University of Phoenix pushes for income tax break

The Phoenix Business Journal
November 18, 2010
Mike Sunnucks

The University of Phoenix is pushing for a state tax break of $30 million to $50 million that would help reduce its Arizona corporate income tax bill.

UOP and its parent company, Apollo Group Inc., want the state tax code changed to allow businesses with multistate and online sales to choose how they calculate their corporate income taxes. That means sales taking place outside Arizona wouldn’t necessarily be subject to the state’s income tax.

Right now, Arizona taxes corporate income based primarily on where the business producing the income is located, not where the transactions occur. Arizona has a flat 6.97 percent corporate income tax rate.

With the new option, UOP could end up paying state income taxes in Colorado for a class ordered by a student in Denver at a lower 4.6 percent rate.

Other companies with multistate operations, such as Cox Communications and AT&T, also would be impacted. The proposal is similar to a manufacturing tax break adopted in 2005, which helped reduce state taxes for Intel Corp. and others. Intel is based in Santa Clara, Calif., and has fabrication plants in Chandler.

Bradley Wright, vice president of state relations for Apollo, provided this statement to the Phoenix Business Journal: “Apollo Group supports an equitable taxation policy that does not adversely impact Arizona-based corporations that conduct business in other states. We believe such policy is vital to economic development in Arizona, and will encourage new investment in jobs and facilities in the state.”

Apollo pushed a similar bill during the 2010 session that passed the Arizona House of Representatives, but failed to gain final approval. The for-profit university will make another push in January, when the Legislature starts its 2011 session.

If approved, the measure would allow Arizona businesses to choose how they apportion their income — via the existing formula, or using the method favored by UOP/Apollo. Making it an option eases concerns by other businesses that might not benefit from the tax break.

Jerry Fuentes, AT&T’s president for Ari­zona and New Mexico, said the changes pushed by Apollo would raise AT&T’s taxes if they were not optional.

“We didn’t want to just shift the burden from them to us and others,” he said.

But Fuentes and Cox spokes­man Greg Ensell said they can live with the option.

“Cox appreciates the Apollo Group’s efforts to develop a solution to their corp­orate income tax challenges here in Arizona that does not penalize other taxpayers in the state, including Cox,” said Ensell. “We look forward to continuing to work with them as they seek a solution to their unique tax problem.”

Kevin McCarthy, president of the Arizona Tax Research Association, said the Apollo-backed tax change could reduce some businesses’ tax tabs, but not others’.

“This thing cuts both ways,” he said. “There will be companies winning and losing.”

There will be myriad tax-cut proposals next year from business interests. Business leaders backed Gov. Jan Brewer’s push for Proposition 100, a 1-cent sales tax increase, earlier this year and then endorsed her re-election bid. They are hoping Brewer and Republicans at the Legislature will reciprocate with tax help.

McCarthy pointed out that the state faces what could be a $2 billion budget deficit, and any tax cuts or breaks will be scrutinized as social services, Medicaid and education face budget cuts.

“This thing can’t be done in isolation of the budget,” he said.

The Legislature estimated last year that the tax change would cost the state $50 million in revenue. Another recent estimate on the plan, allowing for the option, puts that fiscal impact at $30 million.

Still, McCarthy said a number of other states already have the sales factor income tax formulas favored by Apollo, and some businesses see it as a positive to drawing jobs and operations to certain states.

“We want to make sure we’re not punishing companies locating here,” he said.