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Arizona Governor Signs Tax Bills — What You Should Know

Tax Law Alert Dawn R. Gabel, David Brunori

Arizona Governor Doug Ducey recently signed several bills dealing with tax matters. The bills largely provide tax relief to individuals, investors, and manufacturers. 

On May 10, the governor signed HB 2528 which raises the personal income tax exemption for individuals by $100 over the next two years and after 2018 indexes the exemption to inflation. This is a good tax policy decision as it keeps the exemption from losing its value over time. That same bill repealed several income tax credits available to Arizona taxpayers. The repealed credits include those for: ecological restoration workforce training; renewable energy operations; solar liquid fuel research and development; solar plumbing stub outs and electric vehicle recharge outlets; military reuse zone; and domestic stock life or disability insurer. The impact of the repeal of the credits will be minimal as all were used infrequently. The credit for renewable energy investment as applied to manufacturing facilities is also repealed.

Taxpayers should be aware that HB 2528 also directs the Department of Revenue to "terminate" recognition of any income tax credits that are unclaimed for four consecutive years. This could lead to the repeal of the credits.

On May 22, Governor Ducey signed HB 2191 which provides an additional $10 million in angel investment tax credits over the four years. Under the law, the Arizona Commerce Authority can issue up to $2.5 million of additional credits each years through June 30, 2021. The program allows investors in businesses with less than $10 million in assets to claim a ten percent credit against their personal income taxes for three years. Investors in bio science or rural companies can claim a credit of 12 percent for the first two years and 11 percent for the third year.

On May 22, the governor also signed SB 1416 which extends the quality jobs tax credit program until 2025. As Arizona businesses should know, the program allows a credit of up to $3,000 for three years for each new job created. The credit is available against both income and insurance premium taxes. That same bill extends the research and development tax credit until 2021. Businesses can claim a credit of 24 percent of the first $2.5 million in qualified R&D expenses and 15 percent for expenses above that amount.

Investors considering Arizona companies should take advantage of the angel investor credit. There are limitations as to who can claim the jobs creation and R&D credits. If you have questions, please contact Dawn Gabel at [email protected]/(602) 230-4630, David Brunori at [email protected]/(202) 780-2634 or your Quarles & Brady attorney.