ARIZONA STATE SENATE
Phoenix, Arizona
enterprise zone
program; extension; enhancements
Purpose
Extends the enterprise zone program to July 1, 2006 and makes several modifications to the program.
Background
The enterprise zone program was established by the Legislature in 1989 for the purpose of encouraging new business start-ups and business expansion in areas with high unemployment and high poverty rates. Statutes governing the program specify procedures and criteria for establishing enterprise zones in targeted areas and prescribe qualifying criteria as well as tax incentives for businesses wishing to locate in a zone. The tax incentives include an income tax or premium tax credit for net new jobs created in non-retail businesses and property tax reductions for qualified manufacturers. Currently, there are 22 enterprise zones throughout the state. The program is scheduled to expire July 1, 2001.
The Arizona Department of Commerce (DOC) is seeking reauthorization of the enterprise zone program and is requesting a number of modifications to the program. The Enterprise Zone Task Force, established by DOC in 1998 to review and recommend any needed revisions to the program, identified several difficulties that limit the program’s competitiveness as an economic development tool. The Task Force found that small manufacturers, especially those in rural areas, cannot take advantage of the program because the investment threshold is too high; the retail restriction precludes any company that conducts even a small amount of retail business from the income tax benefits; earned income tax credits cannot be taken or carried forward if the zone is terminated; existing Arizona manufacturers are held to a higher standard than manufacturers new to Arizona; and zone boundaries may change based on new census data, necessitating the establishment of transition procedures.
H.B. 2527 extends the enterprise zone program to July 1, 2006, and makes numerous revisions to the program to address DOC’s concerns. According to DOC, the Department of Revenue and the fiscal note prepared by the Joint Legislative Budget Committee staff, the fiscal impact of this measure to the state general fund cannot be estimated.
1. Extends, from July 1, 2001 to July 1, 2006, the enterprise zone program and its applicable tax credits. The Finance Committee amendment removed the property tax reclassification portion of the program, so as to allow it to sunset on July 1, 2001.
2. Stipulates that the limitation on certifying zone formation does not prevent DOC from renewing existing enterprise zones with no change in existing boundaries or zones certified in the first year under the most recent federal census poverty data.
3. Excludes business locations from eligibility for the income tax credit or premium tax credit if more than 30 percent of the business conducted at the zone location is the sale of tangible personal property at retail measured either by gross income, number of full-time employees or floor area used for retail operations.
4. Requires the business to certify with DOC as part of the eligibility requirements that the principal business activity at the enterprise zone location is not selling tangible personal property at retail.
5. Requires certifications filed with DOC and DOR are by sworn statement or are certified as true and correct under penalties of perjury. Specifies that, in the event that the documents contain information that is materially false, the taxpayer is ineligible for the tax credit and is subject to recovery of the amount of the tax credits allowed in preceding taxable years based on the false information.
6. Eliminates the requirement that existing small manufacturing businesses show a profitable operating history. Removed by the Finance Committee amendment.
7. Applies the $2 million investment requirement for small manufacturing businesses located in an enterprise zone to counties with a population of at least 250,000 persons. Removed by the Finance Committee amendment.
8. Tiers the minimum investment requirement for all other counties and for cities and towns located in counties with at least 250,000 persons and that no portion of the corporate boundaries located within 25 miles from the exterior corporate boundary of the largest city in the county, as follows:
· $2 million for cities with a population of at least 80,000 persons
· $1 million for cities and towns with a population between 10,000 and 80,000 persons and in unincorporated areas of the county
· $500,000 for cities and towns with a population of less than 10,000 persons
This provision was amended by the Commerce Committee amendment, but removed by the Finance Committee amendment.
9. Requires DOC and DOR to report by September 30 annually to the Legislature and Governor information on businesses and tax incentives received as a result of their location in an enterprise zone.
10. Provides that the termination of the enterprise zone does not affect the credit with respect to credit carryovers and the claiming of second and third year credits for qualified employment positions.
11. Provides transitional zone renewal procedures for use until 2000 federal census poverty data is available.
12. Contains a legislative intent clause regarding statutory construction and interpretation.
13. Makes technical and conforming changes.
14. Provides for a general effective date, except for the tax provisions which are retroactive to taxable years beginning on January 1, 2001.
1. Conforms the premium tax credit statutes to the proposed modifications to the enterprise zone program, so as to allow for credit carryovers and the claiming of second and third year credits if the enterprise zone designation is terminated.
2. Modifies the 25 mile boundary of the investment requirement.
3. Requires DOC and DOR to report annually to the Legislature and Governor information on businesses and tax incentives received as a result of their location in an enterprise zone.
4. Provides a legislative intent clause regarding statutory construction and interpretation.
5. Makes technical and conforming changes.
1. Removes the property tax reclassification portion of the enterprise zone program from the legislation, so as to allow it to sunset according to its current schedule, which would be July 1, 2001.
PIRA 2/5/01 W/D COM 3/28/01 DPA 6-0-0-0
CED 2/19/01 DP 7-2-0-1 FIN 4/9/01 DPA 6-2-0-0
3rd Read 3/15/01 49-4-7-0
Prepared by Senate Staff
April 10, 2001