Prop 116: Business tax exemption on ballot

PHOENIX — Arizona voters are going to get a chance to lower property taxes — but not for themselves.

Proposition 116 would expand a partial exemption from existing constitutional requirements that businesses pay property taxes annually not only on the value of their land and buildings but also on the worth of every piece of equipment they own and use.

Voters have previously approved a $50,000. With inflation, that has now risen to more than $68,000.

The ballot measure would boost that exemption — sharply — using a formula tied to median earnings in the state. Farrell Quinlan, state director of the National Federation of Independent Business, figures the formula would let companies have up to $2.4 million of their equipment untaxed.

So far there has been no organized opposition.

For businesses, more than saving money is at stake.

Companies whose property is worth less than the exemption do not have to bother computing what their equipment is worth, factoring in depreciation and all that, much less write out a check every year. Quinlan said figures that would remove the burden from about 93 percent of all firms in the state.

So far the measure has not generated any opposition. In fact, it got referred to the ballot by lawmakers earlier this year without a single dissenting vote.

But that could be because the measure was written in a way to blunt possible opposition not only from lawmakers but from voters.

Generally speaking, cities, counties and school districts figure out how much money they need or are allowed to raise. Then they determine the total net assessed valuation of the district.

Dividing the first figure into the second creates a tax rate.

What happens is that if some property is taken off the tax rolls, that lowers the district's net assessed valuation. And that means the overall tax rate, for everyone, has to go up to raise the same amount of cash.

Proposition 116 is crafted so that the new, higher exemption would apply only to equipment purchased beginning next year. That leaves existing equipment above the current $68,079 exemption on the books.

Still, there would be some tax shift, largely to homeowners.

But a report prepared by the Joint Legislative Budget Committee figured that the difference on a home in Mesa with a primary assessed value of $114,000 would be just $3.25 by 2015.

Quinlan conceded that shift would grow with time, as companies replace old equipment with new, which does not wind up on the tax rolls. But he argued that approval of the measure ultimately would create more revenues overall.

“We're trying to incentivize investment,'' he said. By contrast, Quinlan said, the tax on business equipment essentially penalizes firms that are dependent on equipment. “Manufacturing is very expensive.”

A change in policy also could provide some impetus for companies to buy new equipment.

Right now, equipment goes on the tax rolls at its purchase price. It is then depreciated according to set schedules.

But under state law, it always retains some residual value if it is still in use.

Quinlan said that, from the perspective of his group of small business owners, this measure means a lot more to them than some of the other economic incentives lawmakers approved in the last two years.

He said reductions in capital gains taxes affect only a limited group. And Quinlan said certain income tax credits for certain investments benefit only those who can spend the money in the first place to take advantage of them.

“The benefit of 116 is that every taxpayer that owns equipment and machinery can take advantage of this,'' he said.

Quinlan acknowledged that even without any organized opposition, it's still going to take an effort to get the proposal approved, if for no other reason than when voters are unsure or confused, they more often than not will vote “no.''

He already has produced two TV commercials.