ARIZONA STATE SENATE
Fifty-Fifth Legislature, First Regular Session
false claims; agriculture; technical correction
(NOW: credit for donation)
Reestablishes, retroactive to taxable years (TYs) beginning January 1, 2020, the Credit for Donation of School Site, allowed against corporate income tax liability, and outlines requirements for the credit.
Laws 2000, Chapter 334 established the individual and corporate Credit for Donation of School Site, effective January 1, 2001, to encourage developers and landowners to make a real property donation for a school. 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).
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 2) 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 Laws 2020, Chapter 43 repealed the corporate Credit for Donation of School Site, retroactive to TYs beginning January 1, 2020.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 reestablishment of the corporate Credit for Donation of School Site results in additional claims against corporate income tax liability, there may be a fiscal impact to the state General Fund.
Corporate Credit Reestablishment
1. Allows a credit against corporate income tax liability for donations made by a taxpayer to a school district or a charter school in the amount of 30 percent of the value of real property and improvements for use as a school or as a site for the construction of a school facility.
2. Requires, to qualify for the credit, that:
a) the real property and improvements be located in Arizona;
b) the conveyance must not violate statutory zoning requirements; and
c) 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
3. Specifies that the value of the donated property is equal to the property's fair market value as determined in an appraisal performed by an independent party and that is paid for by the donee.
4. 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.
5. 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.
6. Stipulates that the credit is in lieu of any deduction taken for charitable contributions pursuant to the U.S. Internal Revenue Code (U.S. IRC) taken for state tax purposes.
7. Requires a donor of property, on written request by the donee, to disclose the amount of the credit in writing to the donee.
8. Allows a school district or a charter school to refuse the donation of any property.
9. Requires, when computing Arizona taxable income for a corporation, the amount of any deduction claimed in computing Arizona gross income and that represents a a school site donation to be added to Arizona gross income.
10. Requires the JLITCRC to review the credit allowed against corporate income tax liability in years ending in 2 and 7.
Corporate Credit and School Districts
11. 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 as a school.
12. Requires the 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.
13. 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.
14. 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 to the school district from the SFB.
Corporate Credit and Charter Schools
15. 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 in the event of the charter school's financial or administrative failure.
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.
17. Requires a charter school donee or a successor in interest to pay the State Treasurer the amount of the credit or the amount of the allowable credit that would otherwise be available in the event of the charter school's financial or administrative failure.
18. Requires a statutorily prescribed penalty and interest to be added to the payment due to the State Treasurer for a charter school's financial or administrative failure, if the amount due is not paid within one year of the notice.
19. 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.
20. Specifies, if the donee is a charter school, that 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.
21. States that the lien is subordinate to any liens securing the financing of the school construction.
22. 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.
23. Allows a charter school or a successor in interest to request the State Treasurer to release the lien after 10 years or after the required amount is paid.
24. 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.
25. Allows the charter school to sell any donated property, subject to the lien on the property.
26. Specifies that shareholders of an S corporation may claim only the pro rata share of the individual credit based on the shareholder's ownership interest.
27. Contains a purpose statement.
28. Makes technical changes.
29. Becomes effective on the general effective date, retroactive to TYs beginning January 1, 2020.
APPROP 2/22/21 DPA/SE 10-2-1-0
3rd Read 3/3/21 59-1-0
Prepared by Senate Research
March 29, 2021