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BILL # SB 1172 |
TITLE: qualifying charitable credit; itemizing deductions |
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SPONSOR: Yarbrough |
STATUS: Senate Engrossed |
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PREPARED BY: Benjamin Beutler |
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The bill removes the requirement that a taxpayer itemize deductions in order to claim the working poor tax credit.
Estimated Impact
JLBC Staff estimates this bill will reduce individual income tax revenue annually by $(18.0) million beginning in FY 2014.
The Arizona Department of Revenue’s (DOR) cost estimate for this bill is $(4.5) million to $(19.0) million annually.
The impact of the bill depends on behavioral responses of taxpayers to the proposed changes of the credit, which are difficult to predict with certainty.
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. According to data provided by DOR, the credit was claimed by 61,602 taxpayers in tax year 2010 and 66,396 taxpayers in tax year 2011, for a total of $16.7 million and $18.0 million credits used, respectively. The average credit was $271 in tax years 2010 and 2011.
A 2007 study estimated total nationwide charitable giving specifically for low-income individuals at $77.3 billion. JLBC Staff estimate Arizona’s portion of total charitable low-income giving at $1.5 billion. The amount of the $1.5 billion eligible for the tax credit would be limited by the $200 person/$400 couple cap and the requirement that the donations be for qualifying charities.
Using Internal Revenue Service data, the number of taxpayers in Arizona that itemize their deductions is estimated at 35%. Although only about 3% of Arizona taxpayers currently itemize their deductions and claim the charitable tax credit, JLBC Staff believe that the working poor tax credit’s utilization could double under this bill, or increase by $18.0 million, especially given Arizona’s sizable amount of charitable low-income giving ($1.5 billion) and the large majority taking the standard deduction (65%).
DOR estimates this bill to have a General Fund cost of between $4.5 million to $19.0 million annually. This estimate is partially based on the growth in the number of claimants for the tax credit from tax year 2008 to tax year 2009, which is when the requirement that a baseline year be established for determining eligibility for the credit was removed.
Local Government Impact
Each year, incorporated cities and towns receive 15% of income tax collections from 2 years prior. This bill would reduce local government distribution by $(2.7) million beginning in FY 2016.
2/21/13