Legislative panel wants to repeal tax credit for home builders - East Valley Tribune: Business

Legislative panel wants to repeal tax credit for home builders

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Posted: Sunday, December 30, 2012 5:30 pm | Updated: 4:41 pm, Mon Jan 7, 2013.

Developers could soon lose a tax credit they now can get for donating land for public schools.

Without dissent, a special legislative panel has recommended that their colleagues repeal a law that gives home builders a state income tax credit equal to 30 percent of the value of the property they provide. That credit has been in place since 2000.

The recommendation of the Joint Legislative Income Tax Credit Review Committee is not the final word. It must be approved by the full Legislature and gain approval of the governor.

But the move gained the backing of all the Republicans on the panel. And even with the reduction in its hold in the Legislature, the GOP remains in firm control.

Repeal, however, will not come without a fight. Spencer Kamps, lobbyist for the Home Builders Association of Central Arizona said the credit is good public policy and should be retained.

Kamps may also have something else going for him: a constitutional amendment which requires a two-third vote of both the House and Senate for not only any tax increase but any change in tax laws that result in an increase in state revenues.

He contends this repeal fits that definition. And since the Republicans will no longer have a two-thirds majority in either chamber next year, that means Kamps could block the move by garnering Democratic support.

Under Arizona law, the state is legally responsible for building new schools where needed.

Kamps said the basis of the legislation was the rapid growth of Arizona population coupled with limited finances. The idea, he said, was to cut costs by having the land donated.

The incentive for the builder, he said, was that 30 percent tax credit against what they owe in income taxes. But Kamps said even at that, it was a better deal for the state than buying the property outright.

But Rep. J.D. Mesnard, R-Chandler, said that ignores the reality of the situation. He contends the donations will continue, with or without the credits.

"Its good business for a developer,'' he said. "They get to say that the homes they are trying to sell are near a school.''

Giving builders a tax bonus on top of that, he said, is "bad public policy.''

Kamps called the recommendation "short-sighted.''

"The state's responsible for purchasing school sites,'' he said. "If you can get a school site donated at 30 percent of the cost, that's a cost-savings to the state of Arizona.''

Kamps acknowledged that some developers were donating land for school sites before there was even a tax credit. But he said that some of that land never ended up being used for schools because the state School Facilities Board did not want that particular location.

The credit, Kamps said, is contingent on the land actually being used for a school.

The issue may not resonate right now for developers because home construction is far off its peak.

But Rep. Tom Chabin, R-Flagstaff, said that is no reason to scrap the credit.

"Arizona is going to grow in the future,'' he said. Chabin said the state needs incentives like this to ensure that Arizona has the schools it needs without having to spend some of the money earmarked for construction instead just to buy the land.

That still leaves the question of whether developers will still provide school sites without the financial bonus. Kamps said that while a developer may be able to boost home sales by boasting of a nearby school, that may not be enough to make it financially worthwhile to give away the land without some tax benefit.

"The numbers don't always crunch on that kind of donation,'' he said.

Kamps also said one thing that is different now than in 2000: Voters in 2006 approved Proposition 207. That limits the ability of governments to use their powers, like denying the needed zoning, to force a property owner to donate property for something like a school site.

How much the state has provided developers in tax breaks is confidential.

Generally speaking, state law requires the release of aggregate information about the cost of each tax credit and deduction. But there is an exemption if there are three or fewer taxpayers who take the credit under the premise that providing the amount could identify the taxpayer and, by extension, that firm's finances.

That has been the case for 2008 through 2010, the most recent years available.

But records do show that in 2006, corporate developers donated nearly $9.2 million worth of land and took more than $2.7 million in credits. There were no donations in 2007.

The picture is slightly different for those businesses operating in a way so their income is reported on the income tax returns of the individual owners.

Figures for those firms, partnerships and individual proprietorships show land donations peaked in 2006 at $35 million.

It also remains an unsettled legal question whether Kamps can rely on proponents of repeal needing a two-thirds vote.

While that requirement was approved by voters in 1992, its scope has never been challenged in court. And the issue usually arises when legislators are debating increases in taxes or fees.

Sen. Ron Gould, R-Lake Havasu City, acknowledged that legislative staff attorneys have said the language of the measure also extends to eliminating tax credits, as it would result in a net increase in state revenues.

But he said that was not the intent of the voters. And Gould urged colleagues in the next session -- he is not coming back -- to repeal the credit and let someone who does not like it take the state to court.

Defending that position, however, could be difficult.

What was Proposition 108 does say it applies to new taxes or any increase in tax rates. But it also spells out that the supermajority vote applies to "a reduction or elimination of a tax deduction, exemption, exclusion, credit or other tax exemption feature in computing tax liability.''

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