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BILL # HB 2389 |
TITLE: business personal property; exemption. |
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SPONSOR: Carter |
STATUS: House Engrossed |
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PREPARED BY: Benjamin Newcomb |
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HB 2389 would exempt most locally assessed personal property from property taxation, beginning in Tax Year (TY) 2032.
Estimated Impact
We estimate that the bill would have a General Fund cost of $73.8 million beginning in FY 2033, prior to applying the state's Truth-in-Taxation (TNT) adjustments. The proposal would reduce Net Assessed Valuation (NAV), which would increase the state's Basic State Aid (BSA) cost for K-12 schools.
The $73.8 million General Fund cost would be partially offset by savings attributable to the automatic school tax rate adjustments provided under the state's TNT provisions. Once TNT savings are incorporated, the General Fund cost would be reduced from $73.8 million to $14.8 million, beginning in FY 2033. This estimate includes the bill's impact on both BSA and the Homeowner's Rebate (HOR) program.
Based on the Arizona Department of Revenue's 2024 Abstract of the Assessment Roll, and growing these figures to 2032, we estimate that the bill would reduce statewide NAV by $(2.96) billion in TY 2032. Based on the 15 counties' levy limit worksheets, we estimate that 97.8% of this loss, or $(2.90) billion would be for existing property and the remaining 2.2%, or $(0.06) billion would be for new property. Given the significant length of time between now and the bill's effective date, these estimates should be viewed with caution.
Pre-TNT Impact – By reducing NAV by $(2.96) billion in TY 2032, the proposal would result in a direct BSA cost increase of $73.8 million, beginning in FY 2033, of which $72.2 million would be attributable to the reduction of existing NAV and the remaining $1.6 million due to the loss of new NAV. Prior to TNT, there would be no impact on the HOR program since Class 3 (primary residential property) NAV would not be affected by the bill.
Post-TNT Impact - The NAV reduction under the proposal would have an impact on the state's TNT program. Under TNT, the Qualifying Tax Rate (QTR) is adjusted each year to offset the statewide annual valuation change of existing property. This rate change occurs automatically unless the Legislature decides to forgo the TNT adjustment. Due to the $(2.90) billion NAV loss of existing property, the TNT adjustment would result in the estimated QTR being 6.43¢ higher in FY 2033 under the proposal than under current law. Under TNT, the 6.43¢ higher QTR ensures that the QTR levy on existing property would be the same under the bill as under current law. This means that the $72.2 million BSA cost increase attributable to the loss of existing NAV prior to TNT would be exactly offset by a $(72.2) million in BSA savings due to the higher QTR after TNT. Therefore, the bill would have no impact on the BSA cost with respect to existing NAV.
As noted above, prior to TNT, the $(0.06) billion NAV loss of new property under the bill would result in a BSA cost increase of $1.6 million. The 6.43¢ higher QTR after TNT would offset this cost increase attributable to new property by $(1.6) million and thus would have no impact on the BSA cost.
Under the HOR program, the state pays 50% of the QTR levied on Class 3 property. The remaining 50% is paid by the homeowner. Other classes of property do not receive the homeowner's rebate. While the bill would leave Class 3 NAV unchanged, the 6.43¢ higher QTR levied on Class 3 property after TNT would raise the HOR cost by an estimated $14.8 million in FY 2033. Therefore, after the application of TNT, the bill would result in total General Fund cost increase of $14.8 million in FY 2033.
Local Government Impact
Relative to current law, the $(2.96) billion NAV reduction under the bill would result in a decrease of property tax collections by local tax jurisdictions or in a tax shift to other property owners, beginning in TY 2032.
2/24/25