Arizona lawmakers exempt small business from Prop. 208 surcharge | Washington Examiner

Arizona Republicans have endorsed a plan to shield small businesses from a new tax to better fund public schools.

The Senate voted along party lines Monday to pass Senate Bill 1783, which would create a new tax class for small business owners who would otherwise file as a pass-through entity. This would allow them to forego the 3.5% income tax surcharge established by Proposition 208.

Sponsored by Sen. J.D. Mesnard, R-Chandler, it passed along partisan lines.

If a business owner elects to enter the new class, they will set their tax rate at 4.5%, exempting them from the Prop. 208 surcharge. It also drops the rate by half of a percentage point every year until 2025, when the rate hits 2.5%.

Prop. 208, approved in the 2020 General Election, added a 3.5% income tax surcharge on those in the top-earning bracket in Arizona who were previously paying a 4.5% rate to fund education. The surcharge required single filers with incomes…

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