Phoenix, Arizona
Reduces the corporate income tax rate over a period of four years. Retroactive beginning January 1, 2001, increases the income threshold for the family tax credit.
Any corporation conducting business in Arizona is required to file a corporate income tax return. According to the Department of Revenue (DOR) 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 percent on taxable income. The current rate for tax year 2001 is a flat rate of 6.968 percent. 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)
H.B. 2475 reduces the corporate rate from the current 6.98 percent to 5.04 percent over four years. Eventually, the 5.04 percent rate will match the highest rate imposed on individual income tax filers in Arizona.
In addition, H.B. 2475 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.
The JLBC Staff estimates the
corporate income tax rate reduction portion of this bill will reduce General
Fund revenues by $19.1 million in FY 2002-2003, and by $60.5 million in FY
2002-2003. When fully implemented in FY 2005-2006, this portion of this bill
will reduce General Fund revenues by an estimated $177.8 million.
According to DOR, the family
tax credit portion of this bill will reduce the individual income tax liability
by an estimated $21.1 million in both FY 2002 and FY 2003.
The total estimated GF
impact in FY 2001-2002 is $40.2 million and $81.6 million in FY 2002-2003.
1. Decreases the corporate income tax rate over a four-year period from 6.968 percent to the following amounts:
TAX YEAR |
PROPOSED RATE |
Tax Year 2002 |
6.5 per cent |
|
Tax Year 2003 |
6.0 per cent |
|
Tax Year 2004 |
5.5 per cent |
|
Tax Year 2005 on |
5.04 per cent |
2. Retroactive beginning on January 1, 2001, 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 |
3. Provides for a general effective date for the corporate tax rate reduction portion of the bill.
Prepared by Senate Staff
April 3, 2001