Senate Bill 1093 that continues efforts to reduce the state’s commercial property tax assessment ratio to 15% over the next five years passed the Senate last month with bipartisan support and is headed to a vote of the House. It passed the House Ways & Means Committee earlier this month by just two votes while the House Rules Committee approved it 7-0. An amended version moves to a vote of the full House.

Passage of the bill would achieve the Citizen’s Finance Review Commission goals set decades ago. Sponsored by state Sen. J.D. Mesnard, R-Chandler, SB 1093 would advance a decrease under last year’s SB 1108 providing for a gradual reduction from 18% to 16%, lowering it another percentage point by 2027.

Property taxes in Arizona are based on a property’s assessed value. The state has eight property classes with each assigned an assessment ratio. The assessment ratio on residential property is 10%, while Class 2 agricultural or other properties have an assessment ratio of 15%.

The Arizona Chamber says tax policy experts assert that reducing the commercial property tax assessment ratio will ensure the state remains economically competitive and will reduce the disparity in the property tax burdens borne by commercial property taxpayers versus homeowners.

“Arizona commercial property makes up roughly one-fifth of the property owned in the state, and yet we pay around one-third of the total cost incurred by property taxes,” said Tim Lawless, the president of CREED, Commercial Real-estate Executives for Economic Development .

Lawless says that during the 1970s and 1980s, state lawmakers sought to make Arizona more attractive to out-of-state transplants by keeping residential property tax rates low. Competitive tax rates and the growth of air conditioning helped fuel Arizona’s economic and population expansion as thousands of new residents made the state their home. 

Arizona is one of 18 states that places a greater property tax burden on businesses by treating commercial property different than other property classes.

“Residents are half of all the property value at 49%, and they only pay a few more percentage points than the business community who own 20% of the taxable property,” Lawless said. 

In 2006, state lawmakers and Gov. Janet Napalitano successfully lowered the assessment ratio from 25% to 20%. Under Gov. Jan Brewer in 2011, the ratio was lowered again from 20% to 18%. The Legislature and Gov. Doug Ducey last year passed legislation to phase-in a further reduction to 16%.

A large coalition of the business community, including utilities, health care, taxpayer advocates and chambers of commerce support the bill. Opponents include organized labor, the County Supervisors Association, and the Arizona Center for Economic Progress, a progressive public policy group.

Should the House pass the legislation, the Senate must adopt the House’s amended version so it can move on to Gov. Doug Ducey for his signature.

Source: Chamber Business News