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ARIZONA STATE SENATE
Fifty-Fourth Legislature, Second Regular Session
ENACTED
AMENDED
FACT SHEET FOR H.B. 2771/S.B. 1245
tax credits; qualified facilities; extension
Purpose
Extends the Credit for Qualified Facilities and the date of eligibility for the Credit for Renewable Energy Investment and Production for Self-Consumption by International Operations Centers. Maintains the current rates of the Research and Development Credit computation.
Background
From January 1, 2012, through December 31, 2023, the Credit for Qualified Facilities is allowed against a qualified facility's income tax liability. A qualified facility devotes at least 80 percent of the property and payroll at the facility to qualified manufacturing, headquarters or research. At least 51 percent of the new full-time employment positions must be paid 125 percent of the median annual wage for production occupations in Arizona or 100 percent in rural locations. To be eligible for Credit for Qualified Facilities, a taxpayer must apply to the ACA for preapproval of the business.
To qualify for the credit, a taxpayer must invest in a new qualified facility in Arizona or expand an existing qualified facility in Arizona and produce new full-time employment positions where the job duties are performed at the location of the qualifying investment. Only capital investments in a qualified facility after July 1, 2012, are included in the computation of the credit. The income tax credit, to be preapproved by the Arizona Commerce Authority (ACA), is the lesser of: 1) the amount the applicant has projected in total qualifying investment in the qualified facility; or 2) $200,000 for each net new full-time employment position projected by the applicant at a qualified facility. The tax credit must be claimed in five equal annual installments in five consecutive taxable years (A.R.S. §§ 41-1512; 43-1083.03; and 43-1164.04).
The Credit for Renewable Energy Investment and Production for Self-Consumption by International Operations Centers is offered to qualifying international operations centers (IOC) for investment in new renewable energy facilities that produce energy for self-consumption using renewable energy sources if the power is primarily used by the IOC. The credit is $5 million per year for five years for each renewable energy facility. The credit per taxpayer cannot exceed $25 million in total over five years. No new credits can be claimed for taxable years beginning after December 31, 2025 (A.R.S. § 43-1164.05).
The Research and Development Tax Credit is calculated based on a taxpayer's qualifying research expenses in Arizona. The credit is equal to 24 percent of the first $2.5 million in qualifying expenses and 15 percent of the amount exceeding the first $2.5 million. Effective beginning TY 2022, the credit equals 20 percent of the first $2.5 million and 11 percent of the amount exceeding $2.5 million (A.R.S. §§ 43-1074.01 and 43-1168).
The Joint Legislative Budget Committee fiscal note estimates the extension of the Research and Development Tax Credit and the Credit for Qualified Facilities are not expected to result in additional revenue loss. However, the General Fund would forego any potential revenue gain that would occur absent the extensions. Extension of the minimum investment due date for the Credit for Renewable Energy Investment and Production for Self-Consumption by IOCs would have no new fiscal impact because current law does not place a time cap on qualifying for the sales tax exemption (JLBC fiscal note).
Provisions
Credit for Qualified Facilities
1. Extends, from January 1, 2023, to January 1, 2030, the individual and corporate Credit for Qualified Facilities and allows preapproved annual installments of the credit to be claimed until January 1, 2031.
2. Prohibits the ACA from preapproving applicants as qualifying for the Credit for Qualified Facilities beginning January 1, 2031, rather than January 1, 2023.
3. Includes, in the computation of the tax credit, only capital investments in a qualified facility that are made within 36 months before submitting an application to the ACA for preapproval, rather than made on or after July 1, 2012.
4. Requires a taxpayer to produce new full-time employment positions that have job duties associated with the location of the qualified facility, rather than performed at the qualified facility.
5. Allows an applicant to qualify for the Credit for Qualified Facilities if at least 51 percent of the net new full-time employment positions have job duties associated with the qualified facility, rather than at the qualified facility.
6. Bases the amount of the Credit for Qualified Facilities to a qualifying applicant on projected new full-time employment positions that have job duties associated with a qualified facility, rather than at a qualified facility.
7. Requires an application for preapproval to include an estimate of the number of employment positions with jobs duties associated with the qualified facility, rather than at the qualified facility.
8. Requires, to be counted for the purposes of the credit, an employee to have been employed with job duties associated with the qualified facility, rather than at the qualified facility.
9. Repeals the Credit for Qualified Facilities on January 1, 2032.
Credit for Renewable Energy Investment and Production for Self-Consumption by International Operations Centers
10. Extends, for a taxpayer to be eligible to receive the credit, the date that the minimum investment of $100 million by an IOC must be completed to within a three-year period beginning on the earlier of the date the application is received or December 31, 2028, rather than December 31, 2018.
11. Prohibits an IOC that is initially certified after December 31, 2018, from claiming the credit of $5 million per year for five years for each renewable energy facility.
12. Modifies the definition of international operations center to include connected facilities under the same ownership.
Research and Development Credit
13. Maintains the current rates of the Research and Development Credit computation through December 31, 2030, and delays the modification to the rates of the computation for taxable years beginning January 1, 2031.
14. Reduces, from 15 consecutive taxable years to 10 consecutive taxable years beginning January 1, 2022, the number of years the amount of a credit claimed and not used to offset taxes may be carried forward, if the allowable credit exceeds the taxes due.
15. Allows qualified research expenses that have been converted into a credit carryforward, for taxable years beginning January 1, 2022, to be carried forward to not more than 10 years from the year in which the expenses were incurred.
Miscellaneous
16. Makes technical changes.
17. Becomes effective on the general effective date.
Amendments Adopted by Committee
ˇ Adopted the strike-everything amendment.
Amendments Adopted by Committee of the Whole
1. Extends the Credit for Qualified Facilities and associated deadlines for two additional years.
2. Prohibits an IOC that is initially certified after December 31, 2018, from claiming the Credit for Renewable Energy Investment and Production for Self-Consumption by IOCs of $5 million per year for five years for each renewable energy facility.
3. Removes the 10-year extension of the timeframe in which the Credit for Renewable Energy Investment and Production for Self-Consumption by IOCs may be claimed.
4. Maintains the current rates of the Research and Development Credit computation for an additional two years and delays the rate modification for two additional years.
5. Reduces, from 15 consecutive taxable years to 10 consecutive taxable years beginning January 1, 2022, the number of years the amount of a Research and Development Credit claimed and not used to offset taxes may be carried forward, if the allowable credit exceeds the taxes due.
6. Allows qualified research expenses that have been converted into a Research and Development Credit carryforward, for taxable years beginning January 1, 2022, to be carried forward to not more than 10 years from the year in which the expenses were incurred.
House Action Senate Action
WM 2/12/20 DP
6-3-1-0 APPROP 2/25/20 DPA/SE 8-1-0
3rd Read 2/27/20 44-16-0 3rd
Read 3/05/20 20-9-1 (H.B.
2771 was substituted for S.B. 1245 on 3rd
Read)
Signed by the Governor 3/13/20
Chapter 7
Prepared by Senate Research
March 17, 2020
MG/gs