Tax reform has been the center of Rep. Steve Huffman’s legislative world this session. The District 26 Republican chairs the Ways and Means Committee and has been a key player in drafting several tax relief bills, including one to allow multi-state corporations to be taxed in Arizona solely on their in-state sales. He was also a driving force behind the inclusion of a plan to reduce business property taxes in the budget approved by the Legislature that was vetoed by the governor. He sat down for an interview with Arizona Capitol Times on March 22 to talk about tax relief and how it affects Arizona.

Tax relief bills have been your focus this year — what is the single most important tax issue facing the state?

The single most important issue we’ve been working on has been the business property tax reduction legislation.

That, of course, was part of the budget package vetoed by the governor.

Yes.

Moving forward with budget negotiations, is it the plan to keep that tax relief as part of a future budget package?

I think you could see from the votes in the House and the Senate that there’s fairly broad support for it. It really is an important issue that has been identified as a key economic development issue for at least the last 20 years. Even Governor [Rose] Mofford’s fiscal 2000 committee identified business property taxes and assessment ratio as one of the key components of any meaningful tax reform.

What will happen to the state if business property taxes are not reduced?

The tax system we have right now I think unfairly shifts a huge portion of the tax burden on the businesses, who are the very people that we count on to create jobs and keep our economy moving. So, I think when you have a reduction like we’re contemplating in this legislation, you’re going to see businesses all across the state that are going to have more money to either raise wages or reinvest in their businesses, put back into their community. I’d expect to see urban job creation. We saw that report that came out last week that said Arizona is still a low-wage state, which shouldn’t have been a surprise to anybody, and I think we have to do some things to free up money within our economy to expand jobs and raise wages.

And this plan affects all businesses, especially the small businesses that drive the economy?

One of the really great parts about this bill is that it is broad-based tax reform, so it does — a lot of times legislation that we’re looking at tends to be focused in one direction — this truly is broad-based tax reform that will affect every business in the state of Arizona.

What benefit will a single sales factor tax give Arizona?

It helps two ways. Directly, it goes towards multi-state corporations, which are a lot of your major employers in the state. Right now, with the current proportion and formula that we have, if you create jobs or expand your capital investment in the state of Arizona, your tax liability goes up, whether or not you are seeing an increase in your profits or not. That doesn’t make sense to me to have a tax code that actually punishes investment and job creation. So, if sales factor passes, it will allow us to attract those high-wage, multi-state companies into our state and also retain the ones that we have and it will eliminate the disincentive to expand your capital investment and your jobs in the state of Arizona.

There’s also a second benefit — many of those companies work with small companies that may not be multi-state corporations, but are suppliers for them. It’s like building a shopping mall: you get your big anchor tenants and then everybody else. When you do something like this that encourages expansion of those high-wage manufacturers, it also has a secondary effect of raising economic activity for all the smaller companies that are suppliers and work with these larger companies. So, it really does have sort of a trickle-down effect.

Opponents to single sales factor have said it is bad for Arizona, and other states that have similar laws haven’t seen the expected economic impact.

I think a lot of that criticism is actually a distortion of what’s actually going on. I think any objective person can look at what’s going on in the country right now — I mean, at one point in the 80s, Arizona had a [tax] ratio that was a third property, a third income and a third sales, and we moved to a super-weighted sales factor — we did that because much of the country had already moved to a super-weighted sales factor and we had to do it just to keep up. New York right now is looking at 100 per cent sales factor, Utah is 100 per cent sales factor. Oregon, who we’re competing directly with for this $2.6 billion Intel expansion, is already at 80 per cent sales factor and they’re moving to 100 per cent. So, I think if it’s a bad idea, why is all of this movement in one direction? Nobody’s going backwards — there’s not a single state that’s going backwards on this issue. I think it’s something that we can either do now and use it to our competitive advantage or, ultimately, we’ll do it later and see that we’re not left behind. There’s no doubt in my mind of the direction that both our state and the country as a whole are going on this, because it’s something that you’re not going to be able to be economically viable if you don’t keep up with.

As the state’s economy shifts to a service-based economy and away from a sales-based economy, will the Legislature have to readdress the single sales factor issue down the road?

I don’t think so, because the Greater Phoenix Economic Council … projected out previous growth, the growth of income tax revenue. Revenue lost because of single sales factor is really a minor portion of the growth of corporate income tax levels. And that’s the whole point. If you’re able to land, for example, a $2.6 billion investment in our state and you just have to forgo a minor amount of revenue in the big picture to do that and you’re bringing in employers like that that bring in high-wage jobs, high-skill jobs, the kind of things that we all say we want in the state, you can’t build an economy off of call-center jobs and things like that. You need that manufacturing base and you need companies that are exporting products and importing dollars into our state. The other economy is just sort of the economy that recycles dollars — you know, I spend money at the dry cleaner, they spend it at a restaurant, they spend it at a movie theater, and you just keep circulating the same dollars around your economy. All those are great jobs, but if you want to have a really viable economic base, you’ve got to have employers who are exporting goods and importing money into your economy. That’s what sales factor tries to do.

How surprised were you that the budget package veto came down so quickly March 21, especially considering she rejected business property tax relief that she said was important in her State of the State speech?

I don’t think the veto should have surprised anybody — I think it was more of a response to the way the budget was passed out of here than many of the actual provisions of the budget. I think there is a real level of commitment both in the Legislature and in the Governor’s Office to do something meaningful in the area of business property tax reform, so I have every expectation that we’ll work something out by the end of this session.

Last session, you were among the 16 Republicans branded as moderates or rebels when you voted for the budget opposed by leadership. Was that a fair characterization?

Well, nobody ever likes the name calling, but the fact is that all of us were sent u
p here by the people of our district to represent our district and also to look out for the best interest of our state. It wasn’t a rebellion so much as we had a lot of people up in the Legislature who were concerned about the direction that our state was going and weren’t happy with the process for negotiating the budget last time. That’s been the case every year that I’ve been up here. Honestly, there’s been some sort of group of folks who were concerned about the direction of the budget [every year]. If everything’s fair and everybody’s talking to each other, hopefully we don’t have things like that happen.

What are your plans after you reach your term limit in 2006? Will you run for the Senate?

You know, I honestly haven’t made any plans as of yet. When I started this job, I wasn’t even married. Now, I’ve got a three-year-old and a one-year old and I’m taking it day by day. I haven’t ruled anything in or anything out.

How have things changed at the Legislature since you have been here?

When I was a freshman up here, that was the first time that term limits were really sort of kicking in and we had our first major turnover, and I think that’s one of the things that’s changed remarkably in the time I’ve been up here. I mean, you have people running for majority leader in their second term. You’ve got appropriations committees where you have half the committee are freshman. I’m not saying that in a disparaging way — we’ve got a lot of good people up here — but it really is amazing. The first time I was chair of the Ways and Means Committee, more than half the committee were brand new people, and that never happened when I first started up here. Term limits have made a lot of changes in the population of the Legislature and how people act when they’re up here.

Will term limits have to be reevaluated in the future?

I really do think it’s a problem in the long-term. When you look at the folks that are down here — a lot of the staff will be here a long time, the governor’s staff will be here a long time, the lobbyists are down here, the reporters are down here, the courts are long-term membership. The only place you’ve got sort of turn over and transition is the Legislature, where we should be setting policy. It’s kind of scary, for me, to contemplate that the institutional memory of the Legislature is often contained in the lobbyists, not in the members. I think that’s a problem.

Do you have any advice for first-time lawmakers?

Don’t forget where you came from. I think that’s the biggest problem — as long as you remember who elected you and who you represent, this is not that tough a job.

Thank you very much for your time.

Sure. —