Apr. 4, 2022
Arizona provides a refundable Qualified Facility Tax Credit (QFTC) program and a non-refundable Quality Jobs Tax Credit (QJTC) program. Both programs can be advantageous for businesses looking to locate or expand in Arizona, including those that have done so in the previous 36 months.
The Arizona Commerce Authority (ACA) may authorize up to $125 million per calendar year in tax credits to qualified companies. The tax credits will be authorized on a first-come, first-serve basis, according to a priority placement number assigned by the ACA at the time of pre-approval. The funds for 2020 and 2021 were fully allocated for submissions as of June 30 of those years. All funds are expected to be fully allocated before June 30, 2022.
The takeaway: Funds are limited, and the QFTC has run out of funds during the last two fiscal years. We have received guidance that Arizona expects the QFTC program will run out of funds again for the program before the end of the current fiscal year (June 30, 2022). Steps may be available for companies seeking to protect their ability to obtain these limited credits.
The QFTC and QJTC programs offer an opportunity for businesses to provide above-the-line benefits related to expansion and investment in the state.
Qualified Facility Tax Credit
Arizona provides a refundable QFTC to promote the location and expansion of headquarters facilities or manufacturing facilities, including manufacturing-related research and development in the state (Qualified Facility). The credit may be used to offset state income tax and is refundable in the absence of income tax liability.
The QFTC is equal to the lesser of:
- 10% of the qualifying capital investment; or
- $20,000 per net new job at the facility if the total qualifying investment is less than $2 billion, or $30,000 per net new full-time employment position associated with the facility if the total qualifying investment is more than $2 billion; or
- $30 million per taxpayer per year.
Although taxpayers may include capital investments made in a Qualified Facility up to 36 months prior to submitting an application for pre-approval, the credit may be claimed only on a timely filed original income tax return, including extensions, and in five equal installments.
In addition to locating or expanding Qualified Facilities in the state, a taxpayer also must meet the following requirements in order to be eligible for the QFTC:
- Make a Capital Investment of at least $250,000 to establish or expand a Qualified Facility, within 36 months of the Application for Pre-Approval date
- At least 80% of the square footage and payroll at the Facility is dedicated to qualified manufacturing, manufacturing-related research and development, or headquarters
- Has at least 65% of the project’s sales/revenues from outside of Arizona
- Creates net new full-time employment positions for the project, of which at least 51% are paid at least 125% of the state’s annual median production wage if located in an urban area or 100% of the state’s annual median production wage if located in a rural area (the requisite number of jobs created is unstated)
- Offers to pay at least 65% of the health insurance premiums for all net new full-time employment positions; and
- Agrees to continue qualifying business activities at the facility for five full calendar years after receipt of post-approval and cannot be involved in any action that liquidates the Arizona business assets or relocates the Arizona operation out-of-state for five years after receipt of post-approval.
Qualified Jobs Tax Credit
For taxpayers making capital investments and creating net-new qualified jobs in Arizona that otherwise would not qualify for the QFTC, Arizona offers the QJTC as an alternative to taxpayers that have Arizona income tax liability.
The QJTC is a non-refundable credit intended to encourage business development and high-quality job creation in the state. The credit may be used to offset state income or premium tax. The QJTC program offers up to $9,000 of Arizona income tax credits for each net new quality job created by a taxpayer over a three-year period at one discrete business location.
To learn more about how this could impact your business, reach out to Ashmore Consulting.
The information contained herein is general in nature and is not intended, and should not be construed, as legal, accounting or tax advice or opinion provided by Ashmore Consulting LLC to the reader. The reader also is cautioned that this material may not be applicable to, or suitable for, the reader’s specific circumstances or needs, and may require consideration of non-tax and other tax factors if any action is to be contemplated. The reader should contact Ashmore Consulting LLC or other tax professional prior to taking any action based upon this information. Ashmore Consulting LLC assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect the information contained herein.