Why Arizona manufacturers want to strengthen tax credit program
The Arizona manufacturing community is backing legislation to strengthen a tax credit program that has helped turn the state into one of the country’s leading hubs for advanced manufacturing in sectors as varied as semiconductors, aerospace and defense, and electric vehicles.
Senate Bill 1643, sponsored by Senate President Karren Fann, R-Prescott, would codify a program for manufacturers to access a portion of their unused research and development (R&D) tax credits to reinvest in targeted activities in Arizona.
The bill’s backers say it will help keep Arizona competitive in a global market by stimulating the creation and expansion of manufacturing in the state.
The new program would be known as the Arizona Reinvestment Fund and would be managed by the Arizona Commerce Authority for 10 years. The ACA would manage applications submitted by manufacturers who are looking to put their unused tax credits to work for Arizona.
The legislation in its current form would allow manufacturers to access $.60 in funds for every $1 in available R&D credits, with a maximum annual allowance of $10 million per manufacturer and a $50 million annual cap.
The bill would restrict, however, firms’ use of the funds to a limited set of purposes that would directly affect areas presenting specific challenges to the state.
To take advantage of the program, companies would have to make capital investments in partnership with an Arizona higher education institution for workforce development, make investments in sustainability or water stewardship, construct a new facility where R&D activities would occur or modernize such a facility, or make investments to address supply chain challenges, including using funds to draw down additional federal funding.
“This is a good deal for Arizona,” Arizona Chamber of Commerce & Industry Vice President of Government Affairs Courtney Coolidge said. “Not only do we improve an existing business attraction program, but we encourage investment in areas where Arizona has real challenges.”
The bill would also give special preference to small manufacturers of 150 employees or less by doubling the existing annual cap on total credits. Earlier this year, the available funds for smaller manufacturers were depleted within eight minutes of the opening of the ACA’s electronic application portal. The legislation increases the cap to $10 million.
In addition to the Arizona Chamber, supporters of the bill include the Arizona Manufacturers Council, the Arizona Technology Council, and several manufacturers.
“Competing in a global economy is increasingly fierce,” Coolidge said in committee testimony in March. “Arizona must continue to innovate to keep pace. Senate Bill 1643 stimulates the creation and expansion of manufacturing facilities in Arizona and ensures the state’s research and development tax credit continues to be a powerful business retention and recruitment tool.”
In 2018, the Legislature’s Income Tax Review Committee determined that approximately $1.2 billion was stranded in unused tax credits.
The accrued tax credit is allowed by statute to be carried forward for 15 consecutive taxable years. Advocates say the legislation would remove a liability from the state’s books while expanding investment in Arizona that will create new jobs.
The bill passed the Senate with a bipartisan vote in March, but awaits further action in the House after having cleared that chamber’s Appropriations Committee in March.
This story was originally published at Chamber Business News.
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