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 ($225,572)	$449,774,428	$112,274,428	$12,274,428
x Assessed Value (17.0%)	$76,461,653	$19,086,653	$2,086,653
x Average Tax Rate (11.6%)	$8,869,552	$2,214,052	$242,052
Savings	–	–	$8,627,500

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% 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 – $225,572)	$12,274,428	$12,500,000
x Assessed Value	$2,086,653	$625,000
x Average Tax Rate (12.17%)	$253,946	$76,063
Savings		$177,883

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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HB2822 Legislation

A Landmark Arizona Tax Reduction Bill

A Brief History of Arizona Property Tax

Enacted legislation allowing an optional 80% sales factor formula for corporate income taxes.

The assessment Ratio was lowered from 25% to 20% between 2006 and 2011 for commercial property. The additional depreciation schedule for business personal property was increased.

Enhanced the amount companies could claim for the R&D tax credit.

Established a refundable R&D tax credit for small businesses.

– Lowered commercial property assessment ratio from 20% to 18%. – Increased the additional depreciation schedule and exemption amount for business personal property. – Lowered corporate income taxes from 6.9% to 4.9%.

– Increased the optional sales factor formula from 80% to 100%. – Established the Arizona Competes fund and Quality Jobs tax credit. – Enhanced the R&D tax credit to include an additional 10% for university related research.

The Qualified Facilities tax credit was created, providing a refundable income tax credit for manufacturers.

Enacted a program rebating up to 80% of public infrastructure costs for large manufacturing facilities.

Modified the wage requirement on the Qualified Facilities program from 125% of median wage to 125% of median production wages.

Additional depreciation was expanded to include personal property within a foreign trade zone (FTZ) or military reuse zone (MRZ). The Quality Jobs tax credit was amended to require a lower capital investment for higher wage jobs.

Extended the timeframe to make capital investments for the Qualified Facilities tax credit to 36 months.

The assessment ratio for commercial property taxes was lowered to 16%, phasing in over four years. The Qualified Facilities tax credit was expanded to all headquarters, not just manufacturing, and the credit was increased to $30,000 per job for companies investing $2B or more.

HB2822 was enacted, setting the valuation of personal property at 2.5% for commercial, agricultural and foreign trade zones (FTZ).