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PHOENIX — The new head of the Senate Government Committee wants to help generate economic development by reducing taxes.

But the way he is doing it is generating friction from business interests, because it would benefit only companies outside the Tucson and Phoenix metropolitan areas.

The proposal by Sen. Jack Harper, R-Surprise, would allow multistate corporations to use an optional formula to compute their Arizona income taxes. Specifically, they could determine Arizona's share of their worldwide income based solely on what percentage of their sales are made in Arizona.

That means companies that sell most of their products elsewhere, such as firms that make computer chips, aircraft engines and missiles, could end up owing virtually no tax at all.

That's something business lobbying groups have been seeking for years, but they're not big fans of SB 1024. That's because firms that locate in the Phoenix and Tucson areas would have the current — and less favorable — tax treatment.

And it could mean that companies with manufacturing operations in the metropolitan areas might decide to pack up and move their operations to rural areas, especially if it could save millions of dollars.

Harper said that's not his intent. But Harper, whose district includes some rural areas, including Wickenburg, said he would not be disappointed if that occurred.

"If Allied Signal wanted to move their operations next to Sky Harbor Airport out to Wickenburg, I think that would be a benefit," he said.

At the heart of the battle is the system by which corporations compute what they owe to Arizona.

Firms based solely in Arizona figure their taxes based only on their income. But companies with operations in multiple states use a formula.

The formula bases taxes 50 percent on sales within the state, 25 percent on the percentage of total payroll in Arizona and 25 percent on the value of property in Arizona compared with the rest of the company.

Two years ago legislators agreed to permit companies with few in-state sales to use an alternative formula based 80 percent on sales. That provides particular help for manufacturing operations that have very expensive equipment — a factor in the formula — but few Arizona sales. And manufacturers are considered among the best-paying employers in the state.

Harper's measure for the 100 percent sales factor goes a step beyond, but only for areas of the state that are not subject to special air-quality regulations.

Harper said moving more industry out of those metro areas mitigates air pollution.

Whether or not the industry itself pollutes, he said, its workers contribute to the problem by having to drive into the metropolitan areas every day to go to work.

David Maurer, CEO of the Prescott Chamber of Commerce, said he appreciates the sentiment behind what Harper is doing. "I'm sure his intent is a good one," said Maurer, who said he was not consulted before Harper introduced his measure.

But Maurer said rural chambers of commerce cannot be in a position of seeking some benefit not available elsewhere. So he said his organization will support the 100 percent sales factor — but only if it applies to all corporations statewide.

That is not the position of the Flagstaff Chamber of Commerce.

"We ought to have incentives to bring business to rural Arizona," said Joe Galli, the organization's lobbyist.

"We have a hard time competing as it is with Pima and Maricopa," Galli said. "Our businesses face higher costs."

John Dougherty, lobbyist for the Tucson Metropolitan Chamber of Commerce, said Harper should not be altering tax policy for only some parts of the state — assuming he even can.

"I'm not sure how legal that is," Dougherty said. He said the entire state needs an altered tax system to attract manufacturing operations, not just rural areas.