Assigned to NRRA                                                                                                      AS PASSED BY THE SENATE

ARIZONA STATE SENATE

Forty-seventh Legislature, Second Regular Session

AMENDED

FACT SHEET FOR H.B. 2429

solar energy tax incentives

Purpose

            Removes caps on the retail and prime contracting transaction privilege tax (TPT) exemptions for solar energy devices.  Creates a corporate solar energy income tax credit, for taxable years 2006 through 2012, and a procedure to certify projects that qualify for the corporate tax credit.

Background

            Arizona offers individual taxpayers a tax credit for installing a solar energy device in the taxpayer’s residence located in Arizona.  The allowable solar energy credit is equal to 25 percent of the cost of the device.  The maximum allowable credit in a tax year is $1,000, and the maximum credit a taxpayer may take for all solar energy devices installed in the same residence cannot exceed $1,000.  If the allowable credit exceeds the taxes that are due, the taxpayer may carry the credit forward for up to five consecutive years.  H.B. 2429 creates a corporate solar income tax credit.

            The following devices qualify for a solar energy credit:  solar domestic water heating systems, solar swimming pool and spa heating systems, solar photovoltaic (PV) systems, solar PV phones and street lighting, passive solar building systems, solar daylighting systems designed to capture and redirect visible solar energy while controlling the infrared energy, wind generators and wind powered pumps.

            Additionally, statute provides two TPT exemptions for solar energy devices: 1) a retailer may deduct from the tax base the amount it received from the sale of solar energy devices up to $5,000 and 2) a prime contractor may deduct the gross proceeds of sales or gross income derived from a contract to provide and install a solar energy device up to $5,000 for taxable years 1997 through 2010.  H.B. 2429 continues the TPT exemptions but removes the $5,000 cap on each of the exemptions.

            According to the fiscal note for H.B. 2429 prepared by the Joint Legislative Budget Committee (JLBC), the estimated incremental revenue loss from the bill is approximately $1.8 million in FY 2006-2007.  JLBC further states that there is some uncertainty about the bill’s impact due to the behavioral effects of creating new incentives; while the bill contains a $1 million cap per year on corporate credits, the cost to the state General Fund could be significantly higher if the incentives and prospective changes in state regulatory policies increase demand for residential solar systems.  Additionally, reductions in prime contracting sales tax and income tax revenue will reduce the counties’ share of revenues by approximately $68,000 and the cities’ share by $24,000 in FYs 2006-2007 and 2007-2008.  Finally, according to the Arizona Department of Commerce (ADOC), two full-time positions are necessary to carry out the provisions of H.B. 2429; funding of these positions is not provided for in the bill and would be incurred by the state General Fund.

Provisions

Business Income Tax Credit

1. Creates, retroactive to January 1, 2006, an individual and a corporate income tax credit for the installation of a solar energy device in taxable years 2006 through 2012, equal to ten percent of the installation cost.

2. Caps the tax credit at $25,000 per building up to $50,000 total per year.

3. Allows unused solar energy device tax credits to be carried forward for up to five consecutive taxable years.

4. Requires a solar energy device provider or installer to provide an accounting of the costs to the business.

5. Prohibits business co-owners from claiming more than a pro rata share of the solar energy device tax credit.

Transaction Privilege Tax

6. Removes the $5,000 cap on the TPT exemptions under the retail and prime contracting classifications for sales and installation of solar energy devices.

Solar Energy Tax Incentives Program

7. Requires ADOC to establish procedures for identifying projects that qualify for commercial solar energy income tax credits.

8. Requires ADOC to develop a form businesses must use to apply for commercial solar energy income tax credits and stipulates information that the application must contain.

9. Requires ADOC to evaluate each application, determine whether each application meets necessary criteria and provide certification for qualified projects to the Department of Revenue (DOR).

10. Requires, when a certified project is completed, the business to certify that the solar energy device or system is operational and provide ADOC with a total amount of income tax credits it is claiming.  Requires ADOC to review installation expenses, issue a tax credit certificate to the business and transmit the credit information to DOR.

11. Caps the total amount of commercial solar energy tax credits at $1,000,000 per year.

12. Directs ADOC and DOR to collaborate in the adoption of rules necessary to accomplish the intent and purpose of commercial solar energy income tax credits.

Appraisal of Property Value

13. Stipulates that solar energy devices designed for on-site use add no value to real property for tax purposes.

Miscellaneous

14. Classifies applications for commercial solar energy income tax credits as confidential and not subject to disclosure for 18 months after applications are submitted.

15. States that the purpose of the corporate income tax credit for solar energy devices is to stimulate the production and use of solar energy in commercial and industrial applications by subsidizing the initial costs of equipment and installation.

16. Adds the solar energy device tax credits to the income tax credit review schedule for 2011.

17. Makes technical changes to blend multiple laws, passed in the 2005 legislative session, governing the income tax credit review schedule and repeals the second version, which is no longer necessary.

18. Makes conforming changes.

19. Becomes effective on the general effective date, except as otherwise noted.

Amendments Adopted by Committee

· Removes residential income tax credit provisions.

Amendments Adopted by Committee of the Whole

· Reduces the cap on commercial solar energy tax credits to $1,000,000 per year.

House Action Senate Action

ENV                1/25/06     DP        9-0-0-0                  FIN                 3/13/06     W/D

WM                 2/13/06     DPA     7-0-0-2                  NRRA             3/29/06      DPA     6-0-1-0

3^rd Read           3/2/06                    43-13-4-0              3^rd Read           6/20/06                   23-4-3-0

Prepared by Senate Research

June 20, 2006

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