ARIZONA STATE SENATE
Phoenix, Arizona
REVISED
uniform principal and
income act
(NOW: corporate taxpayers; sales factor)
Arizona law requires corporations having income from sources both within and outside of the state to determine income attributable to the state based on an apportionment formula. Prior to 1991, Arizona employed an evenly weighted three-factor approach consisting of payroll, property and sales factors. The current Arizona apportionment formula (enacted in 1991) weighs the property and payroll factors singularly and the sales factor doubly. Consequently, the property and payroll factors each account for 25 percent of the apportionment ratio and the sales factor accounts for the remaining 50 percent.
In 1991, 11 states used a double-weighted sales approach. Presently, according to the Federation of Tax Administrators, over half of the states weigh the sales factor more heavily than the other apportionment factors. Of these states, seven have enacted a 100 percent sales factor approach and four have adopted apportionment formulas factoring sales between 60-90 percent. Weighing the sales factor more heavily favors companies with most of their employment or manufacturing within the state and sales out of state.
This measure allows
corporate taxpayers, for taxable years beginning January 1, 2002, to elect to
apportion their Arizona taxable income based on the current formula or an
apportionment formula that weighs the sales factor at 75 percent for Arizona
taxable corporate income.
According to the Department
of Revenue (DOR), the fiscal impact of this measure will be as follows:
|
|
FY 02 |
FY 03 |
FY 04 |
FY 05 |
|
Tax Year 02 |
$8.025M |
$20.865M |
$3.21M |
|
|
Tax Year 03 |
|
$8.025M |
$20.865M |
$3.21M |
|
Tax Year 04 |
|
|
$8.025M |
$20.865M |
|
Tax Year 05 |
|
|
|
$8.025M |
|
Totals |
$8.025M |
$28.89M |
$32.1M |
$32.1M |
Additionally, DOR estimates
that the fiscal impact continues to be $32.1 million in the fiscal years after
FY 2004-2005.
1. Allows corporate taxpayers, for taxable years beginning January 1, 2002, to annually elect either the current apportionment formula or an apportionment formula that weighs the sales factor at 75 percent for Arizona taxable income.
2. Makes technical and conforming changes.
3. Contains an effective date beginning on January 1, 2002.
1. Allows corporate taxpayers, for taxable years beginning January 1, 2002, to annually elect either the current apportionment formula or an apportionment formula weighing the sales factor more heavily each year until 2004 when the sales factor reaches 100 percent for their Arizona taxable income. See table below.
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%
2. Makes technical and conforming changes.
3. Contains an effective date beginning on January 1, 2002.
Amendments Adopted by Committee of the Whole
1.
Deletes
the proposed tiered apportionment formula beginning January 1, 2002, weighing
the sales factor more heavily each year until 2004 when the sales factor
reaches 100 percent for Arizona taxable corporate income.
2.
Allows
corporate taxpayers, for taxable years beginning January 1, 2002, to annually
elect either the current apportionment formula or an apportionment formula that
weighs the sales factor at 75 percent for Arizona taxable corporate income.
Senate Action
FIN 2/26/01
DPA/SE 8-0-0-0
3rd Read 3/20/01 25-5-0-0
Prepared by Senate Staff
March 23, 2001