Governor Signs Tax Cut For Small Business Bill

Governor Signs Tax Cut For Small Business Bill

Senate Bill 1783, legislation that further reduces and streamlines taxes, was signed by Governor Doug Ducey on Friday. Sen. JD Mesnard and Rep. Ben Toma led the fight for the bill in order to protect small businesses from the threat of a 77 percent tax increase.

“This tax cut will keep Arizona competitive for small businesses already operating here and new businesses flocking here every day,” Ducey said in a press release. “After a year as tough as the last, we should not be raising taxes on our small businesses — we should be cutting their taxes. That’s exactly what Senate Bill 1783 does. Arizona has now passed the largest tax cut in state history and will have the lowest flat tax in the country. My thanks go out to Senator J.D. Mesnard and Representative Ben Toma for their leadership on this issue.”

Senate Bill 1783 establishes a new and lower alternative small business income tax structure. Under the plan, “small business income” is defined as interest, dividends, profits and certain capital gains.

“Small businesses are the backbone of our economy and integral to the future success of our state,” Mesnard said. “Small businesses should be able to grow and reinvest in themselves without being forced to pay astronomical taxes. Rather, government should get out of the way so that they can thrive. That’s why I’m so grateful for the support of Governor Ducey and my colleagues in the Legislature.”

This tax relief will ensure small businesses continue to choose Arizona to start, expand or relocate operations. Small businesses are a core component of our state’s economy, making up more than 99 percent of Arizona’s businesses and employing more than one million people. Because of the structure of the 3.5 percent surcharge on individual income tax under Proposition 208, small businesses will not be subject to this crippling tax hike.

“It’s a no-brainer to have a separate tax structure for small businesses,” said Toma. “It should be our goal as public servants to make filing taxes easier for Arizonans. This session has been a massive win for Arizona taxpayers. Thank you to the governor and the many who supported this bill.”

The bill allows taxpayers to exclude small business income from their total individual income. Instead, small business income will be subject to an alternate small business income tax. A flat tax on small business income will phase in over time:

  • 3.5 percent in 2021
  • 3.0 percent in 2022
  • 2.8 percent in 2023 and 2024
  • 2.5 percent in and after 2025

Governor Ducey signed this year’s budget on June 30, which fulfills his commitment to ensuring working families, small businesses, veterans and all Arizona taxpayers get to keep more of their hard-earned money.

The budget implements the largest tax cut in state history. Arizona taxpayers will see a 2.5 percent flat tax phased in over three years and subject to certain revenue thresholds being met beginning on January 1, 2022. The tax plan saves money for every Arizona taxpayer no matter their income, eliminates income taxes on veterans’ military pensions, and increases the optional charitable contribution deduction over time to 100 percent.

The Washington Post and the Wall Street Journal’s editorial board published columns about the tax plan and the positive effects it will have on Arizona. Additionally, Governor Ducey, Senate President Karen Fann and House Speaker Rusty Bowers authored a joint op-ed about the historic tax reform in the Phoenix Business Journal.

The City of Phoenix Is Pushing Back on Tax Cuts so It Can Keep Fleecing Taxpayers

The City of Phoenix Is Pushing Back on Tax Cuts so It Can Keep Fleecing Taxpayers

The Arizona state General Fund is flooded with revenue. Latest projections show the state with $1.2 billion in ongoing revenue and a cash balance upwards of $6.5 billion in FY2024. This is by far the largest budget surplus in state history and doesn’t even include the $1 Billion stashed away in the rainy day fund.

When the state is sitting on a pile of cash this big, it means one thing: they are taking too much of your money. And the answer is simple: give it back to taxpayers.

With Republicans at the Legislature and Governor Ducey planning to provide a large and comprehensive tax cut, one special interest group is already lobbying hard behind the scenes to kill that plan: local cities.

The fight of course is over money. 15 percent of income tax revenues are shared with cities. In Phoenix, that accounts for just over $241 million this year, or roughly 4.8 percent of their $5 billion operating budget. Phoenix is arguing that the proposed income tax cut would result in a $65 million reduction in shared revenues; or 1.3 percent of their operating budget.

Of course, this estimated “cut” in revenue is seriously flawed. It fails to take into account that shared revenues from the income tax are based on collections from two years prior. Considering the tax package wouldn’t be fully implemented for another 4-5 years, any potential decrease in shared revenues would not be fully realized for at least 6-7.

Additionally, complaints about static reductions in revenue fail to include any dynamic analysis of economic growth and the corresponding increases in tax revenues, both from income and TPT collections, promulgated by tax cuts.

The passage of Prop 208 made Arizona the 9th highest income tax rate in the nation. It has already begun pushing small businesses to relocate to lower tax states, taking their jobs and income, property, and TPT tax revenues with them. Make no mistake, the loss in revenue for cities such as Phoenix will be much larger if no action is taken to address Arizona’s uncompetitive income tax climate. In fact, a study by the Goldwater Institute found that the Prop 208 price tag to state and local revenues will amount to a $2.4 billion loss.

Knowing that a debate over a potential 1.3% reduction in revenues 7 years from now won’t generate much sympathy to stop the tax package, the city of Phoenix has decided to tell lawmakers that if the legislature cuts your income taxes, cities will be forced to cut police officers on the street. In other words, legislative tax cuts would be responsible for “defunding the police.”

This rhetoric can’t be described as anything other than complete hogwash.

Here is the real bottom line: The City of Phoenix is downright reckless with taxpayer money. The city spends like drunken sailors. They’ve never seen a tax increase they don’t like. And they don’t think twice about fleecing the taxpayer every opportunity they get.

In 2015, Phoenix raised their transportation excise tax in order to waste billions on boondoggles like light rail. They have spent billions on a “Sky Train” hardly anyone uses and then jacked up fees by 200 percent on ride sharers to pay for it.

In 2017, Phoenix’s spending appetite was so colossal they extended the amortization of their pension debt, to free up a few million dollars for one time spending at the cost of billions to taxpayers down the road.

For years Phoenix ran a hotel that never managed to make a profit. In 2017 they finally shed the asset, but not before a staggering $200 Million loss to taxpayers.

All this reckless spending has forced the city to constantly raise taxes and fees. Just last month, Phoenix approved raising their water rates for the 5th time in 6 years on top of rate increases for trash and recycling.

On top of these tax and rate increases, research done by the Arizona Tax Research Association shows the city has also received over $24.6 million year to date in FY2021 (with four additional months of collections to go) from remote sellers. This is new revenue to the city due to the passage of 2019 Wayfair legislation. If these new monies were scored, that 1.3 percent revenue loss would actually be a potential 0.8% reduction realized in 6-7 years, a fraction of the money Phoenix has wasted in just the past couple years.

With tax increase after tax increase and revenue windfalls from the state, the city of Phoenix does not have a revenue problem, it has a spending problem. The legislature providing relief to taxpayers (who will surely be more responsible with their own money than Phoenix will be) will not cause any city to “defund the police.”