|
BILL # HB 2939 |
TITLE: child care; subsidies; tax credits |
|
SPONSOR: Livingston |
STATUS: As Introduced |
|
PREPARED BY: Grace Timpany |
|
HB 2939 would establish a tax credit in effect from FY 2026 through FY 2030 on insurance premium tax (IPT), corporate income tax (CIT), and individual income tax (IIT) paid by small businesses for qualifying child care expenditures. Qualifying expenditures include acquiring or constructing a facility, operating the facility or providing child care resource services to the taxpayer’s employees. The annual aggregate cap for the insurance premium and corporate income tax credits combined is $1.0 million. There is also a separate $1 million annual cap for the individual income tax credit available to small businesses, defined under the bill as those employing fewer than 100 employees. The tax credit for each taxpayer would be the lesser of $100,000 or the following:
1) For insurance premium tax, 25% of qualified child care expenditures
2) For corporate income tax, 25% of qualified child facility care expenditures plus 10% of the child care resource and referral expenditures
3) For individual income tax paid by small businesses, 50% of qualified child facility care expenditures plus 20% of the child care resource and referral expenditures
The bill would also establish an out-of-school time grant program under the Department of Economic Security (DES) to provide grants for child care programs that serve children ages 5 to 12 years outside of school hours. The bill appropriates $3.0 million annually to the program from FY 2026 to FY 2030.
Estimated Impact
Based on Arizona's proportionate share of a comparable federal credit, we estimate the tax credit program will reduce General Fund revenues by $(400,000) annually. The availability of the state credit, however, may result in Arizona's usage being higher than our proportionate share. In that circumstance, the cap could be reached for each of the two $1.0 million credits.
The cost of the out-of-school time grant program would be the $3 million General Fund appropriation.
Across the tax credits and the appropriations, the combined General Fund cost would be between $3.4 million and $5.0 million annually.
The Department of Revenue (DOR) and DES have not yet responded to our request for a fiscal impact.
The federal government offers a similar tax credit for employer-provided child care expenditures. The federal Joint Committee on Taxation estimates that annual nationwide revenue losses from the federal credit between Tax Year (TY) 2022 and TY 2026 will be $20 million. Arizona accounts for approximately 2% of all U.S. businesses. Based on the federal credit issued and the proportion of businesses in Arizona, we therefore estimate that the new state credit under the bill would generate a state revenue reduction of $(400,000). The creation of these 2 new state-level credits, however, could result in more usage than a proportionate share of the federal credit. As a result, the state could potentially reach the $1.0 million cap for each credit.
Any revenue losses from the credit could be at least partially offset by reduced utilization of the current state corporate income tax subtraction for the cost of purchasing, constructing, renovating, or remodeling a childcare facility, as the bill does not allow employers to claim both the credit and the subtraction. We do not, however, have an estimate of the current General Fund revenue loss associated with the existing subtraction.
Local Government Impact
Incorporated cities and towns receive 18% of individual and corporate income tax collections from 2 years prior from the Urban Revenue Sharing (URS) Fund established by A.R.S. 43-206. The bill would decrease statewide individual income tax and corporate income tax revenue by an estimated combined amount of $(400,000) annually from FY 2026 through FY 2030. For this reason, URS distributions to incorporated cities and towns would decrease by $(72,000) annually from years FY 2028 to FY 2032. Because IPT revenue is not included in URS distributions, the decrease could be lower depending on the amount of IPT credits claimed.
2/27/25