House of Representatives

HB2015

internal revenue code conformity

Sponsors: Representative May

 

X

 

Committee on Ways and Means

 

Caucus and COW

 

 

As Passed the House

 

HB 2015 updates the definition of the United States internal revenue code (IRC) for tax year 2001 to the IRC definition in effect on January 1, 2001 for Arizona tax purposes.

 

History

Since 1978 the provisions of the federal internal revenue code have been adopted by the Legislature to conform the computation of Arizona income tax and other statutory references throughout the Arizona Revised Statutes with the IRC as amended.  Each year, legislation updates the statutory definition of the IRC to include any provisions that may have become effective in the previous year. This is because Arizona, like many states, stipulates that taxpayers use Federal Adjusted Gross Income  (FAGI) as defined in the Internal Revenue Code.

 

HB 2015 is the annual bill that conforms the Arizona statutory definition of the Internal Revenue Code to the 2000 IRC.  According to the Department of Revenue (DOR), there is an expected small net decrease in state tax revenue of ($0.593) thousand in FY 2001, ($1.378) million in FY 2002, ($1.700) million in FY 2003, and ($1.787) million in FY 2004.

 

Provisions

·                      Updates the definition of the Internal Revenue Code (IRC) for tax year 2001 to the IRC in effect on January 1, 2001.

·                      For tax periods beginning from and after December 31, 2000 through December 31, 2001 revises the definition of the IRC in effect on January 1, 2001 for the purposes of Arizona income taxation.

 

 

 Effects on HB 2015 due to Federal conformity Changes:

·                      FSC Repeal and Extraterritorial Income Exclusion Act of 2000: Repeals the current Foreign Sales Corporation system in which income from exports made through a Foreign Sales Corporation could be excluded from gross income for U.S. income tax purposes.  Also provides that gross income for U.S. tax purposes does not include extraterritorial income to the extent that such income is considered “qualifying foreign trade income” and provides alternative methods for computing this type of income. The provision is effective for transactions entered into after September 30, 2000. This will decrease tax revenue.

·                      Community renewal Tax Relief Act of 2000; 114  Increase Expensing under Section 179.  Qualified businesses in Empowerment Zones can expense, rather than capitalize, an additional $35,000 (an increase from $20,000) for qualified zone property placed in service in taxable years beginning after December 31, 2001.  The provision is effective for taxable years beginning after December 31, 2001.  This decreases tax revenue.

·                      116 Non recognition of Gain on Rollover of Empowerment Zone Investments. Allows taxpayers to roll over gain from the sale or exchange of any qualified empowerment Zone asset held for more than one year, if the taxpayer uses the proceeds to purchase other qualifying empowerment zone assets, in the same zone, within 60 days of the sale of the original asset. Provision is effective for assets acquired after date of enactment - December 21, 2000. Revenue impact is a decrease in tax revenue.

·                      117  Increased Exclusion of gain on sale of Empowerment Zone Stock.   Increases the exclusion of gain to 60% (from 50%) for the sale of qualifying small business stock held more than five years if the stock also satisfies the requirements of a qualifying business under the empowerment zone rules. Provision is effective for qualifying stock that is purchased after date of enactment-December 21, 2000.  Revenue impact decreases tax revenue.

·                      162  Modifications to Expensing of Environmental Remediation Costs.  Extends the expiration date for expenditures for environmental remediation to be eligible for a current deduction instead of capitalization to include those expenditures paid or incurred before January 4, 2004.  Also eliminates the targeted area requirement, which expands the eligible sites to include any sites, other than a site identified on the national priorities list containing (or potentially containing) a hazardous substance. Provision is effective for expenditures paid or incurred after the date of enactment - December 21,2000. Revenue impact is a decrease in tax revenue.

·                      165  Extension of Enhanced deduction for Corporate Donations of Computer Technology.  Extends the current enhanced deduction for donations of computer technology and equipment for two years.  Also expands the deductions to include donations to public libraries, applies to property donated no later than three years after the date that taxpayer acquired or substantially completed the construction of the property, and applies to property donated after reacquisition by a computer manufacturer.  Effective date is for contributions made after December 31, 2000. Revenue impact is a decrease in tax revenue.

·                      201-202  Two-year Extension of Availability of Medical Savings Accounts.  Extends the Medical Savings Account Program through 2002. Date of enactment is December 21, 2000. Negligible revenue impact.

·                      306  Treatment of missing children with respect to Certain Tax Benefits.  Allows the dependency exemption, the child credit, the surviving spouse filing status, the head of household status, and earned income credit to an otherwise qualifying taxpayer with respect to a child who is presumed by law enforcement authorities to have been kidnapped by someone who is not a family member. The effective date is for taxable years ending after date of enactment  - December 21, 2000 and there is a negligible revenue impact.

·                      Prevention of duplication of Loss Through Assumption of Liabilities Giving Rise to a Deduction.  The basis of stock received in a tax-free incorporation must be reduced by the amount of any liability that (1) is assumed in the exchanged for such stock and (2) did not otherwise reduce the transferor’s basis of the stock by reason of the assumption. Effective date for all assumptions of liabilities on or after October 19, 1999.  Impact on tax revenue is an increase.

·                      314 & 316  Technical corrections.  Amendments related to the Taxpayer Relief Act of 1997 and Small Business Job Protection Act of 1996. Effective date is retroactive to date of the original enactment and there is negligible revenue impact.

·                      401  Tax Treatment of Securities Futures Contracts.  Provides rules regarding the treatment of securities futures contracts, which are generally a contract of sale for future delivery of a single security or a narrow- based security index.  Date of enactment is December 21,2000 and the revenue impact is negligible.

·                      Installment Tax Correction Act of 2000 1-2.  Repeals Section 536 (a) of the 1999 Ticket to Work and Work Incentives Improvement Act the prohibited the use of the installment method of accounting for accrual method taxpayers.  Reinstates the provision allowing income from the sale of a trade or business to be recognized and reported on an installment basis, as opposed to all at once at the time of sale.  This provision is retroactive for sales or other dispositions occurring on or after December 17, 1999.  Revenue impact is a decrease in tax revenue.

 

 

 

 

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44th Legislature                                                                                                                                

Second Regular Session                               3                                                       January 15, 2001

 

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