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BILL # SB 1162 |
TITLE: corporate income tax rate reduction |
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SPONSOR: Yarbrough |
STATUS: As Introduced |
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PREPARED BY: Ted Nelson |
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SB 1162 reduces the corporate income tax rate from 6.968% to 5.000% in equal decrements over 4 years, beginning in Tax Year (TY) 2013.
Estimated Impact
The bill is estimated to decrease Corporate Income Tax collections by $(54.1) million in FY 2014, $(113.1) million in FY 2015, $(176.9) million in FY 2016, and $(246.0) million in FY 2017, when the rate reduction is fully implemented.
SB 1162 proposes to decrease the percentage of Arizona taxable income that is collected as corporate income tax. The impact of this change can be estimated by applying the corporate tax rates proposed in this bill to estimates of Arizona taxable income. Comparing those estimates to net corporate income tax collections under the current tax rate produces an estimate for the impact of a reduction in the corporate tax rate.
Estimates for FY 2011 - FY 2015 are based on the January 2011 4-sector consensus forecast. Estimates after FY 2015 reflect the 15-year average annual growth rate in corporate income tax collections. Assuming that the impact of a change in the corporate tax rate in a given tax year is not realized until the next fiscal year, the statewide impact of decreasing the corporate tax rate under SB 1162 is outlined in the table below:
|
TY |
FY |
Estimated AZ Taxable Income |
Baseline Tax Rate |
Baseline Net Collections |
SB 1162 Tax Rate |
SB 1162 Estimated Net Collections |
Annual Impact |
|
2010 |
2011 |
$ 8,229,813,433 |
6.968% |
$573,453,400 |
6.968% |
$573,453,400 |
- |
|
2011 |
2012 |
9,670,031,573 |
6.968% |
673,807,800 |
6.968% |
673,807,800 |
- |
|
2012 |
2013 |
10,114,853,025 |
6.968% |
704,802,959 |
6.968% |
704,802,959 |
- |
|
2013 |
2014 |
10,994,845,238 |
6.968% |
766,120,816 |
6.476% |
712,026,178 |
$ (54,094,639) |
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2014 |
2015 |
11,489,613,274 |
6.968% |
800,596,253 |
5.984% |
687,538,458 |
(113,057,795) |
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2015 |
2016 |
11,983,666,645 |
6.968% |
835,021,892 |
5.492% |
658,142,972 |
(176,878,920) |
|
2016 |
2017 |
12,498,964,311 |
6.968% |
870,927,833 |
5.000% |
624,948,216 |
(245,979,618) |
The analysis above does not reflect the behavioral responses of corporations to a reduction in the corporate income tax rate. Generally, reduced taxes can serve as an incentive for businesses to employ more capital and labor than they otherwise would. These “dynamic” effects may result in an increase in economic output, which in turn may generate more tax revenue dollars for the state General Fund than what a “static” analysis assumes.
Local Government Impact
The Urban Revenue Sharing (URS) formula distributes 15% of corporate income taxes collected 2 years prior to incorporated cities and towns. The provisions contained in this bill would impact the URS distributions beginning in FY 2016, with local governments’ URS distributions decreasing by $(8.1) million in that year, $(17.0) million in FY 2017, $(26.5) million in FY 2018, and $(36.9) million in FY 2019, when the rate reduction is fully implemented.
2/2/11