A bipartisan measure moving through the Arizona Legislature to cut business taxes likely would mean a higher property taxes for homeowners — at least in the short term.
HCR2037 would exempt the first $150,000 of business equipment from annual property tax levies. The move, according to Rep. Ben Miranda, D-Phoenix, would mean no tax on equipment at all for 90 percent of all firms in the state.
Rep. Michele Reagan, RScottsdale, said the change — which would require voter approval in 2008 — would encourage companies to both locate and expand in the state.
Making that change would not affect the state budget, as there is no statewide property tax. But it would reduce what other levels of government could collect from businesses. And, given the way cities, counties, community colleges and school districts raise money, that would shift the burden to other types of property that do not get the exemption — notably residential.
Miranda conceded the point. But he said the economic development the change would encourage should eventually mean lower taxes for everyone.
The proposal appears to have broad support: It was approved unanimously earlier this month by the House Ways and Means Committee. It now awaits floor action.
At the heart of the battle are two related issues.
The first is that business property currently is taxed at 24 percent of its value, compared with 10 percent for residential property.
On top of that, Arizona’s property tax is levied not only on land and buildings but also on business equipment. That ranges from large fabrication machines down to individual computers and file cabinets.
A similar levy on the personal property on individuals was eliminated years ago.
The result is that property taxes on business are higher in Arizona than most other states.
Reagan said that discourages manufacturers from moving or expanding in Arizona, as they are the ones with the most expensive equipment and, by extension, the ones facing the highest tax levy.
Voters approved a $50,000 exemption in 1996, a figure that, with inflation, now is $61,142.
The reason there would be a shift to homeowners relates to how different levels of government raise money.
In essence, they are allowed to collect a set amount of money, a figure based on prior spending coupled with inflation and growth.
That needed revenue figure then is divided by the taxable value of property in the district to compute a tax rate.
Any reduction in that taxable value — such as would occur if HCR2037 were to become law — means the tax rate would need to be higher.
That, in turn, would mean higher taxes to property owners who are not getting the new exemption.
Legislative budget staff members said they had not computed the size of that shift. But in a note to lawmakers they said there is an alternative: local governments and schools could simply forgo the revenue.
Despite that, both lawmakers believe the change is merited.
“This legislation is good for small businesses,” said Miranda. And he said lawmakers need to consider not so much the short-term effects, like that shift.
“In the long run I think it’s more beneficial because it will bring more funds into a school district,” he said, as businesses expand.