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ARIZONA STATE SENATE
Fifty-Fifth Legislature, Second Regular Session
AMENDED
tax; revisions; distributions; 2022-2023.
Purpose
Makes statutory and session law changes relating to taxation necessary to implement the FY 2023 state budget.
Background
The Arizona Constitution prohibits substantive law from being included in the general appropriations, capital outlay appropriations and supplemental appropriations bills. However, it is often necessary to make statutory and session law changes to effectuate the budget. Thus, separate bills called budget reconciliation bills (BRBs) are introduced to enact these provisions. Because BRBs contain substantive law changes, the Arizona Constitution provides that they become effective on the general effective date, unless an emergency clause is enacted.
S.B. 1738 contains the budget reconciliation provisions for changes relating to taxation.
Provisions
Distribution of Revenues from State Transaction Privilege Tax (TPT) Revenues
1. Directs the State Treasurer, for FY 2023 and beginning the month following the general effective date, to distribute the following amounts proportionately for each month remaining in the fiscal year from the state General Fund (state GF) portion of TPT revenues:
a) $209,205,000 to the Border Security Fund;
b) $925,447,500 to the State Highway Fund;
c) $20,600,000 to the State Aviation Fund;
d) $425,000,000 to the Budget Stabilization Fund; and
e) $38,237,100 to the State Parks Revenue Fund.
2. Requires the Director of the Joint Legislative Budget Committee (JLBC) and the Director of the Governor's Office of Strategic Planning and Budgeting (OSPB) to determine the total amount of transaction privilege tax (TPT) revenues not designated as the distribution base that are directly distributed to the outlined funds and add the amount to the actual amount of FY 2023 state GF revenue reported.
3. Stipulates that the state GF threshold is met if the determined amount for FY 2023 is equal to or exceeds $12,976,300,000 and requires the Directors of JLBC and OSPB to notify ADOR as prescribed.
4. Declares the Legislature's intent that the above distributions will not impact the portion of TPT revenues that cities and counties receive as their portion of the distribution base.
City, Town and County Prime Contracting TPT Revenue Distributions
5. Increases the cap, from $50,000,000 to $100,000,000, on the amount of prime contracting TPT revenues generated from qualifying projects that is authorized to be transferred to cities, towns and counties to fund up to 80 percent of the cost of public infrastructure improvements for the benefit of a manufacturing facility.
Arizona Department of Revenue (ADOR) Integrated Tax System Modernization Project
6. Requires, from July 1, 2022, through June 30, 2028, ADOR to assess and collect fees from the following entities to implement an integrated tax system modernization project at ADOR:
a) counties, cities and towns that receive state shared revenues;
b) the Maricopa County council of governments; and
c) Maricopa County and Pima County regional transportation authorities.
7. Declares the Legislature's intent that the total amount of fees in FY 2023 may not exceed $5,388,200 and that the share of the fees must be in proportion to the aggregate amount of monies distributed for the fiscal year two years preceding the current fiscal year.
8. Declares the Legislature's intent that a county's, city's or town's population in the most recent census must be used as the basis for apportioning the assessment.
9. Requires ADOR to assess the fee by October 31 annually and deems the fees payable immediately on assessment.
10. Requires ADOR, if an entity fails to pay the fees in full by December 31, to notify the State Treasurer who must withhold the delinquent amount from the applicable distribution and continue to withhold the monies until the entire amount of the assessment has been satisfied.
11. Allows a county, city or town to meet their cost sharing obligation from any source of county, city or town revenue designated by the applicable entity and allows the county sources to include monies of any countywide special taxing jurisdiction in which the county board of supervisors serves as the board of directors.
12. Directs ADOR, from July 1, 2022, through June 30, 2028, to transfer, from the 0.6 percent additional education TPT revenues remaining after all required distributions except for the distribution to the Classroom Site Fund, an amount equal to the actual reasonable costs incurred by ADOR for integrated tax system modernization upgrades related to the additional education TPT.
13. Declares the Legislature's intent that the amount of the FY 2023 additional education TPT revenues transferred for the tax system upgrades not exceed $653,400.
14. Directs the State Treasurer, from July 1, 2022, through June 30, 2028, to transfer, from marijuana excise tax revenues, an amount equal to the actual reasonable costs incurred by ADOR for integrated tax system modernization upgrades related to the marijuana excise tax.
15. Declares the Legislature's intent that the amount of the FY 2023 marijuana excise tax revenues transferred for the tax system upgrades not exceed $145,500.
16. Establishes the Department of Revenue Integrated Tax System Fund (Fund), administered by the Director of ADOR, consisting of the fees paid to ADOR or withheld by the State Treasurer or monies transferred from the education and marijuana taxes.
17. Directs the Director of ADOR to use monies in the Fund solely for administrative, development and other operating costs incurred in implementing the integrated tax system modernization project.
18. Specifies that monies in the Fund are subject to legislative appropriation.
19. Establishes the Department of Revenue Tax System Modernization Project Advisory Committee (Advisory Committee) to serve as the liaison between ADOR and the users of the tax system, consisting of the following members:
a) the Director of ADOR or their designee, who serves as the Chairperson;
b) the Director of ADOA or their designee;
c) the Auditor General or their designee, who serves as a nonvoting member;
d) the Director of JLBC or their designee, who serves as a nonvoting member;
e) the Director of OSPB or their designee;
f) one member who represents a city or town, appointed by the Director of ADOR;
g) one member who represents a county, appointed by the Director of ADOR;
h) one member who represents the Arizona business community, appointed by the Director of ADOR;
i) one member appointed by the President of the Senate; and
j) one member appointed by the Speaker of the House of Representatives.
20. Terminates the Advisory Committee on December 31, 2029.
Aircraft
Taxation
(Retroactive to July 1, 2021)
21. Prohibits the average fair market value of an aircraft from having an annual percentage change that is more than the annual percentage change in the average consumer price index (CPI).
22. Requires the average fair market value for FY 2022 to be benchmarked to the 2019 average fair market value.
23. Requires the Arizona Department of Transportation, if a person pays an aircraft's annual license tax in FY 2022 before the general effective date and the aircraft's average fair market value has an annual percentage change that is more than the average CPI using 2019 as a benchmark, to offer the person a credit to be applied toward the FY 2023 registration fees.
24. Requires the credit to be the difference between the amount the person paid based on the aircraft's actual average fair market value and the amount the person would have paid based on the aircraft's CPI adjusted fair market value.
Agricultural Machinery and Equipment
25. Requires the gross proceeds of sales or gross income derived from sales of agricultural machinery and equipment, rather than only new agricultural machinery and equipment, to be deducted from the tax base for the retail classification of TPT.
26. Exempts, from use tax, the gross proceeds of sales or gross income derived from sales of agricultural machinery and equipment, rather than only new agricultural machinery and equipment.
27. Includes off-highway vehicles in agricultural machinery and equipment for the purposes of the TPT deduction and use tax exemption.
28. Defines off-highway vehicles as off-highway vehicles that meet the definition used for the purposes of traffic and vehicle regulation that are modified at the time of sale to function as a tractor or to tow tractor-drawn implements and that are not equipped with a modified exhaust system to increase horsepower or speed or an engine that is more than 1,000 cubic centimeters or that has a maximum speed of 50 miles per hour or less.
29. Removes the definition of new machinery and equipment.
30. Applies the modified exemption and deduction to taxable periods beginning on or after the first day of the month following the general effective date.
Individual Income Tax Model
31. Requires ADOR to maintain an individual income tax (IIT) model that estimates the fiscal impact of proposed IIT legislation.
32. Requires the IIT model to:
a) at a minimum, allow for the adjustment of IIT law parameters against an anonymized representative sample of IIT returns; and
b) include procedures to protect taxpayer confidentiality under applicable state and federal law.
33. Requires ADOR to accept requests from JLBC Staff and Legislative Staff for estimates of the fiscal impact of proposed IIT legislation using the IIT model and to fulfill any request in a prompt and timely manner.
34. Requires the IIT model, on completion of the ADOR integrated tax system modernization project, to provide ADOR Staff, JLBC Staff and OSPB Staff direct access to the IIT model so that IIT law parameters may be interactively adjusted to develop immediate fiscal impact estimates without any additional programming required for each estimate.
Containment
Structures
(Retroactive to January 1, 2016)
35. Requires the gross proceeds of sales or gross income derived from a contract to install containment structures to be deducted from the gross proceeds of sales or gross income before computing the tax base for the prime contracting classification of TPT.
36. Prohibits a city, town or special taxing district from levying a TPT, sales, use or other similar tax on the gross proceeds of sales or gross income derived from a contract to install containment structures.
37. Defines containment structure as a structure that prevents, monitors, controls or reduces noxious or harmful discharge into the environment.
38. Extends the deadline, to December 31, 2022, from December 31, 2021, for a claim for refund of TPT or use tax based on the retroactive application of the 2021 inclusion of containment structures in the TPT deduction and use tax exemption.
Miscellaneous
39. Aligns the elective entity-level income tax rate levied on partners and shareholders of an S corporation with the income tax rate prescribed for individual income tax.
40. Contains a technical conditional enactment.
41. Makes technical and conforming changes.
42. Becomes effective on the general effective date, with retroactive provisions as noted.
Amendments Adopted by Committee
· Removes provisions relating to aircraft taxation.
Amendments Adopted by Committee of the Whole
1. The committee amendment was withdrawn.
2. Reduces, from $944,774,800 to $925,447,500, the distribution to the State Highway Fund from the state GF portion of TPT.
3. Replaces the requirement for the Directors of JLBC and OSPB to add the total FY 2023 distributions to outlined funds to the actual amount of FY 2023 state GF revenue reported with a requirement for the Directors of JLBC and OSPB to determine the total amount of TPT revenues not designated as the distribution base that are directly distributed to the outlined funds and add the amount to the actual amount of FY 2023 state GF revenue reported.
4. Stipulates that the state GF threshold is met if the determined amount for FY 2023 is equal to or exceeds $12,976,300,000 and requires the Directors of JLBC and OSPB to notify ADOR as prescribed.
5. Removes provisions relating to credits for individual and corporate contributions to school tuition organizations.
6. Aligns the elective entity-level income tax rate levied on partners and shareholders of an S corporation with the income tax rate prescribed for individual income tax.
7. Makes technical and conforming changes.
Senate Action
APPROP 6/22/22 DPA 5-3-2
Prepared by Senate Research
June 23, 2022
MG/sr