ARIZONA STATE SENATE

ANNA NGUYEN

LEGISLATIVE RESEARCH INTERN

MOLLY GRAVER

LEGISLATIVE RESEARCH ANALYST

FINANCE COMMITTEE

Telephone: (602) 926-3171

RESEARCH STAFF

TO:                  MEMBERS OF THE SENATE

FINANCE COMMITTEE

DATE:            March 21, 2022

SUBJECT:      Strike everything amendment to H.B. 2112, relating to FDIC premiums; income tax; subtraction

Purpose

Requires, retroactive to taxable years beginning January 1, 2020, the amount of any Federal Deposit Insurance Corporation (FDIC) premiums paid or incurred by a taxpayer that is disallowed as a deduction for federal income tax purposes to be subtracted when computing a corporation's Arizona gross income.

Background

Arizona gross income for a corporation is the same as the corporation's federal taxable income for the taxable year. To determine a corporation's Arizona taxable income, the Arizona gross income is statutorily adjusted by additions and subtractions of certain expenses and income (A.R.S. §§ 43-1101; 43-1121; and 43-1122).

The U.S. Internal Revenue Code disallows a deduction for the applicable percentage of any FDIC premium paid or incurred by certain large financial institutions, unless the total consolidated assets of the taxpayer are less than $10 billion (26 U.S.C. § 162). Prior to 2017, federal law considered FDIC premiums as ordinary and necessary expenses and therefore deductible. In 2017, the Tax Cuts and Jobs Act limited the deduction of FDIC premiums based on the consolidated assets of a financial institution (P.L. 115-97 § 13531, 115th Congress, 2017).

The Joint Legislative Budget Committee issued a fiscal note on an identical measure,
S.B. 1461, which estimates a one-time reduction of $8.4 million to the state General fund if banks elect to amend their TY 2020 and 2021 tax filings to retroactively claim the deduction for FDIC premiums. Beginning in FY 2023, the legislation may result in an ongoing reduction of state General Fund revenues of $4.2 million (JLBC fiscal note).

Provisions

1. Requires, when computing Arizona taxable income for a corporation, the amount of any FDIC premiums paid or incurred by a corporate taxpayer that is disallowed as a deduction for federal income tax purposes to be subtracted from Arizona gross income.

2. Becomes effective on the general effective date, retroactive to taxable years beginning
January 1, 2020.