Renewable Energy Business Tax Incentives
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The tax credit is up to 10% of the investment amount. The annual limit for a single taxpayer is $30 million. The aggregate amount of tax credits that can be approved state-wide is $70 million per taxable year. There is no individual limit on property tax reductions.
Note: H.B. 2528, enacted in May 2017, repeals these tax incentives beginning in 2018.
S.B. 1403, signed in July of 2009, created tax incentives intended to draw renewable energy product manufacturers to Arizona. Specifically, income tax credits and property tax incentives are available for companies choosing to establish or expand their manufacturing facilities and corporate headquarters in Arizona. To be eligible, the business must meet certain minimum requirements for the quantity and quality of new jobs created. Some of these requirements were amended in May 2010 by S.B. 1201. Different incentive levels are available depending on how many full-time jobs are created and the wages for those jobs.
Businesses must first submit an application to the AZ Department of Commerce to be approved as an eligible facility. The law provides for continual review of the business by the Department of Commerce to ensure that the business is still meeting the various requirements. If approved, the business may be eligible for income tax credits or property tax incentives. These incentives were set to expire on December 31, 2019, but were repealed by H.B. 2528 of 2017, effective 12/31/2017.
Income Tax Credits:
To be eligible for income tax credits, the company must pay 51% or more of the new full-time employees a wage that equals or exceeds 125% of the median wage in Arizona, and must offer to pay 80% or more of the premium for all new full-time employees' health insurance. The amount of the tax credit is up to 10% of the taxpayer's total capital investment if:
- A manufacturing facility creates at least 1.5 full-time employees for each $500,000 of capital invested, or
- A headquarters creates at least 1 full-time employee for each $200,000 of capital invested.
If the capital ratios above cannot be met, then the credit will be equal to 10% of:
- $500,000 per 1.5 new full-time employee in a manufacturing facility, or
- $200,000 per 1 new full-time employee in a headquarters
The credits must be claimed in five equal installments over five consecutive taxable years. The annual limit for any single taxpayer is $30 million. Arizona also provides a tax credit for capital investments in manufacturing facilities and other businesses unrelated to renewable energy under A.R.S. §41-1512. The statewide aggregate amount of credits that may be approved for both this credit and the credit allowed under A.R.S. §41-1512 is $70 million per taxable year.
Property Tax Incentives:
To be eligible for property tax incentives, the business must invest at least $25 million in facilities, equipment, land, and infrastructure. If approved by the Department of Commerce, the property will be designated as a class 6 property for a period of:
- 10 years if 51% or more of the full-time employees are paid 125% to 199% of the median income in Arizona, or
- 15 years if 51% or more of the full-time employees are paid 200% or more of the median income in Arizona
Class 6 properties have an assessment ratio of 5%, while class 1 properties have an assessment ratio of 19%.