House of Representatives

2477

corporate income allocation; sales factor

Sponsors: Huffman, Leff, Somers, et al

 

DP

Committee on Commerce and Economic Development

DP

Committee on Ways and Means

DPA

Caucus and COW

 

X

As Passed the House

 

HB 2477 allows business to select either the current apportionment formula or to select a more heavily weighed sales factor formula.

 

History

Arizona law, like other states, requires an apportionment formula for corporations who have income from both in and outside of the state in order to determine the amount of income that is attributable to Arizona.  Prior to 1991, Arizona employed an evenly weighted three factor approach.  In 1991 Arizona adopted a double weighted sales factor apportionment formula. The corporation completes the following calculations to determine Arizona tax liability:

1.       Payroll paid in Arizona divided by payroll paid everywhere.

2.      Value (original cost) of property situated in Arizona divided by value (original cost) of property everywhere.

3.      Sales that occur in Arizona times two, divided by sales everywhere.

4.      The three percentages are added together and are divided by four to produce a ratio to apportion total taxable income to Arizona.

 

Currently, 7 states have adopted the 100% sales factor apportionment formula and 4 have adopted sales apportionment formulas with sales factors varying from 60-90%.  Companies with most of their employment and manufacturing in state and out of state sales are favored by the more heavily weighting the sales factor.

 

 

 

             ESTIMATED GENERAL FUND IMPACT

 

 

FY02

FY03

FY04

FY05

FY06

FY07

Tax Year 02

$6.4M

$16.7M

$2.6M

 

 

 

Tax Year 03

 

$9.6M

$25.0M

$3.9M

 

 

Tax Year 04

 

 

$12.9M

$33.4M

$5.1M

 

Tax Year 05

 

 

 

$16.1M

$41.7M

$6.4M

Tax Year 06

 

 

 

 

$16.1M

$41.7M

Tax Year 07

 

 

 

 

 

$16.1M

Totals

$6.4M

$26.3M

$40.5M

$53.4M

$62.9M

$64.2M

 

Source:  Arizona Department of Revenue

Provisions

·        Adds an additional apportionment formula, which consecutively increases the weight of the sales factor until reaching 100% after December 31, 2004.

·        Allows business to select the more heavily weighted apportionment formula or the current formula.

·        Contains an effective date from and after December 31, 2001.

 

Effective Dates                                                                        

            12/31/01          12/31/02          12/31/03          12/31/04

                             to                     to                     to                     on                           12/31/02          12/31/03            12/31/04                     

Property                      

   Option A       25%                 25%                 25%                 25%    

   Option B       15%                 10%                 5%                   0%

 

Payroll

   Option A       25%                 25%                25%                 25%

   Option B       15%                 10%                 5%                   0%

                                   

Sales

   Option A       50%                 50%                 50%                 50%

   Option B       70%                 80%                 90%                 100%

 

HB 2477 passed the Commerce and Economic Development Committee unamended.

HB 2477 passed the Ways and Means Committee unamended.

HB 2477 was amended in the Committee of the Whole as Follows:

·        Strikes the additional apportionment formulas, which consecutively increases the weight of the sales factor until reaching 100% after December 31, 2004. And replaces it with one apportionment formula where the property factor equals 12.5%, the payroll factor equals 12.5% and the sales factor equals 75%.   Changes the fiscal impact.    The full impact is $32.1 M, however, since corporations file over several fiscal years, the impact is $8M in FY02 and $28.9M in FY03.

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·        45th Legislature                                                                                                                          

·        First Regular Session                             3                                                            May 10, 2001

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