AZ legislators, biz group working on property tax break for businesses - East Valley Tribune: Business

AZ legislators, biz group working on property tax break for businesses

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Posted: Tuesday, January 10, 2012 4:29 pm

A business group and two veteran legislators are crafting a plan that could eventually give businesses a big break in their property taxes.

But they have to get voters to go along.

The proposal would craft a partial exemption from existing constitutional requirements that businesses pay property taxes annually not only on the value of their land and buildings but also on the worth of every piece of equipment they own and use.

Voters have previously approved a $50,000 exemption. That, with inflation, has now risen to more than $68,000.

What that means is companies whose property is worth less than that do not have to even bother computing what their equipment is currently worth, much less write out a check every year. Backers of that measure said that not only helped small businesses but also removed a lot of unnecessary work for county assessors given the minimal amount of taxes that these small firms generate.

This new proposal would boost that exemption sharply, using a formula tied to median earnings in the state.

At current levels, that computes out to $2.4 million a year according to Farrell Quinlan, state director of the National Federation of Independent Business. Versions of the legislation are being introduced by Sen. Andy Biggs, R-Gilbert, and Rep. Jack Harper, R-Surprise.

The move is crafted in a way designed to blunt possible voter opposition.

In Arizona, property taxes for most levels of government are a zero-sum game.

Counties, cities, schools and others have a formula which determines how much they can raise each year. And the tax rate is set by dividing that figure into the total value of everything within the taxing district.

If some business equipment is not on the tax rolls, that reduces the district's total valuation which means the tax rate to raise the needed amount has to be higher. And the burden of that higher tax rate then falls on other categories of taxpayers who do not get the same benefits, which mainly means owners of residential property.

So the proposal instead seeks a slower change: Only equipment purchased beginning next year would be subject to that $2.4 million exemption. Anything already owned remains within that $68,079 exemption.

That was done to ensure that any tax shift to homeowners would be gradual.

Legislative budget staffers did an analysis based on a Mesa home with a primary assessed value of $114,800. If the change is approved, the report says the additional taxes by 2015 would be just $3.25.

Quinlan acknowledged that the shift will be greater over 20 years. That's how long he figures it might take for businesses to replace their current equipment with new, all of which would be subject to the higher exemption.

But Quinlan argued that it makes no sense to study that longer-term effect, saying that a homeowner's taxes can be affected by all sorts of unpredictable economic issues.

Those assurances, however, may not be enough to get the necessary ballot approval from those whose taxes eventually will be affected.

Quinlan said the new tax break, if approved, would remove some of the disincentive businesses now have to purchasing new equipment.

All equipment goes on the tax rolls at the purchase price. It then is depreciated according to a set schedule.

But the tax never goes away entirely under the premise that if equipment is still in use, it must have some value.

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