ECONOMY

Arizona business taxes low, but not the same for all

Ronald J. Hansen
The Republic | azcentral.com
US Internal Revenue Service (IRS) tax forms from 2006.
  • Arizona’s overall business tax picture is good, though it varies by industry and age of a company
  • Because states can offer different industries different tax treatment, the outlook can vary wildly

Debate over state corporate taxes has been missing an important nuance: different tax treatment between new companies and older ones, a Washington think tank says.

The Tax Foundation, a research organization that advocates what it views as pro-growth policies, believes it has clarified those differences in a report issued last week.

Arizona's outlook

Overall, Arizona’s businesses come out looking good relative to other states, as could be expected for a state that has adopted a series of individual and corporate tax cuts over the past 20 years.

But Arizona’s tax picture isn’t uniformly rosy for all businesses.

The Tax Foundation, with help from the accounting firm of KPMG, examined seven different types of businesses to see how they were taxed in each state on income, property, sales and unemployment insurance.

They also studied how the age of the company factors in as well.

Call centers do well

Arizona did its best in taxes for call centers, an industry the state has unsurprisingly excelled at attracting.

The state ranked third-best in the nation for lowest overall taxes for call centers. Mature companies, which they defined as at least 10 years old, could expect to pay an effective tax rate of 12.1 percent, in the Foundation’s analysis. New call centers, however, could expect to pay about 20.7 percent.

Arizona’s worst showing was for independent retail stores, coming in 24th best.

Mature retailers could expect a 15.2 percent effective tax rate. New retailers are looking at 33.1 percent.

The other types of businesses the foundation modeled generally fell in the nation’s top third for tax treatment:

Corporate headquarters, 15th best.

Research and development headquarters, 11th.

Capital-intensive manufacturing, 10th.

Labor-intensive manufacturing, 7th.

Distribution center, 10th.

“Arizona is one of only a handful of states not to offer property tax abatements to new firms, which helps drive the comparatively high effective tax burdens for new manufacturing operations, but which also enables the state to have lower, more neutral taxes over the course of a firm’s existence,” the report said.

Few surprises

The report serves up a few surprising findings.

Notoriously pricey California, for example, had the nation’s lowest tax treatment for call centers and the second-lowest taxes for distribution centers. The state was near the bottom for corporate headquarters and both types of manufacturing.

And Texas, reputed as a low tax, business-friendly place to be, finished no better than 14th in any of the categories the foundation modeled.