affordable housing; tax credits

HB2644 - 572R - I Ver

REFERENCE TITLE:
affordable housing; tax credits

State of Arizona

House of Representatives

Fifty-seventh Legislature

Second Regular Session

2026

HB 2644

Introduced by

Representatives
Liguori: Abeytia, Aguilar, Austin, Cavero, Connolly, De Los Santos,
Gutierrez, M�rquez, Peshlakai, Simacek, Volk

AN
ACT

amending title 20, chapter 2, article 1,
Arizona Revised Statutes, by adding section 20-224.04; repealing section
20-224.04, Arizona Revised Statutes; amending title 41, chapter 37,
article 2, Arizona Revised Statutes, by adding section 41-3954; repealing
section 41-3954, Arizona Revised Statutes;
amending
title 43, chapter 2, article 2, Arizona Revised Statutes, by adding section
43-225; repealing section 43-225, Arizona Revised Statutes; amending
title 43, chapter 10, article 5, Arizona Revised Statutes, by adding section
43-1075; repealing section 43-1075, Arizona Revised Statutes; amending
title 43, chapter 11, article 6, Arizona Revised Statutes, by adding section
43-1163; repealing section 43-1163, Arizona Revised Statutes; relating to
tax credits.

(TEXT OF BILL BEGINS ON NEXT PAGE)

Be it enacted by the Legislature of the State of Arizona:

Section 1. Title 20, chapter 2, article 1,
Arizona Revised Statutes, is amended by adding section 20-224.04, to read:

START_STATUTE
20-224.04.
Affordable housing premium tax credit; rules

A. A taxpayer is allowed a credit
against the premium tax against the premium tax liability imposed pursuant to
section 20-224, 20-837, 20-1010, 20-1060 or 20-1097.07
if the Arizona department of housing issues an eligibility statement for a
qualified project pursuant to section 41-3954. The amount of
the credit:

1. Is equal to the amount determined
by the department of revenue pursuant to section 41-3954 for the
qualified project.

2. On notice to the department of
insurance and financial institutions, may be allocated among the partners,
members or shareholders, as they may agree among themselves, regardless of the
size of such participant's ownership interest. The total of the
allocated credits among all such participants may not exceed the amount of the
credit approved by the Arizona department of housing.� This paragraph does not
prohibit a partner, member or shareholder from holding an investment exclusively
in either the state credits or federal credits allocated to the qualified
project.

B. To claim the credit under this
section, the taxpayer must submit the eligibility statement provided by the
Arizona department of housing under section 41-3954 to the department of
insurance and financial institutions with the taxpayer's premium tax return.� A
credit under this section is not allowed until the taxpayer furnishes the
required documentation.

C. If the amount of the credit under
this section exceeds the taxpayer's state premium tax liability, the amount of
the claim not used to offset the premium tax liability may be carried forward
for not more than five consecutive taxable years' premium tax liability.

D. If all or part of the federal
low-income housing tax credit with respect to the qualified project is subject
to recapture under section 42 of the internal revenue code during the first ten
taxable years after the project is placed in service, the credit under this
section is also subject to recapture in a proportional amount from all
taxpayers that claimed the credit.� The recapture is calculated by increasing
the amount of taxes imposed in the following year by the amount recaptured.

E. A taxpayer that claims a tax
credit against state premium tax liability is not required to pay any
additional retaliatory tax imposed pursuant to section 20-230 as a result
of claiming that tax credit. The credit may fully offset any
retaliatory tax imposed by section 20-230.

F. The department of insurance and
financial institutions, with the cooperation of the department of revenue and
the Arizona department of housing, shall adopt rules and publish and prescribe
forms and procedures as necessary to administer this section.
END_STATUTE

Sec. 2.
Delayed repeal

Section
20-224.04, Arizona Revised Statutes, as added by this act, is repealed
from and after December 31, 2031.

Sec. 3. Title
41, chapter 37, article 2, Arizona Revised Statutes, is amended by adding
section 41-3954, to read:

START_STATUTE
41-3954.
Affordable housing tax credit; limit; eligibility statement;
rules; public hearings; annual report; definitions

A. The affordable housing tax credit
is established. The department shall administer the credit as
provided by this section.�

B. On application, the department
shall allocate tax credits under this section for projects in this state that
qualify for the federal low-income housing tax credit under section 42 of
the internal revenue code and that are placed in service, for purposes of the
federal credit, from and after June 30, 2027, in an amount that the department
determines is necessary for the economic feasibility of the qualified project
allowed in each taxable year during the federal credit period. The
department shall allocate tax credits under this section according to the
department's current qualified allocation plan adopted pursuant to section 42(
m
) of the internal revenue code.

C. The department shall prescribe
forms, procedures and criteria for applying, evaluating and qualifying for the
credit under this section.� The department shall issue an eligibility statement
for each qualified project that identifies the qualified project, the
allocation year and the amount of the credits allocated to the project.

D. For calendar years 2027 through
2031, The department shall allocate a total of $10,000,000 of tax credits under
this section in any calendar year according to the date of the allocation of
the credit. A credit allocated in calendar year 2027 may not be
claimed until the federal fiscal year beginning October 1, 2028.� An approved
amount applies against the dollar limit for the year in which the application
is submitted. If, at the end of the calendar year, an unused balance
occurs under the dollar limit prescribed by this subsection, the balance shall
be reallocated for the purposes of this subsection in the following year.

E. Any taxpayer that owns an interest
in an investment in a qualified project that receives an eligibility statement
from the department is allowed a tax credit under this section for taxable
years beginning from and after December 31, 2026 if the taxpayer acquires the
interest before filing a tax return claiming the tax credit.� the taxpayer
shall apply the credit against the taxpayer's insurance premium or income tax
liability as provided BY and subject to the procedures, terms and conditions
prescribed by section 20-224.04, 43-1075 or 43-1163, as
applicable.

F. The
Arizona department of housing, with the cooperation of the department of
insurance and financial institutions and the department of revenue, shall adopt
rules and publish and prescribe forms and procedures as necessary to administer
this section, including criteria on which eligibility statements are issued
under this section.

G. On or before july 30 of each year,
the department shall hold a public hearing to solicit and accept public
comments relating to the amount of the credit under this section to be used for
qualified projects that are financed through tax-exempt bond issuance as
part of the qualified allocation plan process and other affordable housing tax
credit issues.� The department shall post a copy of all comments submitted
during each public hearing on the department's website before September 15 of
the year in which the public hearing is held.

H. on or before December 31 of each
year, The department shall submit to the president of the senate and the
speaker of the house of representatives a report that addresses whether the
credits approved under this section produced a significant number of additional
affordable housing units in this state and that analyzes the economic impact of
the credits approved under this section on this state. The
department shall provide A copy of this report to the secretary of state.

I. For the purposes of this section:

1. "Internal revenue code"
has the same meaning prescribed in section 43-105.

2. "Qualified project"
means a qualified low-income building as defined in section 42(
c
)(2) of the internal revenue code.

3. "Taxpayer" means a
person, firm or corporation that is subject to taxation under title 20 or under
title 43, chapter 10 or 11.
END_STATUTE

Sec. 4.
Delayed repeal

Section 41-3954, Arizona Revised
Statutes, as added by this act, is repealed from and after December 31, 2031.

Sec. 5. Title 43, chapter 2, article 2, Arizona
Revised Statutes, is amended by adding section 43-225, to read:

START_STATUTE
43-225.

Affordable housing tax credit review committee; reports

A. The affordable housing tax credit
review committee is established consisting of the following members:

1. Three members who are appointed by
the governor, not more than two of whom are members of the same political
party.

2. Three members who are appointed by
the president of the senate, not more than two of whom are members of the same
political party.

3. Three members who are appointed by
the speaker of the house of representatives, not more than two of whom are
members of the same political party.

B. Appointed members serve at the
pleasure of the person who made the appointment.

C. Committee members are not eligible
to receive compensation but are eligible to receive reimbursement for expenses
pursuant to title 38, chapter 4, article 2.

D. The committee shall review the
affordable housing tax credits allowed under sections 20-224.04, 41-3954,
43-1075 and 43-1163 on the third year after the effective date of
the credit and every three years thereafter.� The committee's review must
include the following:

1. The history, rationale and
estimated revenue impact of the credit.

2. Whether the credit has provided a
benefit to this state that includes, for corporate tax credits, measurable
economic development, new investments, creation of new jobs or retention of
existing jobs in this state.

3. Whether the credit is
unnecessarily complex in the application, administration and approval
processes.

4. The number of housing units
generated as a result of the tax credit and the average income of residents
offered housing units.

E. On or before December 15 of the
year the committee reviews the credit, the committee shall report its findings
and recommendations to the president of the senate, the speaker of the house of
representatives and the governor and shall provide a copy of the report to the
secretary of state.
END_STATUTE

Sec. 6.
Delayed repeal

Section 43-225, Arizona Revised
Statutes, as added by this act, is repealed from and after December 31, 2031.

Sec. 7. Title 43, chapter 10, article 5,
Arizona Revised Statutes, is amended by adding section 43-1075, to read:

START_STATUTE
43-1075.

Affordable housing tax credit; rules

A. A taxpayer is allowed a credit
against the taxes imposed by this title if the Arizona department of housing
issues an eligibility statement for a qualified project pursuant to section
41-3954. The amount of the credit:

1. Is equal to the amount determined
by the department of revenue pursuant to section 41-3954.

2. On notice to the department of
revenue, may be allocated among the partners, members or shareholders, as they
may agree among themselves regardless of the size of such participant's
ownership interest. The total of the allocated credits among all
such participants may not exceed the amount of the credit approved by the
Arizona department of housing. This paragraph does not prohibit a
partner, member or shareholder from holding an investment exclusively in either
the state credits or federal credits allocated to the qualified project.

B. To claim the credit under this
section, the taxpayer must submit the eligibility statement provided by the
Arizona department of housing under section 41-3954 to the department of
revenue with the taxpayer's income tax return. A credit under this
section is not allowed until the taxpayer furnishes the required documentation.

C. If the amount of the credit for a
taxable year exceeds the amount of taxes otherwise due under this title on the
claimant's income, or if there are no taxes due under this title, the taxpayer
may carry the amount of the claim not used to offset the taxes under this title
forward for not more than five consecutive taxable years' income tax liability.

D. If all or part of the federal
low-income housing tax credit with respect to the qualified project is subject
to recapture under section 42 of the internal revenue code during the first ten
taxable years after the project is placed in service, the credit under this
section is also subject to recapture in a proportional amount from all
taxpayers who claimed the credit. The recapture is calculated by
increasing the amount of taxes imposed in the following year by the amount
recaptured.

E. The department of revenue, with
the cooperation of the department of insurance and financial institutions and
the Arizona department of housing, shall adopt rules and publish and prescribe
forms and procedures as necessary to administer this section.
END_STATUTE

Sec. 8.
Delayed repeal

Section 43-1075, Arizona Revised
Statutes, as added by this act, is repealed from and after December 31, 2031.

Sec. 9. Title 43, chapter 11, article 6,
Arizona Revised Statutes, is amended by adding section 43-1163, to read:

START_STATUTE
43-1163.

Affordable housing tax credit; rules

A. A taxpayer is allowed a credit
against the taxes imposed by this title if the Arizona department of housing
issues an eligibility statement for a qualified project pursuant to section 41-3954. The
amount of the credit:

1. Is equal to the amount determined
by the department of revenue pursuant to section 41-3954.

2. On notice to the department of
revenue, may be allocated among the partners, members or shareholders, as they
may agree among themselves regardless of the size of such participant's
ownership interest. The total of the allocated credits among all
such participants may not exceed the amount of the credit approved by the
Arizona department of housing. This paragraph does not prohibit a
partner, member or shareholder from holding an investment exclusively in either
the state credits or federal credits allocated to the qualified project.

B. To claim the credit under this
section, the taxpayer must submit the eligibility statement provided by the
Arizona department of housing under section 41-3954 to the department of
revenue with the taxpayer's income tax return. A credit under this
section is not allowed until the taxpayer furnishes the required documentation.

C. If
the amount of the credit for a taxable year exceeds the amount of taxes
otherwise due under this title on the claimant's income, or if there are no
taxes due under this title, the taxpayer may carry the amount of the claim not
used to offset the taxes under this title forward for not more than five
consecutive taxable years' income tax liability.

D. If all or part of the federal
low-income housing tax credit with respect to the qualified project is subject
to recapture under section 42 of the internal revenue code during the first ten
taxable years after the project is placed in service, the credit under this
section is also subject to recapture in a proportional amount from all
taxpayers that claimed the credit.� The recapture is calculated by increasing
the amount of taxes imposed in the following year by the amount recaptured.

E. The department of revenue, with
the cooperation of the department of insurance and financial institutions and
the Arizona department of housing, shall adopt rules and publish and prescribe
forms and procedures as necessary to administer this section.
END_STATUTE

Sec. 10.
Delayed repeal

Section 43-1163, Arizona Revised
Statutes, as added by this act, is repealed from and after December 31, 2031.

Sec. 11.
Implementation
and administration

The Arizona department of housing
shall implement and administer section 41-3954, Arizona Revised Statutes,
as added by this act, for Arizona's 2027 qualified allocation plan for the low-income
housing tax credit and for future qualified allocation plans for the low-income
housing tax credits authorized by this act.

Sec. 12.
Purpose

Pursuant to section 43-223,
Arizona Revised Statutes, the legislature enacts sections 43-1075 and 43-1163,
Arizona Revised Statutes, as added by this act, to support the construction of
new affordable housing projects in this state.

Sec. 13.
Saving clause

The repeal of sections 20-224.04,
41-3954, 43-225, 43-1075 and 43-1163, Arizona Revised
Statutes, as added by this act, does not:

1. Limit or impair the
issuance of premium tax credits or income tax credits for qualified projects
that receive a reservation from the Arizona department of housing pursuant to
section 41-3954, Arizona Revised Statutes, as added by this act, before
December 31, 2031 or a taxpayer's ability to redeem such tax credits in
accordance with sections 20-224.04, 41-3954, 43-1075 and 43-1163,
Arizona Revised Statutes, as added by this act.

2. Affect any act done or
right accruing or accrued or any suit or proceeding had or commenced in any
civil cause of action before the repeal.� All rights and liabilities under such
acts continue and may be enforced in the same manner as allowed before the
repeal.