Senate Republicans will push for a slew of tax cuts for businesses next year, part of a package aimed at attracting companies to Arizona.
The plan includes bringing down the tax rates for business and agricultural properties, increasing the exemptions for business-related equipment and machinery, cutting the corporate income tax rate and phasing out the state capital gains tax.
The tax cuts wouldn’t take effect right away, and their implementation would likely be timed to coincide with years when revenues have stabilized.
Republicans also want voters to approve a proposal to limit the increase in the assessment of property values to 5 percent annually, both for primary and secondary taxes.
“These are unmistakable steps towards making us a business-friendly state instead of where we are right now, which is a reputation of being business unfriendly,” Senate Majority Whip Steve Pierce said at the Arizona Tax Research Association forum on Nov. 19.
Many of these ideas have been discussed for years, but Republicans view the current fiscal crisis as an opportunity to push for tax reforms as a way to stabilize Arizona’s revenue base, make the state more competitive and create jobs, which would bring in more revenue to the state’s coffers.
These are the first details of a tax package that will potentially consume much of lawmakers’ energy in 2011 along with fixing the current budget deficit, which is estimated at $825 million this fiscal year and $1.4 billion next.
In addition, Republicans are also considering reducing corporate income taxes to five percent. It is currently at 6.968 percent, which many say makes the state less attractive compared to its neighbors in the West.
The proposal indicates a renewed interest to restructure the state’s tax system with an eye towards luring in businesses to the state.
The final package will have to be hashed out between the House, the Senate and the Governor’s Office. In fact, the House proposed a “jobs” bill that didn’t go anywhere last year. House Republicans will likely push for a similar proposal next year.
Gov. Jan Brewer will also likely have her own ideas to jumpstart the state’s economy, which may not necessarily jibe with what Republican leaders have in mind.
In addition, any reduction in business property taxes would impact or even raise the rates for others, such as residential property owners.
Also local governments and school districts would likely balk at changes to the property tax structure that would result in significant reductions to their revenues.
The state sets the assessment ratios, but it’s local governments and school districts that get property tax revenues.
Democrats indicated they also want to see “tax reform,” but Rep. Chad Campbell of Phoenix said any restructuring of the tax system must be comprehensive and must not hurt the state’s ability to pay for core services, such as education and infrastructure.
Andrew Morrill, president of the Arizona Education Association, welcomes the discussion on taxes, but he said he wants to see data to back up the view that reduction in taxes leads to economic and job growth.
“When you read the trade and business magazines, an even higher indicator that makes the state attractive to move into is the quality of the workforce and the education of the workforce, which tends to trump tax structures in every ranking of what’s important,” Morrill said. “So one of the things I’d like to talk about with folks is ‘What do we really mean by a business-friendly climate?’”
Draft of Senate Republican tax plan:
• Bring down business assessment ratio to 18 percent. It is currently 21 percent
• Reduce the agricultural property assessment ratio to 15 percent from 16 percent
• Increase the exemption for business personal property taxes to $78,500. It is currently $66,440.
• Phase out the state capital gains tax
• Bring down corporate income tax rate to 5 percent from 6.968 percent
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