State lawmakers are moving to shift the property tax burden from businesses to homeowners in the name of economic development.
On an 8-4 vote, with only Republicans in support, the House Ways and Means Committee agreed Monday to reduce the assessment ratio on business property to 20 percent over the next five years. The ratio is currently at 25 percent.
A lower assessment ratio means a lower value for tax purposes.
Rep. Steve Huffman, R-Tucson, author of the measure, said lower taxes on business will stimulate the economy by attracting more companies to relocate and expand here. He said Arizona has one of the highest effective tax rates on businesses in the country.
But Rep. Ted Downing, D-Tucson, pointed out that the net effect will be to increase taxes on everyone else — mainly owners of residential property.
He noted that Huffman's proposal did not even exist until last week. Instead of being introduced as a regular bill, Huffman used a legal procedure to strip it on to an unrelated bill dealing with the Statewide Health Care Task Force.
Downing suggested the move is an April Fool's joke.
The measure will affect cities, counties, school districts and other special districts that are dependent on property taxes. These governments are limited by law in the total dollars |they |can collect for basic operations. Once they compute the needed revenue, they divide that into the total assessed value of the district to come up with a tax rate.
Dropping the taxable value of businesses will mean a higher tax rate — a higher rate that will be applied to the value of homes, apartments, vacant land and agricultural property that does not have a lower assessed value.
Kevin McCarthy, president of the Arizona Tax Research Association, was unapologetic about the shift. McCarthy, whose organization represents many major taxpayers, said the legislation simply reverses in part the current inequities.
By law, residential property is assessed for tax purposes at 10 percent of its full cash value, a figure that should approximate its market value. So a $250,000 home is assessed for tax purposes at $25,000.
Businesses, by contrast, have a 25 percent assessment ratio. So a businesses worth $250,000 has a $62,500 assessed value.
If the tax rate in a community is $15 per $100 of assessed value, then the tax on the home is $3,750 versus $9,375 for the business.
Huffman's bill would lower the assessment ratio for business to 20 percent. A staff analyst for the House Ways and Means Committee told lawmakers she could not determine the extent of the shift — and how much more residential property owners might pay — under the plan.
Huffman said the dual assessment ratio is at the heart of the state's soft economy and the fact that sales and income tax revenue — the state collects no property taxes — lag behind expenses.
"The No. 1 reason why businesses don't locate here is the quality of education system,'' Huffman said.
"Closely behind that is the property tax structure,'' he said. "If you want a good economy, if you want jobs, you've got to address that inequity.''