ARIZONA STATE SENATE
Forty-eighth Legislature, First Regular Session
FINAL AMENDED
FACT SHEET FOR H.B. 2784
tax relief package; 2007
(NOW: 2007 tax reduction package)
Purpose
Accelerates the class 1 property assessment ratio reduction. Creates an increased accelerated depreciation schedule for personal property purchased beginning 2008 for property tax purposes. Establishes an individual income tax subtraction for contributions to a qualified 529 college savings plan. Establishes a tax credit for donations to the Military Family Relief Fund, creates the Military Family Relief Fund and appropriates $100,000 to the Military Family Relief Fund. Exempts sales of admission to the 2009 National Basketball Association (NBA) All-Star game and other related events from the transaction privilege tax.
Background
Acceleration of Class 1 Property Assessment Ratio Reduction
Arizona has two distinct types of property taxes: primary and secondary. Primary property taxes are levied to pay for the maintenance and operation of a taxing jurisdiction. Secondary property taxes are levied to pay for bond indebtedness, voter-approved budget overrides and special districts such as fire or sanitary districts.
Property in Arizona is classified for assessment purposes in nine legal classes, with subclassifications in many of those classes. The classification is based on the current use of the property by its owner, such as commercial, agricultural or residential. Each legal class has an assessment ratio, specified in statute. The assessment ratio, which currently ranges from 1 percent to 24 percent, is used to calculate the assessed value of a property.
Laws 2005, Chapter 302, reduces, beginning tax year 2006, the assessment ratio for class 1 properties from 25 percent to 20 percent of full cash value over ten years. The additional state aid for owner-occupied residential properties increases from 35 percent to 40 percent over five years, and the maximum Homeowner’s Rebate amount for individuals increases from $500 to $600 over five years.
Accelerated Depreciation of Business Personal Property
Laws 1993, Second Special Session, Chapter 9, introduced a temporary accelerated depreciation schedule for commercial and industrial personal property. The accelerated depreciation applied to the first four years of the property assessment and only to property initially assessed in 1994, 1995 or 1996. The accelerated depreciation schedule is based on Department of Revenue (DOR) straight-line depreciation schedules. A percentage good factor is applied to the DOR schedules to arrive at taxable value. After the fourth year, property valuation reverts to DOR straight-line depreciation schedules.
Laws 1994, Chapter 41, extended the accelerated depreciation schedule to include agricultural personal property and made the accelerated depreciation schedule permanent for both property tax classes. Laws 1998, Fourth Special Session, Chapter 3, further accelerated the accelerated depreciation schedules by five percentage points per year for the first four years.
H.B. 2784 provides an increased accelerated depreciation schedule. The proposed schedule would apply only to property that is entered on the tax rolls for the first time in tax year 2008.
529 Qualified Education Savings Plans
A 529 plan is an education savings plan operated by a state or educational institution designed to help families set aside funds for future college costs. 529 plans are usually categorized as either prepaid or savings, although some have elements of both. Every state now has at least one 529 plan available. Qualified tuition programs under this section are exempt from federal and state income tax. The account must be opened in only one person’s name, but allows anyone to contribute to the fund. Withdrawals on the fund must be used specifically for higher education purposes such as tuition, books, room and board, etc., and may be used at any eligible type of post-secondary educational institute. If the funds are withdrawn for other purposes, the money is subject to state and federal taxation plus a ten percent penalty. However, when the money is used for its intended purpose, upon withdrawal it is exempt from federal and Arizona state tax.
An Arizona resident may purchase a 529 plan in most states. According to the Arizona Family College Savings Program (AFCSP), there are 32 states that offer tax benefits for investing in 529 plans. Four states allow a deduction of the full amount contributed to the state’s 529 plan. Other states have maximum deduction amounts ranging from $100-$10,000. Kansas, Maine and Pennsylvania allow a state income tax deduction for contributions to any 529 plan in the nation, not just to their own state’s 529 plan.
Fiscal Impact
|
Tax Reduction Proposal |
Estimated Impact |
|
Acceleration of Class 1 Property Assessment Ratio Reduction |
$3.1M in FY 08-09 |
|
Accelerated Depreciation of Business Personal Property |
$3.9M in FY 08-09 |
|
529 Qualified Education Saving Plans |
$2.5M in FY 08-09 |
|
Military Family Relief Fund Donation Tax Credit |
$1M beginning FY 08-09 |
|
NBA All-Star TPT Exemption |
|
Provisions
Acceleration of Class 1 Property Assessment Ratio Reduction
1. Accelerates the class 1 property assessment ratio reduction from ten years to six years.
Accelerated Depreciation of Business Personal Property
2. Establishes a new accelerated depreciation table for personal property initially classified during or after the 2008 tax year as follows:
|
Year of Assessment |
Percentage of Scheduled Depreciated Value - Current |
Percentage of Scheduled Depreciated Value - Proposed |
|
First Year |
35% |
30% |
|
Second Year |
51% |
46% |
|
Third Year |
67% |
62% |
|
Fourth Year |
83% |
78% |
|
Fifth Year |
DOR Depreciation Schedule |
94% |
|
Sixth Year |
DOR Depreciation Schedule |
DOR Depreciation Schedule |
529 Qualified Education Savings Plans
3. Allows, for tax years 2008 through 2012, an individual income tax subtraction for contributions to any education savings plan established under § 529 of the Internal Revenue Code that were not deducted from federal adjusted gross income.
4. Limits the maximum amount a taxpayer can subtract in any year to $1500 for married filing joint or $750 for single or head of household.
5. Requires nonqualifying withdrawals to be added back to Arizona income.
Military Family Relief Fund Donation Tax Credit
6. Allows a tax credit, for tax years 2008 through 2012, for cash contributions made by a taxpayer during the taxable year to the Military Family Relief Fund (Fund) in the lowest of the following amounts:
a) the total amount of the contributions to the Fund by the taxpayer during the taxable year.
b) $200 of contributions during the taxable year by a taxpayer filing as a single individual or as a head of household.
c) $400 of contributions during the taxable year by a married couple filing a joint return.
d) the taxpayer’s tax liability.
7. Limits the maximum dollar amount eligible for the income tax credits to $1,000,000.
8. Establishes the Fund consisting of private donations, grants, bequests and any other monies received for that purpose.
9. Requires monies in the Fund be used to provide financial assistance to family members of military personnel killed or wounded in the line of duty and who were deployed from a military base in Arizona or who were members of the Arizona Army or Air National Guard. Assistance to family members must be based on financial need.
10. Requires the Department of Veterans’ Services (DVS) to administer the Fund.
11. Requires the State Treasurer to invest and divest monies in the Fund pursuant to statute on notice from the DVS Director. Investment earnings must be credited to the Fund.
12. Provides for the continuous appropriation of Fund monies to DVS.
13. Requires any unexpended and unencumbered monies as of December 31, 2013, to be transferred to the Veterans’ Donations Fund.
14. Allows widows and widowers of military personnel killed in the line of duty to apply for a stipend for living expenses for up to six months after the termination of military pay and death benefits.
15. Allows spouses and minor children of military personnel wounded in the line of duty to apply for a stipend for living expenses for up to six months near a military or veterans hospital where the person is receiving treatment.
16. Allows the DVS Director to allocate up to five percent of the Fund’s fiscal year beginning balance for administrative costs.
17. Requires the DVS Director to:
a) receive private donations in any amount for deposit in the Fund.
b) issue receipts to the donors and provide a copy to the Department of Revenue.
c) designate on the donation receipt whether the donation qualifies for a tax credit. Donations to the Fund after the Fund reaches $1,000,000 do not quality.
d) provide for an audit by an independent certified public accountant of the Fund and of the aggregate amount authorized by the Director for income tax credits by April 1 of each year.
e) submit a copy of the audit promptly to the Auditor General.
f) pay the costs of the certified public accountant and the Auditor General from the administration allocation of the Fund.
18. Authorizes the Auditor General to make such further audits and examinations as necessary and to take appropriate action relating to the audit pursuant to statute. The audit is considered to be sufficient ff the Auditor General takes no further action within 30 days after the audit is filed.
19. Establishes a 13-member Military Family Relief Committee (Committee) to determine appropriate uses of monies in the Fund. Members consist of the DVS Director or the Director’s designee and 12 additional members appointed by the Governor.
20. Requires the Committee to:
a) establish criteria for the use of monies in the Fund.
b) establish and revise as necessary the application process for financial assistance.
c) review and evaluate applications.
d) make other recommendations as necessary.
21. Appropriates $100,000 from the state General Fund in FY 2007-2008 to the Fund.
22. Exempts the appropriation from lapsing.
23. Repeals the Fund on January 1, 2014.
NBA All-Star TPT Exemption
24. Provides a transaction privilege tax (TPT) exemption for sales of admission to the 2009 NBA All-Star game and other related events.
25. Conditions the enactment with the requirements that the City of Phoenix be chosen as the host city and provide a municipal TPT exemption for the same events.
26. Repeals the exemption on December 31, 2009.
Miscellaneous
27. Requires the Joint Legislative Income Tax Credit Review Committee to review the tax credit for donations to the Fund in 2012.
28. Contains a purpose statement.
29. Makes technical and conforming changes.
30. Becomes effective on the general effective date, except as otherwise noted.
Amendments Adopted by Committee
· Adopted the strike everything amendment.
Senate Action House Action
APPROP 6/18/07 DPA/SE 10-0-1-0 APPROP 4/30/07 DP 13-4-0-0
3rd Read 6/18/07 28-0-2-0 3rd Read 5/23/07 31-29-0-0
Final Read 6/19/07 57-2-1-0
Signed by the Governor 6/25/07
Chapter 258
Prepared by Senate Research
June 29, 2007
SL/jas