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Arizona Joins Corporate Tax Cut Parade

2 min readBy: Scott Hodge

Arizona has now joined the growing list of states considering proposals to cut the state corporate income taxA corporate income tax (CIT) is levied by federal and state governments on business profits. Many companies are not subject to the CIT because they are taxed as pass-through businesses, with income reportable under the individual income tax. . Governor Jan Brewer released a proposal to cut the state’s 7 percent corporate income taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. rate down to the regional average of 5 percent and expand the apportionmentApportionment is the determination of the percentage of a business’ profits subject to a given jurisdiction’s corporate income or other business taxes. U.S. states apportion business profits based on some combination of the percentage of company property, payroll, and sales located within their borders. formula to 100 percent of state sales from the current 80 percent.

Brewer will get some regional competition from Idaho, where State Representative Marv Haggedorn is crafting legislation that would lower both the corporate and personal income tax rates to 4.8 percent. Currently, the personal income tax rate is 7.6 percent while the corporate rate is 7.8 percent. The plan would seem to have momentum after Governor Butch Otter gave it a positive nod during his recent state of the state speech.

In Indiana, State Senator Brandt Hershman—who is chair of the Committee on Tax and Fiscal Policy—has introduced legislation to lower the state’s 8.5% corporate rate to 5%. Brandt’s proposal is based on the findings of the Economic Development Study Committee he chaired last year.

Meanwhile, in Minnesota, State Rep. Greg Davids, who chairs the Minnesota House Taxes Committee, is proposing to phase out Minnesota’s corporate income tax by 2020. The plan would reduce the rate – which is currently 9.8 percent – by 1 percentage point per year.

The Minnesota proposal will likely give further urgency to efforts in Iowa to reverse the state’s stigma of having the highest corporate tax rate in the nation at 12 percent. Governor Terry Branstad campaigned on cutting Iowa’s corporate rate in half.

Not to be outdone, Wisconsin Governor Scott Walker responded to the recent Illinois tax hike by putting up signs at the state border announcing that “Wisconsin is Open for Business.” See the video here.

Lastly, the Wall Street Journal today [subscription required] gave a thumbs up to the proposal drafted by a bi-partisan tax reform panel in Georgia that would lower both the corporate and personal income taxes to 6 percent, financed by broadening the state’s sales taxA sales tax is levied on retail sales of goods and services and, ideally, should apply to all final consumption with few exemptions. Many governments exempt goods like groceries; base broadening, such as including groceries, could keep rates lower. A sales tax should exempt business-to-business transactions which, when taxed, cause tax pyramiding. to groceries and other exempt activities.

Six states may not constitute a tidal wave of support for corporate tax reform in the states, but it is certainly a trend worth watching.