Tom Regina turned himself in.
He did what few Arizona businessmen have ever considered--Regina picked up the telephone, dialed the Arizona Department of Revenue and snitched on himself for not paying $89,000 in taxes.
Regina, a 36-year-old Tucson contractor, has not been diagnosed as crazy. But he's feared as a crazy-as-a-fox businessman whose unusual attack could gut part of Arizona's tax base and turn the state's sorry financial mess into a budget-busting free-for-all.
Regina has forced the revenue department into court in a lawsuit that challenges a tax category that collects some $200 million yearly for state coffers. He not only wants the court to forgive him his back taxes; he wants the tax wiped off the books. "If Regina wins this case, just about every contractor in the state will be marching down here asking for their money back," says Patrick Irvine, the assistant attorney general defending the revenue department.
Regina has battled for six years over a tax you've probably never even heard of--the transaction privilege tax. Put simply, it's a tax on construction. The tax amounts to 3.25 percent on every job in the state. In theory, every contractor who hammers a nail or erects a skyscraper pays the tax. In practice, Arizona contractors pay it and out-of-staters skate, Regina charges, and that gives out-of-state contractors a competitive edge on projects in Arizona.
Nowhere is that edge more significant than on federal construction projects--the plums of the building business--which account for more than half of all major construction projects in Arizona.
The Attorney General's Office admits Arizonans are the hardest hit. It's just more difficult to collect from out-of-state companies, the Attorney General's Office argues, but that doesn't mean Arizona isn't trying.
Yet Regina's suit has revealed two separate DOR policies that discourage tax collectors from pursuing out-of-state companies: An internal memo that collectors took to mean "don't bother," and the agency's reward system that penalizes collectors who waste time trying to get out-of-state tax money.
The suit also has revealed that revenue officials have secretly cut cents-on-the-dollar deals with some out-of-state companies to settle tax claims. The Attorney General's Office notes revenue officials have no legal right to make such deals on their own.
Regina first complained to the revenue department in 1984 and was blown off. Then he went to the legislature and was told to go home. Finally, in 1987, he finked on himself. His long-awaited day in court ended last week in Tucson, and now he's awaiting a decision.
"Out-of-state contractors have been beating us like a drum for years," Regina exclaims. "And they even brag about having an edge. On a $2 million job, they have a $66,500 edge. Well heck, that's our entire markup on a project--between 3 and 5 percent. They aren't paying the tax. We aren't going to pay the tax. We have no choice. If we hadn't done this, I wouldn't be talking to you today. I'd be selling shoes."
Regina claims that out-of-state firms know they won't be forced to pay the transaction tax and therefore deduct that amount from their bids.
One of those bragging is Neil Gardis, a San Diego contractor who's done federal jobs in Arizona.
"A contractor the furthest distance from Arizona within the continental United States has the best chance of coming into the state, bidding a job without the percentage attached to pay the state of Arizona, and walk away with impunity," Gardis tells New Times. "I guess you could call me an offender. I'm one of those people from out of town who didn't pay." Gardis recalls booting a "free-lance bounty hunter" out of his office when the private collector hired by the DOR demanded a tax payment for a small job at Fort Huachuca a few years ago. Gardis, who does federal work throughout the country, says he never pays the tax in any of the approximately twelve states that levy it. "The local contractor bites the bullet," Gardis says. "The out-of-state contractor never puts it [the tax] in their bid. Regina is in a competitive problem. When he competes against out-of-state contractors, the preponderance of out-of-state contractors ignore the [tax] requirement."
WHEN THE REVENUE DEPARTMENT walked into court to claim Regina is all wet, it had to face some of its own current and former employees who tell a very different story.
Revenue auditors said in pretrial depositions that they were penalized for going after out-of-state contractors and were told in a memo not to try.
"We just had to leave them alone and would not be allowed to do [our jobs to collect]," testified Gene Strizek, a former DOR field auditor. "It put the auditors in a very awkward position and certainly was not equitable enforcement of the tax laws."