A commission appointed by Gov. Janet Napolitano is looking at tax reforms and exemptions are fast becoming the most intense point of contention between businesses and their adversaries at the State Capitol.
The Citizens Finance Review Commission is scheduled to present its recommendations to the governor in October and is receiving strong pressure to eliminate various business tax exemptions and credits. Arizona's tax code offers credits and exemptions to dozens of business activities and transactions.
Liberal groups such as the Children's Action Alliance, AFL-CIO and Arizona Education Association want to see business and sales-tax exemptions eliminated or require the Legislature to re-examine tax credits and breaks every 12 to 24 months.
CAA Director Dana Naimark told the tax commission early this month she would like to see sales levies applied to Internet transactions and the elimination of all sales and personal income tax exemptions (with the exception of essentials such as food and medicine).
CAA estimates that would bring in close to $2 billion in extra revenue annually and bring stability to the state's finances. Such a move could result in new taxes on business, personal and professional services that could impact everything from lawyers and doctors to day care centers and manicurists.
The liberal groups have an unlikely ally in their crusade against tax loopholes.
The conservative Goldwater Institute supports low and flat taxes. But, the Phoenix-based think tank also does not like the various tax exemptions bestowed upon various industries, property owners and individuals.
Stephen Slivinski, Goldwater budget and tax director, said he would be open to an annual or biennial re-examination of all tax programs including credits because it would dissuade lawmakers from creating more special favors and might eliminate others.
"If you are trying to simplify the code and reform taxes while handing out special goodies, it kind of seems an impossible task to do both," said Sliminski who asserts exemptions put upward pressure on tax rates because of lost revenue.
Business interests say some of the exemptions are important ecomonically because they make Arizona an attractive location to employers.
Jay Kaprosy, vice president of the Greater Phoenix Chamber of Commerce, said a constant examination and changing of tax policy would send the wrong message to business and could hurt the economy.
"It's going to be a real problem if you are using some of those (tax credits) for economic development or if you are using some of those to stimulate the economy," said Kaprosy. "You are changing the rules on (businesses) who may have come here as a result of that."
Monsignor Edward Ryle, a former longtime lobbyist for the Catholic Church who now serves on the CFRC, worries about the logistics of reviewing tax credits and loopholes every 12 to 24 months.
"That's administratively pretty expensive," said Ryle who prefers examing tax policies every five years.