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ARIZONA STATE SENATE
Fifty-Sixth Legislature, First Regular Session
AMENDED
businesses; fees; income tax reduction
Purpose
Prescribes, beginning January 1, 2024, a threshold of five percent of state contracts the Arizona Department of Administration (ADOA) is encouraged to award to new businesses each year and exempts a new business and a person who is establishing a new business from filing fees to establish the new business. Establishes an individual and corporate income tax subtraction in prescribed amounts for a new 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).
The Joint Legislative Budget Committee estimates that S.B. 1559, as introduced, would result in state General Fund costs of $34.3 million in FY 2025, $36.5 million in FY 2026 and $38.9 million in FY 2027. Due to data constraints, the estimates are speculative and should be interpreted with caution (JLBC fiscal note).
Provisions
1. Requires, beginning January 1, 2024, ADOA to be encouraged to award five percent of the total number of state contracts entered into each year to new businesses and specifies that ADOA is not required to award five percent of state contracts to new businesses each year.
2. Exempts a person who is establishing a new business from all Arizona Corporation Commission business, service and copying filing fees.
3. Exempts a new business or person who is establishing a new business from paying:
a) all Secretary of State business and trademark registration, copying and financing statement filing fees; and
b) the $12 transaction privilege tax license fee.
4. Establishes, for taxable years beginning January 1, 2024, an income tax subtraction for an individual who is the owner of a new business and who received income from the new business in an amount equal to:
a) 100 percent of the income received from the new business, for the first year of operation;
b) 50 percent of the income received from the new business, for the second year of operation; and
c) 25 percent of the income received from the new business. for the third year of operation.
5. Establishes, for taxable years beginning January 1, 2024, a corporate income tax subtraction for a corporation that is a new business 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.
a) reducing the time for approving a contract;
b) reducing the time for payment of services rendered in a contract;
c) marketing and outreach to new businesses;
d) prioritizing innovation as a selection factor;
e) measuring past performance based on non-state customers; and
f) training and educating new businesses.
7. Requires ADOA, by December 31 of each year, to submit a report to the Governor, President of the Senate and Speaker of the House of Representatives that includes:
a) the total number and dollar amount of state contracts awarded in the prior year and the number and dollar amount of contracts awarded to new businesses;
b) any actions taken to reduce barriers for new businesses to compete for state contracts; and
c) any recommendations to improve access to state contracts for new businesses.
8. Requires ADOA to post the report on its website and provide a copy to the Secretary of State.
9. 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.
11. Makes technical and conforming changes.
12. Becomes effective on the general effective date.
Amendments Adopted by Committee of the Whole
2. Specifies that ADOA is not required to award five percent of state contracts to new businesses each year.
3. Exempts a new business and a person who is establishing a new business from outlined filing fees relating to establishing a new business.
4. Modifies the definition of new business.
5. Requires ADOA to:
a) evaluate lowering barriers for new businesses to compete for state contracts through prescribed methods; and
b) annually report outlined information relating to state contracts for new businesses to the Governor and Legislature.
6. Makes technical and conforming changes.
Senate Action
FIN 2/13/23 DP 4-3-0
Prepared by Senate Research
March 9, 2023
MG/sr