Gov. Jan Brewer's staff on Wednesday sketched out a plan to lighten the burden on small business both with tax relief and clearer rules in both the income- and sales-tax codes.
The plan does not call for across-the-board cuts.
Instead, the proposal includes a more generous income-tax exemption for equipment bought by businesses and a promise to simplify the state's sales-tax code.
Although Brewer's goal is to help small business, many of the changes would benefit companies of all sizes.
Many of the ideas are still being hashed out, said Michael Hunter, the governor's director of legislative affairs, so it is impossible to put a price tag on the plan.
Several of the ideas unveiled at a meeting of the Arizona Commerce Authority are similar to bills scheduled for consideration today in legislative committees.
But Hunter made it clear the governor does not agree with all those proposals. He said she will soon unveil further details about her own plan.
Brewer quickly exited the commerce meeting without answering questions.
The proposals are an effort to build on last year's sweeping package of $538 million in tax cuts and incentives that will phase in over the next six years.
Hunter made it clear that any proposed changes would take effect only after the 1-cent-per-dollar temporary sales tax expired in May 2013.
Among the details of Brewer's plan:
A reduction in the tax rate on capital gains. The governor has not yet determined how much of a cut or when it would take effect. But the governor is not onboard with a Republican bill that proposes making 100 percent of capital gains exempt from the income tax. That measure, House Bill 2133, is up for a hearing today in the House Ways and Means Committee.
A more generous time frame for businesses to claim losses on their income-tax forms. This would encourage business investment, especially for start-up enterprises, which often anticipate losses during the first years of operation, Hunter said.
Arizona limits the "carry-forward" period to five years. Brewer would like to expand it, Hunter said, although she has not yet specified a time frame. The federal government, for example, allows a 20-year period, and many states permit anywhere from 10 to 20 years.
Allow companies that operate in multiple states to pay corporate income tax only on services they provide in Arizona. Brewer vetoed a similar bill last spring, saying it would have taken effect too quickly, with negative effects on state revenue. The bill is back with a three-year phase-in period beginning in calendar year 2014. The Senate Finance Committee will consider Senate Bill 1046 this afternoon.
A more generous exemption from the business personal-property tax. This has been a perennial request of the business community, which can now exempt up to $67,000 of its equipment and other purchases from the income tax. Brewer would like to increase the exemption, perhaps to the $100,000 range, Hunter said.
The governor does not agree with a Republican proposal that would raise the exemption to $2.4million. That proposal, House Concurrent Resolution 2009, would need voter approval because anything greater than an incremental hike in the exemption requires voters to weigh in on a constitutional amendment. It is scheduled for a hearing in the Ways and Means Committee today.
Clarification of the starting point for depreciating business property for tax purposes. Brewer believes it should be the cost a business paid to acquire the property, not the replacement cost, as has been used in some calculations.
A clear definition of whether software is taxable as business personal property. Brewer didn't spell out a position one way or the other.
Simplification of the state's sales-tax code. Brewer is appointing a committee to recommend changes that would effectively allow businesses one-stop shopping when it comes to complying with sales-tax reports and collections. Currently, the state and counties follow one tax code. Many cities have their own tax codes and often tax items the state does not tax, or vice versa. This confuses businesses, Hunter said. The League of Arizona Cities and Towns is working with the Arizona Tax Research Association on a unified tax code.
Some of the governor's proposed changes are similar to the goals of the Arizona Chamber of Commerce & Industry, which released its legislative wish list late last week.
Glenn Hamer, president and CEO of the chamber, said Brewer's proposal to reform the way the state taxes capital gains is "spot-on."
"Treating capital gains like regular income is an area where Arizona is out of step with federal policy and many other states," he said, adding that Brewer's proposals will help spur entrepreneurial activity and create new businesses.
Donna Davis, CEO of the Arizona Small Business Association, meanwhile, in a statement to The Republic said she is encouraged by Brewer's proposals, saying "there would definitely be dancing in the streets" with a simpler tax system.