Fiscal Note
BILL # SB 1496 TITLE: tax credit; qualifying charitable organizations
SPONSOR: Mesnard STATUS: As Introduced
PREPARED BY: Hans Olofsson
Description
This bill makes changes to the individual income tax credit program for cash contributions to Qualifying Charitable
Organizations (QCOs), which are described in more detail in the Analysis section below. The changes include expanding
the scope of services qualifying for the QCO tax credit.
Estimated Impact
We estimate that the bill's provision to expand the scope of qualifying services would likely increase the use of the QCO
individual income tax credit, which would result in a reduction of General Fund revenue collections. We do not have a
methodology for quantifying the impact. The magnitude will depend on how broadly the Department of Revenue (DOR)
currently interprets the QCO statutes regarding eligible services. We have asked DOR for their estimate of the bill's
impact but have not yet received a response.
Analysis
Arizona law provides an individual income tax credit for cash contributions made to certain qualifying charitable
organizations that provide assistance to Arizona residents who either: (1) receive Temporary Assistance of Needy Families
(TANF) benefits, (2) are low-income residents, or (3) are children who have a chronic illness or physical disability. The
maximum QCO credit donation amount in 2025 is $495 for single filers and $987 for married couples filing jointly. In FY
2024, Arizona taxpayers claimed a total of $84 million in QCO credits. (Arizona law also provides a separate credit for
cash contributions to Qualifying Foster Care Organizations (QFCO) with a 2025 credit cap of $618 for single filers and
$1,234 for married couples filing jointly.)
There are several changes under the bill, which are described below.
First, for QCOs, the bill adopts the broader of definition of "services" used for the purpose of qualifying for the tax credit
for contributions to Qualifying Foster Care Charitable Organizations (QFCOs). There is a considerable overlap of what
constitutes as "services" for the purposes of claiming either the QCO or QFCO credit under current law, such as cash
assistance, medical care, childcare, food, clothing, and job placement. Beyond a specific list of qualifying services, both
credits also can be taken for "other assistance that is reasonably necessary" to meet basic needs.
This bill would expand the specific definition of QCO qualifying "services" to include behavioral health, character
education programs, workforce development programs, secondary education student retention programs, as well as
housing and financial literacy services. This expansion could incentivize higher use of the QCO credit. But DOR may
already consider some of these services to qualify for the QCO label under the current broad "basic needs" provision. We
would need DOR's input to evaluate the extent to which the bill actually expands eligible services beyond their current
interpretation of QCO statutes.
The bill also requires that in the written statement submitted to DOR, the charitable organization will either direct or
spend (rather than only spend, as provided under current law) at least 50% of its budget on services assisting low-income - 2 -
residents. This is a clarifying change that mostly applies to "umbrella organizations" that coordinate and support the work
of multiple charities by managing fundraising, providing administrative services, and distributing funds to member
charities. Since this provision is essentially a technical clarification (rather than a substantive change), we do not expect
that it will have any fiscal impact.
Local Government Impact
For the same reasons as outlined above, we do not have a methodology for quantifying the impact.
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