Legislature signs off on bill to give tax breaks to manufacturers - East Valley Tribune: Capitol Media Services

Legislature signs off on bill to give tax breaks to manufacturers

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Posted: Wednesday, April 9, 2014 5:30 am | Updated: 10:36 am, Wed Apr 9, 2014.

Arizona manufacturers and smelters are in line for a big tax break not being offered to other companies and individuals.

Without debate, both the House and Senate voted Tuesday to exempt those two types of firms – and only those two – from having to pay the state sales tax due on the purchase of electricity and natural gas. SB 1413 now goes to Gov. Jan Brewer who is expected to sign it, as she specifically asked for the tax break as part of her State of the State speech.

Gubernatorial press aide Andrew Wilder acknowledged the selective nature of the tax cut, but he said manufacturing is special.

“Manufacturing is more than just an industry,” he said. “It's a mighty engine of healthy job creation.”

It's important enough, Wilder said, to let them avoid having to pay $17 million in taxes while leaving the levy in place.

Separately, both the House and Senate also made good on a commitment by the Arizona Commerce Authority to give a $5 million tax break to Apple as part of a deal to convince it to build a manufacturing plant in Arizona.

Officially, SB 1484 says nothing about Apple. Instead, it states that any firm that any manufacturer that spends at least $300 million to install renewable-energy generation, and 90 percent is used on its own site, can get a tax dollar-for-dollar credit against its state income taxes to recoup the costs.

But it was clearly meant with Apple in mind as part of a larger package of incentives offered for the company to make its special sapphire glass screens in the state.

On top of that, Apple has been promised an outright $10 million grant from the Arizona Commerce Authority's “deal-closing fund” to locate its operations in the unused First Solar plant in Mesa. The company stands to benefit from SB 1412 which would provide accelerated tax write-offs for any company that acquires new equipment beginning this year.

That measure, which mainly would affect local property taxes, already has been approved by the Senate and awaits a House vote.

But the legislation with the broadest impact – and the biggest cost to the state – is the one granting that sales tax break on electricity and natural gas, but only for some. Wilder said, though, it falls in line with Brewer's mission to “position Arizona for the future.”

“What we are doing now is set Arizona up, and our economy up, for years to come,” he said.

“Manufacturing drives jobs,” Wilder said. “And jobs are going to drive the economy.”

More to the point, he said, it should help make Arizona lure new companies.

“When they're looking at whether or not to do business in Arizona, it's one of the incentives,” Wilder said. “Currently, Arizona is one of only a handful of states that impose the sales tax on manufacturers for the power used to create their products.”

Other types of companies also use power to create things, too, but the definition of “manufacturing” legislators put in SB 1413 was clearly designed to leave them out.

It is specifically limited to an “integrated series of operations” that takes tangible property in one form and “transforms it into a different product with a distinctive name, character or use.” And to make sure that other firms don't line up for the tax break, the legislation spells out it does not include “processing, fabricating, job printing, mining, generating electricity or operating a restaurant.”

But Wilder said manufacturing – at least as defined here – deserves the break.

“Arizona could use more manufacturing,” he said. “We need more jobs.”

Wilder, however, could provide no immediate answer as to why the tax breaks are being extended to smelters.

In the end, only a handful of legislators in each chamber opposed SB 1413.

That, however, was not the case for SB 1484.

“This is a tax break for, may I say, one specific business,” complained Rep. Debbie Lesko, R-Peoria.

She said a second might qualify: The state is attempting to lure Tesla Motors to build a plant in Arizona to manufacture electric car batteries. If that company generates its own renewable power it, too, could get up to $5 million in tax credits.

And Rep. Adam Kwasman, R-Oro Valley, called it “social engineering” and urged other GOP lawmakers to oppose the measure.

“We as conservatives have got to step away from this crony capitalist style of development,” he said, where the Legislature decides who gets tax breaks and who does not. “It's picking winners and losers.”

But Rep. Ethan Orr, R-Tucson, said he sees this incentive as a way of reducing taxes for everyone else at some point in the future by bringing more firms into the state who will share in the tax burden.

He said the Apple and Tesla plants together would produce at least 6,500 jobs.

“Frankly, I want that in my state and want that in my city,” Orr said.

That's also the assessment of Rep. Bob Thorpe, R-Flagstaff.

“We're going to see a lot of jobs,” he said.

But Rep. Steve Smith, R-Maricopa, said the government should not be providing special incentives like this to encourage use of solar and other renewable resources. Smith said if there is sufficient demand the firms that make solar panels will become more efficient and drop their prices, similar to what happened with flat-screen televisions.

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