With support from business groups and tax-reduction advocates, an Arizona House panel Monday approved a bill that would permanently repeal a statewide property tax.
The move is projected to provide $250 million in annual tax relief.
The biggest winners in eliminating the school-equalization tax are businesses, whose tax assessment is more than twice the rate of homeowners. A business with property valued at $1 million would receive about $775 in savings, and the amount would increase based on higher values.
"This sends a very clear message to businesses that Arizona has a good climate to operate in. This is a critical, important step as Arizona looks to improve its competitiveness," said Glenn Hamer, Arizona Chamber of Commerce and Industry's executive director.
Joining the chamber in supporting House Bill 2073 were Pinnacle West Capital Corp., the National Federation of Independent Business, the National Association of Industrial and Office Properties and the Arizona Manufacturers Council. Representatives from the Arizona Tax Research Association and Americans for Tax Reform also supported the bill.
Martin Shultz, a spokesman for Pinnacle West, the parent of Arizona Public Service Co., said any tax increase would be passed on to ratepayers.
Opponents, including teachers unions and Democrats, said the state can't afford to repeal the tax at a time when the recession has caused Arizona to make significant cuts to the current budget. The state budget is facing more cuts for the fiscal year that begins July 1.
"We need more money to do the things that need to be done to make us a better state and to make us a better state for business," said Rep. Steve Farley, D- Tucson, who called the legislation a corporation tax bailout.
And, opponents added, the legislation does relatively little for an average homeowner. A homeowner with a home valued at $250,000, for example, would save $88.
Beth Slaine, an English teacher from Tucson High Magnet School, told the House Ways and Means Committee that she would be willing to forego the savings so "children have an adequate opportunity in public education."
The bill, which passed in a party-line 5-3 vote with Republicans voting in favor, came after more than two hours of lively debate, where Republicans said businesses couldn't afford additional taxes when Arizona already has lost more than 100,000 jobs because of the recession.
Democrats countered the $250 million could be spent to protect those less fortunate or on schools or higher education.
The county equalization assistance for public education tax rate was enacted in 1981, but it was suspended three years ago as part of a deal between the GOP-controlled Legislature and former Gov. Janet Napolitano. Lawmakers used general fund money to compensate for the lost revenue. The suspension, however, is set to end. The tax would go into effect this fall with potential revenue coming in 2010.
The legislation to make the repeal permanent now moves to the Republican-controlled House, where Speaker Kirk Adams has promised passage. The legislation also is expected to pass the GOP-controlled Senate. Republican Gov. Jan Brewer has not said publicly whether she would support the legislation.
"It's a bad idea," committee Chairman Rick Murphy, R-Glendale, said of the tax going back on the books. "We have one of the worst business tax climates in the world in Arizona and that has to change."