Arizona in middle of pack for taxes

Tax Foundation ranks state as 27th in nation in annual assessment

Arizona has attracted a steady stream of company relocations and expansions this year despite a tax climate ranked as only 27th best in the nation.

The Tax Foundation, in a Sept. 26 report, placed Arizona slightly below average in its latest assessment of five key categories. Arizona enjoys favorable rankings in corporate and individual income taxes, in property taxes and in unemployment-insurance taxes.

But it was pulled down by sales taxes, with generally high rates and a complex system.

Arizona is among a group of states that impose high sales-tax rates and tax a range of goods and services including utilities, certain services, manufacturing and leases, the report said.

Sales taxes in Arizona vary by city and county but average about 8.3 percent. Combined rates in larger cities here include 8.6 percent in Phoenix, 8.7 percent in Tucson, 8.05 percent in Mesa and 7.95 percent in Scottsdale, according to an Arizona Republic study.

Arizona dropped from 25th place in last year’s Tax Foundation study but has been ranked near the middle of the pack for several years.

In the latest Tax Foundation report, Arizona’s most favorable category was property taxes, with the fifth best or least-onerous system. Arizona also ranked among the 20 best for unemployment-insurance taxes (13th best), corporate taxes (17th best) and individual income taxes (19th best).

The Tax Foundation didn’t assess these categories equally. The group gave individual income taxes a 30 percent weighting, followed by sales taxes (25 percent), corporate income taxes (20 percent), property taxes (15 percent) and unemployment-insurance taxes (10 percent).

Employment momentum

Despite the so-so overall tax climate, Arizona has enjoyed notable economicdevelopment momentum of late.

“Many factors go into a corporate-location decision — not only the tax climate but also talent, the regulatory environment, operating costs, geographic location and quality of life for employees,” Arizona Commerce Authority President and CEO Sandra Watson, said in an email.

She cited several notable recent expansion announcements. These include Amazon (hiring 1,500 people at a new facility in Tucson), Infosys (creating 1,000 jobs in the Phoenix area), Valor Global (1,000 new jobs in Phoenix), Deloitte (bringing 2,500 jobs to Gilbert) and Nikola Motor (creating 2,000 jobs in Coolidge).

As for taxes, Watson said Arizona’s corporate rate of 4.9 percent is one of the lowest in the nation, and she noted that individual and corporate incometax rates here have been lowered several times over the past three decades. Among other favorable tax policies, Arizona has no franchise tax, business-inventory tax or estate tax, she said.

“These low rates put Arizona in a very competitive position in bringing business to the state, particularly from California, which has some of the highest corporate and income tax rates in the country.”

The Tax Foundation report, titled the 2019 State Business Tax Climate Index, ranked New Jersey as having the worst or most-onerous tax system. California was only one spot better, with New York, Connecticut and Arkansas rounding out the bottom five.

The study cited Wyoming for having the overall most favorable tax system for businesses and individuals, followed by Alaska, South Dakota, Florida and Montana.

“Low rates put Arizona in a very competitive position in bringing business to the state.” Sandra Watson President and CEO, Arizona Commerce Authority