ARIZONA STATE SENATE

LYDIA CHEW

LEGISLATIVE RESEARCH INTERN

 

CAROLYN SPERONI

LEGISLATIVE RESEARCH ANALYST

FINANCE COMMITTEE

Telephone: (602) 926-3171

RESEARCH STAFF

 

 

TO:                  MEMBERS OF THE SENATE

                        FINANCE COMMITTEE

DATE:            February 18, 2019

SUBJECT:      Strike everything amendment to S.B. 1485, relating to school tuition organization; inflator

 

Purpose

Gradually reduces the increase in the aggregate tax credit cap for school tuition organizations (STOs).

Background

Current statute allows corporate income tax credits for contributions made to a certified STO. The Arizona Department of Revenue is prohibited from approving more than an aggregate of $10,000,000 in any fiscal year. Beginning in FY 2008, the maximum tax credit level increases by 20 percent from the level in the previous fiscal year (A.R.S. § 43-1183).

The strike-everything amendment to S.B. 1485 may slow the growth of corporate STO tax credits, although a 2018 Joint Legislative Budget Committee fiscal note points to the recent slowing of STO tax credit claims and declining corporate tax liability to suggest less demand for the credits in future fiscal years (JLBC fiscal note). However, if corporate STO tax credits are assumed to be fully utilized, the positive impact to the state General Fund under the proposed formula is as follows (in millions of dollars):

 

Maximum Tax Credit Level (20% Growth)

Maximum Tax Credit Level (S.B. 1485 Formula*)

Difference between Maximum Tax Credit Level with 20% Growth and with S.B. 1485 Formula*

Total Reduction in Maximum Tax Credit Level with S.B. 1485 Formula*

FY 2019

89.2

x

x

x

FY 2020

107.0

x

x

x

FY 2021

128.4

123.0

5.3

5.3

FY 2022

154.1

135.3

18.7

24.1

FY 2023

184.9

142.1

42.8

66.8

FY 2024

221.9

145.0

76.9

143.7

*Assumes growth at 2 percent, rather than at the inflation rate, in FY 2024.

Provisions

1.      Reduces the cap on annual growth for corporate STO tax credits from 20 percent each fiscal year to:

a)      15 percent in FY 2021;

b)      10 percent in FY 2022;

c)      5 percent in FY 2023; and

d)      2 percent or inflation, whichever is greater, in FY 2024 and each fiscal year thereafter.

2.      Makes technical changes.

3.      Becomes effective on the general effective date.