Advocates for economic growth cheer as historic tax reform clears Legislature

Advocates for economic growth cheered the Arizona Legislature’s passage of a major income tax and commercial property tax reduction as part of the Fiscal Year 2022 state budget.

Under the agreement, most taxpayers will pay a flat 2.5% individual income tax rate once the tax reductions are fully phased in, providing relief for all Arizonans. The current lowest rate is 2.59%. The exact timing of the complete implementation of the reduction will depend on state revenues meeting certain targets. 

Groups like the Arizona chapter of the National Federation of Independent Business, the Arizona Small Business Association, the Arizona Tax Research Association, and the Arizona chapter of Americans for Prosperity all applauded the Legislature for its work to send the historic tax reform to Gov. Doug Ducey’s desk.

“Every Arizonan—no matter how much they make—wins with this legislation,” Ducey said. “They will get to keep more of the money they earn under this tax plan.”

Had the Legislature failed to adopt the tax reform, members of Arizona’s small business community were facing a 77% tax increase due to a ballot measure that narrowly passed last fall. 

“It will protect small businesses from a devastating 77% tax increase, it ensures working families and all Arizona taxpayers get to spend their money how they choose, and it will help our state stay competitive so we can continue to attract good-paying jobs,” Ducey said.

Arizona Chamber of Commerce & Industry President and CEO Danny Seiden said the state’s most influential business advocacy welcomed the news. 

“Today is a tremendous step forward in enhancing Arizona’s economic competitiveness,” Seiden said following the bill’s passage. “This historic tax package reduces income taxes for all Arizonans, returning money to hardworking families, providing critical relief for our small businesses, and reforming our disparate property tax structure.”

The property tax provision of the bill reduces Arizona’s corporate property tax assessment ratio from 18% to 16% at the time of full phase-in.

The NAIOP Arizona chapter earlier this year released an analysis of a potential assessment ratio reduction, noting that commercial property in Arizona has the highest assessment ratio of any other property type.

The report found Arizona’s commercial property assessment ratio to be uncompetitive both regionally and nationally. The report’s authors pointed to the positive economic development benefits of the assessment ratio reform.

“When site selectors are evaluating locations for business expansions or relocations, improvements in metro Phoenix’s ranking could make a meaningful difference in whether a city in Arizona is ultimately chosen,” the report found.

The Legislature this week is finishing work on two remaining bills in the 11-bill state budget. A state budget must be adopted by July 1 when the new fiscal year begins.