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ARIZONA STATE SENATE
Fifty-Sixth Legislature, First Regular Session
businesses; fees; income tax reduction
Purpose
Requires, beginning January 1, 2024, the Arizona Department of Administration (ADOA) to award five percent of state contracts to new businesses each year and to waive all applicable licensing and registration fees for a new business. Establishes an individual and corporate income tax subtraction in prescribed amounts for a business's first three years of operation.
Background
ADOA supports the operation of state government by providing medical and
other health benefits to state employees, maintaining office buildings and purchasing
goods and services needed to conduct business (ADOA). The Director of ADOA may: 1) make
contracts and incur obligations within the general scope of ADOA's activities
and operations; and 2) contract with or assist other departments, agencies and
institutions of the state, local and federal governments in the furtherance of
ADOA's purposes, objectives and programs. The Arizona Procurement Code outlines
requirements for procurement of services or materials using public monies by
the state acting through a purchasing agency, including departments,
commissions, councils, committees, agencies and officials of the executive
branch or Arizona Corporation Commission (A.R.S.
§§ 41-701; 41-703; 41-2501;
and 41-2503).
Individual income tax is levied at a single tax rate of 2.5 percent on the personal income of full-time residents and prorated for part-time residents of Arizona. The starting point for Arizona individual income tax is the federal adjusted gross income. To determine an individual's Arizona adjusted gross income, Arizona gross income is statutorily adjusted by additions and subtractions of certain expenses and income (A.R.S. §§ 43-1021; 43-1022; and 43-1011, Version 2).
Corporate income tax is levied at a rate of 4.9 percent. 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).
If establishing an individual and corporate income tax subtraction results in a change in collected income taxes, there may be a fiscal impact to the state General Fund.
Provisions
1. Requires, beginning January 1, 2024, ADOA to:
a) award five percent of the total number of state contracts entered into each year to new businesses; and
b) waive all applicable licensing and registration fees for a new business in its first year of operation or for a person who is establishing a new business, including home-based businesses, if the new business' principal place of business is in Arizona.
2. Establishes, for taxable years beginning January 1, 2024, an income tax subtraction for an individual who is the owner of a business and who received income from the business in an amount equal to:
a) 100 percent of the income received from the business, for the first year of operation;
b) 50 percent of the income received from the business, for the second year of operation; and
c) 25 percent of the income received from the business. for the third year of operation.
3. Establishes, for taxable years beginning January 1, 2024, a corporate income tax subtraction in an amount equal to:
a) 100 percent of the corporation's Arizona gross income, for the first year of operation;
b) 50 percent of the corporation's Arizona gross income, for the second year of operation; and
c) 25 percent of the corporation's Arizona gross income, for the third year of operation.
4. Defines a new business as a business that has been in operation for less than five years and whose principal place of business is in Arizona.
5. Becomes effective on the general effective date.
Prepared by Senate Research
February 9, 2023
MG/MC/sr