The proposed tax increase on utilities, communications and retail sales aims to reduce anticipated budget deficit
The South Tucson City Council is considering raising sales taxes by half a percent on utilities, communications and retail sales to sustain an estimated budget deficit of $293,000 in 2020.
The sales tax increase is aimed at the business categories because they are currently taxed below the average, across all categories, of 5.5 percent, according to Lourdes Aguirre, city finance director.
However, some industry categories are taxed at a much lower rate by the City but, they also generate less revenues than the categories currently marked for increases. For example, retail food sales for home consumption are taxed the lowest at 1.5 percent but only generated $83,359 in six months between July 2018 and January 2019.
Utilities and communications are each currently taxed 5 percent, and retail sales 4.5 percent by South Tucson, the State charges an additional 6.1 percent. The total sales tax rates would be 11.1 percent for utilities and communications and 10.6 percent for retail.
Some local business employees see the increased tax rate as the wrong move for the Council to take.
“The City of South Tucson is not amenable to a lot of things,” Marco Aguilar, sales representative at Carburetors Fuel Injection Systems for 21 years, said. “If they understood business, maybe they would look more favorably on bringing in more revenues” through business development, as opposed to tax hikes.
Aguilar says that “nothing’s changed” in the way the city has been run the past 21 years and hopes the current officials will change the status quo.
Retail businesses would perhaps be hit hardest because of the tax on their goods and also their operations through the proposed increases on utilities and communications.
“They like to go to different stores outside of the tax area,” Jason Lopez, manager at the local Auto Zone, said about past and present customers. Lopez said the utilities for the store are also already very high.
“We’re losing business now,” said Jesus Castro, a 14-year employee and current manager at Window Depot on South Sixth Avenue. “We have a sister-store, their business is double our business.”
Castro was in disbelief when hearing of the proposed sales tax increases.
Mayor Bob Teso did not appear to be enthusiastic about the proposed increases at the recent March 25 meeting. “I haven’t heard any viable options,” he said.
Councilman Paul Diaz pointed out the median income in South Tucson is $22,000 per year. “Keep that in mind,” he warned his fellow council members and city staff.
“We’re having a lot of problems with crime,” Diaz said, “the crime rate is going to be affected.”
“I think residents will be open to the tax increase, but let’s see,” Councilman Akanni Oyegbola said.
Councilman Robert Romero said, “We have to make hard decisions here,” and appeared ready to pass a measure at the March 25 meeting. But it was just a study session so no official action could be taken.
City Manager John Vidaurri anticipates revenues across the board will be higher in 2020 because of economic development taking place near South Tucson and possibly within the city in the next five or six months.
Vidaurri speculated if the anticipated economic activity is realized then perhaps the sales tax increases could be rolled back at a future date.
It will take 120 days from the date Council approves a measure raising the tax rates for it to be fully implemented. If the Council passes a measure in April, the tax increases would likely take effect sometime in September.
The city’s total expenses for 2020 are “conservatively” estimated to be $5.3 million according to a preliminary draft budget presented to the Mayor and Council earlier in March.
The anticipated budget deficit decreased on March 19, because of revised state-shared revenue estimates reported to South Tucson by the State which brought the deficit to $293,000 as opposed to the earlier estimated $395,000, according to the city’s finance director.