A bill passed in the Arizona Senate aims to change the Arizona tax system by creating a new tax category for small business owners allowing them to avoid a voter-approved income tax surcharge.
Senate Bill 1783, which was written by Arizona Sen. J.D. Mesnard, R-Chandler, aims to create a new tax category that enables small business owners whose business incomes pass through them to compute what they owe to the state on their personal income tax forms after deducting all business expenses, according to Arizona Capitol Times.
The bill has sparked controversy due to the fact that if passed, wealthy small business owners are able to avoid paying an income tax surcharge for education that was approved by voters.
Proposition 208 imposed a 3.5% tax surcharge on an annual income over $250,000 for individuals and $500,000 for couples, which would go toward teacher salaries and schools.
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Since the new proposed tax category in the bill didn’t exist when proposition 208 was approved by voters, the surcharge would not apply. This allows small business owners to compute their taxes using both formulas and choosing whichever costs less.
Those in opposition of the bill believe the tax cut takes away a significant amount of money Prop. 208 raises for public education and ignores public vote.
“If SB 1783 passes, Arizona teachers, students, and schools will lose over $377 million in funding. Meanwhile, 6,000 millionaires get a $35,000 per year tax break. That’s more than Arizona’s average starting teacher salary,” said Rebecca Gau, executive director of Stand for Children Arizona.
Gau added that SB 1783 is an attack on Prop. 208, which was voted for by 1.7 million voters in November making it violate the Voter Protection Act.
Others in opposition believe the new bill is a tax cut that would only benefit the most wealthy people in Arizona.
“The effect of this bill will be that the people in the tippy top income levels will avoid paying the price of the public services that support our economy,” Rep. Mitzi Epstein, a Democrat from Ahwatukee told AP News.
However, Mesnard emphasized that the creation of the bill was to help small business owners avoid paying the surcharge from Prop. 208.
“We heard time and time again this will not or is not meant to impact small businesses … And so what this is doing is ensuring that’s the case,” Mesnard said to Capitol Media Services.
Following the bill passing in the Arizona Senate, the bill is awaiting vote in the Arizona House. If passed, it will go to Governor Doug Ducey.
Contact the reporter at saiden@asu.edu.
