Luxury tax; exemption;
technical correction
As
introduced, provides a technical correction to the interstate sale of luxury
items. The proposed strike-everything amendment provides for a corporate
income tax rate reduction and increases the income threshold for the family tax
credit.
Every corporation doing business in Arizona is required to file a corporate income tax return. According to the Department of Revenue 2000 Annual Report, approximately 52,000 corporations filed returns during Fiscal Year 1999-2000 with payments of $637.7 million. The corporate tax rate for that period was a flat rate of 8% on taxable income. The current rate for tax year 2001 is a flat rate of 6.968%. There is a $50 minimum tax liability imposed on all corporate returns.
While states vary on how they arrive at corporate taxable liability, listed below is a comparison of the corporate tax rate to other western states:
California flat rate of 10.84% (minimum $800)
Colorado flat rate of 4.63%
Idaho flat rate of 8.0% (minimum $20)
New Mexico 4.8% - 7.6%
Oregon flat rate of 6.6% ($10 minimum)
Utah flat rate of 5.0% ($100 minimum)
The strike-everything amendment will reduce the corporate rate from the current 6.98% to 5.04% over four years. The 5.04% rate will match the highest rate imposed on individual filers in Arizona.
Based on information provided by DOR, the fiscal impact is approximately $33 million for each one-half percent drop in the rate. Corporate income is generally paid over three years therefore each drop in the rate is spread over three years. The estimated impact for FY 02 is $8M and FY 03 $29.3 M. The impact increases in future years.
In addition, the proposed strike-everything amendment proposes a change to the income threshold limits for the family income tax credit. In 1995 the legislature passed an individual income tax reduction. Incorporated in that legislation was the establishment of a family income tax credit for low-income families that allows a family of four with an Arizona gross income of $20,000 or less to pay no state income tax. A tax credit of $30 was allowed for each person or dependent, up to a maximum of $120.
This amount was later amended in 1998 to $40 for each member in the family and allowing up to six family members to qualify for the credit. The tax credit is non-refundable and is available only for the tax year of the filing. The non-refundability means that the credit can only be used to reduce existing tax liability. If the credit is greater than existing liability, the income tax filer is not eligible to receive the "excess" amount of credit from the state as a payment.
Tax credits claimed for the family income tax credit have significantly exceeded tax liabilities of the eligible filers. An estimated $(29.3) million of family tax credits were claimed in tax year 1999, but only $(7.7) million of tax credits were used to offset actual tax liabilities.
According to DOR, the proposed family tax credit income threshold increase will save taxpayers approximately $20 million. For those filers with a federal adjusted gross income (FAGI) of $30,000 or less, it will result in approximately a 12% reduction in tax liability. For those with a FAGI of $30,000 to $40,000, it will result in an average 6.4% reduction and for those with a FAGI of $40,000 to $50,000 the reduction will be approximately 1.3%. All other filers would see no change.
· Decreases the corporate income tax rate over a four-year period.
· The corporate income tax rate is reduced from 6.968 per cent (current rate for Tax Year 2001) as follows: Tax Year 2002 – 6.5 per cent, Tax Year 2003 - 6 per cent, Tax Year 2004 – 5.5 per cent and Tax Year 2005 and thereafter – 5.0 per cent.
· Increases the family tax credit income threshold amounts as follows:
|
Number of
Dependents |
Current Income
Threshold |
Proposed Income
Threshold |
|
MARRIED FILING
JOINT |
|
|
|
0 or 1 |
$20,000 |
$32,500 |
|
2 |
$23,600 |
$38,350 |
|
3 |
$27,300 |
$44,362 |
|
4 or more |
$31,000 |
$50,375 |
HEAD OF HOUSEHOLD |
|
|
|
0 or 1 |
$20,000 |
$32,500 |
|
2 |
$20,135 |
$32,719 |
|
3 |
$23,800 |
$38,675 |
|
4 |
$25,200 |
$40,950 |
|
5 or more |
$26,575 |
43,184 |
|
SINGLE or MARRIED
FILING SEPARATE |
|
|
|
0 or more |
$10,000 |
$16,250 |
HB
2475 strike everything amendment was adopted in the Ways and Means Committee as
listed in the provisions.
HB
2475 strike everything amendment was adopted by the House of Representatives as
listed in the provisions.
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45th Legislature
First Regular Session 3 March 19, 2001
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