Arizona governor vetoes sales-tax break sought by Lucid Motors

Howard Fischer

PHOENIX — Out-of-state residents who want to buy cars and RVs in Arizona won’t be able to escape sales taxes if they come here to take delivery.Gov. Katie Hobbs rejected a proposal Monday sought on behalf of Lucid Motors that would have allowed visitors to buy a car here and then drive it off without paying the taxes.Hobbs, in her veto letter, did not specifically dispute arguments offered by Rep. Teresa Martinez, R-Casa Grande, that the legislation could create some economic benefit. Martinez argued it would generate tourism for her area, where Lucid has a manufacturing plant, with those visitors then spending money in Arizona.Hobbs was unconvinced.”While I understand and support the goals of this legislation, there is potential for unintended consequences … that would have a significant fiscal impact on Arizona,” she wrote in her veto of House Bill 2252. Hobbs said, however, she is open to exploring the idea — but “with stronger guardrails that achieves our shared goals of boosting our economy while protecting our state’s fiscal health.”

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Until that happens, car sales remain subject to the same rules that govern anything else sold to tourists and other visitors: You buy an item, whether a trinket, a T-shirt or a pickup truck, you pay the tax, regardless of where you intend to use it.
Inside the Lucid Motors AMP-1 factory in Casa Grande, the general assembly team showcases the manufacturing of a Lucid Air sedan, following the electric vehicle from paint all the way to quality control.

At the heart of the debate is Martinez’s contention that a change in tax laws will promote tourism.”I was born and raised in Casa Grande, and it’s a great place to live and, it turns out, a great place to bring amazing tourism into the state,” she told colleagues.Part of what could make that possible, Martinez said, is the Lucid factory that is turning out a line of all-electric cars that start retailing at $87,400 and go up from there. She said the company encourages would-be buyers to fly in, see how the vehicle is made and learn how to drive it on a test track.”They would also be staying here, eating in our restaurants and staying in our hotels, bringing more money into the economy,” Martinez said. She said it’s no different than programs that have been offered by some European car manufacturers who encourage people to visit their plants, pick up their vehicles there, drive them around as part of their vacation and then ship them home.But anything purchased in Arizona and picked up here is subject to the state’s 5.6% sales tax plus any county and local taxes.There is a way around that. Buyers can ship their cars out of state — even as close as New Mexico — pick them up there and drive them home. Or they can ship them directly to their home states.Martinez proposed skipping that step, allowing a new car buyer from anywhere else to get a 30-day permit to drive the vehicle around Arizona without paying the sales tax.Where the plan appears to have run aground is in the price tag to state government.The Legislature’s budget staffers figured that somewhere between 600 and 1,200 out-of-state buyers might take advantage of such a deal. Figuring a typical purchase price of $35,000, that would mean a loss of between $840,000 and $1.68 million.Using an average figure, budget analysts figured that at about $1,400 per vehicle. They were skeptical that the $1,400 loss would be made up by what the car buyers would be spending in Arizona on their trip.”The visitor would have to spend $28,000 on lodging, restaurant and other retail sales to offset the $1,400 loss on the transaction privilege tax on the vehicle, which seems highly unlikely,” the budget report states.And that’s based on the loss of sales tax from the “average” $35,000 vehicle. While Lucid vehicles start at $87,400, their prices run up to $249,000 — making the lost sales tax from each vehicle significantly higher than the $1,400 average.Martinez said that’s the wrong way to look at the situation.”If somebody from Ohio wants to buy a Lucid today, they order it online, and they have the option to come to Casa Grande, stay the week, eat in our restaurants, stay in our hotels and drive the Lucid home,” she said. Under current law, that means paying the taxes here in Arizona.The way Martinez sees it, there would have been no real tax loss to the state had Hobbs signed her legislation to exempt those transactions. “If they buy it and have it shipped, they’re still not paying the taxes,” she said.Martinez said that’s a more likely scenario when a high-priced vehicle like this is involved.”If a man wants to buy a Lucid, he has enough money to have that shipped,” she said, something Martinez said already is happening — all without the buyers coming to Arizona and leaving behind some of their cash.”What taxes do we get, what benefits do we get?” she asked. “By not doing this bill, it doesn’t bring in any economic growth, either.”Martinez acknowledged that her legislation would have created an exemption for tourists that doesn’t exist for any other product or service that visitors purchase while they are here. But she said that doesn’t undermine her goal of getting more people to buy their cars here.”I want people to come into the state and buy something and leave,” Martinez said.
Howard Fischer is a veteran journalist who has been reporting since 1970 and covering state politics and the Legislature since 1982. Follow him on Twitter at @azcapmedia or email 

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