AZ Desperately Needs Tax Reform
April 06 2009 15:27
Arizona needs tax reform, and we need it now.
The Legislature has received countless letters and emails from businesses that talk of the stifling effect government – both state and federal, has had on their companies, their innovation and their desire to grow.
Instead of forcing businesses to base their saving and investment decisions on taxes, we should provide the grounds that foster economic growth meanwhile encourage innovation and investment.
Not every economist (or politician) will agree that lowering taxes on capital income fosters greater investment, greater economic growth and higher standards of living. Yet every business takes capital income taxes into consideration when deciding whether to move into a state or even move out...as in the case of California.
The question we must ask – is Arizona as business friendly as we could be?
In comparison to our neighboring states (with the exception of California), we lag far behind in terms of having a business friendly environment.
Raising taxes on an already flailing economy will only harm businesses and in turn harm families – the very families that help sustain our great state.
Even if Democrats were able to squeeze $1 billion more from businesses and families that are already struggling, they would still be unable to close the $1 billion budget deficit that they’ve admitted they are short in their budget proposal.
As Speaker Pro Tem Steve Yarbrough said, “Instead of reducing unaffordable expenditures to bring them into alignment with revenues like every other household, business, and local government is doing, the House Minority wants to take more from Arizonans.”
The question we must answer is how can we make Arizona a more business friendly state and what can we do to foster long term growth?
This will take real leadership who can provide for a qualified workforce and a business friendly environment.
The Legislature has received countless letters and emails from businesses that talk of the stifling effect government – both state and federal, has had on their companies, their innovation and their desire to grow.
Instead of forcing businesses to base their saving and investment decisions on taxes, we should provide the grounds that foster economic growth meanwhile encourage innovation and investment.
Not every economist (or politician) will agree that lowering taxes on capital income fosters greater investment, greater economic growth and higher standards of living. Yet every business takes capital income taxes into consideration when deciding whether to move into a state or even move out...as in the case of California.
The question we must ask – is Arizona as business friendly as we could be?
In comparison to our neighboring states (with the exception of California), we lag far behind in terms of having a business friendly environment.
Raising taxes on an already flailing economy will only harm businesses and in turn harm families – the very families that help sustain our great state.
Even if Democrats were able to squeeze $1 billion more from businesses and families that are already struggling, they would still be unable to close the $1 billion budget deficit that they’ve admitted they are short in their budget proposal.
As Speaker Pro Tem Steve Yarbrough said, “Instead of reducing unaffordable expenditures to bring them into alignment with revenues like every other household, business, and local government is doing, the House Minority wants to take more from Arizonans.”
The question we must answer is how can we make Arizona a more business friendly state and what can we do to foster long term growth?
This will take real leadership who can provide for a qualified workforce and a business friendly environment.
State Property Tax Kills Jobs
April 06 2009 15:27
Arizona has the dubious distinction of being ranked fifth in the nation for having the highest business property tax burden. Regionally, Arizona is the worst (with the exception of California).
This means when a business is considering moving to a state, they factor in the additional costs state government will impose, along with regulations. In comparison to Nevada, Colorado, New Mexico and Utah, Arizona has a much lower business friendly environment than our neighbouring states.
Allowing the State Property Tax to return this fall without a complete repeal is a tax increase - the worst possible thing we could allow in a troubled economy. Our businesses and homeowners cannot afford an added financial burden during a time when many are struggling to hold onto what they have.
It is an extremely dangerous proposition to raise taxes during an economic crisis. As lawmakers we must make wise tax decisions to grow our economy, expand our economic base and create jobs. We do that by attracting business and innovation to Arizona.
Tax cuts didn’t lead to the state’s recent budget crisis. We must correct the $3B deficit in Arizona now because the two previous budgets under Governor Napolitano ignored the economic warning signs and relied heavily on borrowing and accounting schemes.
If the State Property Tax is not permanently repealed, it will be incorporated into property tax bills in the fall of 2009 and we will fail to attract and encourage greater diversity and investment in our state among businesses that could bring jobs to Arizona.
We must do all we can to retain and invite business into Arizona. We can continue this process by passing HB2073, the State Property Tax Repeal.
Small Businesses Can't Afford State Property Tax
April 06 2009 15:27
I am a small business owner. My business was created from an idea thirty-one years ago. Today, I employ 28 people and my business generates more than $5 million in annual sales. The business is profitable but earns only about 1.5 percent of sales. Over the past ten years, earnings during the most profitable year were 2.5 percent. As you might imagine there is little room for error or frivolous spending in our operations. Focus, discipline, and hard work by everyone involved make my company function.
The biggest beneficiary of my company…GOVERNMENT. The taxes we paid or generated during 2008 were $654,602.
While I earned $72,000 to sustain and grow my business, government received $654,602 from my effort. Small business is being taxed to death. The small business engine of the U.S. economy is being suffocated with taxes. Business is at the heart of America and always has been. To restart it, you must stimulate it, not kill it. Remove or lessen some of these taxes so I can invest more to develop jobs, grow my company and stimulate economic growth.
Unfortunately one of the consequences of high taxation is to discourage individuals from going into business. New ideas are left dormant because the obstacles to success seem too great or the reward too little. Our tax system should support individuals with new and creative ideas to develop their potential, provide jobs and create wealth. I ask you to support such a system and to oppose programs that restrict entrepreneurial spirit.
Sincerely,
Keith Stephens, President
Woodworkers Source
________________________________________________________________________
Although I do not own any real estate at this time, the State Property Tax Relief provision should remain as it is and not be allowed to expire. In light of all the new developments out of Washington, D.C., and the new taxes that are going to be levied, businesses do not need any further taxes. To do so would force businesses to increase its prices, possibly lay off employees, and/or reduce employees’ hours to that of part time, thereby saving on benefits i.e. vacations, health, sick days, workman’s compensation. We could not keep our businesses open longer or add hours, as this would only increase our overhead costs.
Frank de Rosa , PhD, President. Advance Paper & Maintenance Supply, Inc.
________________________________________________________________________
In spite of the Temporary Property tax relief provisions passed in 2006, I have seen my property tax payment increase over 25 percent in the last two years while the full cash value of my property has declined 43 percent. In other words, the state revenues collected for 2008 and 2009 will be based on the higher cash values from the housing bubble since it takes two years for declines in value to equate to tax liability.
By my estimate I will not see relief from taxes caused by declines in my property values until tax payments are due in 2010. We need this relief provision to be extended for this reason alone.
We are a small service business, employing and paying healthcare for five employees. We are experiencing a significant reduction in revenues and are struggling to keep our workers employed. Our business credit line has been closed by our bank. Our house which we have owned since 2005 is upside down according to our lender. We have cut back on all unnecessary expenses. The next step will be to cut salaries, hours or benefits.
Linda M. Day
Day Enterprises, Inc.
The biggest beneficiary of my company…GOVERNMENT. The taxes we paid or generated during 2008 were $654,602.
While I earned $72,000 to sustain and grow my business, government received $654,602 from my effort. Small business is being taxed to death. The small business engine of the U.S. economy is being suffocated with taxes. Business is at the heart of America and always has been. To restart it, you must stimulate it, not kill it. Remove or lessen some of these taxes so I can invest more to develop jobs, grow my company and stimulate economic growth.
Unfortunately one of the consequences of high taxation is to discourage individuals from going into business. New ideas are left dormant because the obstacles to success seem too great or the reward too little. Our tax system should support individuals with new and creative ideas to develop their potential, provide jobs and create wealth. I ask you to support such a system and to oppose programs that restrict entrepreneurial spirit.
Sincerely,
Keith Stephens, President
Woodworkers Source
________________________________________________________________________
Although I do not own any real estate at this time, the State Property Tax Relief provision should remain as it is and not be allowed to expire. In light of all the new developments out of Washington, D.C., and the new taxes that are going to be levied, businesses do not need any further taxes. To do so would force businesses to increase its prices, possibly lay off employees, and/or reduce employees’ hours to that of part time, thereby saving on benefits i.e. vacations, health, sick days, workman’s compensation. We could not keep our businesses open longer or add hours, as this would only increase our overhead costs.
Frank de Rosa , PhD, President. Advance Paper & Maintenance Supply, Inc.
________________________________________________________________________
In spite of the Temporary Property tax relief provisions passed in 2006, I have seen my property tax payment increase over 25 percent in the last two years while the full cash value of my property has declined 43 percent. In other words, the state revenues collected for 2008 and 2009 will be based on the higher cash values from the housing bubble since it takes two years for declines in value to equate to tax liability.
By my estimate I will not see relief from taxes caused by declines in my property values until tax payments are due in 2010. We need this relief provision to be extended for this reason alone.
We are a small service business, employing and paying healthcare for five employees. We are experiencing a significant reduction in revenues and are struggling to keep our workers employed. Our business credit line has been closed by our bank. Our house which we have owned since 2005 is upside down according to our lender. We have cut back on all unnecessary expenses. The next step will be to cut salaries, hours or benefits.
Linda M. Day
Day Enterprises, Inc.
AZ Chamber of Commerce Supports State Property Tax Repeal
April 06 2009 15:27
By the Arizona Chamber of Commerce
Introduction
In 2006 the Arizona Legislature passed the Omnibus Tax Relief Act suspending the State Equalization Property Tax Rate for three years. According to research from the Joint Legislative Budget Committee, this legislation saved property owners a projected $250 million a year.[1]
Bills currently in the state legislature would make this temporary suspension permanent. Repealing the statewide property tax will prevent further job loss and will make Arizona more competitive by lowering taxes for homeowners and businesses in this struggling economy. If the Legislature does not act, businesses will face a dramatic tax increase when the tax returns following fiscal year 2009. Businesses both large and small will undertake the difficult decision of whom to layoff when the new property tax bill comes due. Taxing our citizens and businesses in a time of economic crisis will result in a longer recession and less capital to retain employees and create jobs.
Background
The State Equalization Property Tax Rate was enacted in 1981 to support local communities’ public school financing. The state legislature sets the rate for this property tax.
Prior to 1981, Arizona’s public schools, like in most states, received their funding from local property taxes. If real estate in a particular area had high valuations, the town or city could impose a relatively low tax rate and still meet its school system's financial needs. In areas where valuations were low, property owners were forced to bear a greater burden to pay for schools.
In an effort to comply with the state constitution's call for "a general and uniform public school system,”[2]the legislature established a formula to determine an "equalization base" of guaranteed funding. If local property taxes fail to meet this minimum, money raised from the State Equalization Property Tax Rate is used to top those districts’ coffers until they reach the set equalization base level.[3]
Because a fixed statewide property tax rate combined with rising real estate values meant owners’ tax bills were constantly increasing, the legislature passed Truth in Taxation (TNT) laws in 1998. TNT was intended to lower tax rates to offset the rise in property valuations, thereby stabilizing owners’ tax liability.
From 2001 to 2006, TNT lowered the State Equalization Property Tax Rate from 51 to 44 cents per $100 valuation –a 16 percent drop. However, statewide primary valuations jumped 55 percent over the same period resulting in property tax increases for many residents.[4] In Maricopa County the increase was nearly 60 percent.[5]
Although most property taxes are collected at the local level, state lawmakers wanted to provide some form of relief from this tax surge. They negotiated a three-year suspension of the State Equalization Property Tax Rate (one of the two property taxes the state controls) saving owners over $250 million a year.
The degree to which education and statewide property taxes are truly separate issues was made clear in the Joint Legislative Budget Committee's December 2007 fiscal note. The Committee reported that the Department of Education had a $61.1 million budget surplus. Additionally, the legislature appropriated $145 million in additional funding last year.[6] In the FY 2009 budget adjustments signed into law on January 31, 2009, the legislature cut $133 million from education, which translates to only 3.2% of its General Fund budget.
It is important to remember that the State’s General Fund counterbalanced the loss of this revenue stream, ensuring no school district fell below the base funding level. The business community supports a strong educational system. High property taxes, however, detract from the ability to create wealth and employment for Arizona.
Property Tax Differences for Business and Homeowners
In Arizona, property is divided up into nine classes. A property’s valuation will vary depending on its classification,.
Owner-occupied homes are listed in Class 3 and assessed at 10 percent of full cash value (market value). Business property, however, is placed in Class 1 and subject to 22 percent of full cash value.[7]That means if a home and business have the same market value, say $200,000,[8] the business will pay primary tax on $44,000 while the home will pay tax on only $20,000 worth of value.
A further distortion comes in the form of the Homeowner’s Rebate. In 2006, the State covered 36 percent of homeowners’ primary school district tax rate. In Phoenix Union School District the primary property tax rate for a business was 9.76 cents per $100 valuation. The primary tax rate for a home, on the other hand, was 7.29 cents per $100 valuation. By applying those rates to the above valuations, we find a tax bill of $4,294 for the business and $1,458 for the home —a difference of $2,836.[9]
The State Equalization Property Tax portion of these two tax bills is similarly affected. Applying the State Equalization rate of $0.33 cents per $100 valuation to this example results in a $145 tax for business owner and a $66 tax for the homeowner —120 percent less.
Many businesses, however, own property worth more than $200,000. Perhaps a more realistic example is that of a commercial development valued at $3.9 million in Tempe. The State Equalization Tax part of the owner’s property tax bill would come to over $15,000.[10]
Competitive Arizona
High property taxes are particularly damaging. A growing body of research has found property taxes, because they must be paid regardless of a company's profitability, negatively impact business start-ups.[11]According to the Minnesota Taxpayers Association and the Arizona Tax Research Association, Arizona ranked 5thhighest in the nation for industrial property taxes payable in 2007.[12]Furthermore, business property in Arizona suffers much higher taxes than neighboring states.
To remain a competitive and attractive location for business, to preserve and create more jobs, and to increase individual incomes, Arizona needs to eliminate the state equalization property tax.
To Critics of the Repeal
Some worry repealing the statewide property tax would unfairly benefit big business. What it would actually do is benefit everyone. According to the Arizona Department of Commerce, property-intensive industries employ over 20 percent of the civilian labor force.[13]Lower property taxes would provide companies with additional financial resources to stave off job loss in the short term and support higher wages and expansion in the long term. The ongoing result would be the creation of more jobs to keep Arizona’s economy healthy. Lowering the cost of business in Arizona by cutting property taxes will benefit the future of all residents.
Another criticism of the repeal focuses on the state’s looming budget deficit, projected to reach $3 billion for fiscal year 2010. Opponents question how the legislature can contemplate eliminating the State Equalization Property Tax when revenue is coming in below expectations?
There are a few problems with this argument. First, if the State Equalization tax had been collected in fiscal year 2009, it would have added approximately $250 million in revenue, leaving a deficit of at least $1.35 billion.[14]This suggests the Arizona budget problem lies with too much spending and an antiquated tax system that does not promote investment, capital formation, and job creation.
Second, while sales and income tax collections are down approximately 11 percent from last year, the corporate income tax is down 24.6 percent.[15]Simple economic rationale affirms that increasing taxes on homeowners and business by $250 million is not the way to grow an economy that is in crisis. When business suffers during an economic downturn workers suffer. Now is the time to aid in the sustainability and development of the private sector.
Position
In a globalized economy, Arizona can no longer set fiscal policy as if it were in a vacuum. Companies and individual entrepreneurs are watching to see what Arizona does in comparison to other states and countries. Then, they will react accordingly.
To make sure they react in a positive way, the Arizona Chamber of Commerce and Industry supports the permanent elimination of the State Equalization Property Tax Rate. Now is the time for Arizona to position itself for economic growth and job creation. The repeal is a critical and important step as Arizona looks to improve its competitiveness.
[1] Joint Legislative Budget Committee, “Fiscal Impact of Statutory Tax Changes,” September 20, 2007,http://www.azleg.gov/jlbc/taxchanges07.pdf
[2] Arizona State Constitution, Article XI Section 1,http://www.azleg.gov/FormatDocument.asp?inDoc=/const/11/1.htm
[3] In addition to the State Equalization Property Tax, which is actually collected by the counties, revenue from the Qualifying Tax Rate and Basic State Aid from the General Fund is used to guarantee funding levels. If a district collects enough money on its own to meet the equalization base level, then the State does not provide any funds.
[4] Joint Legislative Budget Committee, “State of Arizona 2006 Tax Handbook,” September 12, 2006, p 82,http://www.azleg.gov/jlbc/06taxbook/06taxbk.pdf
[5]Maricopa County Department of Finance, “Tax Rate 2001-2006,”http://www.maricopa.gov/Finance/tax_pub.aspx
[6] Joint Legislative Budget Committee, “FY2009 Appropriations Report,” August 2008,http://www.azleg.gov/jlbc/09app/apprpttoc.pdf.
[7] For Tax Year 2007; the percent will drop .5 percent each year until it is reduced to 20 percent for business in 2015
[8] The Arizona State University Real Estate Center records the median sale price for a single family home in Greater Phoenix between 2004 and 2007 at $255,000. For more information seehttp://www.poly.asu.edu/realty/marketupdate/sales/Annual%20Sales.xls.
[9] For a full explanation see the Arizona Tax Research Association’s “An Explanation of Property Tax,” 2007,http://www.maricopa.gov/Finance/tax_pub.aspx
[10] EJM Developers, Co., “Good Cents Presentation,” January 16, 2008
[11] For more seeTimothy J. Bartik (1989). “Small Business Start-Ups in the United States: Estimates of the Effects of Characteristics of States,”Southern Economic Journal, pp. 1004-1018; Stephen T. Mark, Therese J. McGuire and Leslie E. Papke (2000). “The Influence of Taxes on Employment and Population Growth: Evidence from the Washington, D.C. Metropolitan Area,”National Tax Journal,Volume 53, pp. 105-123; Sanjay Gupta and Mary Ann Hofmann (2003). “The Effect of State Income Tax Apportionment and Tax Incentives on New Capital Expenditures,”The Journal of the American Taxation Association,Supplement 2003, pp. 1-25.
[12]Minnesota Taxpayers Association, Arizona Tax Research Association, “Residential Property Tax Rankings vs. Industrial Property Tax Rankings,” March 3, 2009
[13] Arizona Department of Commerce – Research Administration, “State of Arizona Labor Force and Non-Farm Employment,” 2007,http://www.workforce.az.gov/admin/uploadedPublications/1970_aznaics01-06.pdf
[14] Joint Legislative Budget Committee “Joint Caucus Budget Update: FY 2009 and FY 2010 Revenues and Budget Shortfall Estimates,” January 14, 2009,http://www.azleg.gov/jlbc/JointCaucusBudgetUpdate 011409.pdf.
[15] Joint Legislative Budget Committee, “2009 Revenue Update,” February 12, 2009http://www.azleg.gov/ jlbc/09janrevupdate.pdf.
Introduction
In 2006 the Arizona Legislature passed the Omnibus Tax Relief Act suspending the State Equalization Property Tax Rate for three years. According to research from the Joint Legislative Budget Committee, this legislation saved property owners a projected $250 million a year.[1]
Bills currently in the state legislature would make this temporary suspension permanent. Repealing the statewide property tax will prevent further job loss and will make Arizona more competitive by lowering taxes for homeowners and businesses in this struggling economy. If the Legislature does not act, businesses will face a dramatic tax increase when the tax returns following fiscal year 2009. Businesses both large and small will undertake the difficult decision of whom to layoff when the new property tax bill comes due. Taxing our citizens and businesses in a time of economic crisis will result in a longer recession and less capital to retain employees and create jobs.
Background
The State Equalization Property Tax Rate was enacted in 1981 to support local communities’ public school financing. The state legislature sets the rate for this property tax.
Prior to 1981, Arizona’s public schools, like in most states, received their funding from local property taxes. If real estate in a particular area had high valuations, the town or city could impose a relatively low tax rate and still meet its school system's financial needs. In areas where valuations were low, property owners were forced to bear a greater burden to pay for schools.
In an effort to comply with the state constitution's call for "a general and uniform public school system,”[2]the legislature established a formula to determine an "equalization base" of guaranteed funding. If local property taxes fail to meet this minimum, money raised from the State Equalization Property Tax Rate is used to top those districts’ coffers until they reach the set equalization base level.[3]
Because a fixed statewide property tax rate combined with rising real estate values meant owners’ tax bills were constantly increasing, the legislature passed Truth in Taxation (TNT) laws in 1998. TNT was intended to lower tax rates to offset the rise in property valuations, thereby stabilizing owners’ tax liability.
From 2001 to 2006, TNT lowered the State Equalization Property Tax Rate from 51 to 44 cents per $100 valuation –a 16 percent drop. However, statewide primary valuations jumped 55 percent over the same period resulting in property tax increases for many residents.[4] In Maricopa County the increase was nearly 60 percent.[5]
Although most property taxes are collected at the local level, state lawmakers wanted to provide some form of relief from this tax surge. They negotiated a three-year suspension of the State Equalization Property Tax Rate (one of the two property taxes the state controls) saving owners over $250 million a year.
The degree to which education and statewide property taxes are truly separate issues was made clear in the Joint Legislative Budget Committee's December 2007 fiscal note. The Committee reported that the Department of Education had a $61.1 million budget surplus. Additionally, the legislature appropriated $145 million in additional funding last year.[6] In the FY 2009 budget adjustments signed into law on January 31, 2009, the legislature cut $133 million from education, which translates to only 3.2% of its General Fund budget.
It is important to remember that the State’s General Fund counterbalanced the loss of this revenue stream, ensuring no school district fell below the base funding level. The business community supports a strong educational system. High property taxes, however, detract from the ability to create wealth and employment for Arizona.
Property Tax Differences for Business and Homeowners
In Arizona, property is divided up into nine classes. A property’s valuation will vary depending on its classification,.
Owner-occupied homes are listed in Class 3 and assessed at 10 percent of full cash value (market value). Business property, however, is placed in Class 1 and subject to 22 percent of full cash value.[7]That means if a home and business have the same market value, say $200,000,[8] the business will pay primary tax on $44,000 while the home will pay tax on only $20,000 worth of value.
A further distortion comes in the form of the Homeowner’s Rebate. In 2006, the State covered 36 percent of homeowners’ primary school district tax rate. In Phoenix Union School District the primary property tax rate for a business was 9.76 cents per $100 valuation. The primary tax rate for a home, on the other hand, was 7.29 cents per $100 valuation. By applying those rates to the above valuations, we find a tax bill of $4,294 for the business and $1,458 for the home —a difference of $2,836.[9]
The State Equalization Property Tax portion of these two tax bills is similarly affected. Applying the State Equalization rate of $0.33 cents per $100 valuation to this example results in a $145 tax for business owner and a $66 tax for the homeowner —120 percent less.
Many businesses, however, own property worth more than $200,000. Perhaps a more realistic example is that of a commercial development valued at $3.9 million in Tempe. The State Equalization Tax part of the owner’s property tax bill would come to over $15,000.[10]
Competitive Arizona
High property taxes are particularly damaging. A growing body of research has found property taxes, because they must be paid regardless of a company's profitability, negatively impact business start-ups.[11]According to the Minnesota Taxpayers Association and the Arizona Tax Research Association, Arizona ranked 5thhighest in the nation for industrial property taxes payable in 2007.[12]Furthermore, business property in Arizona suffers much higher taxes than neighboring states.
To remain a competitive and attractive location for business, to preserve and create more jobs, and to increase individual incomes, Arizona needs to eliminate the state equalization property tax.
To Critics of the Repeal
Some worry repealing the statewide property tax would unfairly benefit big business. What it would actually do is benefit everyone. According to the Arizona Department of Commerce, property-intensive industries employ over 20 percent of the civilian labor force.[13]Lower property taxes would provide companies with additional financial resources to stave off job loss in the short term and support higher wages and expansion in the long term. The ongoing result would be the creation of more jobs to keep Arizona’s economy healthy. Lowering the cost of business in Arizona by cutting property taxes will benefit the future of all residents.
Another criticism of the repeal focuses on the state’s looming budget deficit, projected to reach $3 billion for fiscal year 2010. Opponents question how the legislature can contemplate eliminating the State Equalization Property Tax when revenue is coming in below expectations?
There are a few problems with this argument. First, if the State Equalization tax had been collected in fiscal year 2009, it would have added approximately $250 million in revenue, leaving a deficit of at least $1.35 billion.[14]This suggests the Arizona budget problem lies with too much spending and an antiquated tax system that does not promote investment, capital formation, and job creation.
Second, while sales and income tax collections are down approximately 11 percent from last year, the corporate income tax is down 24.6 percent.[15]Simple economic rationale affirms that increasing taxes on homeowners and business by $250 million is not the way to grow an economy that is in crisis. When business suffers during an economic downturn workers suffer. Now is the time to aid in the sustainability and development of the private sector.
Position
In a globalized economy, Arizona can no longer set fiscal policy as if it were in a vacuum. Companies and individual entrepreneurs are watching to see what Arizona does in comparison to other states and countries. Then, they will react accordingly.
To make sure they react in a positive way, the Arizona Chamber of Commerce and Industry supports the permanent elimination of the State Equalization Property Tax Rate. Now is the time for Arizona to position itself for economic growth and job creation. The repeal is a critical and important step as Arizona looks to improve its competitiveness.
[1] Joint Legislative Budget Committee, “Fiscal Impact of Statutory Tax Changes,” September 20, 2007,http://www.azleg.gov/jlbc/taxchanges07.pdf
[2] Arizona State Constitution, Article XI Section 1,http://www.azleg.gov/FormatDocument.asp?inDoc=/const/11/1.htm
[3] In addition to the State Equalization Property Tax, which is actually collected by the counties, revenue from the Qualifying Tax Rate and Basic State Aid from the General Fund is used to guarantee funding levels. If a district collects enough money on its own to meet the equalization base level, then the State does not provide any funds.
[4] Joint Legislative Budget Committee, “State of Arizona 2006 Tax Handbook,” September 12, 2006, p 82,http://www.azleg.gov/jlbc/06taxbook/06taxbk.pdf
[5]Maricopa County Department of Finance, “Tax Rate 2001-2006,”http://www.maricopa.gov/Finance/tax_pub.aspx
[6] Joint Legislative Budget Committee, “FY2009 Appropriations Report,” August 2008,http://www.azleg.gov/jlbc/09app/apprpttoc.pdf.
[7] For Tax Year 2007; the percent will drop .5 percent each year until it is reduced to 20 percent for business in 2015
[8] The Arizona State University Real Estate Center records the median sale price for a single family home in Greater Phoenix between 2004 and 2007 at $255,000. For more information seehttp://www.poly.asu.edu/realty/marketupdate/sales/Annual%20Sales.xls.
[9] For a full explanation see the Arizona Tax Research Association’s “An Explanation of Property Tax,” 2007,http://www.maricopa.gov/Finance/tax_pub.aspx
[10] EJM Developers, Co., “Good Cents Presentation,” January 16, 2008
[11] For more seeTimothy J. Bartik (1989). “Small Business Start-Ups in the United States: Estimates of the Effects of Characteristics of States,”Southern Economic Journal, pp. 1004-1018; Stephen T. Mark, Therese J. McGuire and Leslie E. Papke (2000). “The Influence of Taxes on Employment and Population Growth: Evidence from the Washington, D.C. Metropolitan Area,”National Tax Journal,Volume 53, pp. 105-123; Sanjay Gupta and Mary Ann Hofmann (2003). “The Effect of State Income Tax Apportionment and Tax Incentives on New Capital Expenditures,”The Journal of the American Taxation Association,Supplement 2003, pp. 1-25.
[12]Minnesota Taxpayers Association, Arizona Tax Research Association, “Residential Property Tax Rankings vs. Industrial Property Tax Rankings,” March 3, 2009
[13] Arizona Department of Commerce – Research Administration, “State of Arizona Labor Force and Non-Farm Employment,” 2007,http://www.workforce.az.gov/admin/uploadedPublications/1970_aznaics01-06.pdf
[14] Joint Legislative Budget Committee “Joint Caucus Budget Update: FY 2009 and FY 2010 Revenues and Budget Shortfall Estimates,” January 14, 2009,http://www.azleg.gov/jlbc/JointCaucusBudgetUpdate 011409.pdf.
[15] Joint Legislative Budget Committee, “2009 Revenue Update,” February 12, 2009http://www.azleg.gov/ jlbc/09janrevupdate.pdf.
More Taxes Means Less Growth
April 06 2009 15:27
Background
In 2006, the Arizona Legislature and Governor were faced with extraordinary uncertainty in the property tax system. Property valuations in many counties skyrocketed, forcing county assessors to increase values on some homeowners up to 60 percent. Angry citizens began circulating initiatives to roll back the valuation increases and cap overall property taxes.
The Legislature and Governor responded by reducing its property tax rate while also prohibiting local governments from increasing primary property taxes. In addition, the Legislature referred Proposition 101 to the 2006 general election ballot to ensure that the constitutional levy limits of counties, cities and community colleges would limit future primary property taxes to 2 percent plus growth.
Regrettably, the state property tax relief was made temporary in last minute negotiations with Governor Napolitano. Unless the Legislature takes further action, the state equalization tax rate will return to tax bills this year, resulting in a $247 million tax increase.
Arizona Tax Research Association’s (ATRA’s) Recommendation:
Clearly, the environment that led to the reduction in property taxes in 2006 has changed. Residential property valuations are decreasing substantially and home foreclosures are at record levels. Moreover, theArizonaeconomy continues to contract and businesses shed workers to try to stay afloat. Arizona’s unemployment rate is up to 7 percent and more than 155,000 Arizonans have lost their jobs over the last year.
ATRA recognizes that the depth of Arizona’s budget crisis leaves very few good options to balance the FY 2010 budget. The federal stimulus money provides some short term relief and a potential bridge to better economic times. However, a statewide property tax increase this year will only serve to dampen and delay any potential economic recovery.
Study after study has demonstrated that Arizona’s tax system discourages business location and expansion in the state. In particular, Arizona’s high business property taxes (ranked 5th highest nationally) are a major impediment to economic growth. As the attached table reflects, whileArizonabusinesses account for only 16 percent of the property tax base, they will pay 33 percent of the $247 million tax increase.
Simply put, ATRA believes that a major tax increase in the area of our tax system that is already a major impediment to economic growth is the worst possible option for balancing the FY 2010 budget.
In 2006, the Arizona Legislature and Governor were faced with extraordinary uncertainty in the property tax system. Property valuations in many counties skyrocketed, forcing county assessors to increase values on some homeowners up to 60 percent. Angry citizens began circulating initiatives to roll back the valuation increases and cap overall property taxes.
The Legislature and Governor responded by reducing its property tax rate while also prohibiting local governments from increasing primary property taxes. In addition, the Legislature referred Proposition 101 to the 2006 general election ballot to ensure that the constitutional levy limits of counties, cities and community colleges would limit future primary property taxes to 2 percent plus growth.
Regrettably, the state property tax relief was made temporary in last minute negotiations with Governor Napolitano. Unless the Legislature takes further action, the state equalization tax rate will return to tax bills this year, resulting in a $247 million tax increase.
Arizona Tax Research Association’s (ATRA’s) Recommendation:
Clearly, the environment that led to the reduction in property taxes in 2006 has changed. Residential property valuations are decreasing substantially and home foreclosures are at record levels. Moreover, theArizonaeconomy continues to contract and businesses shed workers to try to stay afloat. Arizona’s unemployment rate is up to 7 percent and more than 155,000 Arizonans have lost their jobs over the last year.
ATRA recognizes that the depth of Arizona’s budget crisis leaves very few good options to balance the FY 2010 budget. The federal stimulus money provides some short term relief and a potential bridge to better economic times. However, a statewide property tax increase this year will only serve to dampen and delay any potential economic recovery.
Study after study has demonstrated that Arizona’s tax system discourages business location and expansion in the state. In particular, Arizona’s high business property taxes (ranked 5th highest nationally) are a major impediment to economic growth. As the attached table reflects, whileArizonabusinesses account for only 16 percent of the property tax base, they will pay 33 percent of the $247 million tax increase.
Simply put, ATRA believes that a major tax increase in the area of our tax system that is already a major impediment to economic growth is the worst possible option for balancing the FY 2010 budget.
Legislative Leadership Discusses Fiscal Crisis
April 06 2009 15:27
Speaker Adams and President Burns discuss Arizona’s historical fiscal crisis and the best way we can get out of it.