This week, the Arizona House of Representatives will vote on a bill (HB 2531) to start shifting the state’s tax code in a more pro-investment direction. It’s not a new proposal to cherry-pick winners in the economy. It’s not a new tax credit to favor one industry over another.
Instead, it’s a simple and powerful tax reform called “instant expensing.” It allows all businesses to write-off up to $500,000 of the investment they make in their company in the year in which they make it.
To see why this is important, consider how the current system works. An owner of a small business may need to buy or rent office furniture, buy some new computers (or even some used ones), or invest in manufacturing technologies like a 3-D printer. Under current law, you’d have to write-off that investment on your taxes over a long period of time – sometimes too long for you to recoup your investment.
With the reform proposed in HB 2531, that business could instead write off up to $500,000 of that investment in the year in which they make it. Based on national data, this should allow virtually all small- and medium-sized businesses in Arizona to expense all of the new investment they make each year.
There’s something else that makes enacting this reform important for Arizona: 21 states, including our neighbors New Mexico, Colorado, and Utah, already have this law on the books. This reform – which basically conforms Arizona law to the Internal Revenue Code’s “Section 179” rules – is vital to make Arizona at least as competitive as our neighbors.
Policymakers across the U.S. have begun to realize the importance of taking the tax burden off of investment and the growth of small- and medium-sized businesses – which, together, are the largest job creators in most states – and the capital investment that those firms make. It’s an important step that Arizona should take too.
Arizona State Legislature: HB 2531
University of Kansas School of Business: A Primer on Expensing