Cities, businesses stymied as Ducey, Az GOP leave tax board with too few members to meet

The failure of Gov. Doug Ducey and Republican legislative leaders to appoint members to an obscure but technically important board that considers tax issues is causing big headaches for local governments trying to administer their tax codes. 

And state auditors say that the unwillingness to fill vacancies on the board — which hasn’t met for more than three years because it can’t muster a quorum — calls into question whether the commission should continue to exist.

The Arizona Auditor General issued a scathing report this month on the failings of the Arizona Municipal Tax Code Commission. State auditors found that the commission has been unable to meet for three years because it doesn’t have enough members to make a quorum. That means, they wrote, that the commission “has not met its statutory purpose to review, hold hearings on, and approve or deny amendments to the Model City Tax Code,” a uniform sales and use tax act that provides Arizona city and towns the option to exempt certain taxes.

The commission last met in May 2019. And that presents problems for cities and businesses.

“It’s the only tool we have to address issues that come up, clarifications and simplifications that need to be pushed through, changes in statutes that the legislature passes that affect cities and towns,” said Lee Grafstrom, a tax policy analyst for League of Arizona Cities and Towns. “Our only way to change our sales tax code at the city and town level is by going through the MTCC.”

There’s a requirement for the commission to have nine members consisting of mayors or members of Arizona local governments. Five are appointed by the governor, and two each are appointed by the president of the state Senate President and speaker of the state House of Representatives.

At the time of the auditor’s review, the commission’s website listed four members, including Queen Creek Mayor Gail Barney, who died in June. (Barney has since been removed from the website.) 

There are currently three appointed members listed on the commission’s website: Chandler councilmember Rene Lopez, who also serves as the commission’s chairman, Phoenix councilmember Jim Waring and Glendale Mayor Jerry Weiers. All three are serving on the commission past the end of their terms, the last of which expired in October 2021. Members of state boards and commissions whose terms have expired are allowed to continue performing their duties until they are reappointed or a successor is appointed.

Lopez was appointed by the House speaker, while Waring and Weiers were both appointed by the governor, according to a Department of Revenue spokesperson. Three vacancies need to be appointed by the governor, two by the Senate president, and one by the House speaker.

A spokesperson for the House of Representatives told state auditors that vacancies were not filled because they were “busy with other priorities.” The office did not receive responses from the Senate or Ducey.

The Arizona Mirror asked Ducey’s office and a spokesman for House Speaker Rusty Bowers when the vacancies would be filled, but neither provided responses. A spokeswoman for Senate President Karen Fann said she is “weighing her options right now,” but did not elaborate.

The lack of quorum is creating what Grafstrom called a “bottleneck and backlog of issues that need to be dealt with.” Since the last commission meeting in May 2019, the Arizona Department of Revenue, which provides administrative and staff support to the commission, has received three proposed changes to the code by two local organizations relating to transaction privilege tax exemptions and construction contracting deductions for the commission to review. 

But the commission has not had a hearing to consider the proposals, violating a statute to have a public hearing within six months after receiving a proposal. The inactivity of the commission risks the Model City Tax Code becoming obsolete or no longer meeting the changing needs of Arizona business and taxpayers. 

That presents a problem: Unless the responsibility to amend the Model City Tax Code is transferred to another entity, there is no other government body that can perform the commission’s duties. Grafstrom told the Mirror that the commission is “critical to cities and towns and taxpayers in Arizona.”

Other concerns found during the review was that one commission member did not comply with the Arizona Department of Revenue’s conflict-of-interest policies to disclose substantial financial or decision-making interests. 

However, Jeff Gove, performance audit director at the Arizona Auditor General, clarified that it was an issue of the member not filling out the disclosure form, and not an actual conflict of interest. But the office did recommend to the MTCC that all members complete required disclosure forms, annually. 

In an August letter, the MTCC agreed with the Auditor General’s recommendations which included convening to review and consider proposals to changes in the code. But that depends on additional members being appointed to the commission. The office said it will conduct a progress check with the commission in six months to ensure implementation of the recommendations.