ARIZONA STATE SENATE

Fifty-Sixth Legislature, First Regular Session

FACT SHEET FOR h.b. 2003

corporate income tax; rates

Purpose

Retroactive to taxable years beginning January 1, 2023, reduces the corporate income tax rate in each of the next four years until the tax reaches 2.5 percent in TY 2026.

Background

Corporate income tax is levied on corporations that engage in business in Arizona at a minimum payment of $50.00 or 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. A multi-state company must allocate a portion of its income to Arizona based on its Arizona property, payroll and sales. A multi-state corporation may also elect to allocate its income to Arizona based solely on its sales in the state. A portion of corporate income tax collections is shared with incorporated cities and towns within Arizona (A.R.S. §§ 42-206; 43-1101; 43-1111; 43-1121; 43-1126; 43-1147; and
43-1201). In FY 2022, corporate income tax collections sourced 6.7 percent of state General Fund (state GF) revenues (JLBC).

S corporations are corporations that elect to pass corporate income, losses, deductions and credits through to their shareholders for federal tax purposes (IRS). S corporations, federally exempt corporations, political subdivisions of the state or federal government, insurance companies that pay the state a tax on premium income derived from sources in Arizona and nonprofit medical marijuana dispensaries are exempt from the Arizona corporate income tax (A.R.S. §§ 43-104; 43-1126; 43-1201).

The Joint Legislative Budget Committee fiscal note on H.B. 2003, as introduced, estimates that phasing down the corporate income tax rate from 4.9 percent to 2.5 percent over four years will result in a state GF revenue reduction of $223.4 million in FY 2024, $365.9 million in FY 2025, $523.8 million in FY 2026 and $668.9 million in FY 2027 (JLBC fiscal note).

Provisions

1. Reduces the corporate income tax rate to:

a) 4 percent of net income for TY 2023;

b) 3.5 percent of net income for TY 2024;

c) 3 percent of net income for TY 2025; and

d) 2.5 percent of net income for TY 2026 and each year thereafter.

2. Makes technical changes.

3. Becomes effective on the general effective date, retroactive to taxable years beginning January 1, 2023.

House Action

WM 1/11/23 DP 6-4-0-0

APPROP 1/11/23 DP 9-5-0-1

3^rd Read 2/21/23 31-29-0

Prepared by Senate Research

March 3, 2023

LMM/GHR/sr