- Associated Press - Wednesday, February 15, 2017

PHOENIX (AP) - An Arizona House panel on Wednesday advanced a proposal allowing big manufacturing companies like chip-maker Intel to use millions of dollars of existing tax credits they can’t currently cash in, despite concerns about the cost.

The bill allows companies to use their current tax credits to get cash refunds or sales tax offsets when they build new facilities. Many companies can’t currently use the credits because previous tax breaks leave them owing no corporate income tax.

The sponsor, Republican Rep. Jeff Weninger, of Chandler, said his proposal is needed to boost the state’s competitiveness.

“Arizona is in a world-wide competition for these manufacturing jobs,” Weninger told the House Ways and Means Committee. “I think that this bill does a great job of putting us on a path of being on the top of the list for other manufacturers, who maybe don’t have this kind of presence right now, to come to Arizona.

House Bill 2492 contains three other major incentives benefiting manufacturers like Intel, Raytheon, Honeywell and Boeing.

One returns half the income tax withholding from new workers, another creates a new sales tax exemption for some supplies, and a third lowers property taxes on new equipment in special trade zones.

The cost of all the incentives is estimated as at least $20 million a year, a general fund hit that will be hard to swallow for many lawmakers concerned about low school funding, road repair fund shortfalls and other state spending priorities.

The proposal was approved on a 5-4 vote and now moves to the full House.

The costs worry Republican Rep. Michelle Ugenti-Rita, of Scottsdale, who voted for the proposal but said she has major concerns, suggesting that some provisions will need to be stripped out.

“This is really a budget discussion, a huge one. I mean, this has massive budget implications,” Ugenti-Rita said. “There’s no way we’re going to be able to do everything in this bill with all of the other priorities and items set out by the governor. So something’s going to have to give.”

The proposal is backed by a consortium of manufacturers, but drew strong opposition from the Arizona Free Enterprise Club, which opposes subsidies and special interest tax breaks.

Scot Mussi, the group’s president, testified that he’s been warning for years about a potential push to make tax credits granted to research and development and other companies refundable, meaning they can get cash even if they don’t owe taxes. The credits are granted to companies that make new investments.

“Make no mistake, you breach this and we’ll be down here talking every year about everybody else that wants to be expanded into this program and get the same refundable tax credit and get a direct subsidy,” Mussi said.

A recent report from the state Department of revenue shows there are more than $1 billion in research and development tax credits alone now on the books.

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