Arizona Law Cuts Taxes for Insurers

Arizona is set to reduce taxes for insurance companies under a new bill Gov. Doug Ducey signed into law Monday.

The tax cut is expected to mean the loss of more than $44 million to state’s general fund over the next 10 years. The proposal comes at a time when Arizona Republicans successfully passed several other tax cuts, including a $30 million cut for businesses that isn’t accounted for in the Legislature’s own budget forecasts.

The latest measure, by Rep. David Livingston, R-Peoria, reduces tax rates on insurance premiums from 2 to 1.7 percent over a decade beginning in 2016, excluding fire and health care service insurance premiums.

Legislative analysts anticipate the state’s general fund will take an initial hit to the tune of $1.6 million in the budget year starting June 1, 2017. But they expect the impact will grow to $44.6 million by the time the state implements the full tax reduction in 2027.

Livingston, who has pushed for the legislation over the last few years, said that Arizona has reduced corporate taxes over the last few years, but left out insurance companies. “Insurance companies are paying more and more while corporations are paying less and less. So we are trying to even that out,” he said.

The Arizona Chamber of Commerce supports the bill as a way to increase competitiveness and spur economic growth. Glenn Hamer, a representative for the chamber, said that the state places an unequal burden on insurances companies by taxing revenues rather than profits.

“What now exists is an uncompetitive situation for insurers, which does not comply with the basic principles of a sound taxation system,” Hamer said.

Democrats in a House committee expressed concerns about the bill’s fiscal effect.

Rep. Debbie McCune Davis, D-Phoenix, said the bill should “basically be printed in red ink,” while Rep. Lisa Otondo, D-Yuma, said she’s concerned the cut would compound the state’s budget woes.

“I see the need to be more competitive and to bring more competition to this arena. But I have difficulty because of revenues, because of the many bills that come down and continue to chip away at revenues for the state,” Otondo said.