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Thursday, March 17, 2011

Tax credits urged for defense, aerospace

by John Yantis
The Arizona Republic
Tax cuts recently enacted by the state Legislature are a good start, but they do little to immediately help aerospace and defense firms that want to move or expand in Arizona, a local economic-development official says.

The Greater Phoenix Economic Council, working with some lawmakers, is pushing a bill called Invest Arizona that would allow businesses such as Honeywell and Boeing to take advantage of the same tax credits offered to renewable businesses and those in foreign-trade zones.

Barry Broome, GPEC president and CEO, said the tax cuts signed by Gov. Jan Brewer last month to lure jobs take too long to kick in for capital-intensive companies looking to make investments now.

"Because of the budget (deficit), the broad-based tax cuts don't start occurring until about 2015, and they don't really fully take effect until 2018, so we don't really start moving until four of five years from now," he said. "We're going to be in a recession until 2014 or 2015."

Senate Bill 1041 was approved 24-5 by the Senate Thursday, and awaits consideration in the House. If signed into law, it would give potential applicants the same tax credits and a property-tax reclassification enjoyed by Intel and others in foreign-trade zones.

The bill would allow companies to take the credits so long as they invest at least $5 million in a facility and hire 25 employees. In rural areas, it would take investment of $1 million and employment of 15 workers.

Retail companies would not get the break. Those who use it would have to pay median wages and at least 65 percent of health-insurance-coverage costs for employees.

Aerospace and defense contractors are not currently allowed in foreign-trade zones because of federal rules that preclude them from exporting products, Broome said.

"Competitor states - whether it's retention, expansion or a new business coming to it - eliminate or reduce dramatically the real and personal property-tax rate on the investment for a period of 10 or 15 years," he said. "Here in Arizona, we haven't done that universally for export industries."

Aerospace and defense contractors are opting for other states, including Oklahoma, Tennessee and Alabama, he said.

With the passage of the tax-cut bill, a GPEC analysis shows only California and New Mexico will lead Arizona in terms of the amount of business taxes paid over 10 years by a company that would invest $250 million and create 1,000 jobs. Invest Arizona, combined with the previously enacted business tax cuts, would put Arizona first, according to GPEC.

Without the financial tool, Broome said the state cannot compete for investments such as the one recently announced by Boeing. The company won a $35 billion contract to build a new tanker for the Air Force. The work is expected to support 50,000 jobs nationally.

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