The following letter was sent today by the National Federation of Independent Business (NFIB) to all members of the Arizona House of Representatives regarding major property tax legislation that has yet to receive the appropriate amount of attention in the press or from lawmakers. NFIB joins the Arizona Tax Research Association, the Goldwater Institute, the Arizona Free Enterprise Club and Americans for Prosperity – Arizona in opposing this misguided legislation. However, interests principally representing large, out-of-state-based businesses, have rallied to champion the bill including the Greater Phoenix Economic Council and Arizona Chamber of Commerce and Industry. Click here to watch a ten-minute KAET-TV’s Horizon segment on SB 1041 featuring GPEC’s Barry Broome and NFIB’s Farrell Quinlan.
The 7,500 Arizona small business members of the National Federation of Independent Business urge you to vote “NO” on SB 1041: Invest Arizona. This legislation clearly violates our long-held position against picking winners and losers in our tax code, threatens to undermine the property tax base in rural counties, shifts the property tax burden to homeowners and established businesses; and, perhaps most critically, creates a likely unconstitutional disparity between property taxpayers.
- Winners vs. Losers: By definition, qualified businesses investing after enactment of SB 1041 will win a 75-percent-property-tax-forgiveness provision for ten years unlike the established businesses unlucky enough to have invested in Arizona before SB 1041’s enactment. Proponents blithely assert that established businesses may also take advantage of the 75-percent-property-tax-forgiveness provision if they meet SB 1041’s investment and jobs qualifiers—therefore, the Invest Arizona program doesn’t create a winners vs. losers situation. This line of thinking ignores the fact that established Arizona businesses have already made their principle investment in plant and property while taking a variety of defensive actions to survive the ongoing recession. Moreover, the vast majority of small businesses in Arizona didn’t make $5 million (or even $1 million) in capital investment in their enterprises while 88 percent of all Arizona businesses employ less than 25 workers. They are clearly losers under the Invest Arizona scheme.
- Threatens Rural Tax Base: Many rural counties have relatively narrow property tax bases due to high levels of publicly-owned property. Any undermining of the property tax base, especially in the revenue-rich Class 1 commercial and industrial category, puts rural county, municipal and school district budgets and homeowners at risk. Because Invest Arizona’s 75-percent-property-tax-forgiveness provision is open to any business, enormous new mining or utility projects could overload a rural area’s capacity to provide the necessary infrastructure to support the new development.
- Shifts Property Taxes to Homeowners and Established Businesses: Property taxes are levied to pay for certain county, municipal and school district infrastructure and maintenance and operation needs. There is a universally-held principle that development should pay for itself. Granting a Class 6 (5 percent) assessment ratio to Invest Arizona businesses means that the property tax burden is double for Class 3 homeowners (10 percent) and quadruple for Class 1 established businesses (20 percent). This is precisely the kind of shift that routinely hampers efforts to narrow the disparities between Class 1 business and Class 3 residential. What holds for Class 1 reductions surely must also apply to shifting businesses to Class 6 as SB 1041 would do.
- Invest Arizona Scheme is Likely Unconstitutional: According to the Arizona Tax Research Association: “the Arizona Constitution under Article 9, Section 1, states that “all taxes shall be uniform upon the same class of property within the territorial limits of the authority levying the tax.” While the courts have given the Legislature broad discretion in creating different classes of property, they have also cautioned that those distinctions in use, purpose or industry must be “real” and not be “arbitrary, specious or fanciful.” In addition to being bad policy, ATRA believes that creating such disparate tax treatment between identical companies in the same taxing jurisdiction based solely on the timing and size of the investment is unconstitutional.” Also, 100 percent of NFIB’s 7,500 Arizona members are on the losing side of the SB 1041’s timing and size criteria thereby creating 7,500 potential plaintiffs for the inevitable constitutional challenge to the Invest Arizona scheme.
We fully endorse the approach taken in the recently enacted “jobs bill” (HB 2001) that lowered business’ property tax burden across the board regardless of when they arrived in Arizona or their size. SB 1041’s provisions run contrary to the jobs bill’s evenhanded approach and should be rejected not only because it’s bad tax policy but because it’s likely to be struck down as unconstitutional.
Thank you for considering our position when deciding how to vote on this terminally flawed piece of legislation.
Farrell A. Quinlan, Arizona State Director, National Federation of Independent Business