Assigned to FIN                                                                                                   FOR CAUCUS & FLOOR ACTION

ARIZONA STATE SENATE

Forty-eighth Legislature, First Regular Session

AMENDED

FACT SHEET FOR S.B. 1507

business personal property tax; exemption

Purpose

            Increases the tax exemption for business and agricultural personal property.

Background

            Property may be defined in several ways, with each definition supported by the common element of the rights associated with the property. Two types of property are commonly recognized. Real property, also called real estate, refers to the rights to land and any improvements to or on the land. Personal property is defined as being all types of tangible and intangible property that is not included in the term real estate (A.R.S. § 42-11001).

            Personal property includes property used for commercial, industrial and agricultural purposes, and most mobile homes. It also includes improvements on possessory rights and certain leasehold improvements. All such property is subject to property tax, except for certain goods and materials considered to be inventory and ultimately held for resale, as well as specified animals, personal household goods and certain other specifically exempted items.

            Arizona Revised Statutes establish legal classifications of taxable property within the state. Property is classified according to its use, and each legal class has a statutory assessment ratio. Assessment ratios are the basis for determining assessed valuation. Most business and agricultural personal property is identified in class 1.

            Article IX, Section 2, subsection (6) of the Arizona Constitution provides for the first $50,000 of full cash value of business and agricultural property to be exempt from the property tax.  This amount is annually increased to account for inflation.  The tax year 2007 maximum exemption amount is $61,142.

            S.B. 1507 increases the business and agricultural personal property tax exemption from $50,000 to $150,000, annually adjusted for inflation.

            This legislation will affect the state General Fund in two ways.  Establishing a new property tax exemption will lower the school districts’ total assessed value, thereby requiring increased expenditures from the state General Fund and Basic State Aid.  Also, increased exemptions in unorganized school districts that pay the minimum qualifying tax will cause a reduction in state General Fund revenues. 

Provisions

1. Increases the tax exemption for business and agricultural personal property from $50,000 to $150,000, annually adjusted for inflation.

2. Becomes effective on the general effective date.

Amendments Adopted by Committee

· Removes provisions of the bill that modify personal property reporting requirements.

Senate Action

FIN                 2/7/07     DPA     8-0-0-0

Prepared by Senate Research

February 12, 2007

SL/jas