Hobbs vetoes bill to toss rental tax
A bill that would have eliminated cityimposed rental taxes was quickly jettisoned Thursday through a veto from Gov. Katie Hobbs, who said it provided no guarantee of savings for renters.
It was the first tax-cut legislation to meet the Democratic governor’s veto stamp, but likely not the last. At least four other bills that propose cuts in the sales or income tax are working their way through the Legislature, most of them with only Republican support.
The rental-tax bill was part of a Republican plan to lessen the strain of inflation on Arizonans’ wallets.
“We should not be targeting and harassing renters just because they’re renters,” Sen. Steve Kaiser, R-Phoenix, said at a Feb. 16 news conference. “It’s terrible tax policy in that it targets one group of people.”
The argument was by axing the tax, renters would get relief from spiraling rental rates. In addition, the bill required landlords to reduce their rates by the same amount of the tax savings — a provision that Hobbs said was unenforceable because of potential constitutional violations.
The tax varies from 1.5% to nearly 3% in the cities that impose it.
“If we are going to promise relief to renters, it’s important that we are able to ensure they actually receive it,” Hobbs said in a news release, announcing the veto. “For working families faced with ever-increasing rental prices, this proposal just doesn’t fit the bill.”
There was no immediate reaction from the Republicans who backed the proposal.
A similar Republican measure — to eliminate the food tax some cities and towns charge — is the next tax-cut measure likely to make it to Hobbs’ desk.
Like the rental tax, it would provide some savings for consumers. But it also would reduce the money cities and towns collect, another point Hobbs raised in explaining her veto.
Local officials said the loss of those tax revenues likely would force them to take the money from elsewhere, or cut services. They argued the elimination of the rental and food taxes were easy for lawmakers to do because it would not affect state tax collections as only cities and towns levy the taxes.
The food-tax bills, House Bill 2061 and Senate Bill 1063, are awaiting action by the full House and Senate respectively after passing committees on party-line votes.
More tax cutting proposals in the pipeline
Other tax-cut measures also are getting legislative attention, buoyed almost exclusively by Republican votes. Two Democrats, representatives Alma Hernandez and Consuelo Hernandez, voted for the rental tax repeal.
On Thursday, Hobbs said she would not categorically dismiss bills that arrive at her office with Republican-only support. But she suggested they would fare better with Democrats on board.
“We’re going to look at every bill that comes up and base our actions on what we think is in the best interest of Arizonans,” she told reporters at an elementary school in Avondale. “Certainly, if something can’t get bipartisan support, that’s going to play into my decision.”
Corporate income tax cut proposed
House Bill 2003 proposes to cut the corporate tax rate in half, to 2.5%, over a four-year period. It passed the House Tuesday on a partyline vote, with Republicans in favor and Democrats opposed. It next goes to the Senate for consideration.
Rep. David Livingston, R-Peoria and the bill’s sponsor, said the intent is to provide relief for smaller corporations.
“This bill is not designed for the big guys,” he said at a hearing last month. “The big companies generally pay no federal income tax and no state income tax.”
State budget analysts estimate the bill would cut nearly $1.8 billion from state coffers over the next four years.
... and an income tax cut
On the heels of the state cutting its income tax rate to 2.5% for all taxpayers last year, Sen. J.D. Mesnard, R-Chandler, is proposing a further income-tax reduction whenever the state has a budget surplus.
Senate Bill 1577 would require the state to return half of any given year’s surplus to taxpayers in the form of a lower tax rate. The calculation of a surplus would happen only after adjusting the budget for population growth and inflation, and would leave the other half of the surplus in the state’s general fund for lawmakers to spend.
Sen. Mitzi Epstein, D-Phoenix, called the legislation irresponsible and said it would diminish the state’s ability to pay for big-ticket needs now and in the future, from water and roads to schools.
“We will be forever cutting our income tax rate,” she said. And at some point, that will require the state to cut spending because a shrinking tax rate will bring in less money.
In addition to the bill, which passed the Senate on a partyline vote, Mesnard is proposing the idea as a ballot initiative in 2024. If approved, it would make this a permanent policy.
... and a sales tax break
If there’s any tax cut that Hobbs might sign into law, it’s House Bill 2401. Sponsored by Rep. Alma Hernandez, it borrows from Hobbs’ own proposal to waive the sales tax on diapers and feminine hygiene products.
The bill passed the House Appropriations Committee on Monday with a unanimous bipartisan vote.
Versions of this bill were introduced many times in past years, but this one has added appeal because of the governor’s support. Like the bills addressing the rental and food tax, the selling point is it would provide some measure of tax relief at a time of high inflation.
The proposal would apply to all types of diapers, from infants to those used for adult incontinence, and any products relating to the menstrual cycle.