Supporters said the tax credits would encourage businesses in designated forested areas to remove small trees, shrubs and other debris for use in wood products.
They also said the proposal would help restore the health of forests weakened by years of overgrowth, drought and an infestation of tree-killing bark beetles.
Opponents said the bill doesn't focus on the small-diameter trees that are clogging up forests and should instead concentrate on protecting wooded areas around communities to protect homes from wildfires.
Weakened forests have left Arizona vulnerable to wildfires, which have burned hundreds of homes over the last two years and cost the government millions of taxpayer dollars to fight.
Russell Smoldon, a lobbyist for the Salt River Project, said tax incentives are needed because no businesses are using the wood waste from Arizona's forests.
The proposal would provide a sales tax exemption for equipment used in processing forest materials.
It also would create a new individual and corporate income tax credit for employers, based on the increase in jobs in designated forested areas.
Republican Sen. Marilyn Jarrett of Mesa, who proposed the tax credits, said the incentives will create jobs and won't cost the state any money.
Democratic Sen. Ken Cheuvront of Phoenix opposed the proposal, saying tax credits usually produce costly unintended consequences for the state.
Supporters said the bill focused on getting businesses to use small-diameter trees that clog forests.
But Sierra Club lobbyist Sandy Bahr said the proposal doesn't limit thinning to small diameter trees.
``This seems like more of a step backward and focusing on subsidizing logging industry versus an industry that could really use these small-diameter wood products,'' Bahr said.
Bahr said lawmakers should instead focus on protecting areas around communities because that approach has more support than thinning in the greater wilderness.
The proposal (HB2549) was approved in a 8-1 vote by the Senate's Finance Committee.
A rival proposal at the Legislature takes a different approach to restoring forest health.
It would call for the removal of debris and the thinning of trees and vegetation around homes to help fire crews protect property and blunt a blaze's intensity. That bill has met opposition on property rights grounds.
Kathy Gibson Boatman, whose parents lost their home near Heber in the Rodeo-Chediski fire in 2002, said the state needs to do something to protect communities surrounded by unhealthy forests.
The Rodeo-Chediski fire burned 469,000 acres, destroyed 491 homes and forced the evacuation of 30,000 people in eastern Arizona.
``Just thinning near the communities will do nothing to stop a fire like a Rodeo-Chediski fire,'' Boatman said.
