Assigned to APPROP AS PASSED BY COW
ARIZONA STATE SENATE
Fifty-Fifth Legislature, Second Regular Session
REVISED
AMENDED
FACT SHEET FOR S.B. 1643
technical correction; public records
(NOW: research; development; tax credits)
Purpose
Authorizes the Arizona Commerce Authority (ACA) to review and approve a portion of a
taxpayer's unused balance of the Research and Development Credit (R&D Credit) for reinvestment
and caps, at $50,000,000 in a fiscal year, the total amount of the unused balance of income tax
credits (unused credits) the ACA may approve for reinvestment. Appropriates $50,075,000 from
the state General Fund (state GF) in FY 2023 to the ACA for unused credit reinvestment
implementation and administration and outlines unused credit reinvestment requirements.
Increases the aggregate annual cap, from $5,000,000 to $10,000,000, on the refundable portion of
the R&D Credit.
Background
The corporate and individual R&D Credit is allowed against income tax liability for
increased research activities conducted in Arizona, including research conducted at a state
university that is funded by the taxpayer. The R&D Credit is nonrefundable or refundable up to
the aggregate statutory cap. The nonrefundable portion of the R&D Credit is administered by the
Arizona Department of Revenue (ADOR) and the refundable portion is administered by the ACA.
The R&D Credit may be claimed for basic research payments and qualified research
expenses above a base amount, which is determined based on the ratio of a company's qualified
research expenses to its gross receipts during a specified base period. If the amount of the R&D
Credit exceeds the taxpayer's income tax liability, the amount of the credit claimed that is not used
to offset taxes may be carried forward for 15 consecutive taxable years. For taxable years
beginning January 1, 2022, the amount of the credit claimed that is not used to offset taxes may be
carried forward for 10 consecutive taxable years.
The ACA must evaluate and certify taxpayers who otherwise qualify for the R&D Credit
to further qualify for income tax refunds. An application for refund must include outlined
information, including the amount of the taxpayer's income tax credit for the taxable year. Within
30 days after receiving the application, the ACA must issue a certificate of qualification for the
refund or notify the applicant of application denial. The ACA may not approve refunds exceeding
a total of $5,000,000 in any calendar year. If, at the end of any year, an unused balance occurs
under the refund cap, the balance must be reallocated for a refund in the following year (A.R.S.
§§ 41-1507; 43-1074.01; and 43-1168). FACT SHEET – Amended/Revised
S.B. 1643
Page 2
The Joint Legislative Budget Committee fiscal note estimates an ongoing state General
Fund cost of $55,075,000 beginning in FY 2023 (JLBC fiscal note).
Provisions
Research and Development Credit
1. Increases the aggregate annual cap, from $5,000,000 to $10,000,000, on the refundable portion
of the R&D Credit.
Appropriation
2. Appropriates $50,075,000 from the state GF in FY 2023 to the ACA to be allocated as follows:
a) $50,000,000 to implement the reinvestment of unused credits; and
b) $75,000 to administer the reinvestment of unused credits.
3. Exempts the appropriation from lapsing.
Reinvestment of Unused Credits
(Retroactive to July 1, 2022)
4. Requires the ACA to receive applications from and evaluate and certify taxpayers that carry
forward a balance of unused R&D Credits to further qualify for reinvestment of a portion of
the taxpayer's unused balance of the credit to be used for the following purposes in Arizona:
a) sustainability or water capital projects;
b) building or updating the taxpayer's research and development facilities;
c) a capital expenditure project between the taxpayer and an institution of higher learning or
a career and technical education district (CTED);
d) a workforce development project between the taxpayer and an institution of higher learning
or a CTED, including tuition reimbursement, hiring employees for the institution and
apprenticeships; and
e) a capital expenditure project that is supported by matching monies from a federal program
or national grant program.
5. Caps, at $50,000,000 in a fiscal year, the total amount of income tax credit reinvestments the
ACA may approve and applies the approved amount against the cap for the fiscal year in which
the ACA received the application.
6. Authorizes the ACA to approve a portion of the unused credits for reinvestment, if the tax
credit reinvestment is $0.60 per dollar of the unused R&D Credits and the R&D Credit:
a) is not expired; and
b) does not exceed $10,000,000 per year per applicant or the applicant's current unused
balance of R&D Credits, whichever is less.
7. Requires the amount of a taxpayer's unused balance of R&D Credits to be reduced by the
amount of income tax credits converted for reinvestment.
FACT SHEET – Amended/Revised
S.B. 1643
Page 3
8. Requires a taxpayer to annually apply to the ACA by December 31 for tax credit reinvestment
on an ACA-prescribed form that includes:
a) the taxpayer's name, address and taxpayer identification number and a telephone number
and email address of the person responsible for the application;
b) a general description of the taxpayer's business and the qualifying activities that the
taxpayer will conduct with the potential income tax credit reinvestment monies; and
c) the amount of the taxpayer's outstanding R&D Credits to be converted.
9. Requires the ACA to process and evaluate each application and notify an applicant within 90
days after receiving a complete and correct application that:
a) the application was approved; or
b) the application was not approved, including specific reasons for the disapproval.
10. Requires the ACA, on application approval, to provide a portion of the applicant's unused
credits for reinvestment to the applicant, subject to the statutory terms and conditions.
11. Specifies that an application disapproval does not preclude a subsequent application if the
applicant is able to correct the error or deficiency.
12. Allows the ACA, if a taxpayer does not comply with reinvestment requirements, to recapture
all or part of the unused credit reinvestment distributed to the taxpayer.
13. Prohibits the ACA from distributing income tax reinvestment monies to a taxpayer before
reviewing and approving a qualifying project.
14. Allows income tax reinvestments on a first-come, first-served basis according to the
application filing date.
15. Requires ADOR to provide information related to the taxpayer's unused tax credits to the ACA
on request.
16. Requires the ACA, in 2027 and 2030, to conduct an economic analysis on the reinvestment of
unused credits and submit the report to the Governor, President of the Senate, Speaker of the
House of Representatives and Secretary of State.
17. Requires the ACA to communicate a taxpayer's credit status to ADOR and adopt rules and
publish forms as prescribed.
Miscellaneous
18. Repeals the unused credit reinvestment program on July 1, 2032.
19. Designates this legislation as the Arizona Reinvestment Fund Act.
20. Makes technical changes.
20. Becomes effective on the general effective date, with retroactive provisions as noted.
FACT SHEET – Amended/Revised
S.B. 1643
Page 4
Amendments Adopted by Committee
• Adopted the strike-everything amendment.
Amendments Adopted by Committee of the Whole
1. Reduces the FY 2023 appropriation to the ACA from $55,075,000 to $50,075,000.
2. Specifies that a taxpayer with a carry forward balance of R&D Credits is authorized to apply
to the ACA for income tax credit reinvestment.
3. Lowers the income tax credit reinvestment from $0.75 per dollar to $0.60 per dollar of unused
R&D Credits and sets the maximum credit per applicant as the current unused balance of R&D
Credits or $10,000,000, whichever is less.
4. Requires the amount of a taxpayer's unused balance of R&D Credits to be reduced by the
amount of income tax credits converted for reinvestment.
5. Specifies that monies allowed to be distributed by the ACA after project approval are income
tax reinvestment monies.
6. Requires a taxpayer’s qualifying project for tax credit reinvestment to take place in Arizona
and adds a CTED to the institutions authorized to partner with the taxpayer for certain
qualifying projects.
7. Modifies the qualifying project that demonstrates receipt of matching federal monies by:
a) requiring the project to be a capital expenditure project; and
b) requiring the project to be supported by, rather than demonstrated with, matching federal
monies.
8. Makes technical and conforming changes.
Revisions
• Updates the fiscal impact statement.
Senate Action
APPROP 2/22/22 DPA/SE 7-2-1
Prepared by Senate Research
April 8, 2022
MG/slp