Vote 2012: Prop 116 (Personal Property Tax)

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Farrell Quinlan, Arizona State Director for the National Federation of Independent Business, explains Prop 116, a constitutional amendment that was referred to the ballot by state lawmakers. Prop 116 raises the personal property tax exemption on newly-acquired business equipment and machinery. The measure has no organized opposition.

Ted Simons: Our vote 2012 election coverage continues tonight with a look at proposition 116, also known as the small business job creation act. This constitutional amendment referred to the ballot by the legislature would give businesses a larger personal property tax break on new equipment and machinery. Currently the first 68,000 dollars of property is exempted from taxation, prop 116 would exempt the full cash value of business equipment and machinery up to an amount equal to the annual earnings of 50 workers in Arizona. Here to explain all this is prop 116 supporter Farrell Quinlan, state director for the national federation of independent business. Prop 116 has no organized opposition. It's good to see you here. Thanks for joining us.

Farrell Quinlan: Thank you.

Ted Simons: Why is this necessary?

Farrell Quinlan: Well, because it's part of the constitution, this has been an issue that's been sort of festering over the last few decades. Taxing the equipment and machinery a business owns has a very counterproductive effect on job creation. We're essentially punishing a business for investing in the things that are necessary for creating new jobs, and in this environment where we have sluggish job creation and our unemployment rate is around 8 or more, and you have -- if you add in the underemployed and the folks who have just given up you could say one in five Arizona once would rather be working right now. So we're trying to give small businesses especially the incentive to go out and invest in new equipment and machinery and that will we believe create thousands of new jobs.

Ted Simons: Again, as we mentioned, currently it's 50,000 plus inflation which gets you up to the 68,000. How does this 50 workers at an annual earnings -- how did that come about?

Ferrell Quinlan: There is a formula; it's the $50,000 plus inflation factor. We were looking at other formulas, and since we had to go to the voters anywhere we wanted to make sure this measure was tied to jobs. Wages track with inflation and the overall economy. So that will grow as time goes on. We've learned within our constitution there's a 300,000 or 350,000 dollar absolute limit on indebtedness, which is the a ridiculous number now, but 100 years ago it was enough to built the cap capitol. Today it's ridiculous. Then you force policy makers to play games. We're trying to stay away from a dollar figure number and go to a formula that is linked to something that means something to jobs.

Ted Simons: And this will only apply to new equipment, equipment already in existence, no go, correct?

Ferrell Quinlan: Everything that's on the books right now stays under the current rules, everything purchased January 1st onward would be subject to a new hire exemption level. So if you're a business and you do nothing, you're not going to get hurt or benefited. Only companies that go out and invest in new equipment and machinery will get any tax benefit on that investment.

Ted Simons: Estimated cost out of all this, out of the general fund? What are we looking at? I've read anywhere from six, seven, $8 million.

Ferrell Quinlan: There is a function of a formula that evens out any disruptions in the property tax system and the state general fund takes care of that. That's what the $8 million annually comes in. But that's a very small amount of money compared to the $10 billion that the state of Arizona spends every year.

Ted Simons: What about the cost much just trying to figure out what's new equipment and what's old equipment? Do we have the resources for that sort of thing?

Ferrell Quinlan: Right now every piece much equipment is already cataloged and valued and already has a date. Because there is depreciation over time. It's just a question of creating a second column with after January 1st of 2013, and just putting things in that column. So everything already has a date, it's just how you account for it.

Ted Simons: So maybe a few new workers but not too many?

Ferrell Quinlan: In materials of compliance costs?

Ted Simons: Yes.

Ferrell Quinlan: It's literally I'd say it's -- it's an Excel spreadsheet.

Ted Simons: Some concerns, we're going to talk more about this in our next debate, of shifting property tax burdens to homeowners, residential, basically shifting the burden. How do you respond to that?

Ferrell Quinlan: We had the joint legislative budget committee do an analysis of this and they found there was a, quote, almost negligible impact to homeowners 0.3% annual impact on the -- which could be in some ways a shift, and what they said is in a typical residential property, it could be as high as a $3 shift. However, they also said that the amount of change was so small that it's not even factored in terms of when they -- when the jurisdictions look to adjust the rates. It is such a small amount, it's not even enough to move the needle. It's a theoretical shift because the amounts are so small.

Ted Simons: As far as less revenue for local governments, I know there's concern there as well. Less revenue for everything. How do you respond to that?

Ferrell Quinlan: The real problem is the fact there is less money coming in on personal property tax because we've seen a 56% drop in Maricopa County, for instance, in the acquisition of new equipment and machinery since 2008. So there's no mystery why we're not growing jobs because we are not making the investments our private sector is not buying the equipment and machinery they need to create those jobs. So what we're hoping is to get us back on a more normal situation where we're acquiring new equipment.

Ted Simons: Basically when people say it sounds like the money will be shifted from one thing to another, it could be social services, it could be benefits, the whole nine yards, you say not necessarily so.

Ferrell Quinlan: The local property tax is local. So it's mostly at the local government and school district level. And what we've seen is we've had no opposition from the school districts or local governments. The realtors and prop 13 Arizona folks were very sensitive to any changes the homeowner of property taxes are not opposed to this. In fact the prop 13 Arizona folks are in favor of it. It is an antiquated tax. It punishes the kind of investment we need to create jobs and we've seen across the board support. We've got 30 votes out of 30 in the senate, and everyone in the house who voted, voted for it. You've got the house minority leader and the senate majority leader on the same team, you don't see that very often. I guess it's the exception that proves the rules.

Ted Simons: All right. Good stuff. Thank you for joining us.

Ferrell Quinlan: Thank you.

Farrell Quinlan:Arizona State Director, National Federation of Independent Business;

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