ARIZONA STATE SENATE
Forty-eighth Legislature, First Regular Session
FACT SHEET FOR S.B. 1024
corporate income tax; sales factor
Purpose
Allows a multistate corporation located outside of nonattainment Area A or Area B to elect a sales factor only apportionment formula for corporate income tax purposes.
Background
Corporations doing business in more than one state must apportion income for state income tax purposes. Each apportionment formula may include three factors: payroll, property and sales. Arizona statute, like other states, requires an apportionment formula for corporations that have income from both in and outside of the state in order to determine the amount of income that is attributable to Arizona.
Prior to 1991, Arizona employed an evenly weighted three-factor approach. In 1991, Arizona adopted a double-weighted sales factor apportionment formula. Laws 2005, Chapter 289, enacted an optional corporate income tax apportionment formula for multistate and multinational corporations if one or more capital investment projects totaling $1 billion, either individually or collectively, are announced after June 1, 2005, and commenced by December 15, 2007. If these conditions are met, any multistate or multinational corporation may elect to use the current double-weighted sales factor or an 80 percent sales factor formula, phased in over three years, beginning tax year 2007. The Joint Legislative Budget Committee (JLBC) reported on January 18, 2006, that the Intel Corporation met the conditional requirements and began construction of a $3 billion project known as “Fab 32” at its Ocotillo Campus in Chandler on August 2, 2005.
The United States Environmental Protection Agency (EPA) sets national standards for common air pollutants. The EPA primary standard sets forth the maximum allowable amount of a pollutant, and this standard is designed to protect human health. A geographic area that does not meet the primary standard for an air pollutant is designated as a nonattainment area by the EPA.
Since the mid 1970s, various parts of Arizona have been declared nonattainment areas by the EPA. These areas have not met EPA primary standards for air pollutants such as particulate matter, sulfur dioxide and carbon monoxide. The EPA has designated the Phoenix (Area A) and Tucson (Area B) areas as nonattainment areas for vehicle emissions. Area A includes portions of Maricopa, Pinal and Yavapai counties. Area B includes portions of Pima County, excluding the Coronado National Forest and the Saguaro National Park.
S.B. 1024 will likely result in lower state General Fund revenues due to decreased corporate income tax collections.
Provisions
1. Allows multistate corporations located outside of nonattainment Area A or Area B to elect an apportionment formula using a double-weighted sales factor or a 100 percent sales factor formula for corporate income tax purposes.
2. Becomes effective on January 1, 2008.
Prepared by Senate Research
January 8, 2007
SL/jas