Wed, Feb. 26

Lawmakers wrap up session with expanded tax breaks for businesses

PHOENIX — State lawmakers completed the 2017 legislative session Wednesday evening with millions of dollars in new and expanded tax breaks for business that sponsors say will help economic development.

Legislators approved providing another $10 million in state income tax credits for “angel’’ investors who put money into qualified small businesses. They also revamped a fund designed to provide grants to “microenterprises.’’

Separately, they gave final approval to restoring lifetime eligibility for Temporary Assistance for Needy Families to two years, the way it was before Gov. Doug Ducey signed legislation trimming that by half two years ago. But the measure includes some conditions on getting that second year of cash assistance, provisions Democrats said are designed to trip up recipients.

But the big action Wednesday was the decision to provide even more financial incentives for manufacturers, some of whom already get special property tax treatment and a few of whom may be paying no state corporate income taxes at all.

Senate President Steve Yarbrough did not dispute that existing laws and what is in SB 1416, approved by the Senate on a 21-6 and the House by a vote of 32-21, will minimize what some companies pay not only to the state but also in local property taxes that support the city and school districts.

But he said that has to be weighed against the promise by Intel it will be investing more than $7 billion to refurbish and finally occupy a now-vacant chip-manufacturing facility it built years ago in Chandler, his home town. And that, he said, will create new revenue streams.

“You’re missing all of those people who have jobs at Intel who make six-figure salaries, who pay income tax, who pay property taxes on their home, who pay sales taxes at all the places they buy stuff,’’ he said.

But House Minority Leader Rebecca Rios said the record in Arizona disproves theory that tax breaks for business will grow the economy.

She cited a recent report that various tax exemptions and credits total $14 billion, more than the $9.8 billion state budget. But Rios pointed out that the current state budget is essentially equal to what it was a decade ago, “with more than half a million more people in Arizona.’’

“Where’s all this revenue that’s flooding into the state?’’ she asked.

“We have no proof that tax credits like this one actually working,’’ added Sen. Martin Quezada, D-Glendale.

Rep. Pamela Powers Hannley, D-Tucson, took particular issue with provisions of the bill that extend special tax credits to firms to reimburse them for the cost of doing research and development.

She said the state is forgoing millions of dollars of taxes. But Powers Hannley said that’s not the worst of it.

“This bill also gives away millions of dollars in research royalties into the future, with no end date,’’ she said, research that was financed by taxpayers in the first place.

“Giving away all the intellectual property rights is a huge potential loss of future revenues,’’ Powers Hannley continued. “When the voters fund research or fund anything, the voters should get a return on their investment.’’

She said the benefit to the state amounts to “trickle-down economics.’’

But not all the Democrats were opposed.

“Not only will SB 1416 create thousands of high-paying jobs to thousands of Arizonans, but will catapult economic development in the right direction,’’ said Rep. Cessar Chavez, D-Phoenix. He said graduates from the state’s three universities are “fleeing’’ because there are not enough jobs available.

House Speaker J.D. Mesnard, reflecting a philosophical difference between the parties, took particular issue with Rios’ contention the state is giving away tax breaks.

“Not taxing something is not the same thing as giving it away,’’ he said. “ ‘Giving it away’ suggests we own it.’’

The money, he said, belongs to the taxpayers.

“They own it and then we force it from them, yes, to provide services for various things,’’ Mesnard said. “But there’s a very important distinction.’’

The provisions in SB 1416 come on top of the special tax treatment that certain large corporations already get.

There are those R & D tax credits, which can be equal to 24 percent of what a company spends.

Arizona also has created “foreign trade zones,’’ where the property tax on businesses is just a fraction of what it is on firms whose facilities are located elsewhere.

And multistate corporations are allowed to compute what they owe in Arizona corporate income taxes based entirely on what percentage of the products they make are sold in the state. That potentially reduces the liability to manufacturers whose products are made here and shipped elsewhere.

That break is even more significant for firms like Intel, whose computer chips are sold to other firms nationally and worldwide, and Raytheon which has little Arizona audience for its missiles.

SB 1416 makes three major changes in existing laws.

It would extend and expand tax credits manufacturers already get for creating new jobs. That credit is currently set to expire at the end of June.

Another provision extends the tax credits available for expenses on research and development.

And it would create an accelerated depreciation schedule for any equipment purchased by manufacturers.

That break relates to the fact that Arizona law imposes property taxes not only on land and buildings but also any business equipment, from major presses to computers and desks. The value of that equipment is based on the purchase price, a figure that is adjusted annually for depreciation.

This legislation allows businesses to write off half the value in the first year alone, a move that provides an immediate break on what already is a reduced property tax rate. That will particularly help companies that are currently in the market for major new equipment, like Intel.

Gov. Doug Ducey has generally been favorable to new business tax breaks. But he’s also getting something in the legislation he did not want.

Rep. Jill Norgaard, R-Phoenix, slipped in language which says that the sale of partial ownership shares of corporate jets is not subject to the state sales tax.

Ducey vetoed a bill with only that language earlier this year because of the revenue implications. But he will have to accept it if he wants the rest of what’s in SB 1416 because he lacks the constitutional power to excise provisions of new laws he does not like.

There was no immediate response from his office to what Norgaard had done.

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