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ARIZONA STATE SENATE
Fifty-Fifth Legislature, First Regular Session
tax credit; affordable housing
Purpose
Establishes the Affordable Housing Tax Credit (Tax Credit) and outlines requirements for the Tax Credit.
Background
The Arizona Department of Housing (ADOH) was established to address affordable housing issues in Arizona, including availability of affordable housing for low-income and medium-income families and special needs-adapted housing. ADOH is authorized to provide Arizonans with financial assistance, training and education and advisory assistance toward the development of safe and affordable housing. ADOH is responsible for setting standards on quality and safety for manufactured homes, mobile homes and factory-built buildings (A.R.S. § 41-3953).
The Department of Insurance and Financial Institutions (DIFI) conducts examinations and investigations and has the power to make and enforce rules and punishments for violations of penal provisions of insurance statute to the Attorney General (A.R.S. § 20-142).
The Arizona Department of Revenue (ADOR) is responsible for providing an integrated, coordinated and uniform system of tax administration and revenue collection for the state, including a coordinated electronic method of collecting state and municipal transaction privilege and affiliated excise taxes (A.R.S. § 42-1004).
On an exact measure in 2020, a Joint Legislative Budget Committee fiscal note estimated that the legislation would reduce the state General Fund by $8,000,000 in FY 2023 and would gradually increase until the completion of the Tax Credit on January 1, 2028 (JLBC Fiscal Note).
Provisions
Tax Credit
1. Establishes the Tax Credit and requires ADOH to administer the Tax Credit.
2.
Requires ADOH to allocate Tax Credits for projects in the state that
qualify for the federal
low-income housing tax credit and that are placed in service, beginning July 1,
2021, in an amount equal to at least 50 percent of the amount of the federal
credit allowed in each taxable year (TY).
3. Requires ADOH to allocate the Tax Credit according to ADOH's qualified allocation plan.
4. Requires ADOH to prescribe forms, procedures and criteria for applying, evaluating and qualifying for the Tax Credit.
5. Requires ADOH to issue an eligibility statement for each qualified project that identifies the qualified project, allocation year and amount of the Tax Credit allocated to the project.
6. Requires ADOH to allocate a total of $8,000,000 of the Tax Credits in any calendar year.
7. Specifies that an approved amount applies against the dollar limit for the year the application is submitted and any unused balance of the current calendar year cap carries forward to the following year.
8. Allows any taxpayer that owns an interest in an investment in a qualified project, receiving an eligibility statement from ADOH, a Tax Credit for TYs beginning January 1, 2021, if the taxpayer acquires interest before filing a tax return claiming the Tax Credit.
9. Requires the taxpayer to apply the Tax Credit against the taxpayer's insurance premium or income tax liability as provided by statutory procedures, terms and conditions.
10. Prohibits qualified projects from being eligible for any abatement, exemption or other reduction in state or local ad valorem property taxes.
11. Requires
ADOH, by July 30 of each year, to hold a public hearing to solicit and accept
public comments on the Tax Credit to be used for qualified projects that are
financed through
tax-exempt bond issuance.
12. Requires ADOH to post a copy of all comments submitted during a public hearing on ADOH's website by September 15 of the year in which the hearing was held.
13. Defines Internal Revenue Code, qualified project and taxpayer.
DIFI
14. Allows the Tax Credit to be applied against the premium tax incurred by a taxpayer if ADOH issues an eligibility statement for a qualified project.
15. Specifies that the amount of the Tax Credit:
a) is at least 50 percent of the amount of the federal low-income housing tax credit for the qualified project; and
b) may, on notice to DIFI, be allocated among partners, members or shareholders as seen fit.
16. Prohibits the total allocation of a Tax Credit among participants from exceeding the amount of credit approval by ADOH.
17. Allows a partner, member or shareholder to hold an investment exclusively in either state or federal Tax Credits allocated to the qualified project.
18. Requires the taxpayer, in order to claim the Tax Credit, to submit an eligibility statement provided by ADOH to DIFI with the taxpayer's premium tax return.
19. Specifies that the taxpayer must furnish the required documentation for the Tax Credit to be authorized.
20. Stipulates that if the amount of the Tax Credit exceeds the taxpayer's state premium tax liability, the excess amount may be carried forward for up to five consecutive TYs' premium tax liability.
21. States that if all or part of the Tax Credit is subject to recapture under the Federal Tax Code during the first 10 TYs after the project is placed in service, the Tax Credit is also subject to recapture in a proportional amount from all taxpayers that claimed the Tax Credit.
22. Specifies that the recapture is calculated by increasing the amount of taxes imposed in the following year by the amount recaptured.
23. States that a taxpayer who claims a Tax Credit against the state premium tax liability is not required to pay any additional retaliatory tax as a result of claiming the Tax Credit.
24. Allows the Tax Credit to fully offset any retaliatory tax imposed.
ADOR
25. Allows ADOR to allocate individual and corporate income Tax Credits for taxpayers who apply to ADOH and receive an eligibility statement for a qualified project.
26. Specifies that the amount of the Tax Credit:
a) is at least 50 percent of the amount of the federal low-income housing tax credit for the qualified project; and
b) allows the allocation of the Tax Credit on notice to ADOR to be spread among partners, members or shareholders as seen fit.
27. Prohibits the total of the allocated Tax Credits among participants from exceeding the amount of Tax Credit approved by ADOH.
28. Allows a partner, member or shareholder to hold an investment exclusively in the state or federal Tax Credits allocated to the qualified project.
29. Requires the taxpayer, in order to claim the Tax Credit, to submit the eligibility statement provided by ADOH to ADOR with the taxpayer's income tax return.
30. Prohibits a Tax Credit from being issued until the taxpayer furnishes required documentation.
31. Allows the taxpayer, if the amount of the Tax Credit for a TY exceeds the amount of taxes due on the claimant's income or if no taxes are due, to carry the amount forward for up to five consecutive TYs.
32. States, if all or part of the Tax Credit subject to recapture under the Federal Tax Code during the first 10 TYs after the project is placed in service, the Tax Credit is also subject to recapture in a proportional amount from all taxpayers that claimed the Tax Credit.
33. Specifies that the recapture is calculated by increasing the amount of taxes imposed in the following year by the amount recaptured.
Tax Credit Review Committee (Review Committee)
34. Establishes the nine-member Review Committee consisting of:
a) three members appointed by the Governor, no more than two from the same political party;
b) three members appointed by the President of the Senate, no more than two from the same political party; and
c) three members appointed by the Speaker of the House of Representatives, no more than two from the same political party.
35. States that appointed members serve at the pleasure of the person who made the appointment.
36. Specifies that members are not eligible for compensation and may receive reimbursement for expenses.
37. Requires the Review Committee to review the Tax Credits allowed on the fifth year after the Tax Credit has been effective and every five years thereafter.
38. Requires the Review Committee's review to include:
a) the history, rationale and estimated revenue impact of the Tax Credit;
b) whether the Tax Credit has provided a benefit to Arizona that includes corporate tax credits, measurable economic development, new investments, creation of new jobs or retention of existing jobs;
c) whether the Tax Credit is unnecessarily complex in the application, administration or approval process; and
d) the number of housing units generated as a result of the Tax Credit and the average income of residents offered housing units.
39. Requires the Review Committee to report its findings and recommendations to the Legislature and Governor by December 15 of the year the Review Committee reviews the Tax Credit and provide a copy to the Secretary of the State.
40. Terminates the Review Committee on July 1, 2029.
Miscellaneous
41. Requires ADOH, DIFI and ADOR to adopt rules, and publish and prescribe forms and procedures to administer the Tax Credit including criteria on eligibility standards.
42. Adds the Tax Credit to the income tax credit review schedule.
43. Contains a delayed repeal for the Tax Credit of January 1, 2029.
44. Specifies that the repeal of the Tax Credit does not:
a) limit or impair the issuance of premium tax credits or income tax credits or qualifies projects that receive a reservation from ADOH before December 31, 2028, or a taxpayer's ability to redeem the Tax Credit; and
b) affect any act done, right accruing or accrued or any suit in any civil cause of action before the repeal.
45. Requires ADOH to implement and administer the Tax Credit for Arizona's 2022 qualified allocation plan.
46. Contains a purpose clause which states that the purpose is to support the construction of new affordable housing projects in Arizona.
47. Makes conforming changes.
48. Becomes effective on the general effective date.
Prepared by Senate Research
January 29, 2021
LMM/kja