ARIZONA STATE SENATE

RESEARCH STAFF

 

MOLLY GRAVER

LEGISLATIVE RESEARCH ANALYST

FINANCE COMMITTEE

Telephone: (602) 926-3171

 

TO: MEMBERS OF THE SENATE

APPROPRIATIONS COMMITTEE

DATE: March 26, 2021

SUBJECT: Strike everything amendment to H.B. 2051, relating to income tax; subtraction; FDIC premiums


 


Purpose

Requires, retroactive to taxable years (TYs) beginning January 1, 2020, the amount of any Federal Deposit Insurance Corporation (FDIC) premiums paid or incurred by a taxpayer that is disallowed as a deduction for federal income tax purposes to be subtracted when computing a corporation's Arizona gross income.

Background

Arizona gross income for a corporation is the same as the corporation's federal taxable income for the TY. Current statute authorizes various amounts to be added or subtracted when computing a corporation's Arizona taxable income (A.R.S. 43-1101; 43-1121; and 43-1122).

The U.S. Internal Revenue Code disallows a deduction for the applicable percentage of any FDIC premium paid or incurred by certain large financial institutions, unless the total consolidated assets of the taxpayer are less than $10 billion (26 U.S.C. 162). Prior to 2017, federal law considered FDIC premiums as ordinary and necessary expenses and therefore deductible. In 2017, the Tax Cuts and Jobs Act limited the deduction of FDIC premiums based on the consolidated assets of a financial institution (P.L. 115-97 13531).

If an eligible corporation subtracts the amount of FDIC premiums that are disallowed as a deduction for federal income tax purposes from the computation of the corporation's Arizona taxable income, there may be a fiscal impact to the state General Fund.

Provisions

1.   Requires, when computing Arizona taxable income for a corporation, the amount of any FDIC premiums paid or incurred by a corporate taxpayer that is disallowed as a deduction for federal income tax purposes to be subtracted from Arizona gross income.

2.   Becomes effective on the general effective date, retroactive to TYs beginning January 1, 2020.