Bill would permit some businesses to avoid new education tax

End-Run / Wikipedia

By Howard Fischer | Capitol Media Services

A veteran lawmaker is proposing what amounts to an end-run to allow some business owners to avoid paying the just-approved income tax surcharge for education.

The proposal by Sen. J.D. Mesnard, R-Chandler, would create an entirely new alternate tax category for small businesses, generally those organized in a way so their income passes through to the owners. That means the owners compute what they owe the state on their personal income tax forms after deducting all business expenses.

What makes that significant is that Proposition 208 imposes a 3.5% surcharge on adjusted personal income of more than $250,000 for individuals and $500,000 for married couples filing jointly. That is on top of the current 4.5% rate that applies for income above those figures.

SB 1783 would give business owners the option of instead paying a 4.5% tax on their adjusted business income.

More to the point, the surcharge in Proposition 208 would not apply because this new tax category did not exist at the time voters approved the measure. So business owners could compute their tax liability using both the existing formula or the new one — and then choose the one that costs them less.

(Disclosure: Rose Law Group represents Ann Siner of My Sister’s Closet and Judge John Buttrick in their litigation efforts against 208.)

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