HB2822 Legislation

A Landmark Arizona Tax Reduction Bill

Arizona legislature continuously recognizes business-owner’s needs and adopts tax-burden policy that benefits regional innovation. With HB2822 signed into effect by Arizona Governor Ducey on March 30, 2022, the region’s legacy of strengthening the business community continues.

A Brief History of Arizona Property Tax

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Arizona Property Tax References

Real Property Tax = Limited Property Value x Assessment Ratio x Tax Rate

Personal Property Tax = (Value x Depreciation Factor – Exemption) x Assessment Ratio x Tax Rate

Foreign Trade Zone (FTZ): Businesses located in a foreign trade zone or sub-zone are eligible for up to a 72.9 percent reduction in state real and personal property taxes.

 

HB2822 Property Valuation Comparison

This new legislation sets the full cash value of business and agricultural personal property initially classified during or after Tax Year 2022 to 2.5% of the property’s acquisition cost. Properties that can benefit from the new legislation include shopping centers, golf courses, manufacturers, and other personal property devoted to commercial or industrial use that is not classified elsewhere, agricultural property, and personal property in a foreign trade zone or military reuse zone.

The new legislation creates a reduction in property taxes by lowering the assessed value of the personal property. Currently a property’s valuation factor (“percent good”) is determined by the expected life of the property, with additional depreciation available for certain subclasses of property.

*Assumption based on Class 1 property with a 10-year life

Class 1 Depreciation
Standard
Class 1 Depreciation
with Additional Depreciation
Class 1 Depreciation
with HB2822

Full Cash Value

$500,000,000

$500,000,000

$500,000,000

Year 1 Valuation Factor

90.0%

22.5%

2.5%

Percent Good

$450,000,000

$112,500,000

$12,500,000

Minus Standard Exemption ($207,366)

$449,792,634

$112,292,634

$12,292,634

x Assessed Value (17.5%)

$78,713,711

$19,651,211

$2,151,211

x Average Tax Rate (12.17%)

$9,579,459

$2,391,552

$261,802

Savings

$7,187,906

$9,317,656

Foreign Trade Zone Savings

Foreign Trade Zones further increase the property tax savings. The personal property will still be depreciated at the 2.5% valuation factor, but will be assessed at 5% versus 17.5% for Class 1 property.

Class 1 with HB2822
FTZ (Class 6) with HB2822

Full Cash Value

$500,000,000

$500,000,000

Valuation Factor

2.50%

2.50%

Percent Good

$12,500,000

$12,500,000

Minus Standard Exemption (Class 1 property – $207,366)

$12,292,634

$12,500,000

x Assessed Value

$2,151,211

$625,000

x Average Tax Rate (12.17%)

$261,802

$76,063

Savings

$185,739

Scenario 1

Medium Manufacturer

$40M Real Property | $60M Personal Property

Current Tax Liability (10 Years)
HB2822 Tax Liability (10 Years)
Difference

Non-FTZ

$11,803,100

$8,187,416

$3,615,684

FTZ

$3,635,909

$2,525,275

$1,110,634

FTZ Savings

$8,167,191

$5,662,141

$2,505,050

Scenario 2

Large Manufacturer

$1.2B Real Property | $3.0B Personal Property

Classification
Current Tax Liability (10 Years)
HB2822 Tax Liability (10 Years)
Difference

Non-FTZ

$433,662,238

$252,878,045

$180,784,193

FTZ

$133,115,460

$77,583,750

$55,531,710

FTZ Savings

$300,546,778

$175,294,295

$125,252,483

Frequently Asked Questions

 

Does HB2822 change the property tax rate? 

No, HB2822 affects the total value of personal property assessed for tax, it does not change the tax rate.

 

How is this different than assessment ratio?

HB2822 does not impact real property or the assessment ratio. This bill exclusively applies to the depreciation schedule for personal property.

 

When does personal property qualify for HB2822?

Property purchased in tax year 2022 will qualify for HB2822. It will not apply retroactively to items purchased in prior years.

 

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