2012 Income Tax Credit Review - Presentation

2012 Income Tax Credit ReviewJoint Legislative Income TaxCredit Review Committee

December 6, 2012

JLBC

2JLBC

Joint Legislative Income Tax Credit Review Committee- Annually Reviews Credits As Determined in Statute

63

Solar Hot Water Heater Plumbing Stub-Outs & Electric Vehicle Recharge Outlets

51Public School Extracurricular Activity Fee

39Private School Tuition Organization

29Military Family Relief Fund Donation

19Commercial Solar Energy Device

9Family Income

PageOpen Session*

* 3 Credits Will Be Reviewed in Executive Session

3JLBC

Role of the Committee

Determine original purpose of tax credit

Establish standards for evaluating and measuring success or failure

Recommend changes

4JLBCJLBC

EvaluationEvaluationStandardsStandards

History Rationale

DollarImpact

EconomicDevelopment

Complexity

NewInvestments

New Jobs

Statute Provides Possible Standards

5JLBC

Confidential Taxpayer Information

Laws 2010, Chapter 225 authorizes DOR to disclose confidential “statistical information” only to the Committee and JLBC Staff

DOR considers credit information confidential if:• credits were claimed by 3 or fewer taxpayers, or

• a single taxpayer used more than 90% of total credits

Three of the credits on the 2012 review schedule include confidential statistical information

6JLBC

Issues Affecting Evaluation

Timeliness of data

Lack of performance measures

Certain costs and benefits can be difficult to quantify

7JLBC

Evaluation of Arizona Tax Credit Reviews

The Pew Center on the States rates Arizona among 13 states that are “leading the way” in the evaluation of tax incentives

Arizona ranked highly for its systematic process of reviewing all income tax credits

The Pew Center, however, questioned the quality of the reviews due to a lack of both economic impacts and clear conclusions

9JLBC

Family Income Tax Credit

11JLBC

Family Income Tax Credit – Summary

Cost – $5.8 million in tax year 2011

– 516,800 claims at an average of $11 per claim

Purpose – reduce the tax burden on low-income households

Complexity – simple to use

– worksheet for credit calculation is included in tax return instruction pamphlet

– no separate administration and approval process is required

Performance Measures – none in statute

12JLBC

Family Income Tax Credit – Description of Credit

Credit is $40 for each household member for whom a personal or dependent exemption is allowed

Total credit cannot exceed $120 for singles and married couples filing separate returns

Total credit cannot exceed $240 for married couples filing joint returns and single persons filing as head of household

Credit is nonrefundable and unused amounts cannot be carried forward

13JLBC

Family Income Tax Credit – Credit Available to Taxpayers Below Prescribed Income Limits

* Income Limit Depends on Number of Dependents

$20,000 - $26,575Head of Household *

$20,000 - $31,000Married Filing Joint Return *

$10,000Married Filing Separate Return

$10,000Single

Income LimitFiling Status

14JLBC

Family Income Tax Credit – Amount of Credit Used Is Much Less Than Available Credit

Total credit available depends on filing status and number of dependents claimed

Since credit is nonrefundable and carry forwards are disallowed, actual amount used is limited by taxpayer’s liability

Since low-income households generally incur low tax liabilities, they tend to use far less of the credit than their maximum allowable amount

15JLBC

Family Income Tax Credit – Total Available Credit versus Actual Credit Used

20.6 20.5 20.5

27.7 28.4 28.9

33.436.1 35.1 35.6 36.7 36.7

42.7 42.144.7 44.6 44.3

5.85.65.35.86.86.97.77.77.47.47.45.2 5.1 4.6

7.9 7.8 7.4

$0

$10

$20

$30

$40

$50

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Mill

ions

of D

olla

rs

Credit Available Credit Used

16JLBC

$7.9 $7.8$7.5

$6.8

$5.8$5.3

$5.6$5.8

$5.2

$7.4

$6.9

$7.7$7.7

$5.1$4.6

$7.4 $7.4

341 341 345

449

519501

516 517 517

428417

439425

313 328335

402

$0

$2

$4

$6

$8

$10

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Cred

it U

sed

($ M

illio

ns)

0

100

200

300

400

500

600

Num

ber

of C

laim

ants

(Tho

usan

ds)

Credits Used # of Claimants

Family Income Tax Credit Credit– Amount of Credits Used & Number of Claimants

17JLBC

Family Income Tax Credit – Benefits to the Arizona Economy

Credit has the effect of raising the disposable income of low-income households

Economic theory predicts that a higher disposable income will increase consumer spending, which in turn will spur economic activity

However, since the total amount of the credit claimed is small (less than $6 mil.), the impact on the Arizona economy is likely minimal

18JLBC

Family Income Tax Credit – Potential Performance Measures

There are no performance measures for this credit

19JLBC

Commercial Solar Device Energy Tax Credit

21JLBC

Commercial Solar Energy Device Tax Credit– Summary

Cost – $129,500 in 2010 for the corporate credit and $51,400 in 2011 for the individual credit

Purpose – to promote development of Arizona’s solar energy industry

Complexity – simple to use and administer


22JLBC

Commercial Solar Energy Device Tax Credit– Description of the Credit

Individual and corporate tax credits for 10% of the cost of a solar energy device up to a maximum of $25,000 per building or $50,000 per business

Solar devices include photovoltaic (PV) electricity generators, water heaters, and energy storage systems

Credit is available through 2018 and is capped at $1 million per year

Credit is non-refundable, but unused amounts can be carried forward for up to 5 years

23JLBC

$129,500

$87,100$74,900

7

12

10

$0

$50,000

$100,000

$150,000

2008 2009 *2010

Cred

it U

sed

0

2

4

6

8

10

12

14

Num

ber

of C

laim

ants


Credit data for 2006 and 2007 has not been released by DOR.

Commercial Solar Energy Device Tax Credit– Amount of Corporate Credits Used & Number of Claimants

* Preliminary Numbers

24JLBC

$51,400

$258,000

$18,100$54,600

$279,900$325,100

5

1715

5346

81

$0

$100,000

$200,000

$300,000

$400,000

2006 2007 2008 2009 2010 *2011

Cred

it U

sed

0

20

40

60

80

100

Num

ber

of C

laim

ants


Commercial Solar Energy Device Tax Credit– Amount of Individual Credits Used & Number of Claimants


25JLBC

Commercial Solar Energy Device Tax Credit– Recent Trends

PV units are becoming less expensive and more efficient

Arizona instituted a Renewable Energy Standard (15% by 2025)

Federal residential and commercial solar energy credits of 30% are available through end of CY 2016

Utility rebates, state credits, and federal credits collectively reduce PV system costs by 50%

26JLBC

Commercial Solar Energy Device Tax Credit – Benefits to the Arizona Economy

In 2010, credits were applied against $7.5 million of investments in solar energy devices

There is no data on the number of new jobs created from purchases related to this credit

However, studies show Arizona’s total solar related employment has increased recently

27JLBC

Commercial Solar Energy Device Tax Credit – Potential Performance Measures

Total megawatt hours of electricity generated from solar energy devices

Total megawatt hours of electricity conserved from non-renewable energy sources

Number of persons employed in businesses that manufacture, install, or service residential energy solar devices

29JLBC

Military Family Relief Fund Tax Credit

31JLBC

Military Family Relief Fund Tax Credit– Summary

Cost – $996,700 in tax year 2011.– 3,007 claims averaging $331 a claim

Purpose – to encourage contributions used to relieve financial hardship of families of military service members

Complexity – moderately complex to administer due to popularity of the credit


32JLBC

Military Family Relief Fund Tax Credit– Description of Credit

Individual tax credit for cash donations to the Military Family Relief Fund

Maximum credit allowed:• $200 for single individual or head of household• $400 for married couple filing joint return

Credit is available through 2018 and is capped at $1 million per year

Credit is non-refundable and unused amounts cannot be carried forward

33JLBC

$996,700$995,800$998,300$982,600

3,007

3,0703,052

3,185

$500,000

$750,000

$1,000,000

2008 2009 2010 *2011

Cred

it U

sed

2,900

3,000

3,100

3,200

Num

ber

of C

laim

ants


Military Family Relief Fund Tax Credit– Amount of Credits Used & Number of Claimants


34JLBC

Military Family Relief Fund Tax Credit– Grant Making

$20,000 grant cap

Each of the following requirements must be met to be eligible for a grant:

• Resident families of deployed military personnel or veterans

• Military service in a combat zone since September 11, 2001

• Experiencing financial hardship

35JLBC

Military Family Relief Fund Tax Credit – Benefits to the Arizona Economy

With a $1 million annual cap, the credit’s economic impact is small

Temporarily raises income of families of service members

• In FY 2012, the committee made $562,100 in grants

• 2010 legislation eased program eligibility requirements

36JLBC

Military Family Relief Fund Tax Credit – Level of Grants Below Donation Level

562999TY ’11/FY ’12

2331,000TY ’10/FY ’11

1271,005TY ’09/FY ’10

$12$993TY ’08/FY ’09

Grants(Fiscal Year; in $1,000)

Donations(Tax Year; in $1,000)

Year

37JLBC

Military Family Relief Fund Tax Credit – Potential Performance Measures

Number and dollar amount of donations

Number and dollar amount of grants

39JLBC

Private School Tuition Organization Credit

41JLBC

Private School Tuition Organization Credit – Summary

Cost – $43.2 million in tax year 2010

– 62,941 claims (average = $686)

Purpose – assist parents with the cost of private school tuition


– administration now “significantly more complex for STOs” due to 2nd individual STO credit created by Laws 2012, Chapter 4


42JLBC

Private School Tuition Organization Credit– Description of Credit

Individual income tax credit for contributions to a school tuition organization (STO)

– Charitable organization exempt from federal taxes

– awards 90% of tax credit revenue for scholarships & grants

Maximum credit allowed (CY 2012):

– $503 for single individual or head of household

– $1,006 for married couple filing joint return

– adjusted annually for inflation

5-year carry-forward

53 STOs received contributions in CY 2012

43JLBC

Private School Tuition Organization Credit– Related STO Credits

Three other STO tax credits exist (none under review this year):

Corporate “low income” STO credit

– scholarships for “low income” students

Corporate “displaced/disabled” STO credit

– scholarships for students with disabilities or from foster care

system

Individual “switcher” STO credit (new for CY 2012)

– scholarships for students who switch to private schools

– donor must first take maximum “original” STO credit

44JLBC

$43.2

$51.0

$29.4$26.5

$1.8

$42.2

$50.9

$55.3$54.3

$13.8

$17.7

$24.9

$31.8

38.232.0

4.2

62.9

73.469.2 73.678.476.1

46.752.2

58.163.8

$0

$10

$20

$30

$40

$50

$60

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Con

trib

utio

ns R

epor

ted

($ M

illio

ns)

0

20

40

60

80

100

120

140

160

Num

ber

of C

ontr

ibut

ions

(tho

usan

ds)

Contributions Reported ($ Millions)# of Contributions (thousands)

Private School Tuition Organization Credit – In 2010, Average Contribution Was $686

45JLBC

Private School Tuition Organization Credit– Impact on State K-12 Cost

Revenue loss is offset to the extent that credit allows students to attend private school who otherwise would have attended public school

State K-12 Costs:

– Operating - $5,300 per ADM

– Capital – New construction and building renewal savings

46JLBC

Private School Tuition Organization Credit– Impact on State K-12 Costs

No net GF cost if at least 8,150 students otherwise would be attending public schools (8,150 X $5,300 = $43.2 million)

Total STO scholarship recipients estimated at 23,800, but actual number of “switchers” is unknown

Private school enrollment had grown over past decade prior to Great Recession (NCES survey)

– 44,060 in 2000

– 51,590 in 2008

– 44,559 in 2010

47JLBC

$1,791

$1,645

$1,213$1,166

$811

$1,370

$1,889$1,914

$1,788

$684

$899$913

$1,325

3.2

15.1

0.1

26.427.6

22.524.7

28.327.2

18.019.6 20.1 21.1

$0

$200

$400

$600

$800

$1,000

$1,200

$1,400

$1,600

$1,800

$2,000

$2,200

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Ave

rage

Sch

olar

ship

/Gra

nt

0

5

10

15

20

25

30

35

40

45

50

# of

Sch

olar

ship

s/G

rant

s (th

ousa

nds)

Average Scholarship/Grant# of Scholarships/Grants (thousands)

Private School Tuition Organization Credit – Over 26,400 awards distributed in 2010 (Average = $1,791)

48JLBC

Private School Tuition Organization Credit– Average Scholarship Funding and Tuition

Estimated 53% of private school population receives STO scholarship/grant

– some students receive more than one award

STO scholarships cover an estimated 22% of private school tuition costs

– Average tuition cost of $8,549 (NCES survey 2008)

– $1,914 ÷ $8,549 (‘08 scholarship average) = 22.4%

49JLBC

Private School Tuition Organization Credit – Potential Performance Measures

Percent of STO revenues retained for administrative costs

Percent of private school tuition paid for with award funding

51JLBC

Public School Extracurricular Activity Fee Credit

53JLBC

Public School Extracurricular Activity Fee Credit – Summary

Cost – $48.4 million in tax year 2011.

– 250,210 claims averaging $194 per claim

Purpose – assist parents with the cost of

extracurricular activities


– recent law changes have increased school district reporting requirements, adding data collection duties to DOR


54JLBC

Public School Extracurricular Activity Fee Credit– Description of Credit

Individual income tax credit for contributions to a K-12 public school for extracurricular activities or character education programs

Maximum credit allowed:

– $200 for single individual or head of household

– $400 for married couple filing joint return

5-year carry-forward

55JLBC

Public School Extracurricular Activity Fee Credit– Activities Eligible for Credit

Extracurricular activities are school sponsored activities that require a fee to participate:

– Excludes senior trips and recreational, amusement, and tourist activities

Character education instruction must include:

– At least 6 character traits

– Application of the traits

– Presentations by those who demonstrate the traits

56JLBC

$48.4

$43.7$43.2

$27.8

$22.4

$9.0

$35.4

$42.7$45.2$44.1

$14.8$17.5

$20.0

$31.0

149

11074

250 250239215 219

234214

167144

201214

$0

$10

$20

$30

$40

$50

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Con

trib

utio

ns R

epor

ted

($ M

illio

ns)

50

100

150

200

250

300

350

400

450

500

Num

ber

of C

ontr

ibut

ions

(tho

usan

ds)

Contributions Reported ($ Millions)# of Contributions (thousands)

Public School Extracurricular Activity Fee Credit – In 2011, Average Contribution Was $194

57JLBC

$1.0Catalina Foothills$2.2Paradise Valley Unified

$1.0Tempe Union$2.2Chandler Unified

$1.3Prescott Unified$2.3Gilbert Unified

$1.4Deer Valley Unified$2.5Scottsdale Unified

$1.5Peoria Unified$3.0Tucson Unified

$2.0Kyrene Elementary$5.9Mesa Unified

Contributions

($ in millions)District

Contributions

($ in millions)District

Public School Extracurricular Activity Fee Credit – 12 Districts Received 54% of Contributions in ’11

(represents 34% of Statewide Enrollment)

58JLBC

Public School Extracurricular Activity Fee Credit– Charters Receive Higher Average Contribution Per Pupil

Average contribution per pupil:

– School Districts - $45

– Charter Schools - $52

Highest average contribution per pupil:

– Prescott Unified - $261

– Tempe Preparatory Academy (charter) - $390

Some districts and charters reported receiving no contributions

59JLBC

Public School Extracurricular Activity Fee Credit– Family Income Levels Impact Contributions

Higher income districts received more contributions per student:

– Particularly true for larger districts

– Only a minimal impact on smaller districts

Other factors in determining contribution levels cold include:

– School administration (advertising, accessibility)

– Community involvement

60JLBC

Public School Extracurricular Activity Fee Credit– Laws 2011, Chapter 195 Increased Reporting Requirements

Schools must now report spending “categorized by specific extracurricular activity”

Most reported FY11 spending was for Athletics and Field Trips:

– Athletics or Sports ($12.2 M / 27%)

– Field Trips ($9.5 M / 21%)

– Other Clubs ($5.8 M / 13%)

– All Other (16 subcategories)($18.1 M / 39%)

Increases school and DOR administrative duties

61JLBC

Public School Extracurricular Activity Fee Credit– Laws 2011, Chapter 195 Permits Limited Spending on

“Short Term Capital Items”

Schools may use up to 50% of unencumbered contributions received prior to FY11 to buy “short-term capital items”

Must report spending annually to JLBC

Most FY11 spending ($1.6 M total) was for technology, furniture and equipment:

– Technology ($753K / 47%)

– Furniture & Equipment ($462K / 29%)

– Instructional Aids ($212K / 13%)

– Textbooks($144K / 9%)

– Library Resources ($43K / 2%)

62JLBC

Public School Extracurricular Activity Fee Credit – Potential Performance Measures

Student participation in extracurricular activities and character education programs

Funding by type of activity

63JLBC

Solar Hot Water Heater Plumbing Stub Outsand Electric Vehicle Recharge Outlets

Tax Credit

65JLBC

Solar Hot Water Heater Plumbing Stub Outs and Electric Vehicle Recharge Outlets Tax Credit– Summary

Cost – $1,600 in tax year 2009– 16 claims averaging $98 a claim

Purpose – none in statute

Complexity – simple to use and administer


66JLBC

Solar Hot Water Heater Plumbing Stub Outs and Electric Vehicle Recharge Outlets Tax Credit– Description of the Credit

Corporate and individual income tax credits for:• Stub outs, or plumbing fixtures, designed to

accommodate solar water heater installations• Electric vehicle recharge outlets

Corporate credit not claimed since 2000

Credit of up to $75 for the installation of qualifying devices

Non-refundable with 5-year carry-forward

67JLBC

$9.7

$1.6 $0.0 $0.0

$5.7

$11.6

$7.8

$3.3

$0.0$0.5 $0.9$0.0

35

15

2

17

22

6

11

18

0

16

0 0

$0

$2

$4

$6

$8

$10

$12

$14

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 *2011

Cred

it U

sed

($ T

hous

ands

)

0

5

10

15

20

25

30

35

40

Num

ber

of C

laim

ants


Solar Hot Water Heater Plumbing Stub Outs and Electric Vehicle Recharge Outlets Tax Credit– Amount of Credits Used & Number of Claimants


68JLBC

Solar Hot Water Heater Plumbing Stub Outs and Electric Vehicle Recharge Outlets Tax Credit– Recent Trends

Solar water heater units are becoming less popular as photovoltaic units become less expensive and more efficient

Demand for new electric vehicle models remains well below demand for non plug-in hybrid vehicles

Other forms of renewable energy increasingly compete for investment (wind, biomass, biofuels)

69JLBC

Solar Hot Water Heater Plumbing Stub Outs and Electric Vehicle Recharge Outlets Tax Credit– Economic Benefits & Performance Measures

No economic development at this level of credit usage

Cost of administering performance measures exceeds the tax expenditure

2012 Income Tax Credit Review - Presentation

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