Fixing a legislative short circuit

Glenn Hamer

February 19, 2016

The Arizona Chamber of Commerce and Industry in this year’s legislative session is working to advance legislation that will exempt manufacturers from paying sales tax on their electricity and natural gas consumption.

No, you’re not reading one of my columns from 2014. 

Two years ago I was cheering the good work of bill sponsor Sen. Steve Yarbrough, his colleagues at the state Legislature and then-Gov. Jan Brewer for passing legislation that removed the sales tax that manufacturers were paying on their power bills. Arizona was one of only 12 states that levied the tax, and the new exemption was poised to boost the state’s competitive standing.

We celebrated the governor’s signing of the bill with a big ceremony and press conference. It was a happy day, and rightly so. After all, Arizona was making a concerted effort to do away with a tax that targeted an essential element of the manufacturing process and was hamstringing an important part of our economy from growing.

Unfortunately, we haven’t realized the vision of that day in April two years ago. The state Department of Revenue hasn’t been interpreting the law in the way we in the business community believed the 2014 law intended.

So it’s back to the drawing board in 2016.

Thanks to Sen. Debbie Lesko and Sen. Bob Worsley, Arizona’s manufacturers and the broader business community are supporting two bills that we believe will – finally – ensure that industries ranging from aerospace and defense to high tech will no longer be saddled with a tax their competitors in other states don’t face. 

The Lesko bill makes the clarifications necessary to leave little to the imagination of the tax man as to how to apply the exemption. The Worsley bill says that manufacturers that use natural gas are eligible for the exemption no matter the method used to deliver natural gas to their facility.

After several months of being unable to reach an agreement over the interpretation of the original law, representatives from the Revenue Department have been at the table with the business community as we’ve cobbled together this fix. Both bills have passed the Senate Finance Committee and will need to be voted on by the full Senate before they will be taken up by the House of Representatives.

These bills might be technical in nature, but they mean a lot for a state that needs the tools in its economic development toolbox to recruit good-paying manufacturing jobs. When manufacturers compare markets for expansion, a few percentage points either way on the balance sheet could make or break a new investment. For manufacturers already in Arizona, this reform will only help our retention efforts. The estimates back in 2014 pegged the savings that would result from the original bill at $18 million in annual costs. Those are dollars that can be spent on growing businesses and hiring new employees.

I am hopeful that the Legislature can complete work on these bills in short order. Manufacturers aren’t seeking some sweeping new policy shift; they’re just looking for the tax treatment they’ve been expecting since 2014. Both bills deserve to be sent to Gov. Ducey for his signature. I’m looking forward to attending the press conference.

Glenn Hamer is the president and CEO of the Arizona Chamber of Commerce