House Bill 2376 would provide an exception to the sale tax increase that's set to go into effect June 1. Any long-term construction contracts signed prior to June 1 won't be charged the 5.6% sale tax rate, but rather 5%. The bill had passed on a 41 to 15 vote Wednesday.

Contractors had argued that it would be unfair to tax multi-year contracts at the higher rate, saying that they were negotiated based on the prior tax levels. "Since margins in the construction industry are extremely low due to intense competition, tax-rate changes made after the initial bid will be a hardship to many," says a memo to Gov. Hull from the Arizona General Contractors Association. "Contractors are stuck with absorbing the tax increase as a loss."

Gov. Hull has lobbied hard against the bill from the beginning, saying its passage would result in a run on long-term contracts and a raid on a $1-billion fund for upgrading and maintenance of schools. She also says the exception would reduce the amount that the sales tax generates. She had asked House Speaker Jim Weiers to kill the bill and invited Republican leaders to her office to urge them to stop the bill in committee.

Even with the strong support shown in the House, Hull is expected to veto the bill.The increased sales tax will be used for an education fund for teacher salary increases, smaller classes, five extra school days, repairs to deteriorating schools and university grants for technology research. The additional tax is expected to recover about $480 million annually.