FOR CAUCUS & FLOOR ACTION

REVISED

ARIZONA STATE SENATE

DALLAS G. GOLD

LEGISLATIVE INTERN

DENISSE GEE

LEGISLATIVE RESEARCH ANALYST

FINANCE COMMITTEE

Telephone: (602) 542-3171

Facsimile: (602) 542-7833

RESEARCH STAFF

TO: MEMBERS OF THE SENATE

DATE: April 10, 2001

SUBJECT: Strike Everything Amendment to H.B. 2570 - Arizona capital formation incentives. (NOW: eminent domain; study committee) relating to consolidated returns

Purpose

Retroactive beginning January 1, 2001, authorizes any taxpayer that has elected to file returns on a consolidated basis to continue to file returns on such a basis after the taxpayer has been acquired by another entity.

Background

Chapter 41 of the Laws of 1994 enabled parent corporations, with the consent of their subsidiaries, to elect to file a consolidated return to Arizona. The election creates an Arizona affiliated group. In years following the year in which the election to file a consolidated return was made, the election to file on a consolidated basis remained in place unless the Department consented to a change. Any corporations that are acquired by a member of the Arizona affiliated group are deemed to have consented to the consolidated election. Acquisition of the Arizona affiliated group by a corporation that has not elected to file returns on a consolidated basis destroys the election to file consolidated returns for all tax years subsequent to the acquisition date. The new parent, however, would, with the consent of the subsidiaries, be able to file an election for new federal affiliated group, which would create a new Arizona affiliated group.

H.B. 2570 authorizes any taxpayer that has elected to file returns on a consolidated basis to continue to file returns on such a basis after the taxpayer has been acquired by another entity. Additionally, this bill contains a retroactive provision beginning January 1, 2001.

The fiscal impact of H.B. 2570 cannot be determined at this time.

Provisions

1. Specifies that when a corporate reorganization described in Internal Revenue Code section 368 that was eligible to be treated as a pooling of interests under the Generally Accepted Accounting Principles involves the parent of an Arizona affiliated group, the parent of the Arizona affiliated group may elect, on behalf of the Arizona affiliated group, to continue filing as a consolidated group.

2. Requires the parent of the Arizona affiliated group to make the election to continue to file on a consolidated basis no later than the date, including extensions of time, that the first post-reorganization return is required to be filed.

3. Specifies that the remaining provisions of the section would continue to apply to the Arizona affiliated group that has made the election to continue to file on a consolidated basis.

4. Specifies that when more than 80 percent of the ownership of a corporation is transferred between the Arizona affiliated group and the affiliated group and the transfer results in a reduction of tax due to the state, then the transfer is disregarded for purposes of determining membership in the Arizona affiliated group.

5. Specifies that the Arizona gross income of the Arizona affiliated group that has elected to continue to file on a consolidated basis would be the group’s federal taxable income if the group had filed a consolidated federal return.

6. Modifies the definition of “Arizona affiliated group” to include groups involved in a reorganization that have elected to continue to file as an Arizona consolidated group.

7. Contains a retroactive effective date beginning January 1, 2001.

Senate Action

FIN 4/2/01 DPA/SE 8-0-0-0

DGG/DG/ac