qualified facilities; tax credit; amount

HB2939 - 572R - H Ver

House Engrossed

qualified facilities;
tax credit; amount

State of Arizona

House of Representatives

Fifty-seventh Legislature

Second Regular Session

2026

HOUSE BILL 2939

AN
ACT

amending sections 41-1512, 43-1083.03
and 43-1164.04, Arizona Revised Statutes; relating to income tax credits.

(TEXT OF BILL BEGINS ON NEXT PAGE)

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

Section
1.
1. Section
41-1512, Arizona Revised Statutes, is amended to read:

START_STATUTE
41-1512.

Qualified facility income tax credits; qualification; definitions

A. For taxable years beginning from and after
December 31, 2012, income tax credits are allowed for expanding or locating a
qualified facility in this state pursuant to sections 43-1083.03 and 43-1164.04.
Only capital investments in a qualified facility that are made not more than
thirty-six months before submitting an application for preapproval are
included in the computation of the credit.

B. To be eligible for the income tax credits, a
taxpayer must apply to the authority, on a form prescribed by the authority,
for preapproval of the business as qualifying for the credits. The
application must include:

1. The applicant's name, address, telephone number
and federal taxpayer identification number or numbers.

2. The name, address, telephone number and email
address of a contact person for the applicant.

3. The address of the site where the qualified
facility will be located.

4. A detailed description of the qualified facility
and fixed capital assets.

5. An estimate of the capital investment and number
of employment positions with job duties associated with the qualified facility,
including:

(a) A schedule of qualifying investments.

(b) A list of full-time employment positions,
the estimated number of employees to be hired for the positions each year
during the first five years of operation and the annual wages for each
position, calculated without employee-related benefits.

6. A nonrefundable processing fee in an amount
determined by the authority.

7. Other information as required by the authority to
determine eligibility for the income tax credits and the amount of income tax
credits, as prescribed by this section.

8. An affirmation, signed by an authorized executive
representing the business, that the applicant:

(a) Agrees to furnish records of expenditures for
qualifying investments to the authority on request.

(b) Will continue in business at the qualified
facility for five full calendar years after postapproval for the credit, other
than for reasons beyond the control of the applicant.

(c) Agrees to furnish to the authority information
regarding the amount of income tax credits claimed each year.

(d) Authorizes the department of revenue to provide
tax information to the authority pursuant to section 42-2003 for the
purpose of determining any inconsistency in information furnished by the
applicant.

(e) Agrees to allow site visits and audits to verify
the applicant's continuing qualification and the accuracy of information
submitted to the authority.

(f) Consents to the adjustment or recapture of any
amount of income tax credit due to noncompliance with this section.

9. Letters of good standing from the department of
revenue stating that the applicant is not delinquent in paying taxes.

C. The applicant may qualify for the income tax
credits pursuant to section 43-1083.03 or 43-1164.04, as
applicable, if:

1. The applicant makes new capital investment in
this state after June 30, 2012 in a qualified facility that is completed
in a taxable year beginning from and after December 31, 2012.

2. At least fifty-one percent of the net new
full-time employment positions with job duties associated with the qualified
facility pay a wage that equals or exceeds one hundred twenty-five
percent, or one hundred percent in the case of a qualified facility in a rural
location, of the median annual wage for production occupations in this state,
as determined by the most recent annual Arizona commerce authority occupational
wage and employment estimates issued before the preapproval is issued pursuant
to subsection I of this section.

3. All net new full-time employment positions
include health insurance coverage for the employees for which the applicant
pays at least sixty-five percent of the premium or membership cost.

D. Final eligibility for an income tax credit is
subject to any additional requirements prescribed by section 43-1083.03
or 43-1164.04, as applicable.

E. An applicant may separately apply and qualify
with respect to investments for separate expansions of a qualified facility.

F. The amount of the income tax credit to be
preapproved by the authority to a qualifying applicant is ten percent of the
lesser of:

1. The amount the applicant has projected in total
qualifying investment in the qualified facility.

2.
Either
any
of the following
:

(a) If the total qualifying investment is less than
$2,000,000,000, $200,000 for each net new full-time employment position
projected by the applicant that has job duties associated with a qualified
facility.

(b) If the total qualifying investment is
$2,000,000,000 or more, $300,000 for each net new full-time employment
position projected by the applicant that has job duties associated with a
qualified facility.

(
c
) If the
total qualifying investment is
less than $2,000,000,000,
$250,000 for each net new full-time employment position projected by the
applicant that has job duties associated with a qualified facility that is in a
rural location.

G. Beginning with income tax credits allocated for
2013, an approved credit:

1. Must be claimed on a timely filed original income
tax return, including extensions.

2. Must be claimed in five equal installments as
provided by section 43-1083.03 or 43-1164.04.

H. The authority shall establish a process for
qualifying and preapproving applicants for the income tax credits. The
authority shall not preapprove applicants as qualifying for credits under this
section for any taxable year beginning from and after December 31, 2030.
Preapproval is based on:

1. Priority placement established by the date that
the applicant files its initial application with the authority.

2. The availability of income tax credit capacity
under the dollar limit prescribed by subsection J of this section.

I. Within thirty days after receiving a complete and
correct application, the authority shall review the application to determine
whether the applicant satisfies all of the criteria prescribed by this section
and either preapprove the project as qualifying for the purposes of an income
tax credit or provide reasons for its denial. The authority shall send copies
of each preapproval to the department of revenue.

J. The authority shall not preapprove income tax
credits under this section that combined would exceed $125,000,000 in any
calendar year, except as provided by this subsection and subsection K of this
section. A preapproved amount applies against the dollar limit for
the year in which the application was submitted regardless of whether the
initial preapproval period extends into the following year or years. The
authority shall not preapprove income tax credits under this section for any
taxpayer in excess of $30,000,000 in any calendar year.

K. The authority shall reallocate the amount of
income tax credits that are voluntarily relinquished under subsection L of this
section, that lapse under subsection M of this section or that lapse under
subsection P of this section. The reallocation shall be to other
businesses that applied under this section in the original credit year based on
priority placement. Once reallocated, the amount of the credit
applies against the dollar limit of the original credit year regardless of the
year in which the reallocation occurs.

L. A taxpayer may voluntarily relinquish unused
credit amounts in writing to the authority.

M. Preapproval under this section lapses, the
application is void and the amount of the preapproved income tax credits does
not apply against the dollar limit prescribed by subsection J of this section
if, within twelve months after preapproval, the business fails to provide to
the authority documentation of its expenditure of $250,000 in qualifying
investment or, if the period over which the qualifying investment will be made
exceeds twelve months, documentation of additional expenditures as required in
this subsection for each twelve-month period.

N. After October 31 of each year, if the authority
has preapproved the maximum calendar year income tax credit amount pursuant to
subsection J of this section, the authority may accept initial applications for
the next calendar year, but the preapproval of any application pursuant to this
subsection shall not be effective before the first business day of the
following calendar year.

O. Before an applicant applies for postapproval
under subsection P of this section, the applicant must enter into a written
managed review agreement with the chief executive officer of the authority that
establishes the requirements of a managed review to be conducted under this
subsection at the applicant's expense. The managed review must be
conducted by a certified public accountant who is selected by the applicant,
who is licensed in this state or who has a limited reciprocity privilege
pursuant to section 32-725 and who is approved by the chief executive
officer. The certified public accountant and the firm the certified
public accountant is affiliated with shall not regularly perform services for
the applicant or its affiliates. The managed review shall include an
analysis of the applicant's invoices, checks, accounting records and other
documents and information to verify its base investment and other requirements
prescribed by section 43-1083.03 or 43-1164.04 to confirm the
amount of credit. The certified public accountant shall furnish
written findings of the managed review to the chief executive
officer. The chief executive officer shall review the findings and
may examine records and perform other reviews that the chief executive officer
considers necessary to verify that the managed review substantially conforms to
the terms of the managed review agreement. The chief executive
officer shall accept or reject the findings of the managed review. If the chief
executive officer rejects all or part of the managed review, the chief
executive officer shall provide written reasons for the rejection.

P. When the qualified facility begins operations, a
business that was preapproved for income tax credits under this section shall
apply to the authority in writing for postapproval of the credits and submit
documentation certifying the total amount and dates of the qualifying
investments and identifying the fixed capital assets associated with the
qualified facility incurred after June 30, 2012 through the date of application
for postapproval. For taxable years beginning from and after
December 31, 2012, the authority shall provide postapproval to a business that
has met the eligibility requirements of this section and shall notify the
department of revenue that the business may claim an income tax credit pursuant
to section 43-1083.03 or 43-1164.04. If the amount of
qualifying investment actually spent is less than the amount preapproved for
income tax credits, the preapproved amount not incurred lapses and does not
apply against the dollar limit prescribed by subsection J of this section for
that year. The department of revenue shall not allow an income tax
credit under section 43-1083.03 or 43-1164.04 that exceeds the
amount of the postapproval for the project under this
subsection. For the purposes of this subsection, "begins
operations" means the qualified facility opens for public business.

Q. The authority may rescind an applicant's
postapproval if the business no longer meets the terms and conditions required
for qualifying for the credit. The authority may give special
consideration, or allow temporary exemption from recapture of the credit, in
the case of extraordinary hardship due to factors beyond the control of the
qualifying business.

R. If the authority rescinds an applicant's
preapproval or postapproval under subsection Q of this section, the authority
shall notify the department of revenue of the action and the conditions of
noncompliance. If the department of revenue obtains information
indicating a possible failure to qualify and comply, the department shall
provide that information to the authority. The department of revenue
may require the business to file appropriate amended tax returns reflecting any
recapture of the credit under section 43-1083.03 or 43-1164.04.

S. Preapproval and postapproval of an applicant for
the purposes of income tax credits under this section do not constitute or
imply compliance with any other provision of law or any regulatory rule, order,
procedure, permit or other measure required by law. To maintain
qualification for a credit under this section, a business must separately
comply with all environmental, employment and other regulatory measures.

T. For five years after postapproval of an income
tax credit under this section, in any action involving the liquidation of the
business assets or relocation out of state, this state claims the position of a
secured creditor of the business in the amount of the credit the business
received pursuant to section 43-1083.03 or 43-1164.04. The
transfer of part or all of a company's assets that are then leased back by the
company is not considered a liquidation under this section.

U. Any information gathered from a business for the
purposes of this section is considered to be confidential taxpayer information
and shall be disclosed only as provided in section 42-2003, subsection B,
paragraph 12, except that the authority shall publish the following information
in its annual report:

1. The name of each business and the amount of
income tax credits preapproved for each qualifying investment.

2. The amount of income tax credits postapproved
with respect to each qualifying investment.

V. The authority
shall:

1. Keep annual
records of the information provided on applications for qualified
facilities. These records shall reflect a percentage comparison of
the annual amount of monies credited to qualified facilities to the estimated
amount of monies spent in this state in the form of qualifying investments.

2. Maintain annual data on growth in this state of
qualified facilities and related employment and wages.

3. Not later than April 30 following each calendar
year, prepare and publish a report summarizing the information collected
pursuant to this subsection. The authority shall make copies of the annual
report available to the public on request.

W. The authority shall adopt rules and prescribe
forms and procedures as necessary for the purposes of this
section. The authority and the department of revenue shall
collaborate in adopting rules as necessary to avoid duplication and
inconsistencies while accomplishing the intent and purposes of this section.

X. For the purposes of this section:

1. "Capital investment" means an
expenditure to acquire, lease or improve property that is used in operating a
business, including land, buildings, machinery, equipment and fixtures.

2. "Facility" means a single parcel or
contiguous parcels of owned or leased land in this state, the structures and
personal property contained on the land or any part of the structures occupied
by the owner. Parcels that are separated only by a public thoroughfare or
right-of-way are considered to be contiguous.

3. "Headquarters" means a principal
central administrative office where primary headquarters related functions and
services are performed, including financial, personnel, administrative, legal,
planning and similar business functions.

4. "Manufacturing" means fabricating,
producing or manufacturing raw or prepared materials into usable products,
imparting new forms, qualities, properties and
combinations. Manufacturing does not include generating electricity.

5. "Qualified facility" means a facility
in this state that devotes at least eighty percent of the property and payroll
at the facility to one or more of the following:

(a) Qualified manufacturing.

(b) Qualified headquarters.

(c) Qualified research.

6. "Qualified headquarters" means a
global, national or regional headquarters for a taxpayer that derives at least
sixty-five percent of its revenue from out-of-state sales.

7. "Qualified manufacturing" means
manufacturing tangible products in this state if at least sixty-five
percent of the product is at least one of the following:

(a) Directly sold out of state.

(b) Directly sold to one or more qualified
facilities, regardless of whether the qualified facilities are preapproved by
the authority pursuant to this section.

8. "Qualified research" has the same
meaning prescribed by section 41(d) of the internal revenue code, as defined by
section 43-105, except that the research must be conducted by a taxpayer
involved in manufacturing that derives at least sixty-five percent of its
revenue from out-of-state sales.

9. "Qualifying investment" means
investment in land, buildings, machinery, equipment and fixtures for expansion
of an existing qualified facility or establishment of a new qualified facility
in this state after June 30, 2012 for a facility completed in a taxable year
beginning from and after December 31, 2012. If the qualified
facility is a build-to-suit facility leased to the taxpayer,
qualifying investment includes the costs prescribed in this paragraph that are
spent by the third-party developer with respect to the qualified
facility. Qualifying investment does not include relocating an
existing qualified facility in this state to another location in this state
without additional capital investment of at least $250,000.

10. "Rural location" means a location that
is within the boundaries of tribal lands or a city or town with a population of
less than fifty thousand persons or a county with a population of less than
eight hundred thousand persons.
END_STATUTE

Sec.
2.
2. Section
43-1083.03, Arizona Revised Statutes, is amended to read:

START_STATUTE
43-1083.03.

Credit for qualified facilities

A. For taxable years beginning from and after
December 31, 2012 through December 31, 2030, a credit is allowed against the
taxes imposed by this title for qualifying investment and employment in
expanding or locating a qualified facility in this state. To qualify
for the credit, after June 30, 2012 the taxpayer must invest in a new
qualified facility or expand an existing qualified facility in this state and
produce new full-time employment positions where the job duties are
associated with the location of the qualifying investment. The
taxpayer must meet the employee compensation and employee health benefit
requirements prescribed by section 41-1512.

B. The amount of the credit is computed as follows:

1. Ten percent of the lesser of:

(a) The total qualifying investment in the qualified
facility.

(b)
Either
any
of the following
:

(i) If the total qualifying investment is less than
$2,000,000,000, $200,000 for each net new full-time employment position
that has duties associated with the qualified facility.

(ii) If the total qualifying investment is
$2,000,000,000 or more, $300,000 for each net new full-time employment
position that has duties associated with the qualified facility.

(
iii
) If the
total qualifying investment is
less than $2,000,000,000,
$250,000 for each net new full-time employment position projected by the
applicant that has job duties associated with a qualified facility that is in a
rural location as defined in section 41-1512.

2. The amount of the credit shall not exceed the
postapproval amount determined by the Arizona commerce authority under section
41-1512, subsection P.

3. Subject to subsections G and J of this section:

(a) The credit amount computed under paragraph 1 of
this subsection is apportioned, and the taxpayer shall claim the credit in five
equal annual installments in each of five consecutive taxable years.

(b) The taxpayer may claim all five annual
installments of a credit that was preapproved before January 1, 2031 by the
Arizona commerce authority notwithstanding any intervening repeal or other
termination of the credit.

C. To claim the credit the taxpayer must:

1. Conduct a business that qualifies under section
41-1512.

2. Receive preapproval and postapproval from the
Arizona commerce authority pursuant to section 41-1512.

3. Submit to the department a copy of a current and
valid certification of qualification issued to the taxpayer by the Arizona
commerce authority.

D. To be counted for the purposes of the credit, an
employee must have been employed with job duties associated with the qualified
facility for at least ninety days during the taxable year in a permanent full-time
employment position of at least one thousand seven hundred fifty hours per
year. �An employee who is hired during the last ninety days of the taxable year
shall be considered a new employee during the next taxable year. To
be counted for the purposes of the credit during the first taxable year of
employment, the employee must not have been previously employed by the taxpayer
within twelve months before the current date of hire. The terms of employment
must comply in all cases with the requirements of section 41-1512 and be
certified by the Arizona commerce authority.

E. Co-owners of a business, including partners
in a partnership, members of a limited liability company and shareholders of an
S corporation, as defined in section 1361 of the internal revenue code,
may each claim only the pro rata share of the credit allowed under this section
based on the ownership interest. The total of the credits allowed
all owners of the business may not exceed the amount that would have been
allowed for a sole owner of the business.

F. If the allowable tax credit for a taxable year
exceeds the income taxes otherwise due on the claimant's income, or if there
are no state income taxes due on the claimant's income, the amount of the claim
not used as an offset against income taxes shall be paid to the taxpayer in the
same manner as a refund under section 42-1118. Refunds made
pursuant to this subsection are subject to setoff under section 42-1122.
If the department determines that a refund is incorrect or invalid, the excess
refund may be treated as a tax deficiency pursuant to section 42-1108.

G. Except as provided by subsection H of this
section, if, within five taxable years after first receiving a credit pursuant
to this section, the certification of qualification of a business is terminated
or revoked under section 41-1512, other than for reasons beyond the
control of the business as determined by the Arizona commerce authority, the
taxpayer is disqualified from credits under this section in subsequent taxable
years. On a determination that the taxpayer has committed fraud or relocated
outside of this state within five taxable years after first receiving a credit
pursuant to this section, the credits allowed the taxpayer in all taxable years
pursuant to this section are subject to recapture pursuant to this
subsection. This subsection applies only in the case of the
termination or revocation of a certification of qualification under section 41-1512. This
subsection does not apply if, in any taxable year, a taxpayer otherwise does
not qualify for or fails to claim the credit under this section. The
recapture of credits is computed by increasing the amount of taxes imposed in
the year following the year of termination or revocation by the full amount of
all credits previously allowed under this section.

H. A taxpayer who claims a credit under section 43-1074
may not claim a credit under this section with respect to the same full-time
employment positions.

I. The department of revenue shall adopt rules and
prescribe forms and procedures as necessary for the purposes of this
section. The department of revenue and the Arizona commerce
authority shall collaborate in adopting rules as necessary to avoid duplication
and contradictory requirements while accomplishing the intent and purposes of
this section.

J. Each taxable year after the postapproval of the
credit under section 41-1512, subsection P, when the taxpayer files the
taxpayer's income tax return, the taxpayer shall:

1. Notify the department, on a form prescribed by
the department, of any full-time employment position for which a credit
was claimed under this section and that was vacant for more than one hundred
fifty days after the date the full-time employment position was
originally filled to the end of that taxable year. The period that a full-time
employment position was vacant may not include the period before the full-time
employment position was filled for the first time.

2. Reduce the portion of the credit claimed for the
taxable year pursuant to subsection B, paragraph 3 of this section by $4,000
for each full-time employment position reported pursuant to paragraph 1
of this subsection.
END_STATUTE

Sec.
3.
3. Section
43-1164.04, Arizona Revised Statutes, is amended to read:

START_STATUTE
43-1164.04.

Credit for qualified facilities

A. For taxable years beginning from and after
December 31, 2012 through December 31, 2030, a credit is allowed against the
taxes imposed by this title for qualifying investment and employment in
expanding or locating a qualified facility in this state. To qualify for the
credit, after June 30, 2012 the taxpayer must invest in a new qualified
facility or expand an existing qualified facility in this state and produce new
full-time employment positions where the job duties are associated with
the location of the qualifying investment. The taxpayer must meet the employee
compensation and employee health benefit requirements prescribed by section 41-1512.

B. The amount of the credit is computed as follows:

1. Ten percent of the lesser of:

(a) The total qualifying investment in the qualified
facility.

(b)
Either
any
of the following
:

(i) If the total qualifying investment is less than
$2,000,000,000, $200,000 for each net new full-time employment position
that has job duties associated with the qualified facility.

(ii) If the total qualifying investment is
$2,000,000,000 or more, $300,000 for each net new full-time employment
position that has job duties associated with the qualified facility.

(
iii
) If the
total qualifying investment is
less than $2,000,000,000,
$250,000 for each net new full-time employment position projected by the
applicant that has job duties associated with a qualified facility that is in a
rural location as defined in section 41-1512.

2. The amount of the credit shall not exceed the
postapproval amount determined by the Arizona commerce authority under section
41-1512, subsection P.

3. Subject to subsections G and J of this section:

(a) The credit amount computed under paragraph 1 of
this subsection is apportioned, and the taxpayer shall claim the credit in five
equal annual installments in each of five consecutive taxable years.

(b) The taxpayer may claim all five annual
installments of a credit that was preapproved before January 1, 2031 by the
Arizona commerce authority notwithstanding any intervening repeal or other
termination of the credit.

C. To claim the
credit the taxpayer must:

1. Conduct a business
that qualifies under section 41-1512.

2. Receive preapproval and postapproval from the
Arizona commerce authority pursuant to section 41-1512.

3. Submit to the department a copy of a current and
valid certification of qualification issued to the taxpayer by the Arizona
commerce authority.

D. To be counted for the purposes of the credit, an
employee must have been employed with job duties associated with the qualified
facility for at least ninety days during the taxable year in a permanent full-time
employment position of at least one thousand seven hundred fifty hours per
year. �An employee who is hired during the last ninety days of the taxable year
shall be considered a new employee during the next taxable year. To
be counted for the purposes of the credit during the first taxable year of
employment, the employee must not have been previously employed by the taxpayer
within twelve months before the current date of hire. The terms of
employment must comply in all cases with the requirements of section 41-1512
and be certified by the Arizona commerce authority.

E. Co-owners of a business, including
corporate partners in a partnership and members of a limited liability company,
may each claim only the pro rata share of the credit allowed under this section
based on the ownership interest. The total of the credits allowed
all owners of the business may not exceed the amount that would have been
allowed for a sole owner of the business.

F. If the allowable tax credit for a taxable year
exceeds the income taxes otherwise due on the claimant's income, or if there
are no state income taxes due on the claimant's income, the amount of the claim
not used as an offset against income taxes shall be paid to the taxpayer in the
same manner as a refund under section 42-1118. Refunds made
pursuant to this subsection are subject to setoff under section 42-1122.
If the department determines that a refund is incorrect or invalid, the excess
refund may be treated as a tax deficiency pursuant to section 42-1108.

G. Except as provided by subsection H of this
section, if, within five taxable years after first receiving a credit pursuant
to this section, the certification of qualification of a business is terminated
or revoked under section 41-1512, other than for reasons beyond the
control of the business as determined by the Arizona commerce authority, the
taxpayer is disqualified from credits under this section in subsequent taxable
years. �On a determination that the taxpayer has committed fraud or relocated
outside of this state within five taxable years after first receiving a credit
pursuant to this section, the credits allowed the taxpayer in all taxable years
pursuant to this section are subject to recapture pursuant to this
subsection. This subsection applies only in the case of the
termination or revocation of a certification of qualification under section 41-1512. This
subsection does not apply if, in any taxable year, a taxpayer otherwise does
not qualify for or fails to claim the credit under this section. The
recapture of credits is computed by increasing the amount of taxes imposed in
the year following the year of termination or revocation by the full amount of
all credits previously allowed under this section.

H. A taxpayer that claims a credit under section 43-1161
may not claim a credit under this section with respect to the same full-time
employment positions.

I. The department of revenue shall adopt rules and
prescribe forms and procedures as necessary for the purposes of this
section. The department of revenue and the Arizona commerce
authority shall collaborate in adopting rules as necessary to avoid duplication
and contradictory requirements while accomplishing the intent and purposes of
this section.

J. Each taxable year after the postapproval of the
credit under section 41-1512, subsection P, when the taxpayer files the
taxpayer's income tax return, the taxpayer shall:

1. Notify the department, on a form prescribed by
the department, of any full-time employment position for which a credit
was claimed under this section and that was vacant for more than one hundred
fifty days after the date the full-time employment position was
originally filled to the end of that taxable year. �The period that a full-time
employment position was vacant may not include the period before the full-time
employment position was filled for the first time.

2. Reduce the portion of the credit claimed for the
taxable year pursuant to subsection B, paragraph 3 of this section by $4,000
for each full-time employment position reported pursuant to paragraph 1
of this subsection.
END_STATUTE

Sec.
4.
4.
Applicability

This act applies to taxable years
beginning from and after December 31, 2026.