Proposition 116 would amend the Arizona Constitution to raise the limit on the amount of business personal property that is exempt from property taxes. The ballot measure would raise the exemption from $68,000 to the equivalent of the average annual earnings of 50 workers, which comes out to about $2.4 million.
By lowering the taxes on business equipment, the measure would increase homeowners’ property taxes by an average of about $3 per year, according to the Joint Legislative Budget Committee. Doug Click, the chairman of the Vote Yes on 116 committee, said that minimal impact has helped deter opposition to the measure.
There are a number of classes of taxable property in Arizona, and changes in the assessment ratio on one class shifts a higher burden onto other classes.
SCR1012, which put the proposition on the ballot, sailed through the Legislature without an opposing vote last session. No campaign committees have formed to oppose Prop. 116. And not a single ballot argument was filed against the measure with the Secretary of State’s Office.
Normally, toying with Arizona’s property tax structure is a contentious issue. Local governments and school districts worry about the impact to their bottom lines, which are heavily dependent on property tax revenue, and reductions in taxes on business property are often accompanied by increases in the tax burden on homeowners.
But the Arizona chapter of the National Federation of Independent Business found a way to alleviate the fiscal burden, and with it, the opposition. It made the change prospective, meaning it only affects new property starting in fiscal year 2013, not property that is already on the tax rolls. As a result, NFIB Arizona Director Farrell Quinlan said the ballot measure eliminated much of the fiscal impact on local governments, schools and homeowners that would normally arouse opposition.
“The bottom line is this does not reduce by one dime any local government or school district’s budgets, and it has an almost negligible impact on property tax payers,” Quinlan said. “As long as the proposal does not significantly impact those constituencies, I think that’s why you’re seeing no opposition to it.”
Quinlan and other supporters insist it won’t affect school districts, which rely on property tax revenue and usually vocal opponents of tax changes that cost them funding. No education groups so far have spoken in opposition.
JLBC reported that Prop. 116 would cost the state’s general fund about $8.2 million, beginning in fiscal year 2015. The $8.2 million would be used to offset the loss of local tax funding to K-12 schools.
The only organization that registered any opposition to SCR1012 during the legislative session was the Arizona Association of Counties. Jen Sweeney, a lobbyist for the association, said several county assessors had expressed concerns to her that the measure would drain revenue from the counties.
But the association determined that the impact would be “negligible,” and Sweeney said it decided to forgo any further opposition.
“It’s a fight we knew we weren’t going to win,” Sweeney said. “All I heard back from some of the counties in particular is it wasn’t going to make that big of a difference, and there were bigger fish to fry this legislative session.”
Yuma County Assessor Joe Wehrle said his county has about $40 million in business personal property on its tax rolls. If the exemption proposed in Prop. 116 were already in effect, it would cost Yuma County about $755,000 of the $22 million it expects to collect in property taxes for the current fiscal year.
Wehrle said the future impact is difficult to determine.
“We don’t know what the impact would actually be because it’s stuff that hasn’t happened yet. It’s transactions that haven’t even occurred,” he said.
Pima County Assessor Bill Staples said he’s not worried about the fiscal impact Prop. 116 will have on his county either.
“I don’t think this is going to have a huge impact along those lines,” Staples said.
Maricopa County Assessor Keith Russell said his office is still analyzing the measure, but noted that the office registered its position as neutral during the legislative process. According to JLBC, the measure would eliminate about 85 percent of Maricopa County’s business personal property from its tax rolls, if it were already in effect.
Staples and Wehrle both said they’re personally opposed to Prop. 116, but they oppose it for reasons unrelated to the fiscal impact. Wehrle said he believes the change is unfair because it leaves the tax in place for property that’s already on the tax rolls, while Staples said he’s concerned about the impact on homeowners’ property taxes.
Neither plans to formally oppose the measure in any way.
The proposal has strong support on both sides of the aisle. It cruised to victory on a 51-0 vote in the House and a 30-0 vote in the Senate.
Two House Democrats voted against SCR1012 in committee, but both voted for it on the House floor.
Two prominent Democrats, House Minority Leader Chad Campbell and former Board of Regents member Fred DuVal, submitted ballot arguments in favor of the measure. Campbell, who sponsored a proposal in 2011 to exempt many types of business property from the tax, said the impact on school funding would be minimal.
“I think it will be more than offset by the amount of capital it both brings into the state and frees up. This is one of those tax cuts that I believe is going to create jobs and is actually going to create more revenue in the long run,” said Campbell, D-Phoenix.
Click agreed. Many states do not tax business personal property, he said, and some businesses, including the high tech, research-oriented businesses Arizona is trying to attract, are discouraged by the tax, he said.
“It’s not uncommon for them to have a small machine that costs $3 million. And they’re going to have to pay on this forever? They’ll go somewhere else as opposed to coming here,” he said.
The campaign has reported raising about $25,000 so far, and Click, who owns the heavy equipment company Arizona Hi-Lift, said he hopes to raise a bit more. The committee has already bought airtime on cable television and small amount of network airtime as well, and plans to put up yes-on-116 signs as well.
Even without opposition, Click said the campaign must educate voters.
“When people look at this measure they kind of put their nose up to it. But once you educate them about it a little bit … they’re 100 percent for it. I very rarely hear anybody who disagrees once I explain the tax to them,” he said.
Arizona Tax Research Association President Kevin McCarthy said he expects a tight race. McCarthy’s group spearheaded the fight for the 1996 exemption that was approved by voters, but is neutral on Prop. 116.
“We had a close vote in ’96 … and it had little or no opposition,” McCarthy said. “It was a surprise to us. We thought we’d have a fairly easy way with it. It was a lot closer than we anticipated.”