---------- DOCUMENT HEADER ---------- ---------- DOCUMENT HEADER ---------- BILL #   HB 2332	TITLE: qualifying charitable organization credit;                       certification
SPONSOR:   Montenegro	STATUS: As Introduced
PREPARED BY:     Benjamin Beutler

Description

The bill will allow donations to charities that allocate 100% of their budget within a specific program area to the working poor to qualify for the working poor tax credit. 

Estimated Impact

JLBC Staff has limited means to estimate this bill’s impact on the General Fund.  Using the information available to us, we estimate the impact on the General Fund could be in the tens of millions.

The Arizona Department of Revenue believes that the bill could have a significant impact.

Analysis

The working poor tax credit allows individuals to claim up to $200 annually, or $400 for a joint return, of donations to qualifying charities dollar-for-dollar against the state income tax.  Qualifying charities must devote 50% of revenues to low-income individuals in order for their donors to qualify for the working poor tax credit.  The current value of the working poor tax credit is about $18 million.

Under this legislation, a charitable organization's donors would also qualify for the working poor tax credit if all of the resources in a particular program area provide services to the working poor.  We assume the legislation’s intent is to limit the credit to donations specifically given to the low-income component of a charity, not to the charity generally.  The impact of removing the 50% requirement is to allow a credit for any “low-income” charitable donation.

We estimate total charitable low-income giving above that currently claimed for the tax credit at $158 million.  Based on federal income tax data, itemized Arizona charitable cash contributions for 2010 equaled approximately $2.2 billion.  A 2007 study about charitable contributions in the United States estimated that about 8% of households’ charitable contributions, or $176 million, which includes the $18 million currently claimed, was for low-income individuals.  To the extent that the $176 million figure includes donations from foundations, corporation, and estates, the amount could be an overestimate of the universe of eligible cash contributions.  The $176 million figure only includes contributions for basic needs, however, and excludes other charitable low-income giving, such as medical treatment, scholarships, literacy, and job training.  As a result, the $176 million figure could underestimate eligible giving.

Eliminating the requirement that 50% of a charity’s revenue goes to the working poor would allow all low-income donations to qualify for this credit, not just the $18 million currently claimed for the credit.  The $158 million amount would only be limited by the $200 person/$400 couple cap.  JLBC Staff lack a means of determining how much of the $158 million consists of donations less than the current $200 person/$400 couple cap.  Nonetheless, the impact could be sizeable and be in the tens of millions. 

Local Government Impact

The Urban Revenue Sharing (URS) formula distributes 15% of income tax collected 2 years prior to incorporated cities and towns, so any reductions in income tax collections from the bill will affect URS distributions starting in FY 2016. 

3/7/13