Arizona provides a refundable Qualified Facility Tax Credit (QFTC) program and a non-refundable Quality Jobs Tax Credit (QJTC) program. Both programs can be advantageous for businesses looking to locate or expand in Arizona, including those that have done so in the previous 36 months.
The Arizona Commerce Authority (ACA) may authorize up to $125 million per calendar year in tax credits to qualified companies. The tax credits will be authorized on a first-come, first-serve basis, according to a priority placement number assigned by the ACA at the time of pre-approval. The funds for 2020 and 2021 were fully allocated for submissions as of June 30 of those years. All funds are expected to be fully allocated before June 30, 2022.
The takeaway: Funds are limited, and the QFTC has run out of funds during the last two fiscal years. We have received guidance that Arizona expects the QFTC program will run out of funds again for the program before the end of the current fiscal year (June 30, 2022). Steps may be available for companies seeking to protect their ability to obtain these limited credits.
The QFTC and QJTC programs offer an opportunity for businesses to provide above-the-line benefits related to expansion and investment in the state.
Arizona provides a refundable QFTC to promote the location and expansion of headquarters facilities or manufacturing facilities, including manufacturing-related research and development in the state (Qualified Facility). The credit may be used to offset state income tax and is refundable in the absence of income tax liability.
The QFTC is equal to the lesser of:
Although taxpayers may include capital investments made in a Qualified Facility up to 36 months prior to submitting an application for pre-approval, the credit may be claimed only on a timely filed original income tax return, including extensions, and in five equal installments.
In addition to locating or expanding Qualified Facilities in the state, a taxpayer also must meet the following requirements in order to be eligible for the QFTC:
For taxpayers making capital investments and creating net-new qualified jobs in Arizona that otherwise would not qualify for the QFTC, Arizona offers the QJTC as an alternative to taxpayers that have Arizona income tax liability.
The QJTC is a non-refundable credit intended to encourage business development and high-quality job creation in the state. The credit may be used to offset state income or premium tax. The QJTC program offers up to $9,000 of Arizona income tax credits for each net new quality job created by a taxpayer over a three-year period at one discrete business location.
Partner, State and Local Tax, PwC US