ARIZONA STATE SENATE
Forty-seventh Legislature, Second Regular Session
VETOED
FINAL AMENDED
FACT SHEET FOR S.B. 1151
tax credits; withholding tax reductions
Purpose
Allows an employee to elect a reduced withholding by the amount of the tax credit for contributions to a school tuition organization, a public school in support of extracurricular fees or character education programs or a qualified charitable organization that provides assistance to the working poor.
Background
In 1997, the Arizona Legislature allowed two nonrefundable individual income tax credits in lieu of deductions of up to $200 for any fees paid by a taxpayer to a public school for extracurricular activities, or up to $500 to a private school tuition organization beginning in tax year 1998. Beginning with the 2001 tax year, married filing joint filers were able to donate up to $250 to public school activities and $625 to private school tuition organizations and receive a tax credit.
Laws 2005, Chapter 334 doubled the maximum tax credit amount for married couples filing a joint return for contributions to school tuition organizations and for contributions to public schools in support of extracurricular fees or character education programs phased in over a two-year period.
According to the Department of Revenue (DOR), there could be a negative fiscal impact to the state General Fund due to a one-time shift of revenue collections as a result of the withholding changes in FY 2006-2007 to FY 2007-2008.
Provisions
1. Allows an employee to request a reduced withholding by the amount of the tax credit for which the employee represents to the employer that the employee is eligible for contributions to a school tuition organization, contributions to a public school in support of extracurricular fees or character education programs or contributions to a qualified charitable organization that provides assistance to the working poor. The employee’s request must be in writing.
2. Allows the employer, within 30 days, to reduce the withholding amount by the amount of the tax credit and prorate the withholding amount for the number of pay periods remaining in the employee’s taxable year after the employee elects to take a tax credit.
3. Applies the following conditions on employers who elect to reduce an employee’s withholding and establish a corresponding payroll deduction program:
a) requires the employer to pay the entire amount of the withholding reduction to the employee’s designated charitable organization, public school or school tuition organization within 15 days after the close of each pay period.
b) holds the employee responsible and accountable for the accuracy of all contributions to the designated charitable organization. The employer is responsible and accountable for actually making the required payments.
c) requires the employer to furnish to each electing employee and DOR with a statement of the amount withheld and paid on the employee’s behalf during the year within 30 days after each calendar year or 15 days after the termination of an employee.
4. Classifies an employer’s fraudulent appropriation or concealment with the intention to commit fraud related to a reduced withholding amount as a class 1 misdemeanor.
5. Includes information provided by the employee to the employer pertaining to the reduced withholding request as confidential taxpayer information.
6. Makes technical changes.
7. Becomes effective on the general effective date.
Amendments Adopted by Committee
· Allows the employer to adjust the withholding on the request of the employee.
Amendments Adopted by House of Representatives
1. Requires an employee’s request to reduce withholding to be in writing.
2. Requires the employee’s request to include the name and address of a designated qualified charitable organization, school tuition organization or public school.
3. Provides the employer with 30 days to reduce the withholding amount by the amount of the credit.
4. Requires the employer to pay the entire amount of the withholding reduction to the employee’s appropriate entity within 15 days after each pay period.
5. Holds the employee responsible and accountable for the accuracy of all contributions and the employer responsible and accountable for actually making the required payments.
6. Classifies an employer’s fraudulent appropriation or concealment with the intention to commit fraud related to a reduced withholding amount as a class 4 felony.
7. Requires the employer to provide DOR with an annual statement of the amount withheld and paid on the employee’s behalf during the year.
8. Includes information provided by the employee to the employer pertaining to the reduced withholding request as confidential taxpayer information.
Amendments Adopted by Conference Committee
1. Applies employee requirements to those employers who establish a corresponding payroll deduction.
2. Reduces the penalty for fraudulently appropriating or concealing with the intent to commit fraud from a class 4 felony to a class 1 misdemeanor.
3. Makes technical changes.
Governor’s Veto Message
The Governor asserts that the bill is unnecessary and that pressuring employers to reduce withholding for specific contributions poses undue burdens on employers and payroll service companies.
Senate Action House Action
FIN 1/9/06 DPA 9-0-0-0 WM 3/13/06 DPA 6-0-0-3
3rd Read 2/6/06 24-3-3-0 3rd Read 4/11/06 36-20-4-0
Final Read 5/2/06 20-8-2-0 Final Read 5/9/06 32-22-6-0
Vetoed by the Governor 5/16/06
Prepared by Senate Research
May 17, 2006
SL/GC/jas