The Greater Phoenix area is among the hottest markets for companies. In 2019, approximately 50 companies moved to the area and added $1.18 billion of capital investment. In 2023, Facebook announced they would invest $800 million in building a data center in east Mesa on the Elliot Road Tech Corridor.
Apple also has a data center on Elliot road, showing how hot the Arizona market is for business. However, many people wonder why such great companies choose the dry city instead of others with already set up companies.
Arizona’s business taxes have made it one of the best states for businesses. Its business environment provides lower operational costs and cost benefits, allowing companies to spend more time and money making quality products and meeting their clients’ needs.
The state’s focus on business intends to keep taxes light and regulations low. It has also eliminated tax-hiking trends, offering a business climate that stimulates R&D investment, growth, and innovations.
Arizona has some of the lowest individual income and corporate income tax rates in the United States. Individual income tax rates in the state range from 2.59% to 4.50%. Their corporate income tax rate is 4.90%, and their state sales tax rate is 5.60%.
This is compared to an 8.84% corporate income tax rate in San Francisco and Los Angeles and a 6.50%-7.25% in New York. Lower taxes are beneficial for the companies because they help them save money in the long run, which they could later use for more developments or in other departments.
Right to work state
This law permits workers in Arizona to skip paying labor union dues. This way, employees can decide whether or not to join a union depending on what they want to achieve. It gives the workers more freedom and reduces the pressure they face in the workplace.
Arizona is one of the 27 states that has passed this law, making it a more favorable state for companies. This law allows companies to expand into new niches without stressing about the unions and associated demands or regulations.
One major downside is that there is less unionization, meaning that employees in Arizona are not as protected as employees in other states who are required to join a union.
The Arizona real estate market is one of the most affordable in the country. The cost of living in the state is below the national average, meaning that employers and employees can save a lot by getting better houses at lower prices than they would have in other states.
According to The Kay-Grant Group, real estate options in Arizona include condos, patio homes, single-family homes, and even horse properties. The median wage is usually in the middle of the wage list, dividing people who get more and those who earn less.
It is a more accurate representation of average salary because it helps discount the extreme high and low wages. When employing people, companies have to think more than their salaries. There are additional costs like employer insurance, training, and incentives.
The median wage in Arizona is 64,436, compared to the median wage in Los Angeles, which is 67,418. This reduces the overall cost of employing new people, meaning Arizona employees can hire more people.
Because of Arizona’s lower house prices, the medium wage is lower, which is beneficial for both the companies and employees because they can afford to live in good houses. The median home price in Los Angeles is 795,000, meaning that with a median wage of 67,418, there is a cost ratio of 11.8 times the city’s median wage.
In Arizona, however, the median home price is 383,924, which gives a cost ratio of 5.8 times the 64,436 median wage.
Taxes are one of the main things businesses look at when establishing a business location. In addition to low business taxes, Arizona also has some of the best tax incentives.
The city has premium tax or corporate income tax credits going up to $9,000 per job for businesses making capital investments and creating job opportunities that meet certain income requirements. These credits are spread over three years.
They amended the program in 2017 such that even lower capital businesses creating high-paying jobs can also qualify. To qualify for the program, businesses located or expanding in urban areas must meet one of the following job creation, capital investment, and income requirements:
- Make at least $5 million in capital investments and create a minimum of 25 jobs with incomes at 100% of the median wage in the county where the job is located.
- Make at least $2.5 million in capital investment and create a minimum of 25 jobs with incomes at 125% of the median wage in the job’s county.
- Make at least $1 million capital investment and offer a minimum of 25 jobs with incomes at 50% of the median wage in the project’s county.
- Make at least $500,000 capital investment and create a minimum of 25 jobs with wages at 200% of the median wage in the job’s location.
Businesses in rural areas must meet the following requirements:
- Make at least $1 million in capital investments and create a minimum of five jobs with incomes at 100% of the median wage in the project’s location.
- Make at least $500,000 capital investment and create a minimum of five jobs with incomes at 125% of the median wage in the job’s location.
- Make at least $100,000 capital investment and create a minimum of five jobs with incomes at150% of the median wage in the job’s location.
These credits are usually non-transferable and non-refundable. Businesses can forward unused credits for up to five successive tax years. There are also refundable tax credits for businesses that make at least $250,000 of capital investment and offer new full-time jobs at corporate headquarters, manufacturing, or R&D-related manufacturing facilities.
Over half of those jobs must have an income of at least 125% of the state’s median wage in an urban area and 100% in rural areas. The companies must also pay membership costs or health insurance premiums for 56% of their employees.
Arizona businesses also enjoy a refundable and non-refundable R&D income tax credit for qualified research and development activities in the state.
There is also an Arizona Competed Fund for businesses offering jobs with incomes at or over the state’s median wage. The Arizona job training grant helps companies with employees’ training expenses and is given on a competitive application basis.