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ARIZONA HOUSE OF REPRESENTATIVESFifty-sixth Legislature First Regular Session |
Senate: FIN DP 4-3-0-0 | 3rd Read 16-14-0-0 |
SB 1108: income tax; credit; labor costs
Sponsor: Senator Rogers, LD 7
Committee on Ways & Means
Overview
Creates a Credit for Increased Hourly Labor Costs (Credit) against individual and corporate income tax liability for employers in a city or town where local minimum wage is above state minimum wage.
History
The state minimum wage is set by statute and is annually increased based on the increase in the cost of living. Currently, the state minimum wage is $13.85. Counties and other municipalities have the ability to regulate minimum wage but cannot make it lower than the states minimum wage. (A.R.S. § 23-363)(A.R.S. § 23-364).
The Urban Revenue Sharing Fund (URS) was established and provides that a percentage of income tax revenues (both individual and corporate) be shared with cities and towns within the state. Currently, 15% of net income tax revenue from the previous two years is distributed in towns. Beginning in FY24, the distribution percentage will be increased from 15% to 18%. The URS fund is distributed to each incorporated city and town using population estimates from the U.S. Census Bureau. (A.R.S. § 42-5033.01)(A.R.S. § 43-206)
In Arizona, individual income tax is levied on an individual's income at a single tax rate of 2.5 percent. Corporate income tax is levied on a corporation's taxable income at 4.9 percent. The calculation of Arizona individual income tax begins with the federal adjusted gross income and the corporate income tax begins with federal taxable income, which are then subject to various additions, subtractions and deductions, as applicable. (A.R.S. Title 43, Chapter 10 and 11)
Provisions
1. Establishes the Credit allowed against individual and corporate income tax liability beginning January 1, 2024, for a portion of a taxpayer's increased hourly labor costs resulting from paying a local minimum wage that is above state minimum wage. (Sec. 3,4)
2. Sets the amount of the Credit at 10% of the difference between the amount of hourly labor costs the employer paid during the taxable year and the product of the total number of hours worked by all employees during the taxable year multiplied by the state minimum wage. (Sec. 3,4)
3. Adds the Credit to the income tax credit review schedule. (Sec. 2)
4. Requires the State Treasurer, on notice from the Department of Revenue to withhold from a city's or town's URS distribution an amount equal to one-twelfth of the total credit amount claimed by taxpayers in that city or town for the prior taxable year and deposit that amount into the General Fund. (Sec. 1)
5. Prohibits the State Treasurer from withholding any amount that a city or town needs to make required deposits or payments for debt service on bonds or other long-term obligations. (Sec. 1)
6. Specifies qualifications for employers as follows:
a) Employs employees in a city or town that has adopted a local minimum wage; and
b) Certifies the amount of hourly labor costs the employer paid during the taxable year and the product of the total number of hours worked by the employees multiplied by the state minimum wage. (Sec. 3,4)
7. Allows the amount of the claim not used to be carried forward as a credit against subsequent years corporate and individual income tax liability. (Sec. 3,4)
8. Specifies that owners of a business may each claim only the pro rata share of the credit allowed based on their ownership interest. (Sec. 3,4)
9. Requires the DOR to notify the state treasurer of each city or town in which a credit was claimed and the total amount to withhold from that city's or town's urban revenue sharing distribution to reimburse the state for the individual and corporate tax credits claimed. (Sec. 3,4)
10. Defines "local minimum wage" and "state minimum wage." (Sec. 3,4)
11. Contains a purpose statement. (Sec. 5)
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Makes technical changes. (Sec. 1,2)
13. Makes conforming changes. (Sec. 2)
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17. SB 1108
18. Initials VP/AA Page 0 Ways & Means
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