Starting a new business?
Arizona lawmakers apparently want to help you succeed.
On a party-line vote, the Senate on Tuesday voted to exempt new businesses from having to pay any state income taxes at all in their first year of operation. That tax break would taper off to 50% in the second year and 25% in the third, by which point it should be clear whether a company will make it.
SB 1559 is the brainchild of Sen. Steve Kaiser, R-Phoenix, who told colleagues of his own experience trying to start a business — he has since sold it — and the problems in arranging financing. What this is designed to do, he said, is provide a bit of fiscal breathing room.
But Democrats were opposed, even after he added requested language to ensure that companies don’t simply dissolve and reform annually to take advantage of the tax break.
“Of course we support small businesses,” said Senate Minority Leader Mitzi Epstein, D-Tempe. “Arizona businesses are so important to every part of our economy.”
But Epstein said that carving out a special tax break for those who start a new business is not good policy. And she noted that it’s not like lawmakers provide similar relief for people who start a new job.
Anyway, Epstein said she believes that special carve-outs are not the best way to encourage economic development. Instead, she said, the state is better with low rates that apply to all.
“Everybody pays a fair share,” Epstein said.
Kaiser, however, said his legislation simply recognizes the hardships of starting a business from scratch.
About five years ago, Kaiser said he bought into a junk removal franchise.
“We had some pretty heavy capital investment when it came to the dump trucks,” he explained.
“I leased my warehouses, but we had three of them,” Kaiser continued. “We had all the franchise fees.”
Kaiser said he grew it during the time he had, to the point he had 15 employees.
“But I still had capital problems every year,” he said. “You can’t get financing from traditional places.
“You have to go to these short-term, basically payday loans,” Kaiser said. “And those are really dangerous,” with high-interest rates that can leave a borrower even further in debt.
But the flip side of the measure is the price tag. Legislative budget staffers predict SB 1559 would reduce state revenues by nearly $39 million by 2027.
The measure now goes to the House.
