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Flagstaff City Hall

Proposed changes to business licenses by the city council could see the city bringing in more money and data on the business community in Flagstaff.

Among the changes is a reduction in the price of the business license fee and the Transaction Privilege Tax -- or a sales tax -- license fee. Despite these reductions, the costs to business would be going up as the changes would also make the fees annual rather than one-time.

The business license fee would go from its current $20 to an $8 annual fee. A sales tax license would go from its current one-time price of $46  to an annual $18 fee. The changes would go into effect Sept. 1, 2018, for the business licenses and January 1, 2019, for the sales tax licenses.

At the June 5 council meeting, staff explained that the main goal of the changes is to get a full picture of what the business community in Flagstaff looks like. As city revenue director Sandy Corder explained via phone, the city does not currently know where businesses are located, how much money they make or even the number of businesses in Flagstaff.

For example, Corder said if APS needed to set up service to businesses along Milton Road and they asked the city for a list of businesses and their locations, the city would be hard-pressed to provide that information. Much of the data the city does have is attached to the taxes themselves, which Corder said is confidential and thus could not be released.

The data the city did have on Flagstaff’s business community got notably worse in the last two years after the Arizona Department of Revenue took over sales tax administration in January 2017.

“With that, we lost a lot of information about our business community. We still have aggregate data but we don’t have that data about individual businesses that we used to have,” said Anja Wendell, assistant attorney for the city. “We’ve never had a real complete picture of our business community because we really only license certain occupations and now our goal is to license every single person who has a permanent business location within the city.”

Once they get this new data, the city can use it to cross reference the data the state collects. Right now they only have the state's data to go on and have to trust it blindly, staff said.

Staff said the changes would also put the city in compliance with a number of recent changes by the state and reduce the duplicate fees that a business might have to pay. For example, if a business already had to acquire a special use permit, it would not then also need to get a business license.

At the moment, staff said the city is essentially subsidizing business and sales tax licenses. The price of business licenses has not gone up in 15 years and the city is currently losing a combined $231,134 on business and sales tax licenses. These changes would bring these losses down drastically. The changes would mean an almost 100 percent cost recovery for the city on business licenses and a 50 percent cost recovery for sales tax licenses. This money will go toward covering the city’s cost of processing the licenses.

But during the measure's first reading on June 5, not every councilmember felt the same way, with councilmember Scott Overton in dissent.

Other than a one-time $12 sales tax licensing fee, the state does not charge for a business license and Overton said the city should follow the state’s path.

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“I still struggle with the local municipality needing the resource,” said Overton. “I completely understand we want to kind of keep track of how many businesses and what the impact is. I think we’ve got to find a way to work that through with ADOR but I think (the change) just penalizes the very taxpayer who is collecting the sales tax on our behalf.”

But as Mayor Coral Evans pointed out, although the state does not charge the individuals for the cost of processing business and sales tax licenses, it makes up for it by charging all the cities in Arizona.

“The state found a way to cover their cost,” said Evans. “Their way is to just send the cities a bill.”

Indeed, the state charges Flagstaff $150,000 for handling  business licenses and sales taxes.

One of the plans presented to council would have provided the city with a nearly 100 percent cost recovery on both business licenses and sales tax licenses but council decided that would be unfair to the business community. As such, they decided they would do a full cost recovery on only the business fee, and a 50 percent cost recovery on the sales tax licensing fee.

Throughout April and May and the development of the plan, staff met with the Flagstaff Chamber of Commerce, the Flagstaff Lodging and Restaurant Association and the Downtown Business Alliance for input.

The measure's second reading and adoption is planned for the June 19 council meeting.

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