemptions grew from 22 in 1980 to more than 200 today, Camarot said, adding that he blames the growth on the influence of lobbyists in Phoenix.

Camarot said the state should have collected $7 billion in sales taxes during the 1998-99 fiscal year.

"We actually collected $2.8 billion, and the reason we did not collect the $4.2 billion was because of exemptions or emissions," he said.

Citing the state Department of Revenue as his source, Camarot said the exemptions amount to $5.6 billion a year.

By contrast, the state budget is $14 billion.

Camarot said the Legislature could eliminate exemptions to raise $300 million, and reduce the 5.6 percent state sales tax for consumers.

The tax savings amount to $207.3 million in preferential tax rates and $16.2 million in total tax credits, according to a report released last week by the County Supervisors Association of Arizona.

The report lists exemptions of $511.6 million in both professional and business services, $75.9 million in personal services and $2.4 billion in wholesale trade.

The association, which represents 15 counties, also bases its information on figures supplied by the Department of Revenue.

However, the association is staying out of any debate on whether any of the exemptions should be ended, said Alan Stephens, executive director.

"We are not going to get involved in it," Stephens said.

"This is really an issue for the legislators to get involved in.

My feeling is they have ruled out tax increases.

I sent this (report) out for the edification of our members."

Mohave County Supervisor Pete Byers echoed Stephens' concerns, adding he took part in a conference call with association members on Friday.

"We all kind of decided not to do anything on that," Byers said.

"It takes too long.

We have other fish to fry."

Byers said the association is trying to prevent the loss of 4 percent in shared sales taxes, which County Manager Ron Walker estimates will come to $530,733 for the current fiscal year.

The final budget adopted for the 2001-2002 fiscal year on Aug.

6 projected revenues from state-shared sales taxes at about $13.5 million.

"We really can't do anything ourselves," Byers said.

"We are trying to get along with (the lawmakers), so let them do their job."

Camarot acknowledged that a campaign to eliminate the tax exemptions faces an uphill battle, and he placed the blame on the "far-right" Republican leadership.

"Fortunately, most of the Democrats and many of the Republican moderates are beginning to express themselves by wanting to look at exemptions because they are interested in keeping the gains we made in the last (legislative) session," he said.

The three moderates representing Mohave County in the House and Senate could not be reached for comment.

They are Reps.

Jim Sedillo, D-Flagstaff, and Tom O'Halleran, R-Oak Creek, and Sen.

John Verkamp, R-Flagstaff.

Camarot may not draw support from the business community in Kingman.

Exemptions for accounting, auditing and bookkeeping businesses come to $38.5 million a year, according to the association.

"The issue of taxing services one day may have to be addressed by the Legislature," Kingman certified public accountant Henry Varga said.

"It is not going to impact me, except that I have to keep the records.

What it does is increase our charge by the tax rate.

It is an issue that the voters may scream about."

Varga also said he disagreed with referring to the tax as a sales tax, describing it instead as a "transaction privilege tax" for providing a service.

Building contractor Ron Linn also cast doubt on the report, which stated exemptions in wages and salaries for people working in construction exceed $250.9 million a year.

"Everything I do labor-wise has another subcontractor and I do pay the sales tax on 65 percent of what they have done for me," Linn said.

"Let's say I hired somebody to frame a house.

There may not be any material involved.

It may be 100 percent labor, but I am paying the tax on that labor."

Environmental consultant Mark Johnson said it would be unfair to tax his clients because they already pay a fee to the state to cover the costs for cleaning up underground storage tanks.

Exemptions for environmental consulting services exceed $3.2 million, according to the report.

"It's a specialty tax," he said.

"It's a tax that can't be touched."

He said removing the exemption would result in double taxation for his clients.