SB1640 - 551R - Senate Fact Sheet

Purpose

Establishes, retroactive to taxable years (TYs) beginning January 1, 2021, an alternative amount for the Credit for Donation of School Site, allowed against individual income tax liability, that may be claimed by a taxpayer for donations to a school district for a school or a charter school that meets outlined requirements. Reestablishes, retroactive to TYs beginning January 1, 2021, the Credit for Donation of School Site, allowed against corporate income tax liability, and outlines requirements for the credit.

Background

The Credit for Donation of School Site is allowed against individual income tax liability in the amount of 30 percent of the value of real property and improvements donated by the taxpayer to a school district or a charter school for use as a school or as a site for the construction of a school. To qualify for the credit the: 1) real property and improvements must be located in Arizona; 2) real property and improvements must be conveyed unencumbered and in fee simple, with certain exceptions; and 3) conveyance must not violate statutory zoning requirements (A.R.S. § 43-1089.02).

Laws 2000, Chapter 334 established the credit, effective January 1, 2001, to encourage developers and landowners to make a real property donation for a school. In 2020, the Arizona Department of Revenue (ADOR) reported on the use of individual income tax credits. The total credit claimed was: 1) $1,136,373 in TY 2018; 2) $250,293 in TY 2017; and 3) $214,307 in TY 2016 (ADOR October 2020 Arizona Credit History Report).

If a tax credit is not claimed by or allowed to any taxpayer in four consecutive annual reports the Director of ADOR must: 1) terminate the recognition and servicing of a tax credit; and 1) include the repeal of the terminated tax credits in technical tax correction legislation to be enacted in the next regular legislative session (A.R.S. § 43-224). Laws 2020, Chapter 43 repealed the corporate Credit of Donation of School Site, retroactive to TYs beginning January 1, 2020.

Statute requires any new individual or corporate income tax credit to include a specific year for the Joint Legislative Income Tax Credit Review Committee (JLITCRC) to review the credit (A.R.S. § 43-223).

If the modification of the Credit for Donation of School Site, allowed against individual income tax liability, and the reestablishment of the Credit for Donation of School Site, allowed against corporate income tax liability, results in additional claims against individual and corporate income tax liability, there may be a fiscal impact to the state General Fund.

Provisions

Individual Credit

1. Establishes an alternative credit amount that equals 60 percent of the value of cash contributions or real property and improvements donated by a taxpayer to a school district for a school or a charter school that meets outlined requirements for use as a school or as a site for the construction of a school or a school facility.

2. Requires, to qualify for the credit of 60 percent of the value of real property and improvements or cash contributions donated, a taxpayer to donate to a school that is operated by a school district or charter school that has:

a) a waiting list based on the prior year's 100th-day average daily membership that is verified by a third party and is equal to or greater than 20 percent of the previous year's student enrollment; and

b) been assigned a letter grade of A or B in the most recent academic year.

3. Specifies that shareholders of an S corporation may claim only the pro rata share of the credit based on the ownership interest.

Corporate Credit Reestablishment

4. Allows a credit against corporate income tax liability for donations of cash contributions or donations by a taxpayer to a school district or a charter school for real property and improvements to use as a school or as a site for construction of a school facility.

5. Sets the credit amount equal to:

a) 30 percent of the value of real property and improvements donated by the taxpayer to a school district or a charter school for use as a school or as a site for the construction of a school; or

b) 60 percent of the value of real property and improvements for use as a school or as a site for the construction of a school or a school facility or cash contributions donated by the taxpayer to a school district for a school or a charter school that meets outlined requirements.

6. Allows a school district or a charter school to refuse the donation of any property

7. Requires, to qualify for the credit, that:

a) the real property and improvements be located in Arizona;

b) the real property and improvements must be conveyed unencumbered and in fee simple, except the:

i. conveyance must include the requirement that, as long as the donee holds title to the property, the property must be used only as a school or as a site for the construction of a school, subject to outlined requirements; and

ii. donor must record a lien on the property as outlined, in the case of a donation to a charter school;

c) the conveyance must not violate statutory zoning requirements; and

d) for the credit amount set at 60 percent of the value of real property and improvements or cash contributions donated, a taxpayer must donate to a school that is operated by a school district or charter school that has:

i. a waiting list based on the prior year's 100th-day average daily membership that is verified by a third party and that is equal to or greater than 20 percent of the previous year's student enrollment; and

ii. been assigned a letter grade of A or B in the most recent academic year.

8. Stipulates that the value of the donated property is the property's fair market value as determined in an appraisal conducted by an independent party and that is paid for by the donee.

9. Allows co-owners of a business to each claim only the pro rata share of the allowable credit based on ownership interest and prohibits the total of the credits allowed to the co-owners from exceeding the amount of the allowable credit.

10. Allows the taxpayer, if the allowable credit exceeds the taxes otherwise due or if there are no taxes due, to carry forward the amount of the claim not used to offset the taxes for no more than five consecutive TYs' income tax liability.

11. Stipulates that the credit is in lieu of any deduction taken for charitable contributions pursuant to the United States Internal Revenue Code (U.S. IRC) taken for state tax purposes.

12. Requires a donor of property, on written request by the donee, to disclose the amount of the credit in writing to the donee.

13. Adds, to the computation of Arizona taxable income for a corporation, any wage expenses deducted pursuant to the U.S. IRC for which the credit is claimed.

14. Requires the JLITCRC to review the credit allowed against corporate income tax liability in years ending in 1 and 6.

Corporate Credit and School Districts

15. Requires a donee who is a school district to:

a) notify the School Facilities Board (SFB) and furnish the SFB with any information requested regarding the donation; and

b) not accept a donation unless SFB has reviewed the proposed donation and has issued a written determination that the real property and improvements are suitable as a school site or fund.

16. Requires SFB, if the donee is a school district, to issue a determination that the real property and improvements are not suitable as a school site or as a school if the expenses that would be necessary to make the property suitable exceed the value of the proposed donation.

17. Allows a school district donee to sell any donated property pursuant to statute and specifies that the proceeds from the sale must be used only for capital projects.

18. Requires SFB, if the donee is a school district that sells any donated property, to withhold an amount that corresponds to the amount of the proceeds from any monies that would otherwise be due the school district from the SFB.

Corporate Credit and Charter Schools

19. Requires a donee who is a charter school to:

a) immediately notify the sponsor of the charter school by certified mail and furnish the sponsor with any requested information relating to the donation during the 10-year period after the conveyance is recorded; and

b) notify the sponsor by certified mail.

20. Requires a charter school donee or a successor in interest to pay the State Treasurer the amount of the credit, or:

a) the amount of the allowable credit that would otherwise be available in the event of the charter's school's financial or administrative failure if the amount is unknown; or

b) not paid within one year after the State Treasurer receives notice, a penalty and interest statutorily prescribed must be added, if the amount is unknown;

21. Requires the sponsor of a charter school to notify the State Treasurer in the event of the charter school's financial failure or if the charter school:

a) fails to establish a charter school on the property within 48 months after the conveyance is reordered;

b) fails to provide instruction to pupils on the property within 48 months after the conveyance is recorded; or

c) establishes a charter school on the property but subsequently ceases to operate the charter school on the property for 24 consecutive months or fails to provide instruction to pupils on the property for 24 consecutive months.

22. Stipulates, if the donee is a charter school, that the credit constitutes a lien on the property that the donor must record in addition to the title of the property to qualify for the credit.

23. Specifies, if the donee is a charter school, the amount of the lien is the amount of the allowable credit, adjusted according to the average change in the Gross Domestic Product Price Deflator for each calendar year since the donation, not exceeding 12.5 percent more than the allowable credit.

24. States that the lien is subordinate to any liens securing the financing of the school construction.

25. Extinguishes the lien on the earliest of the following:

a) 10 years after the lien is recorded;

b) on payment to the State Treasurer by the donee charter school of the amount of the allowable credit, either voluntarily or as required;

c) on conveyance of fee simple title to the property to a school district; or

d) on enforcement and satisfaction of the lien.

26. Allows a charter school or a successor in interest to request the State Treasurer to release the lien:

a) after 10 years; or

b) after the required amount is paid;

27. Requires the State Treasurer to enforce the lien by foreclosure within one year after receiving notice of a charter school's financial or administrative failure.

28. Allows the charter school to sell any donated property, subject to the lien on the property.

Miscellaneous

29. Contains a purpose statement.

30. Makes technical and conforming changes.

31. Becomes effective on the general effective date, retroactive to TYs beginning January 1, 2021.