Last month the Arizona Commerce Authority (“ACA”) hosted an event to watch the San Francisco 49ers take on the Arizona Cardinals at the new Levi’s Stadium in Santa Clara. Gilbert Gonzalez, Vice President of Business Attraction Northern California, of the ACA invited us to attend. While we had a great time at the game, we also got to learn more about what the ACA offers to businesses expanding or relocating into Arizona. The state offers various appealing tax credits and incentives (some very similar to what California offers, watch out Golden State!) as well as a great business climate that may just steal a few California businesses.
As our way of saying thanks, we decided to put our focus on the Grand Canyon State for this feature of the State of the Month.
The manufacturing industry in Arizona plays a pivotal role in serving other industries. The state has over 4,500 establishments and employs over 155,000 people in manufacturing. The average wage of a manufacturing position is 50% more than the average wage for any position in Arizona. In 2012, the total manufacturing output was $23.66 billion, equivalent to more than 10% of Arizona’s Real GDP.
Another key sector in Arizona’s economy is the aerospace & defense industry. This industry has over 1,200 companies including major contractors such as Raytheon Missile Systems (11,900 employees) and Honeywell Aerospace (10,100 employees). This sector represents over 150,000 jobs and contributes $15 billion to the gross state product.
According to the Tax Foundation’s 2015 State Business Tax Climate Index, Arizona ranks as 23rd out of 50 and has an average tax system. The state’s corporate income tax (24th), individual income tax (19th), unemployment insurance tax (4th), and property tax (6th) rank favorably, but the sales tax is ranked unfavorably at 49th. Arizona’s form of sales tax is better known as the Transaction Privilege Tax (“TPT”). It is imposed on the vendor for having the privilege of doing business in Arizona, but the tax can be and usually is passed onto the purchaser. The TPT rate is 5.60% and depending on the municipality can be between 5.85% and 10.90%. For FYE 2013, the state collected $6.5 billion in TPT, which is a $222 million increase from 2012.
The state also collected almost $4 billion in both corporate and individual income tax. The individual income tax has 5 tax brackets, the lowest at 2.59% and the highest at 4.54%. The corporate income tax has a flat rate of 6.5% (House Bill 2001, or Arizona’s Competitiveness Package, will reduce the corporate income tax each year until 2016 when the rate will be 4.9%). The state also collects $1,103 per person in property taxes, which ranks 20th lowest nationally.
Tax Credits and Incentives
Arizona Competes Fund: This fund is offered for attracting, expanding or retaining qualified Arizona businesses and for supporting programs and projects that enhance economic development. Companies must apply to the ACA and set performance targets and dates within each grant agreement. These performance measures include commitments to new jobs, average wages, health insurance, and capital investments. The ACA has quarterly and annual reports that include a finding that the program is in the best interest of the state and has set forth evidence and reasons to support the finding. The fund is capped at $25 million and has awarded a total of $13 million to 11 grantees since its inception.
Quality Jobs Tax Credit: In 2011, Arizona’s Enterprise Zone was repealed. Replacing one of the previous hiring credits is the new Quality Jobs Tax Credit, which focuses on net increases in qualified employment positions. A qualified quality job means the employee is full-time (minimum 1,700 hours annually), paid the median county wage at the time of hire, and the employer offers to pay 65% of health insurance costs.
An employer may receive up to $9,000 of Arizona income tax credits or premium tax credits for each quality job and the credit can be claimed in annual increments of $3,000 over a period of 3 taxable years. Unused amounts may be carried forward for 5 consecutive years. The program is capped at 10,000 new jobs claimed each year by all participants. There is a 400 new job limit per employer every year. Depending on the county in which the employer is located, they must meet a minimum requirement of job creation and capital investment to qualify.
Angel Investment Tax Credit: This program allows investors who make an early stage investment of at least $25,000 or cash equivalent into a targeted Arizona business to receive a tax credit. The amount of credit is either 35% of the investment amount if made into a bioscience or rural company (a company located in a county with a population less than 750,000) or 30% to any other qualified business.
The tax credit can be claimed over a 3 year period and unused portions may up carried forward up to 3 tax years. The program is administered by the ACA which may authorize up to $20 million in tax credits to qualified investors up to June 30, 2016. The credits are allocated on a first-come, first-served process, established by the date and time the investor files an application with the ACA. Investors must apply for the tax credits before the investment and then apply for authorization of tax credits after making the investment.
Random Arizona Facts
- The amount of copper on the roof of the Capitol building is equivalent to 4,800,000 pennies.
- Arizona observes Mountain Standard Time (MST) on a year round basis. The one exception is the Navajo Nation, located in the northeast corner of the state, which observes the daylight savings time change.
- Compared to all the other states, Arizona has the largest percentage of its land set aside and designated as Indian Reservations.
- Phoenix is the United States’ sixth-largest city with a population of over 1.5 million (almost 25% of the state’s total population of 6.4 million)
- 15 Major League Baseball teams conduct spring training in the Cactus League, which in 2014 drew 1.63 million fans.
- The University of Arizona allowed female students to study medicine in the 1890s, long before it was common practice to do so.