HB2608 - 522R

Be it enacted by the Legislature of the State of Arizona:

Section 1. Section 15-2401, Arizona Revised Statutes, is amended to read:

START_STATUTE15-2401. Definitions

In this chapter, unless the context otherwise requires:

1. "Curriculum" means a complete course of study for a particular content area or grade level, including any supplemental materials required by the curriculum.

2. "Department" means the department of education.

3. "Eligible postsecondary institution" means a community college as defined in section 15‑1401, a university under the jurisdiction of the Arizona board of regents or an accredited private postsecondary institution.

4. "Parent" means a resident of this state who is the parent or legal guardian of a qualified student.

5. "Qualified school" means a nongovernmental primary or secondary school or a preschool for pupils with disabilities that is located in this state and that does not discriminate on the basis of race, color or national origin.

6. "Qualified student" means a resident of this state who:

(a) Is any of the following:

(i) Identified as having a disability under section 504 of the rehabilitation act of 1973 (29 United States Code section 794).

(ii) Identified by a school district or by an independent third party pursuant to section 15‑2403, subsection I as a child with a disability as defined in section 15‑761.

(iii) A child with a disability who is eligible to receive services from a school district under section 15‑763.

(iv) Attending a school or school district that has been assigned a letter grade of D or F pursuant to section 15‑241 or who is currently eligible to attend kindergarten and who resides within the attendance boundary of a school that has been assigned a letter grade of D or F pursuant to section 15‑241.

(v) A previous recipient of a scholarship issued pursuant to section 15‑891 or this section.

(vi) A child of a parent who is a member of the armed forces of the United States and who is on active duty or was killed in the line of duty. A child who meets the requirements of this item is not subject to subdivision (b) of this paragraph.

(vii) A child with a guardian who is a member of the armed forces of the United States and who is on active duty or was killed in the line of duty. A child who meets the requirements of this item is not subject to subdivision (b) of this paragraph.

(viii) A child who is a ward of the juvenile court and who is residing with a prospective permanent placement pursuant to section 8‑862 and the case plan is adoption or permanent guardianship.

(ix) A child who was a ward of the juvenile court and who achieved permanency through adoption or permanent guardianship.

(x) A child who is the sibling of a current or previous empowerment scholarship account recipient.

(xi) A child who resides within the boundaries of an Indian reservation in this state.

(b) And, except as provided in subdivision (a), items (vi) and (vii) of this paragraph, who meets any of the following requirements:

(i) Attended a governmental primary or secondary school as a full‑time student as defined in section 15‑901 for at least the first one hundred days of the prior fiscal year and who transferred from a governmental primary or secondary school under a contract to participate in an empowerment scholarship account.

(ii) Previously participated in the empowerment scholarship account program.

(iii) Received a scholarship under section 43‑1505 and who continues to attend a qualified school if the student attended a governmental primary or secondary school as a full‑time student as defined in section 15‑901 for at least ninety days of the prior fiscal year or one full semester prior to attending a qualified school.

(iv) Was eligible for an Arizona scholarship for pupils with disabilities and received monies from a school tuition organization the department of revenue pursuant to section 43‑1505 or received an Arizona scholarship for pupils with disabilities but did not receive monies from a school tuition organization the department of revenue pursuant to section 43‑1505 and who continues to attend a qualified school if the student attended a governmental primary or secondary school as a full‑time student as defined in section 15-901 for at least ninety days of the prior fiscal year or one full semester prior to attending a qualified school.

(v) Has not previously attended a governmental primary or secondary school but is currently eligible to enroll in a kindergarten program in a school district or charter school in this state.

(vi) Has not previously attended a governmental primary or secondary school but is currently eligible to enroll in a program for preschool children with disabilities in this state.

7. "Treasurer" means the office of the state treasurer. END_STATUTE

Sec. 2. Section 15-2402, Arizona Revised Statutes, is amended to read:

START_STATUTE15-2402. Arizona empowerment scholarship accounts; funds

A. Arizona empowerment scholarship accounts are established to provide options for the education of students in this state.

B. To enroll a qualified student for an empowerment scholarship account, the parent of the qualified student must sign an agreement to do all of the following:

1. Use a portion of the empowerment scholarship account monies allocated each quarter to provide an education for the qualified student in at least the subjects of reading, grammar, mathematics, social studies and science, unless the empowerment scholarship account is allocated monies according to a transfer schedule other than quarterly transfers pursuant to section 15‑2403, subsection F.

2. Not enroll the qualified student in a school district or charter school and release the school district from all obligations to educate the qualified student. This paragraph does not relieve the school district or charter school that the qualified student previously attended from the obligation to conduct an evaluation pursuant to section 15‑766.

3. Not accept a scholarship from a school tuition organization the department of revenue pursuant to title 43 concurrently with an empowerment scholarship account for the qualified student in the same year a parent signs the agreement pursuant to this section.

4. Use the money deposited in the qualified student's Arizona empowerment scholarship account only for the following expenses of the qualified student:

(a) Tuition or fees at a qualified school.

(b) Textbooks required by a qualified school.

(c) Educational therapies or services from a licensed or accredited practitioner or provider, including licensed or accredited paraprofessionals or educational aides, if the qualified student meets any of the criteria specified in section 15‑2401, paragraph 6, subdivision (a), item (i), (ii) or (iii) as determined by a school district or by an independent third party pursuant to section 15‑2403, subsection I.

(d) Tutoring or teaching services provided by an individual or facility accredited by a state, regional or national accrediting organization.

(e) Curriculum Curricula.

(f) Tuition or fees for a nonpublic online learning program.

(g) Fees for a nationally standardized norm-referenced achievement test, an advanced placement examination or any exams related to college or university admission.

(h) Contributions to a Coverdell education savings account established pursuant to 26 United States Code section 530 for the benefit of the qualified student, except that money used for elementary or secondary education expenses must be for expenses otherwise allowed under this section.

(i) Tuition or fees at an eligible postsecondary institution.

(j) Textbooks required by an eligible postsecondary institution.

(k) Fees for management of the empowerment scholarship account by firms selected by the treasurer.

(l) Services provided by a public school, including individual classes and extracurricular programs.

(m) Insurance or surety bond payments as required by the department of education.

5. Not file an affidavit of intent to homeschool pursuant to section 15‑802, subsection B, paragraph 2 or 3.

6. Not use monies deposited in the qualified student's account for any of the following:

(a) Computer hardware or other technological devices.

(b) Transportation of the pupil.

C. In exchange for the parent's agreement pursuant to subsection B of this section, the department shall transfer from the monies that would otherwise be allocated to a recipient's prior school district, or if the child is currently eligible to attend kindergarten, the monies that the department determines would otherwise be allocated to a recipient's expected school district of attendance, to the treasurer for deposit into an Arizona empowerment scholarship account an amount that is equivalent to ninety per cent percent of the sum of the base support level and additional assistance prescribed in sections 15‑185 and 15‑943 for that particular student if that student were attending a charter school. The department may retain up to five per cent percent of the sum of the base support level and additional assistance prescribed in sections 15‑185 and 15‑943 for each student with an empowerment scholarship account for deposit in the department of education empowerment scholarship account fund established in subsection D of this section, out of which the department shall transfer one per cent percent of the sum of the base support level and additional assistance prescribed in sections 15‑185 and 15‑943 for each student with an empowerment scholarship account to the state treasurer for deposit in the state treasurer empowerment scholarship account fund established in subsection E of this section.

D. The department of education empowerment scholarship account fund is established consisting of monies retained by the department pursuant to subsection C of this section. The department shall administer the fund. Monies in the fund are subject to legislative appropriation. Monies in the fund shall be used for the department's costs in administering empowerment scholarship accounts under this chapter. Monies in the fund are exempt from the provisions of section 35‑190 relating to lapsing of appropriations. If the number of empowerment scholarship accounts significantly increases after fiscal year 2012‑2013, the department may request an increase in the amount appropriated to the fund in any subsequent fiscal year in the budget estimate submitted pursuant to section 35‑113.

E. The state treasurer empowerment scholarship account fund is established consisting of monies transferred by the department to the state treasurer pursuant to subsection C of this section. The state treasurer shall administer the fund. Monies in the fund shall be used for the state treasurer's costs in administering the empowerment scholarship accounts under this chapter. If the number of empowerment scholarship accounts significantly increases after fiscal year 2013‑2014, the state treasurer may request an increase in the amount appropriated to the fund in any subsequent fiscal year in the budget estimate submitted pursuant to section 35‑113. Monies in the fund are subject to legislative appropriation. Monies in the fund are exempt from the provisions of section 35‑190 relating to lapsing of appropriations.

F. A parent must renew the qualified student's empowerment scholarship account on an annual basis. Notwithstanding any changes to the student's multidisciplinary evaluation team plan, a student who has previously qualified for an empowerment scholarship account shall remain eligible to apply for renewal until the student finishes high school.

G. A signed agreement under this section constitutes school attendance required by section 15‑802.

H. A qualified school or a provider of services purchased pursuant to subsection B, paragraph 4 of this section may not share, refund or rebate any Arizona empowerment scholarship account monies with the parent or qualified student in any manner.

I. On the qualified student's graduation from a postsecondary institution or after any period of four consecutive years after high school graduation in which the student is not enrolled in an eligible postsecondary institution, the qualified student's Arizona empowerment scholarship account shall be closed and any remaining funds shall be returned to the state.

J. Monies received pursuant to this article do not constitute taxable income to the parent of the qualified student. END_STATUTE

Sec. 3. Section 20-224.06, Arizona Revised Statutes, is amended to read:

START_STATUTE20-224.06. Premium tax credit for contributions for school tuition; low-income scholarships

A. A credit is allowed against the premium tax liability incurred by an insurer pursuant to section 20‑224, 20‑837, 20‑1010, 20‑1060 or 20‑1097.07 for the amount of voluntary cash contributions made by the insurer during the tax year to a school tuition organization the department of revenue for the payment of school tuition as provided by section 43-1183 and title 43, chapter 15.

B. The amount of the credit is the total amount of the insurer's contributions for the tax year under subsection A of this section that is preapproved by the department of revenue pursuant to section 43‑1183, subsection D.

C. The procedures, conditions, limitations, definitions and other requirements prescribed by section 43‑1183 and title 43, chapter 15 apply to:

1. Insurers that claim a credit under this section.

2. Claims for credit under this section.

3. School tuition organizations that receive The department of revenue in receiving contributions from insurers for the purposes of this section.

4. Schools that qualify to receive scholarship monies contributed by insurers for the purposes of this section.

5. Students who receive scholarships from monies contributed by insurers for the purposes of this section.

D. If the allowable amount of a credit under this section exceeds the insurer's state premium tax liability, the amount of the claim not used to offset the premium tax liability may be carried forward as a credit against the insurer's subsequent years' premium tax liability for a period not to exceed five taxable years.

E. A credit is not allowed if the insurer designates the contribution for the direct benefit of any specific student.

F. An insurer that claims a tax credit against state premium tax liability is not required to pay any additional retaliatory tax imposed pursuant to section 20‑230 as a result of claiming that tax credit.

G. The department of insurance, with the cooperation of the department of revenue, shall adopt rules and publish and prescribe forms and procedures necessary for the administration of this section. END_STATUTE

Sec. 4. Section 20-224.07, Arizona Revised Statutes, is amended to read:

START_STATUTE20-224.07. Premium tax credit for contributions for school tuition; displaced students and students with disabilities

C. The procedures, conditions, limitations, definitions and other requirements prescribed by section 43‑1184 and title 43, chapter 15 apply to:

1. Insurers that claim a credit under this section.

2. Claims for credit under this section.

3. School tuition organizations that receive The department of revenue in receiving contributions from insurers for the purposes of this section.

4. Qualified schools that participate under this section.

5. Students who receive scholarships from monies contributed by insurers for the purposes of this section.

E. A credit is not allowed if the insurer designates the contribution for the direct benefit of any specific student.

G. The department of insurance, with the cooperation of the department of revenue, shall adopt rules necessary for the administration of this section. END_STATUTE

Sec. 5. Section 42-2001, Arizona Revised Statutes, is amended to read:

START_STATUTE42-2001. Definitions

In this article, unless the context otherwise requires:

1. "Confidential information":

(a) Includes the following information whether it concerns individual taxpayers or is aggregate information for specifically identified taxpayers:

(i) Returns and reports filed with the department for income tax, withholding tax, transaction privilege tax, luxury tax, use tax, property tax and severance tax.

(ii) Applications for transaction privilege licenses, luxury tax licenses, use tax licenses and withholding licenses.

(iii) Information discovered concerning taxes and receipts by the department, whether or not by compulsory process.

(iv) Return information obtained from the United States internal revenue service and United States bureau of alcohol, tobacco and firearms.

(v) Information that is supplied at the special request of the department by a taxpayer which and that the taxpayer requests to be held in confidence.

(vi) Guidelines, standards or procedures that are established by the department for, or other information relating to, selecting returns or taxpayers for examination or settling or compromising any tax liability.

(vii) A taxpayer's identity, the nature, source or amount of the taxpayer's income, payments, receipts, deductions, exemptions, credits, assets, liabilities, net worth, tax liability, tax withheld, deficiencies, overassessments or tax payments, whether the taxpayer's return was, is being or will be examined or subject to investigation, collection or processing or any other data received by, recorded by, prepared by, furnished to or collected by the department with respect to a return or with respect to the termination, or possible existence, of liability of any person for any tax, penalty or interest imposed pursuant to this title or title 43.

(viii) Information supplied by an employee to an employer regarding the employee's election to have the employee's withholding tax reduced for the purposes of contributions to qualifying charitable organizations, qualified school tuition organizations the department or public schools pursuant to section 43‑401, subsection G.

(b) Does not include information that is otherwise a public record.

2. "Report" includes a notice of insurance payments, a request for a release of a bank account and an inventory of a safe deposit box.

3. "Return" includes any form prescribed by the department and any supporting schedules, attachments and lists.

4. "Tax administration" includes assessment, collection, investigation, litigation, statistical gathering functions, enforcement, policy making functions or management of those functions of the tax revenue laws of this state.

5. "Taxpayer", with respect to a joint return, means either party. END_STATUTE

Sec. 6. Section 43-401, Arizona Revised Statutes, is amended to read:

START_STATUTE43-401. Withholding tax; rates; election by employee

A. Except as provided by subsections B and H of this section, every employer at the time of the payment of wages, salary, bonus or other emolument to any employee whose compensation is for services performed within this state shall deduct and retain from the compensation an amount prescribed by tables adopted by the department.

B. An employer may voluntarily elect to not withhold tax during December by notifying:

1. The department on a form prescribed by the department.

2. The employer's employees in writing in a manner prescribed by the department.

C. If the amount collected and payable by the employer to the department in each of the preceding four calendar quarters did not exceed an average of one thousand five hundred dollars, the amount collected shall be paid to the department on or before April 30, July 31, October 31 and January 31 for the preceding calendar quarter. If such amount exceeded one thousand five hundred dollars in each of the preceding four calendar quarters, the employer shall pay to the department the amount the employer deducts and retains pursuant to this section at the same time as the employer is required to make deposits of federal tax pursuant to section 6302 of the internal revenue code. On or before April 30, July 31, October 31 and January 31 each year, the employer shall reconcile the amounts payable during the preceding calendar quarter in a manner prescribed by the department, except that if the full amount collected and payable is paid timely to the department under this subsection, the employer may reconcile the amounts on or before May 10, August 10, November 10 and February 10 each year. The department by rule may allow and determine which employers qualify for annual payments of withholding taxes, with an annual report by the employer pursuant to section 43‑412, subsection B, if the qualifying employer has established sufficient payment history to indicate that the employer is current and in good standing pursuant to standards established by rule. For any business which that has not had a withholding certificate for the four preceding consecutive quarters, the quarterly average shall be computed in a manner prescribed by the department.

D. If an employer fails to make a timely monthly payment because prior to that reporting period it reported on a quarterly basis instead of on a monthly basis, the department shall notify the employer that it is out of compliance with this section. Notwithstanding section 42‑1125, the department shall not assess a penalty against an employer for failing to make a timely monthly payment if the employer had filed and remitted all taxes due on a quarterly basis and brings all filings and payments into current compliance within thirty days after being notified by the department.

E. Each employee shall elect the amount authorized by subsection A of this section to be withheld for application toward the employee's state income tax liability. The election provided under this subsection shall be exercised by each employee, in writing on a form prescribed by the department. The election shall be made within five days of employment. Each employer shall notify the employees of the election made available under this subsection and shall have election forms available at all times. Each form shall be completed in triplicate, with one copy each for the department, the employer and the employee. The employer shall file a copy of each completed form with the department. Any employee failing to complete an election form as prescribed shall be deemed to have elected the withholding percentage prescribed by the department.

F. Before July 1 of each year, each employer who chooses to not withhold tax pursuant to subsection B of this section shall notify each employee that:

1. State income taxes will not be withheld from compensation in December.

2. The employee may elect to change the rate of withholding tax prescribed by this section to compensate for the resulting change in annual withholdings from the employee's compensation.

G. At an employee's written request, the employer may agree to reduce the amount withheld under this section by the amount of credit that the employee represents to the employer that the employee will qualify for and be entitled to under sections 43‑1088, 43‑1089, 43‑1089.01 and 43‑1089.03. The employee's request must include the name and address of the any qualifying charitable organization, qualified school tuition organization or public school. Within thirty days after agreeing to the employee's request, the employer shall reduce the withholding amount by the amount of the credit, but not below zero, prorated for the number of pay periods remaining in the employee's taxable year after the employee makes the request. If an employer agrees to reduce the withholding amount pursuant to this subsection, the following apply:

1. Within fifteen days after the end of each calendar quarter, the employer must pay the entire amount of the reduction in withholding tax for that quarter to the designated charitable organization, school tuition organization or the public school or, in the case of contributions for school tuition under section 43-1089 or 43-1089.03, the department. These payments are considered to be on the employee's behalf, and not the employer's, for the purposes of qualifying for the income tax credits under sections 43‑1088, 43‑1089, 43‑1089.01 and 43‑1089.03.

2. The employee is responsible and accountable for the accuracy and the amount of reduction in withholding tax and the payments to the charitable organization, school tuition organization or public school or department.

3. The employer is responsible and accountable to the charitable organization, school tuition organization or public school, to the employee and to the department for actually making the required payments.

4. Within thirty days after the end of each calendar year, or within fifteen days after the termination of employment, the employer must furnish to each electing employee and to the department a statement of the amount withheld and paid on behalf of the employee during that year.

H. An employer shall not withhold tax on the wages of the employer's nonresident employees who are in this state on a temporary basis for the purpose of performing disaster recovery from a declared disaster during a disaster period as defined in section 42‑1130. END_STATUTE

Sec. 7. Section 43-1089, Arizona Revised Statutes, is amended to read:

START_STATUTE43-1089. Credit for contributions for school tuition

A. A credit is allowed against the taxes imposed by this title for the amount of voluntary cash contributions by the taxpayer or on the taxpayer's behalf pursuant to section 43‑401, subsection G during the taxable year to a school tuition organization that is certified pursuant to the department for the purposes of chapter 16 of this title at the time of donation. Except as provided by subsection C of this section, the amount of the credit shall not exceed:

1. Five hundred dollars in any taxable year for a single individual or a head of household.

2. One thousand dollars in any taxable year for a married couple filing a joint return.

B. A husband and wife who file separate returns for a taxable year in which they could have filed a joint return may each claim only one‑half of the tax credit that would have been allowed for a joint return.

C. For each taxable year beginning on or after January 1, the department shall adjust the dollar amounts prescribed by subsection A, paragraphs 1 and 2 of this section according to the average annual change in the metropolitan Phoenix consumer price index published by the United States bureau of labor statistics, except that the dollar amounts shall not be revised downward below the amounts allowed in the prior taxable year. The revised dollar amounts shall be raised to the nearest whole dollar.

D. If the allowable tax credit exceeds the taxes otherwise due under this title on the claimant's income, or if there are no taxes due under this title, the taxpayer may carry the amount of the claim not used to offset the taxes under this title forward for not more than five consecutive taxable years' income tax liability.

E. The credit allowed by this section is in lieu of any deduction pursuant to section 170 of the internal revenue code and taken for state tax purposes.

F. The tax credit is not allowed if the taxpayer designates the taxpayer's contribution to the school tuition organization for the direct benefit of any dependent of the taxpayer or if the taxpayer designates a student beneficiary as a condition of the taxpayer's contribution to the school tuition organization. The tax credit is not allowed if the taxpayer, with the intent to benefit the taxpayer's dependent, agrees with one or more other taxpayers to designate each taxpayer's contribution to the school tuition organization for the direct benefit of the other taxpayer's dependent.

G. For the purposes of this section, a contribution, for which a credit is claimed, that is made on or before the fifteenth day of the fourth month following the close of the taxable year may be applied to either the current or preceding taxable year and is considered to have been made on the last day of that taxable year. END_STATUTE

Sec. 8. Section 43-1089.03, Arizona Revised Statutes, is amended to read:

START_STATUTE43-1089.03. Credit for contributions for school tuition

A. A credit is allowed against the taxes imposed by this title for the amount of voluntary cash contributions by the taxpayer or on the taxpayer's behalf pursuant to section 43‑401, subsection I G during the taxable year to a school tuition organization that is certified pursuant to chapter 16 of this title at the time of donation the department for the purposes of section 43-1603, subsection E. Except as provided by subsection C of this section, the amount of the credit shall not exceed:

1. Five hundred dollars in any taxable year for a single individual or a head of household.

2. One thousand dollars in any taxable year for a married couple filing a joint return.

B. A husband and wife who file separate returns for a taxable year in which they could have filed a joint return may each claim only one-half of the tax credit that would have been allowed for a joint return.

C. For each taxable year beginning on or after January 1, the department shall adjust the dollar amounts prescribed by subsection A, paragraphs 1 and 2 of this section according to the average annual change in the metropolitan phoenix consumer price index published by the United States bureau of labor statistics, except that the dollar amounts shall not be revised downward below the amounts allowed in the prior taxable year. The revised dollar amounts shall be raised to the nearest whole dollar.

E. The credit allowed by this section is in lieu of any deduction pursuant to section 170 of the internal revenue code and taken for state tax purposes.

H. A taxpayer may not claim a credit under this section and also under section 43‑1089 with respect to the same contribution. If a taxpayer's contribution to a school tuition organization exceeds the amount of the credit allowed under section 43‑1089, a taxpayer may claim a credit under this section and also under section 43‑1089. If a taxpayer's contribution to a school tuition organization does not exceed the amount of the credit allowed by section 43‑1089, the contribution is considered to have been made pursuant to section 43‑1089. END_STATUTE

Sec. 9. Section 43-1089.04, Arizona Revised Statutes, is amended to read:

START_STATUTE43-1089.04. Pro rata credit for business contributions by S corporation for school tuition; definition

A. A credit is allowed against the taxes imposed by this title for the pro rata amount of contributions made by an S corporation to the department for the purposes of school tuition pursuant to section 43‑1183, subsection F or section 43‑1184, subsection F, or both. To qualify for the credit:

1. The aggregate contribution in the taxable year must be at least five thousand dollars.

2. All other requirements of section 43‑1183 or 43‑1184 and the applicable sections of chapter 15 of this title must be met.

B. Co-owners of the S corporation may each claim the pro rata share of the credit allowed under sections 43‑1183 and 43‑1184 based on the taxpayer's ownership interest. The total of the credits allowed all the owners of the corporation may not exceed the amount that would have been allowed a sole owner of the corporation.

C. If the allowable tax credit exceeds the taxes otherwise due under this title on the claimant's income, or if there are no taxes due under this title, the taxpayer may carry the amount of the claim not used to offset the taxes under this title forward for not more than five consecutive taxable years' income tax liability.

D. The credit allowed by this section is in lieu of any deduction pursuant to section 170 of the internal revenue code and taken for state tax purposes.

E. The tax credit is not allowed if the S corporation or a shareholder designates the contribution to the school tuition organization for the direct benefit of any dependent of a shareholder of the corporation claiming a credit under this section or if the corporation or a shareholder designates a student beneficiary as a condition of the contribution to the school tuition organization. The tax credit is not allowed if the corporation or a shareholder, with the intent to benefit a shareholder's dependent, agrees with one or more other taxpayers to designate reciprocal contributions to school tuition organizations for the direct benefit of the other taxpayer's dependent.

F. For the purposes of this section, "S corporation" or "corporation" means an S corporation as defined in section 1361 of the internal revenue code. END_STATUTE

Sec. 10. Section 43-1121, Arizona Revised Statutes, is amended to read:

START_STATUTE43-1121. Additions to Arizona gross income; corporations

In computing Arizona taxable income for a corporation, the following amounts shall be added to Arizona gross income:

1. The amount of interest income received on obligations of any state, territory or possession of the United States, or any political subdivision thereof, located outside this state, reduced, for tax years beginning from and after December 31, 1996, by the amount of any interest on indebtedness and other related expenses that were incurred or continued to purchase or carry those obligations and that are not otherwise deducted or subtracted in arriving at Arizona gross income.

2. The excess of a partner's share of partnership taxable income required to be included under chapter 14, article 2 of this title over the income required to be reported under section 702(a)(8) of the internal revenue code.

3. The excess of a partner's share of partnership losses determined pursuant to section 702(a)(8) of the internal revenue code over the losses allowable under chapter 14, article 2 of this title.

4. The amount by which the adjusted basis of property described in this paragraph and computed pursuant to the internal revenue code exceeds the adjusted basis of such property computed pursuant to this title and the income tax act of 1954, as amended. This paragraph applies to all property that is held for the production of income and that is sold or otherwise disposed of during the taxable year, except depreciable property used in a trade or business.

5. The amount of any depreciation allowance allowed pursuant to section 167(a) of the internal revenue code to the extent not previously added.

6. With respect to property for which an expense deduction was taken pursuant to section 179 of the internal revenue code in a taxable year beginning before January 1, 2013, the amount in excess of twenty-five thousand dollars.

7. The amount of discharge of indebtedness income that is deferred and excluded from the computation of federal taxable income in the current taxable year pursuant to section 108(i) of the internal revenue code as added by section 1231 of the American recovery and reinvestment act of 2009 (P.L. 111‑5).

8. The amount of any previously deferred original issue discount that was deducted in computing federal taxable income in the current year pursuant to section 108(i) of the internal revenue code as added by section 1231 of the American recovery and reinvestment act of 2009 (P.L. 111-5), to the extent that the amount was previously subtracted from Arizona gross income pursuant to section 43-1122, paragraph 8.

9. For taxable years beginning from and after December 31, 2011 through December 31, 2014, the amount of any deduction that is claimed in computing federal taxable income for health insurance premiums or contributions to a health savings account for which a credit is claimed under section 43‑1185.

10. The amount of dividend income received from corporations and allowed as a deduction pursuant to sections 243, 244 and 245 of the internal revenue code.

11. Taxes which that are based on income paid to states, local governments or foreign governments and which that were deducted in computing federal taxable income.

12. Expenses and interest relating to tax‑exempt income on indebtedness incurred or continued to purchase or carry obligations the interest on which is wholly exempt from the tax imposed by this title. Financial institutions, as defined in section 6‑101, shall be governed by section 43‑961, paragraph 2.

13. Commissions, rentals and other amounts paid or accrued to a domestic international sales corporation controlled by the payor corporation if the domestic international sales corporation is not required to report its taxable income to this state because its income is not derived from or attributable to sources within this state. If the domestic international sales corporation is subject to article 4 of this chapter, the department shall prescribe by rule the method of determining the portion of the commissions, rentals and other amounts which that are paid or accrued to the controlled domestic international sales corporation and which that shall be deducted by the payor. For the purposes of this paragraph, "control" means direct or indirect ownership or control of fifty per cent percent or more of the voting stock of the domestic international sales corporation by the payor corporation.

14. The amount of net operating loss taken pursuant to section 172 of the internal revenue code.

15. The amount of exploration expenses determined pursuant to section 617 of the internal revenue code to the extent that they exceed seventy‑five thousand dollars and to the extent that the election is made to defer those expenses not in excess of seventy‑five thousand dollars.

16. Amortization of costs incurred to install pollution control devices and deducted pursuant to the internal revenue code or the amount of deduction for depreciation taken pursuant to the internal revenue code on pollution control devices for which an election is made pursuant to section 43‑1129.

17. The amount of depreciation or amortization of costs of child care facilities deducted pursuant to section 167 or 188 of the internal revenue code for which an election is made to amortize pursuant to section 43‑1130.

18. The loss of an insurance company that is exempt under section 43‑1201 to the extent that it is included in computing Arizona gross income on a consolidated return pursuant to section 43‑947.

19. The amount by which the depreciation or amortization computed under the internal revenue code with respect to property for which a credit was taken under section 43‑1169 exceeds the amount of depreciation or amortization computed pursuant to the internal revenue code on the Arizona adjusted basis of the property.

20. The amount by which the adjusted basis computed under the internal revenue code with respect to property for which a credit was claimed under section 43‑1169 and which is sold or otherwise disposed of during the taxable year exceeds the adjusted basis of the property computed under section 43‑1169.

21. The amount by which the depreciation or amortization computed under the internal revenue code with respect to property for which a credit was taken under either section 43‑1170 or 43‑1170.01 exceeds the amount of depreciation or amortization computed pursuant to the internal revenue code on the Arizona adjusted basis of the property.

22. The amount by which the adjusted basis computed under the internal revenue code with respect to property for which a credit was claimed under either section 43‑1170 or 43‑1170.01 and which is sold or otherwise disposed of during the taxable year exceeds the adjusted basis of the property computed under section 43‑1170 or 43‑1170.01, as applicable.

23. The deduction referred to in section 1341(a)(4) of the internal revenue code for restoration of a substantial amount held under a claim of right.

24. The amount by which a capital loss carryover allowable pursuant to section 1341(b)(5) of the internal revenue code exceeds the capital loss carryover allowable pursuant to section 43‑1130.01, subsection F.

25. Any amount deducted in computing Arizona taxable income as expenses for installing solar stub outs or electric vehicle recharge outlets in this state with respect to which a credit is claimed pursuant to section 43‑1176.

26. Any wage expenses deducted pursuant to the internal revenue code for which a credit is claimed under section 43‑1175 and representing net increases in qualified employment positions for employment of temporary assistance for needy families recipients.

27. Any amount of expenses that were deducted pursuant to the internal revenue code and for which a credit is claimed under section 43‑1178.

28. The amount of any deduction that is claimed in computing Arizona gross income and that represents a donation of a school site for which a credit is claimed under section 43‑1181.

29. Any amount deducted pursuant to section 170 of the internal revenue code representing contributions to a school tuition organization the department for school tuition for which a credit is claimed under section 43‑1183 or 43‑1184. END_STATUTE

Sec. 11. Section 43-1183, Arizona Revised Statutes, is amended to read:

START_STATUTE43-1183. Credit for contributions for school tuition

A. Beginning from and after June 30, 2006, a credit is allowed against the taxes imposed by this title for the amount of voluntary cash contributions made by the taxpayer during the taxable year to a school tuition organization that is certified the department of revenue for school tuition purposes pursuant to chapter 15 of this title at the time of donation.

B. The amount of the credit is the total amount of the taxpayer's contributions for the taxable year under subsection A of this section and is preapproved by the department of revenue pursuant to subsection D of this section.

C. The department of revenue:

1. Shall not allow tax credits accept contributions under this section and section 20‑224.06 that exceed in the aggregate a combined total of ten million dollars in any fiscal year. Beginning in fiscal year 2007‑2008, the aggregate dollar amount of the tax credit contribution cap from the previous fiscal year shall be annually increased by twenty percent.

2. Shall preapprove tax credits under this section and section 20‑224.06 subject to subsection D of this section.

3. Shall allow the tax credits under this section and section 20‑224.06 on a first come, first served basis.

D. For the purposes of subsection C, paragraph 2 of this section, before making a contribution to a school tuition organization, the taxpayer under this title or title 20 must notify the school tuition organization department of revenue of the total amount of contributions that the taxpayer intends to make to the school tuition organization. Before accepting the contribution, the school tuition organization shall request preapproval from the department of revenue for and request preapproval of the taxpayer's intended contribution amount. The department of revenue shall preapprove or deny the requested amount within twenty days after receiving the request from the school tuition organization. If the department of revenue preapproves the request, the school tuition organization department of revenue shall immediately notify the taxpayer, and the department of insurance in the case of a credit under section 20‑224.06, that the requested amount was preapproved by the department of revenue. In order to receive a tax credit under this subsection, the taxpayer shall make the contribution to the school tuition organization department of revenue within twenty days after receiving notice from the school tuition organization that the requested amount was preapproved of preapproval. If the school tuition organization department of revenue does not receive the preapproved contribution from the taxpayer within the required twenty days, the school tuition organization shall immediately notify the department of revenue shall immediately notify the taxpayer, and the department of insurance in the case of a credit under section 20‑224.06, of the failure, and the department of revenue shall no longer include this preapproved contribution amount when calculating the limit prescribed in subsection C, paragraph 1 of this section.

E. If the allowable tax credit exceeds the taxes otherwise due under this title on the claimant's income, or if there are no taxes due under this title, the taxpayer may carry the amount of the claim not used to offset the taxes under this title forward for not more than five consecutive taxable years' income tax liability.

F. Co-owners of a business, including corporate partners in a partnership and stockholders of an S corporation as defined in section 1361 of the internal revenue code, may each claim only the pro rata share of the credit allowed under this section based on the ownership interest. The total of the credits allowed all such owners may not exceed the amount that would have been allowed a sole owner.

G. The credit allowed by this section is in lieu of any deduction pursuant to section 170 of the internal revenue code and taken for state tax purposes.

H. A taxpayer shall not claim a credit under this section and also under section 43‑1184 with respect to the same contribution.

I. The tax credit is not allowed if the taxpayer designates the taxpayer's contribution to the school tuition organization for the direct benefit of any specific student.

J. The department of revenue, with the cooperation of the department of insurance, shall adopt rules and publish and prescribe forms and procedures necessary for the administration of this section. END_STATUTE

Sec. 12. Section 43-1184, Arizona Revised Statutes, is amended to read:

START_STATUTE43-1184. Credit for contributions for school tuition; displaced students; students with disabilities

A. Beginning from and after June 30, 2009, a credit is allowed against the taxes imposed by this title for the amount of voluntary cash contributions made by the taxpayer during the taxable year to a school tuition organization that is certified the department of revenue for school tuition purposes pursuant to chapter 15 of this title at the time of donation.

C. The department of revenue:

1. Shall not allow tax credits accept contributions under this section and section 20‑224.07 that exceed in the aggregate a combined total of five million dollars in any fiscal year.

2. Shall preapprove tax credits under this section and section 20‑224.07 subject to subsection D of this section.

3. Shall allow the tax credits under this section and section 20‑224.07 on a first come, first served basis.

D. For the purposes of subsection C, paragraph 2 of this section, before making a contribution to a school tuition organization, the taxpayer under this title or title 20 must notify the school tuition organization department of revenue of the total amount of contributions that the taxpayer intends to make to the school tuition organization. Before accepting the contribution, the school tuition organization shall request preapproval from the department of revenue for and request preapproval of the taxpayer's intended contribution amount. The department of revenue shall preapprove or deny the requested amount within twenty days after receiving the request from the school tuition organization. If the department of revenue preapproves the request, the school tuition organization department of revenue shall immediately notify the taxpayer, and the department of insurance in the case of a credit under section 20-224.07, that the requested amount was preapproved by the department of revenue. In order to receive a tax credit under this subsection, the taxpayer shall make the contribution to the school tuition organization department of revenue within twenty days after receiving notice from the school tuition organization that the requested amount was preapproved of preapproval. If the school tuition organization department of revenue does not receive the preapproved contribution from the taxpayer within the required twenty days, the school tuition organization shall immediately notify the department of revenue shall immediately notify the taxpayer, and the department of insurance in the case of a credit under section 20-224.07, of the failure, and the department shall no longer include this preapproved contribution amount when calculating the limit prescribed in subsection C, paragraph 1 of this section.

G. The credit allowed by this section is in lieu of any deduction pursuant to section 170 of the internal revenue code and taken for state tax purposes.

H. A taxpayer shall not claim a credit under this section and also under section 43‑1183 with respect to the same contribution.

I. The tax credit is not allowed if the taxpayer designates the taxpayer's contribution to the school tuition organization for the direct benefit of any specific student.

J. The department of revenue shall adopt rules necessary for the administration of this section. END_STATUTE

Sec. 13. Heading change

The chapter heading of title 43, chapter 15, Arizona Revised Statutes, is changed from "SCHOOL TUITION ORGANIZATIONS FOR CORPORATE CONTRIBUTIONS" to "CORPORATE TAXPAYER CONTRIBUTIONS FOR SCHOOL TUITION".

Sec. 14. Repeal

Section 43-1502, Arizona Revised Statutes, is repealed.

Sec. 15. Section 43-1503, Arizona Revised Statutes, is amended to read:

START_STATUTE43-1503. Operational requirements for school tuition income tax credits

A. A certified school tuition organization must be established to The department of revenue shall:

1. Receive contributions from taxpayers for the purposes of income tax credits under sections 43‑1183 and 43‑1184 and insurance premium tax credits under sections 20‑224.06 and 20‑224.07. and to

2. Pay educational scholarships or tuition grants to allow students to attend any qualified school of their parents' or custodians' choice.

B. To be eligible for certification and retain certification, the school tuition organization:

1. 3. Must Allocate at least ninety ninety-five percent of its the annual revenue from contributions made for the purposes of sections 20‑224.06, 20‑224.07, 43‑1183 and 43‑1184 for educational scholarships or tuition grants. The department may retain up to five percent of the annual revenue, which is continuously appropriated to the department exclusively for the costs of administering the school tuition program.

2. 4. Shall Not limit the availability of educational scholarships or tuition grants to only students of one school.

3. 5. Must allow the department of revenue to Verify that the educational scholarships and tuition grants that are issued are awarded to students who attend a qualified school.

4. Must not knowingly collude with any other school tuition organization to circumvent the limits of section 43‑1504, subsection C.

5. 6. Must Not award educational scholarships or tuition grants to students who are simultaneously enrolled in a district school or charter school and a qualified school.

6. 7. Shall Include on the organization's department's website, if one exists, the percentage and total dollar amount of educational scholarships and tuition grants awarded during the previous fiscal year to:

(a) Students whose family income meets the economic eligibility requirements established under the national school lunch and child nutrition acts (42 United States Code sections 1751 through 1785) for free or reduced‑price lunches.

(b) Students whose family income exceeds the threshold prescribed by subdivision (a) of this paragraph but does not exceed one hundred eighty‑five percent of the economic eligibility requirements established under the national school lunch and child nutrition acts (42 United States Code sections 1751 through 1785) for free or reduced‑price lunches. END_STATUTE

Sec. 16. Section 43-1504, Arizona Revised Statutes, is amended to read:

START_STATUTE43-1504. Special provisions; corporate donations for low-income scholarships; rules

A. A school tuition organization that receives contributions from a corporation for the purposes of section 20‑224.06 or 43‑1183 must The department of revenue shall use at least ninety per cent ninety-five percent of those the contributions received for the purposes of section 20-224.06 or 43-1183 to provide educational scholarships or tuition grants only to children whose family income does not exceed one hundred eighty-five per cent percent of the income limit required to qualify a child for reduced price reduced-price lunches under the national school lunch and child nutrition acts (42 United States Code sections 1751 through 1785) and to whom any of the following applies:

1. Attended a governmental primary or secondary school as a full-time student as defined in section 15‑901 or attended a preschool program that offers services to students with disabilities at a governmental school for at least ninety days of the prior fiscal year or one full semester and transferred from a governmental school to a qualified school.

2. Enroll in a qualified school in a kindergarten program or a preschool program that offers services to students with disabilities.

3. Is the dependent of a member of the armed forces of the United States who is stationed in this state pursuant to military orders.

4. Received an educational scholarship or tuition grant under paragraph 1, 2 or 3 of this subsection or chapter 16, article 1 of this title if the children continue to attend a qualified school in a subsequent year.

B. A child is eligible to receive an educational scholarship or tuition grant under subsection A of this section if the child meets the criteria to receive a reduced price reduced-price lunch but does not actually claim that benefit.

C. In 2006, a school tuition organization shall not issue an educational scholarship or a tuition grant for the purposes of section 20‑224.06 or 43‑1183 in an amount that exceeds shall not exceed four thousand two hundred dollars for students in a disabled preschool or kindergarten program, in A PRESCHOOL PROGRAM THAT OFFERS SERVICES TO STUDENTS WITH DISABILITIES or in grades one through eight or five thousand five hundred dollars for students in grades nine through twelve. In each year after 2006, the limitation amount for a scholarship or a grant under this subsection shall be increased by one hundred dollars.

D. A school tuition organization shall require that Student beneficiaries shall use the educational scholarships or tuition grants on a full‑time basis. If a child leaves the school before completing an entire school year, the school shall refund a prorated amount of the educational scholarship or tuition grant to the school tuition organization that issued the scholarship or grant department of revenue. The school tuition organization department shall allocate any refunds it receives under this subsection for educational scholarships or tuition grants.

E. Students who receive an educational scholarship or tuition grant under this section shall be allowed to attend any qualified school of their parents' choice.

F. The department of revenue, with the cooperation of the department of insurance, shall adopt rules and publish and prescribe forms and procedures necessary for the administration of this section. END_STATUTE

Sec. 17. Section 43-1505, Arizona Revised Statutes, is amended to read:

START_STATUTE43-1505. Special provisions; corporate donations for displaced students and students with disabilities; definition

A. A school tuition organization that receives contributions for the purposes of section 20‑224.07 or 43‑1184 must The department of revenue shall use at least ninety per cent ninety-five percent of those the contributions received for the purposes of section 20-224.07 or 43-1184 to provide educational scholarships or tuition grants to qualified students.

B. The amount of an educational scholarship or a tuition grant that is issued by a school tuition organization under this section shall not exceed the cost of tuition for the student to attend the qualified school or ninety per cent percent of the amount of state aid that otherwise would be computed for the student as provided in title 15, chapter 9, article 5, whichever is less. On request from a school tuition organization the department of revenue, the department of education shall provide to the school tuition organization in a timely manner the amount computed for the student under this subsection that represents the ninety per cent percent limitation prescribed in this subsection.

C. A school tuition organization shall require that Student beneficiaries shall use the educational scholarships or tuition grants on a full‑time basis. If a child leaves the school before completing an entire school year, the school shall refund a prorated amount of the educational scholarship or tuition grant to the school tuition organization that issued the scholarship or grant department of revenue. The school tuition organization department shall allocate any refunds it receives under this subsection for educational scholarships or tuition grants.

D. Qualified students who receive an educational scholarship or tuition grant under this section shall be allowed to attend any qualified school of their custodians' choice.

E. For the purposes of this section, "qualified student" means a student, including a student who previously qualified for an educational scholarship or tuition grant under this section and continues to attend a qualified school, who has been either:

1. Placed in foster care pursuant to title 8, chapter 4 at any time before the student graduates from high school or obtains a general equivalency diploma.

2. Identified as having a disability under section 504 of the rehabilitation act (29 United States Code section 794) or identified at any time by a school district as a child with a disability as defined in section 15‑761 or a child with a disability who is eligible to receive services from a school district under section 15‑763. END_STATUTE

Sec. 18. Section 43-1506, Arizona Revised Statutes, is amended to read:

START_STATUTE43-1506. Annual report; posting on website

On or before September 30 of each year, each school tuition organization shall report electronically to the department, in a form prescribed by the department, the department of revenue shall post the following information on its website, separately compiled and identified for the purposes of sections 20‑224.06, 20‑224.07, 43‑1183 and 43‑1184:

1. The name, address and contact person of the school tuition organization.

2. 1. The total number of contributions received for the purposes of this chapter during the previous fiscal year.

3. 2. The total dollar amount of contributions received for the purposes of this chapter during the previous fiscal year.

4. 3. The total number of children awarded educational scholarships or tuition grants under this chapter during the previous fiscal year.

5. 4. The total dollar amount of:

(a) Educational scholarships and tuition grants distributed under this chapter during the previous fiscal year.

(b) Money being held for identified students' scholarships and tuition grants under this chapter in future years.

6. 5. The cost of audits pursuant to section 43‑1507 paid during the fiscal year.

7. 6. The percentage and total dollar amount of educational scholarships and tuition grants awarded under this chapter during the previous fiscal year to:

(b) Students whose family income exceeds the threshold prescribed by subdivision (a) of this paragraph but does not exceed one hundred eighty-five percent of the economic eligibility requirements established under the national school lunch and child nutrition acts (42 United States Code sections 1751 through 1785) for free or reduced‑price lunches.

8. 7. For each school to which educational scholarships or tuition grants were awarded under this chapter during the previous fiscal year:

(a) The name and address of the school.

(b) The number of educational scholarships and tuition grants awarded during the previous fiscal year.

9. The names, job titles and annual salaries of the three employees who receive the highest annual salaries from the school tuition organization. END_STATUTE

Sec. 19. Section 43-1507, Arizona Revised Statutes, is amended to read:

START_STATUTE43-1507. Audit; costs

A. On or before September 30 of each year, each school tuition organization that received one million dollars or more in total donations in the previous fiscal year shall provide for the auditor general shall conduct a financial audit of the organization operation of the department of revenue for the purposes of this chapter. The audit must be conducted in accordance with generally accepted auditing standards and must evaluate the organization's department's compliance with section 43‑1503, subsection B, paragraph 1 3. The audit must be conducted by an independent certified public accountant licensed in this state. The certified public accountant and the firm the certified public accountant is affiliated with shall be independent with respect to the organization, its officers and directors, services performed and all other independent relationships prescribed by generally accepted auditing standards.

B. On or before September 30 of each year, each school tuition organization that received less than one million dollars in total donations in the previous fiscal year shall provide for a financial review of the organization. The review must be conducted in accordance with standards for accounting and review services and must evaluate the organization's compliance with the fiscal requirements of this article. The review must be conducted by an independent certified public accountant licensed in this state. The certified public accountant and the firm the certified public accountant is affiliated with shall be independent with respect to the organization, its officers and directors, services performed and all other independent relationships prescribed by generally accepted auditing standards.

C. Within five days after receiving the audit or financial review, the school tuition organization shall file a signed copy of the audit or financial review with the department.

D. B. The school tuition organization department shall pay the fees and costs of the certified public accountant auditor general under this section from the organization's operating department's monies retained for the purposes of administering this chapter. The fees and costs shall be excluded from the calculation of total revenues spent on scholarships and tuition grants. END_STATUTE

Sec. 20. Heading change

The chapter heading of title 43, chapter 16, Arizona Revised Statutes, is changed from "SCHOOL TUITION ORGANIZATIONS FOR INDIVIDUAL CONTRIBUTIONS" to "INDIVIDUAL TAXPAYER CONTRIBUTIONS FOR SCHOOL TUITION".

Sec. 21. Repeal

Section 43-1602, Arizona Revised Statutes, is repealed.

Sec. 22. Section 43-1603, Arizona Revised Statutes, is amended to read:

START_STATUTE43-1603. Operational requirements for school tuition income tax credits; notice; qualified schools

A. A certified school tuition organization must be established to The department of revenue shall:

1. Receive contributions from taxpayers for the purposes of income tax credits under sections 43‑1089 and 43‑1089.03. and to

2. Pay educational scholarships or tuition grants to allow students to attend any qualified school of their parents' choice.

B. To be eligible for certification and retain certification, the school tuition organization:

1. 3. Must Allocate at least ninety ninety-five percent of its annual revenue from contributions made for the purposes of sections 43‑1089 and 43‑1089.03 for educational scholarships or tuition grants. The department may retain up to five percent of the annual revenue, which is continuously appropriated to the department exclusively for the costs of administering the school tuition program.

2. 4. Shall Not limit the availability of educational scholarships or tuition grants to only students of one school.

3. May allow donors to recommend student beneficiaries, but shall not award, designate or reserve scholarships solely on the basis of donor recommendations.

4. Shall not allow donors to designate student beneficiaries as a condition of any contribution to the organization, or facilitate, encourage or knowingly permit the exchange of beneficiary student designations in violation of section 43‑1089, subsection F.

5. Shall Include on the organization's department's website, if one exists, the percentage and total dollar amount of educational scholarships and tuition grants awarded during the previous fiscal year to:

6. Must Not award educational scholarships or tuition grants to students who are simultaneously enrolled in a district school or charter school and a qualified school.

B. The department may allow donors to recommend student beneficiaries, but shall not:

1. Award, designate or reserve scholarships solely on the basis of donor recommendations.

2. Allow donors to designate student beneficiaries as a condition of any contribution, or facilitate, encourage or knowingly permit the exchange of beneficiary student designations in violation of section 43‑1089, subsection F.

C. A school tuition organization the department shall include the following notice in any printed materials soliciting donations, in applications for scholarships and on its website, if one exists:

Notice

A school tuition organization The department of revenue cannot award, restrict or reserve scholarships solely on the basis of a donor's recommendation.

A taxpayer may not claim a tax credit if the taxpayer agrees to swap donations with another taxpayer to benefit either taxpayer's own dependent.

D. In evaluating applications and awarding, designating or reserving scholarships, a school tuition organization the department:

1. Shall not award, designate or reserve a scholarship solely on the recommendation of any person contributing money to the organization, but may consider the recommendation among other factors.

2. Shall consider the financial need of applicants.

E. A taxpayer's contribution to a school tuition organization that exceeds the amount of the credit allowed by section 43‑1089 but does not exceed the amount of the credit allowed by section 43‑1089.03 is considered a contribution pursuant to section 43‑1089.03. A school tuition organization The department must use at least ninety ninety-five percent of contributions made pursuant to section 43‑1089.03 for educational scholarships or tuition grants for students to whom any of the following applies:

1. Attended a governmental primary or secondary school as a full-time student as defined in section 15‑901 or attended a preschool program that offers services to students with disabilities at a governmental school for at least ninety days of the prior fiscal year and transferred from a governmental school to a qualified school.

2. Enrolls in a qualified school in a kindergarten program or a preschool program that offers services to students with disabilities.

3. Is the dependent of a member of the armed forces of the United States who is stationed in this state pursuant to military orders.

4. Received an educational scholarship or tuition grant under paragraph 1, 2 or 3 of this subsection or under chapter 15 of this title if the student continues to attend a qualified school in a subsequent year.

F. In awarding educational scholarships or tuition grants from contributions made pursuant to section 43‑1089.03, a school tuition organization the department shall give priority to students and siblings of students on a waiting list for scholarships if the school tuition organization maintains a waiting list.

G. If an individual educational scholarship or tuition grant exceeds the school's tuition, the amount in excess shall be returned to the school tuition organization that made the award or grant department. The school tuition organization department may allocate the returned monies as a multiyear award for that student and report the award pursuant to section 43‑1604, paragraph 5 4, subdivision (b) or may allocate the returned monies for educational scholarships or tuition grants for other students. END_STATUTE

Sec. 23. Section 43-1604, Arizona Revised Statutes, is amended to read:

START_STATUTE43-1604. Annual report; posting on website

1. The name, address and contact person of the school tuition organization.

2. 1. The total number of contributions received for the purposes of this chapter during the previous fiscal year.

3. 2. The total dollar amount of contributions received for the purposes of this chapter during the previous fiscal year.

4. 3. The total number of children awarded educational scholarships or tuition grants under this chapter during the previous fiscal year.

5. 4. The total dollar amount of:

(a) Educational scholarships and tuition grants distributed under this chapter during the previous fiscal year.

(b) Money being held for identified students' scholarships and tuition grants under this chapter in future years.

6. 5. The cost of audits pursuant to section 43‑1605 paid during the fiscal year.

7. 6. The total dollar amount of educational scholarships and tuition grants awarded under this chapter during the previous fiscal year to:

(b) Students whose family income exceeds the threshold prescribed by subdivision (a) of this paragraph but does not exceed one hundred eighty-five per cent percent of the economic eligibility requirements established under the national school lunch and child nutrition acts (42 United States Code sections 1751 through 1785) for free or reduced price reduced‑price lunches.

8. 7. For each school to which educational scholarships or tuition grants were awarded under this chapter during the previous fiscal year:

(a) The name and address of the school.

(b) The number of educational scholarships and tuition grants awarded during the previous fiscal year.

9. The names, job titles and annual salaries of the three employees who receive the highest annual salaries from the school tuition organization. END_STATUTE

Sec. 24. Section 43-1605, Arizona Revised Statutes, is amended to read:

START_STATUTE43-1605. Audits; costs

A. On or before September 30 of each year, each school tuition organization that received one million dollars or more in total donations in the previous fiscal year shall provide for the auditor general shall conduct a financial audit of the organization operation of the department of revenue for the purposes of this chapter. The audit must be conducted in accordance with generally accepted auditing standards and must evaluate the organization's department's compliance with section 43‑1603, subsection B A, paragraph 1 3. The audit must be conducted by an independent certified public accountant licensed in this state. The certified public accountant and the firm the certified public accountant is affiliated with shall be independent with respect to the organization, its officers and directors, services performed and all other independent relationships prescribed by generally accepted auditing standards.

C. Within five days after receiving the audit or financial review the school tuition organization shall file a signed copy of the audit or financial review with the department.

Sec. 25. Effective date

This act is effective from and after June 30, 2017.