AZAGC Chairman’s Message
Over the last few weeks much has been discussed about legislation currently being proposed by the legislature and governor. Staff has worked hard to ensure your views are considered when policymakers make changes that could affect our industry.
Last year the City of Phoenix proposed changes to the alternate project delivery methods procurement process. Through much deliberation over the last year, we agreed to HB2188 which allows a city with a population in excess of one million persons or a separate legal entity formed by a city with a population in excess of one million persons to do a two-step competition for construction manager at risk (CMAR) construction services for horizontal construction when the United States Federal Aviation Administration (FAA) or the United States Federal Transit Administration (FTA) is a source of the monies for the project and price competition is required
We are also working with the Arizona Department of Transportation (ADOT) on legislation that would allow contractors protections in the public private partnership process. We have been following HB2300, legislation that would require the private partner (Title 28, A.R.S. Section 28-7705) to provide performance and payment bonds, parent company guarantees, letters of credit or other acceptable forms of security or a combination of any of these, in the amount of 100 % of the value of the contract involved. The current statute states the security may be less than 100% of the value of the contract.
We will continue to gather information on how payments are guaranteed to prime contractors, subcontractors and suppliers working on public private partnership projects.
While these items are important, none is more pressing than the governor’s proposal to simplify the tax code. She is proposing to repeal the prime contracting transaction privilege tax (TPT) and replacing it with a tax at the point of sale on materials. Currently prime contractors do not pay a tax at the point of sale. Tax is paid based on the cost of the project where a portion is assumed to be taxable. Generally speaking, Arizona does not tax services or labor. Thirty-five percent of a construction project is not taxed and is assumed to be labor while the other portion, 65%, is assumed to be materials.
Numerous iterations have been considered. By the time the legislature adjourns, there will surely be changes to the current legislation as it stands. But for now, highway, street and bridge contractors are exempt from the provisions. The bill establishes the highway, street and bridge construction (HSBC) TPT classification which is comprised of the business of constructing, a highway, street or bridge. It specifies amounts that are deducted from the tax base and stipulates that subcontractors who perform services with respect to the construction, alteration or repair of a highway, street or bridge are not subject to tax. (Source: Arizona Senate Fact Sheet)
Requires the Department of Revenue (DOR) to prescribe a form for a certificate to be used to establish entitlement to the deduction of TPT relating to highway, street and bridge construction and requires a highway, street of bridge contractor to obtain a new certificate for each project. (Source: Arizona Senate Fact Sheet)
AZAGC supports a more simplified approach to tax policy in Arizona, but we want to ensure new policies do not have unintended consequences for the state, counties, cities and the construction industry. We are supportive of positioning Arizona to take advantage of the Marketplace Fairness Act which would allow states to tax internet sales and could pass out of the U.S. Congress this year. However, according to this memo to Representative Kavanagh from Legislative Council, repealing the prime contracting classification may not be necessary to achieve the state’s goal on implementing the act.
We will continue to work with our partners to ensure these and other proposals do not have a negative impact on our industry.
Thank you for your continued support of the association.
Doug Declusin, Chairman