Shruti Gurudanti, Rose Law Group partner and director of corporate transactions, comments on: Arizona lawmakers approve measure to exempt startup businesses from taxes

By Howard Fischer | YourValley

Arizona lawmakers apparently want to help you succeed.

On a party-line vote, the Senate on Tuesday voted to exempt new businesses from having to pay any state income taxes at all in their first year of operation. That tax break would taper off to 50% in the second year and 25% in the third, by which point it should be clear whether a company will make it or not.

Senate Bill 1559 is the brainchild of Sen. Steve Kaiser, R-Phoenix, who told colleagues of his own experience trying to start a business — he has since sold it — and the problems in arranging financing. What this is designed to do, he said, is provide a bit of fiscal breathing room.

But Democrats were opposed, even after he added requested language to ensure companies don’t simply dissolve and reform on an annual basis to take advantage of the tax break.

“Of course we support small businesses,” said Senate Minority Leader Mitzi Epstein, D-Tempe. “Arizona businesses are so important to every part of our economy.”

But Epstein said carving out a special tax break for those who start a new business is not good policy. And she noted it’s not like lawmakers are providing similar relief for people who start a new job.

“Why is it only a person who owns a business that gets a tax break?” she asked.

Anyway, Epstein said she believes special carve-outs are not the best way to encourage economic development. Instead, she said, the state is better with low rates that apply to all.


“Small businesses are the backbone of Arizona’s economy, and this tax break would go a long way in giving startups the much-needed cash flow in the beginning years of operations. Ultimately, allowing companies to hire more.”

Shruti Gurudanti, Rose Law Group partner and director of corporate transactions

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March 2023