House panel OKs 2 tax cut bills targeting business

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By Andrew Michalscheck By Andrew Michalscheck

PHOENIX (AP) -- An Arizona House committee gave initial approval Wednesday to a pair of bills that provide generous tax breaks for companies that expand or invest in new startups, and added on a 2 percent tax deduction for the self-employed valued at $58 million a year.

The bills build on previous Republican efforts to make Arizona's tax climate more favorable for businesses, but minority Democrats argue they come at the expense of education and other state spending. They also argue that there's no accountability provisions that ensure the tax breaks are doing what they're advertised to do, although because they're targeted tax cuts Democrats have less heartburn with them than with blanket tax cuts.

The first bill creates a tax credit for insurance companies that invest in a new high-tech fund overseen by the Arizona Commerce Authority. Republican House Speaker Andy Tobin's bill gives insurers a credit against their premium taxes of up to $10 million in the budget year beginning July 1 and $20 million in the next two years. They can carry unused credits forward for 15 years if they can't use it in the year it's earned.

The Commerce Authority would administer the fund and use it to help high-tech businesses relocate or expand. The state would recover the first $50 million in credits from profits earned from their investments and split any additional revenue, but there's no guarantee any of the money would be repaid.

The second bill that passed the Commerce Committee Wednesday lowers the property tax rate for businesses that expand and add jobs. The value of that tax break isn't yet known.

The property tax break was included as a so-called strike-everything amendment to a minor bill by committee chairman Tom Forese. Forese, R-Chandler, pushed the bill through committee and added an additional last-minute amendment creating the 2 percent tax deduction self-employed Arizonans on their first $113,700 of income.

Forese said the tax deduction only targeted the self-employed because of scope and cost.

"We asked the question what's the biggest impact we could make with the smallest amount of money," he said.

The bills championed by Tobin and Forese are designed to draw business to the state by making Arizona more competitive in the region. Tobin has said previous business tax breaks passed two years ago pushed Arizona to fourth from ninth place in the nine-state western region.

And there are more provisions to come, Forese promised.

"We want to send a message to business and entrepreneurs that Arizona is the place to be," he said.

But they come before the bulk of a Republican-championed 2011 economic development package comes on line. Business tax cuts valued at $538 million when fully in place in 2018 and a capital gains tax cut benefiting high-income Arizonans valued at $108 million are key parts of that package.

They also come during a tight budget year when a temporary sales tax that brought in about $1 billion a year and helped the state avoid more budgets cuts is set to expire.

Minority Democrats generally oppose additional tax cuts, arguing the state needs to restore funding to schools and services cut during the Great Recession.

"We know that the Legislature has been very active in reducing businesses tax liabilities," said Rep. Debbie McCune Davis, who opposed Forese's bill because of the individual tax breaks. "What they haven't been diligent about is making sure that we have enough money to pay our bills to sustain our infrastructure and to maintain quality education. And we need to have both conversations."

The Forese bill also drew criticism from a fellow Republican, who argued that throwing tax breaks to specific groups created less incentive to do broad-based tax reform.

"If we are intent on being the most attractive, and every state is doing something different ... let's just have a Walmart policy that says we'll match everything," Rep. J.D. Mesnard. "Maybe then we would be the super ultra-competitive from every state's perspective."

Mesnard voted for the bill anyway.

"I think we have a window of opportunity right now with California - California is raising taxes, it has a nasty regulatory environment that is pushing businesses elsewhere, and many of them are going to Texas," Forese said. "This is a temporary solution, speaking specifically to the property (tax cuts), that will allow us to exploit this opportunity in California."