Assigned to FICO FOR COMMITTEE
ARIZONA STATE SENATE
Fifty-Sixth Legislature, Second Regular Session
FACT SHEET FOR S.B. 1213
income tax credit; labor costs
Purpose
Establishes, beginning in TY 2025, the Credit for Increased Hourly Labor Costs (Credit)
for employers in a city or town that has adopted a local minimum wage that is more than the state
minimum wage and requires the State Treasurer to withhold monies from the city's or town's Urban
Revenue Sharing Fund (URS Fund) distribution to reimburse the state for a portion of the Credits
claimed for the taxable year.
Background
Statute sets the state minimum wage, which is annually increased based on the increase in
the cost of living. Effective January 1, 2024, the state minimum wage is $14.35. A county, city or
town may regulate the local minimum wage, but may not set a minimum wage that is lower than
the state minimum wage (A.R.S. §§ 23-363 and 23-364; ICA).
A monthly entitlement is distributed from the URS Fund to incorporated cities and towns
in Arizona. The annual entitlement is 18 percent of income tax collections distributed in 12 equal
installments. The URS Fund draws monies from both corporate and individual income tax and is
distributed according to the population of each incorporated city and town using population
estimates made by the U.S. Census Bureau (A.R.S. §§ 42-5033.01 and 43-206).
Individual income tax is levied on an Arizona resident's taxable income at a single tax rate
of 2.5 percent. Corporate income tax is levied on a corporation 's taxable income at 4.9 percent.
The calculation of Arizona individual income tax begins with the federal adjusted gross income
and the corporate income tax begins with federal taxable income, which are then subject to various
additions, subtractions and deductions. Statute also authorizes various tax credits that reduce a
taxpayer's income tax liability (A.R.S. Title 43, Chapters 10 and 11).
If establishing the Credit results in claims against individual and corporate income tax
liability, there may be a fiscal impact to the state General Fund.
Provisions
1. Establishes, for taxable years beginning January 1, 2025, the Credit allowed against individual
and corporate income tax liability for increased hourly labor costs that result from paying a
local minimum wage that is more than the state minimum wage.
2. Sets the amount of the Credit at 5 percent of the difference between the actual hourly labor
costs the employer paid during the taxable year and the total hours worked by employees
during the taxable year multiplied by the state minimum wage. FACT SHEET
S.B. 1213
Page 2
3. Requires the State Treasurer, on notice from the Arizona Department of Revenue (ADOR),
each month to withhold from a city's or town's URS Fund distribution an amount equal to
one-twelfth of the total Credit amount claimed by taxpayers in that city or town for the prior
taxable year.
4. Caps, at $5,000,000, the amount that may be withheld from a city's or town's URS Fund
distribution and requires the State Treasurer to deposit the withheld URS Fund monies in the
state General Fund.
5. Requires, to qualify for the Credit, an employer to:
a) employ employees who work in a city or town that has adopted a local minimum wage;
and
b) certify to ADOR the amount of hourly labor costs employers actually paid during the
taxable year and the product of the total number of hours worked by all employees during
the taxable year multiplied by the state minimum wage.
6. Prohibits the State Treasurer from withholding any amount that a city or town certifies to
ADOR and the State Treasurer as being necessary to make any required deposits or payments
for debt service on bonds or other long-term obligations that were issued or incurred by a
pledge of URS Fund monies.
7. Requires ADOR, by the beginning of each fiscal year, to notify the State Treasurer of:
a) each city or town in which an employee of an employer who claimed the Credit works; and
b) the amount to withhold from that city's or town’s URS Fund distribution to reimburse the
state for the Credit claimed for the taxable year.
8. Allows the Credit to be carried forward for five consecutive years if the Credit exceeds the
claimant's liability.
9. Allows co-owners of a business to claim a pro rata share of the Credit based on the ownership
interest, not to exceed the amount that would have been allowed a sole owner.
10. Adds the Credit to the Joint Legislative Income Tax Credit Review Committee's review
schedule for years ending in 3 and 8.
11. Defines terms.
12. Contains a purpose statement.
13. Makes technical changes.
14. Becomes effective on the general effective date.
Prepared by Senate Research
January 31, 2024
MG/JC/cs