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ARIZONA HOUSE OF REPRESENTATIVESFifty-fifth Legislature Second Regular Session |
Senate: APPROP DPA/SE 7-2-1-0 | 3rd Read 19-10-1-0House: APPROP DP 9-4-0-0 |
SB 1643: research; development; tax credits
Sponsor: Senator Fann, LD 1
Caucus & COW
Overview
Permits taxpayers to reinvest excess tax credits from the Research and Development Credit (R&D Credit) for specified purposes. Appropriates $50,075,000 to the Arizona Commerce Authority (ACA) for R&D Credit reinvestments.
History
The corporate and individual R&D Credit is a conditionally refundable income tax credit which taxpayers may claim for increased research and development activities conducted in Arizona. The R&D Credit is equal to 24% of the first $2,500,000 in qualifying expenses plus 15% of the qualifying expenses in excess of $2,500,000. If the amount of the R&D Credit exceeds the taxpayer's income tax liability, the amount of the credit claimed that is not used to offset taxes may be carried forward for 10 consecutive tax years. The nonrefundable portion of the R&D Credit is administered by the Arizona Department of Revenue (DOR) and the refundable portion is administered by the ACA (A.R.S. §§ 43-1074.01; 43-1168).
A company that qualifies for the R&D Credit and employs fewer than 150 full-time employees can apply to the ACA for a partial refund of up to 75% of the excess credit amount. The ACA may not approve R&D Credit refunds exceeding a total of $5,000,000 in a calendar year. If, at the end of the year, less than $5,000,000 has been refunded, the balance is reallocated for a refund in the following year (A.R.S. §§ 41-1507; 43-1074.01; 43-1168).
Provisions
Unused R&D Credit Reinvestments
1. Directs the ACA to accept an application from, evaluate and certify, a taxpayer who carries forward a balance of unused R&D Credit to qualify a portion of that taxpayer's unused credit for reinvestment in specified investments. (Sec. 2)
2. Provides the following conditions for approving a portion of unused R&D Credits for reinvestment:
a) the R&D Credit must be unexpired;
b) the R&D Credit must be converted at the rate of $0.60 per dollar;
c) an applicant may not receive more than $10,000,000 per year; and
d) the amount of an applicant's unused R&D Credits must be reduced by the amount of credits converted. (Sec. 2)
3. Specifies that reinvestments may only be used for:
a) sustainability or water capital projects;
b) building or updating the taxpayer's research and development facilities;
c) a capital expenditure project between the taxpayer and an institution of higher learning or a career technical education district (CTED);
d) a workforce development project between the taxpayer and an institution of higher learning or a CTED; or
e) a capital expenditure project that is supported by matching monies from a federal program or a national grant program. (Sec. 2)
4. Instructs taxpayers to apply to the ACA by December 31 of each taxable year and provide specified information to the ACA. (Sec. 2)
5. Requires the ACA to process and evaluate each application and notify the applicant of approval or disapproval within 90 days. (Sec. 2)
6. Caps the amount of R&D Credits that may be converted for reinvestment at $50,000,000 per fiscal year. (Sec. 2)
7. Specifies that reinvestments are allowed on a first-come first-served basis. (Sec. 2)
8. Prohibits the ACA from distributing reinvestment monies to a taxpayer before the ACA reviews and approves the taxpayer's project. (Sec. 2)
9. Directs the ACA to conduct an economic analysis regarding the R&D Credit reinvestments in 2027 and 2030 and submit a report of its analysis to specified legislative and executive officials. (Sec. 2)
10. Instructs the ACA to communicate a taxpayer's credit status with DOR. (Sec. 2)
11. Instructs DOR to provide information related to a taxpayer's unused tax credits to the ACA on request. (Sec. 2)
12. Directs the ACA to adopt rules and publish forms to implement R&D Credit reinvestment. (Sec. 2)
13. Permits the ACA to recapture part or all of the unused R&D Credit reinvestment from a taxpayer who does not comply with all statutory requirements. (Sec. 2)
14. Repeals the R&D Credit reinvestment on July 1, 2033. (Sec. 3)
15. Establishes, retroactive to July 1, 2022, the R&D Credit reinvestment. (Sec. 5)
Miscellaneous
16. Increases, from $5,000,000 to $10,000,000, the amount of R&D Credit refunds the ACA may approve each year. (Sec. 1)
17. Appropriates $50,075,000 from the state general fund to the ACA in FY 2023 and specifies:
a) $50,000,000 is to implement the R&D Credit reinvestment; and
b) $75,000 is to be used for administration costs. (Sec. 4)
18. Exempts the appropriation from lapsing. (sec. 4)
19. Designates this legislation with the short title Arizona Reinvestment Fund Act. (Sec. 6)
20. Makes technical changes. (Sec. 1)
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SB 1643
Initials AF/NM Page 0 Caucus & COW
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