ARIZONA STATE SENATE
Forty-seventh Legislature, Second Regular Session
FACT SHEET FOR H.B. 2560
charitable organizations; tax credit
Purpose
Eliminates the requirement for taxpayers to establish a baseline year for eligibility for the income tax credit for contributions to the working poor and establishes a certification process for qualifying charitable organizations at the Department of Revenue.
Background
A nonrefundable credit for individual taxpayers is allowed for voluntary cash contributions to a qualifying charitable organization. A qualifying charitable organization is defined as a 501(c)(3) or designated community action agency that spends at least 50 percent of its budget on services to Arizona residents who receive Temporary Assistance for Needy Families (TANF) benefits or low-income residents of this state and their households. Low‑income individual means a person whose household income is less than 150 percent of the federal poverty level. Services means cash assistance, medical care, child care, food, clothing, shelter or any other assistance that is reasonably necessary to meet immediate basic needs.
To be eligible for the credit, a taxpayer must have itemized deductions and deducted charitable contributions on a prior year’s state tax return at least once. This is necessary in order for the taxpayer to establish a “baseline” year and amount. The baseline year for many taxpayers is 1996. The credit is determined on the amounts over and above the baseline amount.
During the review of this income tax credit by the Joint Legislative Income Tax Credit Review Committee, the Committee recommended that the requirement to establish a base year be eliminated and a new certification process be established for charitable organizations to notify the Department of Revenue (DOR) in writing under penalty of perjury that it meets all requirements.
According to the Joint Legislative Budget Committee, the fiscal impact of this credit was $3.5 million in 2004. The fiscal impact could increase as more taxpayers may choose to use the credit.
Provisions
1. Eliminates the requirement for a taxpayer to establish a baseline year to calculate the individual income tax credit for contributions to organizations that provide assistance to the working poor.
2. Requires a qualifying charitable organization to provide written certification to DOR, under penalty of perjury, which must include:
a) verification that the organization is exempt from taxes under section 501(c)(3) of the Internal Revenue Code or verification that the organization is a designated community action agency that received Community Services Block Grants pursuant to Title 42 of the United States Code.
b) financial data indicating the organization’s budget for the prior year and the amount of that budget spent on services to residents of this state who receive TANF benefits or who are low-income residents of this state.
c) a statement that the organization will continue to spend at least 50 percent of its budget on services to residents of Arizona who receive TANF benefits or who are low-income residents of this state.
3. Requires DOR to review each written certification and determine if the organization meets the criteria to be considered a qualifying organization.
4. Requires DOR to notify those organizations that qualify.
5. Allows DOR to periodically request recertification from an organization.
6. Requires all charitable organizations that have previously submitted a written certification to DOR to resubmit another written certification to DOR that includes the following:
a) verification that the organization is exempt from taxes under section 501(c)(3) of the Internal Revenue Code or verification that the organization is a designated community action agency that received Community Services Block Grants pursuant to Title 42 of the United States Code.
b) a statement that the organization will continue to spend at least 50 percent of its budget on services to residents of this state who receive TANF benefits or who are low-income residents of this state.
c) financial data indicating the organizations budget for the prior year and the amount of that budget spent on services to residents of this state who receive TANF benefits or who are low-income residents of this state.
7. Requires DOR to review each written certification and determine if the organization meets the criteria to be considered a qualifying organization.
8. Requires DOR to notify organizations of its decision regarding qualifications.
9. Disqualifies any organization that does not resubmit a written certification and requires DOR to remove the organization from DOR’s published list of qualified organizations.
10. Allows an organization that is removed from the list to submit written certification for consideration as a qualified organization.
11. Makes technical changes.
12. Becomes effective January 1, 2007.
House Action
WM 1/23/06 DPA 9-0-0-0
APPROP (B) 2/7/06 DPA 13-0-0-2
3rd Read 3/13/06 60-0-0-0
Prepared by Senate Research
March 21, 2006
SL/HG/jas