NFIB advocacy helped pave the way for changes in sales tax reporting, income tax bracket creep, property taxes and Section 179 expensing reports State Director Farrell Quinlan from Phoenix.
NFIB Delivers Reduction in Sales Tax Reporting Requirements
NFIB/Arizona spearheaded passage and enactment of legislation that has been stalled for many years reducing the frequency of sales tax filing for thousands of Arizona small retailers. Sponsored by Rep. Debbie Lesko of Peoria and Sen. Steve Farley of Tucson, House Bill 2288 raises the thresholds that trigger how often a business owner must remit transaction privilege (or sales) tax revenues in the following manner:
State Income Tax Bracket-Creep Repealed for 2014
As part of the state budget agreement, Arizonans will no longer be at risk of being pushed into a higher income tax bracket simply because their earnings kept pace with inflation—at least for this year. After vetoing a permanent indexing measure last session, Gov. Jan Brewer signed House Bill 2377 sponsored by Rep. Justin Olson of Mesa that adjusts the income dollar amounts for each individual income tax rate bracket for tax year 2014 by the annual change in the consumer price index. This “bracket creep” is one of the most unfair features of a tax code lousy with unfair features and permanently repealing it remains a top legislative priority going forward for NFIB/Arizona.
No More Back-Door Property Taxation
State Rep. Justin Olson of Mesa sponsored the new law that closes a gaping loophole is state statute that the Town of Paradise Valley abused to levy a property tax in all but name without first asking their voters to create the tax as all new property taxes must be under Arizona law. Specifically, House Bill 2378 prohibits a municipality from levying or assessing a municipal-wide tax or fee against property owners based on the size or value of their property in order to fund any public service.
NFIB/Arizona-supported Section 179 Expensing, S Corporation Equal Access to Tax Credit Legislation Vetoed by Governor Brewer
Tempering the mood surrounding the otherwise successful legislative session for small business, Gov. Jan Brewer vetoed a pair of NFIB/Arizona-supported bills. One would have permanently increased to $500,000 the instant expensing allowance for small businesses’ capital investments. The other bill would had extended to small businesses organized as S corporations equal access to tuition tax credits that are only offered to larger businesses that organize themselves as C corporations.
Senate Bill 1048, sponsored by state Sen. Steve Yarbrough from Chandler, would have corrected the tax inequity a significant number of Arizona’s small-business owners who organize their businesses as S corporations suffer under relative to C corporations. Different from the individual school tuition organization (STO) tax credit that is capped at approximately $1,000 per person or just over $2,000 for a married couple, the C corporations STO tax credit program is not capped per taxpayer, though the overall program has an aggregate cap of nearly $40 million per year. A more ambitious effort similar to SB 1048 was also vetoed by Gov. Brewer in 2013.
Gov. Brewer mentioned three reasons for vetoing SB 1048:
- “First, the aggregate cap on the credit continues to grow by 20 percent per year. When this tax credit was enacted in 2006, the cap was $10 million. As a result of the automatic inflator, the cap is currently $36 million and will exceed $100 million in FY 2020. The cap will continue to increase each year in perpetuity. Such rapid growth in the capacity of a tax credit should occur after careful consideration by the Legislature and in relation to other tax and expenditure decisions, not by formula.
- “Second, the bill would have allowed an owner of an ‘s’ corporation to circumvent the caps that exist for individual contributions to STOs.
- “Third, I am concerned that this legislation would be unnecessarily burdensome for the Department of Revenue to administer.”
House Bill 2664, sponsored by Rep. J.D. Mesnard from Chandler, would have mirrored Arizona’s tax code to the federal Section 179 deduction as it was in 2013. Business expensing (Section 179 in the federal tax code) allows small businesses to immediately deduct the full value of investments in equipment in the year that the investment is made, instead of depreciating the investments over time. This simplifies accounting and frees up cash to be reinvested in the business. There are limits, however, on the amount a small-business owner can deduct in a year and on the types of property that qualify.
Gov. Brewer offered two reasons for vetoing HB 2664: “First, this legislation would have isolated one provision of the Internal Revenue Code (IRC) and enacted it permanently into Arizona law. This is inconsistent with the state’s longstanding policy to consider each year whether to conform to the IRC in the context of other tax policy and budget considerations. Second, enacting this change would cost the state $25 million in fiscal year 2015. It is imperative that we marshal available resources to create and appropriately fund a new child safety agency. Accordingly, the money would be better utilized to fund critical child safety functions, services and reforms.”
The version of HB 2664 that was vetoed was a shadow of legislation that sought to implement the recommendations of the Arizona Legislature’s Joint Task Force on Income Tax Reform—a committee NFIB/Arizona state director Farrell Quinlan served on prior to the 2014 legislative session. The task force’s recommendations included:
- provisions to permanently increase instant expensing allowance to $500,000
- permanently increase bonus depreciation allowance to 50 percent
- permanently index income tax brackets for inflation
- reduce the individual income tax graduated-rate system from five to three income brackets
- allow businesses to E-file income tax returns with the Department of Revenue (DOR)
- reduce audit period from four years to three years
- provide DOR with resources to build an up-to-date, sophisticated individual income tax model.
NFIB/Arizona fully intends to support passage of these bills again in 2015 when Arizona will have a new governor and new roster of lawmakers. We will likely urge sponsors and coalition partners to restore all the original provisions that were striped from the bills in fruitless attempts to gain gubernatorial support this session.
