When shoppers in Arizona buy items like suntan lotion and golf balls, their sales taxes could pay for the next generation of innovative biotechnological inventions. That's because the Arizona Biodesign Institute (AzBio), a research center at Arizona State University (ASU; Tempe, AZ, USA), receives about 80% of its $12 million annual budget directly from the state's sales taxes. Although this unique setup may work for AzBio and Arizona's residents, tax policy advisors in other US states say this model will probably not work elsewhere.

An artist's rendering of the new AzBio building that is due for completion in September 2004. Credit: Arizona State University

Based on a voter-approved proposition in 2000, grades kindergarten to 12 and colleges in Arizona split a 0.6% increase in sales tax until 2021. ASU's portion translates to $15 million to $20 million a year, out of which $9 million to $10 million goes to AzBio, says Jonathan Fink, the university's vice president for research and economic affairs. AzBio gets another $2 million from a university fund.

AzBio was set up to bring together research on biotechnology, nanotechnology and information technology; it began receiving funding in 2001 and opened in 2002. George Poste, former president for research and development at SmithKline Beecham (London), heads the institute. "There is a strong urge in Arizona to broaden our biotechnology economic base. AzBio gives us that opportunity," says Fink.

Arizona's scheme for earmarking a percentage of sales taxes specifically for education is rare; according to the most recent information available from the National Conference of State Legislatures (NCSL; Denver, CO, USA), only seven other US states—Alabama, Arkansas, Illinois, Michigan, Mississippi, Oklahoma and Virginia—designated portions of their sales taxes to education in 19971.

Not all states have general sales taxes, and those that do generally do not allocate parts of them for specific expenditures, says Arturo Perez, a program principal in the fiscal affairs program of NCSL. For example, Florida, Michigan, Minnesota, North Carolina, Pennsylvania and Washington all have sales taxes, but these go directly into a general revenue fund, which then disperses the money to institutions without designating them for specific purposes such as biotech research or education.

When Bioentrepreneur contacted officials in other states to gauge enthusiasm for the Arizona scheme, the response was only lukewarm. "It is not likely that Minnesota would go to a system of earmarking funds for specific expenditures," says Ray Krause, that state's assistant commissioner for tax policy. "Earmarking funds reduces the flexibility in the entire budget system. It ties the funding recipient to one source of revenue that could increase or decrease rather than benefiting from a balanced portfolio of revenue sources in a general fund."

In Arizona's case, the sales tax increase was allocated for higher education, causing some critics to question whether ASU should be giving the money to an institute that does not award degrees. But Fink dismisses the criticism: "The view of the proposition is that it is funding for the university, broadly defined in terms of their total function and not limited to the teaching function. We see a clear connection between research at AzBio and educational activities at the university."