Why is Arizona giving out increasingly generous tax breaks to the gigantic for-profit education company that owns the University of Phoenix?

Arizona, like so many states in the union, is currently experiencing something of a budget crisis.

Edmund Andrews at Capital Gains and Games wrote last year that,

Arizona’s budget crisis is one of the worst in the country, partly because it was at ground zero in the housing bust…. Gov. Brewer had already proposed chopping money for higher education by 25 percent; eliminating the state health insurance program for poor children; closing all the juvenile correction facilities; and closing half the state parks.

“We don’t have enough money!” the state’s political leaders scream, so colleges better start finding ways to cut costs. The Grand Canyon State has to find $1 billion to close a projected budget gap for fiscal year 2012.

With numbers like that, it might make sense for the state to try to increase its tax revenue. But according to a piece by Jahna Berry in the Arizona Republic:

Under the current system, since Apollo Group Inc. and Grand Canyon Education are headquartered here, they pay Arizona income taxes based on the full amount of revenue that they generate selling services to students, whether those students take online classes in California, Michigan, New York or Alabama.

The system is unfair, the businesses argue, because they are “double taxed” in 11 states. After they pay taxes on all of their customer sales in Arizona, 11 states tax the businesses based on services they sold to students in each of those states.

Under the new bill Apollo, which owns the University of Phoenix, would only pay taxes on the income generated from Arizona customers.

According to an Arizona Department of Revenue estimate, the bill could cost Arizona $33.2 million a year in lost tax revenue.

Brad Wright, Apollo’s vice president of government affairs, said the new tax plan “will incentivize us to continue to invest in jobs and to continue to hire more people in Arizona.”

In November the Apollo Group laid off 700 of its employees.

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Daniel Luzer is the news editor at Governing Magazine and former web editor of the Washington Monthly. Find him on Twitter: @Daniel_Luzer