House OKs larger exemption for businesses' property tax on equipment

PHOENIX — The state House is asking Arizona voters to lower property taxes — but not for themselves.

In fact, HCR 2031, given preliminary approval Wednesday, actually could mean higher taxes for homeowners.

The measure relates to the fact that the Arizona Constitution requires all property owners to pay an annual levy based on the value of their land and buildings. But businesses also must pay what’s called a tax on their “personal property,” everything from desks and computers to printing presses and other manufacturing equipment.

That value is based on the purchase price of the equipment.

It does decrease, every year, along with the applicable tax. But the levy never goes away, under the presumption that any equipment being used has some residual value.

A previously approved ballot measure exempted the first $50,000 of value, a figure that has grown with inflation to about $160,000.

HCR 2031, if approved in November, would immediately boost that exemption to $2.4 million. Potentially more significant, it would let lawmakers increase that even more in the future without asking for future voter approval.

Rep. J.D. Mesnard, R-Chandler, said the change would be good for the economy.

“If you want folks to be investing and buying and whatnot, we should increase the exemption,” said Mesnard, who dubbed his legislation the “Small Business Job Creation Act.”

More than 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, much less write out a check every year.

The change would mean little to the state, which does not depend on property taxes. But it could make a difference at the local level.

Generally speaking, cities, counties and school districts figure out how much money they need and set a property tax rate that will bring in that amount, based on the district’s total net assessed valuation. So if some property is taken off the tax rolls, that lowers the district’s net assessed valuation. And that would mean the overall tax rate, for everyone, has to go up to raise the same amount of money.

Mesnard has crafted the measure in a way to blunt opposition.

The new, higher exemption would apply only to equipment purchased starting next year. That means the current $160,000 exemption would still apply to equipment businesses already own.

But even with that, there would be at least some tax shift, largely to homeowners.

When a similar measure was on the 2012 ballot, legislative budget staffers figured that the difference on a home in Mesa with a primary assessed value of $114,000 would be just $3.25.

Farrell Quinlan, state director of the National Federation of Independent Business, conceded at the time that the added burden for homeowners would grow with time: Companies would replace old equipment with new equipment that does not wind up on the tax rolls. But he argued approval of the measure ultimately will create more revenues overall.

That 2012 effort was defeated, gathering just 44 percent of the vote. But Mesnard said he thinks the result would be different this time around.

A final roll-call vote is needed to send the measure to the Senate. If approved there, it would go to voters in November, as the governor does not get a say on ballot measures.