46 tax ideas include hikes, cuts for Arizonans

Proposed reforms will affect nearly everyone

 

Robbie Sherwood
The Arizona Republic
Oct. 23, 2003

 

Resurrect a statewide property tax.

Boost the economy by cutting property taxes for businesses and raising them for homes.

Lower the overall sales-tax rate but tax services such as dry cleaning, haircuts, furniture repair and auto maintenance.

Almost everyone in Arizona would be affected by the 46 proposed changes in Arizona's tax code unveiled Wednesday by Gov. Janet Napolitano's Citizens Finance Review Commission.

The recommendations also would end sales-tax exemptions for health club members, egg farmers, newspaper advertising and dozens of other enterprises. A homeowners rebate would be phased out, adding $284 to the taxes on a $200,000 home. And the state would levy a tax on real estate sales, raising state revenues by $170 million a year.

The goal is to simplify the tax code and broaden the state's tax base so Arizona would no longer be as vulnerable to an economic downturn like the one that produced last year's billion-dollar deficit. The entire package would broaden the tax base by levying more than $800 million in new taxes on services, property, real estate transactions and businesses that lost exemptions. Lawmakers or voters could choose to lower the sales-tax rate or other taxes so that the state doesn't realize any new revenue

The panel also hopes to boost the state's business climate with proposals such as lowering the business property tax.

"Our goal here is to present the big picture and to get your feedback on whether or not your opinion is still the same and to find out what we may have missed," commission Chairman Bill Post told panelists.

The commission will present the recommendations to Napolitano next month. They would require approval by the state Legislature or, in some cases, Arizona voters.

Post delivered a draft of the recommendations to the 21-member panel Wednesday. Final comments and revisions are expected by the end of the month.

The commission has researched and talked about the proposed changes since January but has chosen not to put specific ideas to a vote. Post said that over the next week he may learn he lacks the consensus he had sensed on some items and that some may change or disappear.

Commissioners are looking only to streamline and modernize an inefficient and out-of-date tax code, not fill the $800 million budget deficit that lawmakers face next year.

The package would shift more than $600 million in property taxes mostly from businesses, among the most heavily taxed in the nation, to homeowners, who have among the lowest tax rates.

"We didn't lay this out with a preconceived target at the end," Post said. "It probably won't be revenue-neutral at the end, but the goal wasn't a positive or a negative."

Already, small-business owners in the service industry are preparing for a fight to stay untaxed. Furniture repairer Don Kosis, who has owned Gepetto's Woodshop in Tempe for 17 years, said taxing his service would damage his business.

"Everything else is taxed, what are they going to tax next?" Kosis said. "The price would have to get relayed onto the customer, and it's a rough industry as it is trying to make ends meet."

Geoff Shepard, who owns Auto Parks in Tucson, said collecting a service tax would not only be a burden for his company but could jeopardize it. Many of the 12 lots he owns are surface parking, and no one is physically collecting the fees.

"It would be very difficult for us," he said. "We wouldn't be able to afford it."

Kevin McCarthy of the Arizona Tax Research Association, a businesses-funded tax watchdog, saw good and bad in the ideas. He has long pushed to reduce property-tax burdens on businesses, which he says prevents companies from locating here and pushes others to leave.

But he said reinstating a statewide property tax, which lawmakers killed in 1996 but could now use to pay their $300 million yearly bill to build and repair schools, would mute any improvements.

"It would be ironic for anybody to be involved in something called tax reform and we make worse what everybody agrees is the most problematic area in our system," McCarthy said. "That's exactly what a statewide property tax would do."

Veteran lobbyist Barry Aarons represents three industries worried that they may face new taxes: pest controllers, chiropractors and hotels that may have to pay sales taxes for shampoos and other freebies for guests.

He predicts it would be nearly impossible for any new tax to get through the Legislature, which requires two-thirds majority vote to raise revenues.

"They're going to have to put it on the ballot," he said. "And everywhere there has been a tax on the ballot in the past 12 months it has not just gone down, but it has gone down by wide margins."

Last month in Alabama, where state taxes are among the lowest in the country and most of the burden falls on the poor, voters defeated a $1.2 billion tax reform plan by a 2-1 ratio.