A bill making its way through the legislative process that is touted as a way to increase transparency over tax credits won’t do much to inform the debate over tax policy, but it will negatively impact Arizona’s economic development efforts. The only question is by how much.
HB 2422 would have the state Department of Revenue produce an annual report that would identify by name those Arizona companies that claim or carry forward over $5,000 as part of an income tax credit.
The supposed premise is that such a report would help policymakers better understand the impact existing tax credit programs are having on job creation and whether they ought to be reformed.
Companies that claim credits are employing tools made available by the state that help reduce a taxpayer’s tax exposure. There’s nothing particularly mysterious about them. They’re a common element of the tax code here and in states across the country.
You might use tax credits yourself. Individual taxpayers in Arizona can claim tax credits – dollar for dollar reductions in tax liability for a corresponding investment in a particular area – for charitable donations, for donations to agencies that assist foster kids, to private school tuition organizations, and more.
But when you claim a credit, your name doesn’t show up in a government report somewhere. And why would it? If your claiming a tax credit were to land your name in the headlines with a full rundown of your tax return, you might think twice before filing that 1040.
For the same reason, employers might think twice about investing here if their use of a completely legitimate tax strategy resulted in the production of a Department of Revenue report singling them out.
The state Legislature isn’t lacking for information about the use of tax credit or incentive programs. If you’re looking to cure a bout of insomnia, the Arizona Commerce Authority produces an extremely thorough annual report that presents a look at the state’s various economic development tools and who’s using them. There’s information presented in the aggregate as well as on company-by-company basis.
The professionals in the economic development community, such as those at the ACA, need to be able to present the full menu of programs the state offers with the confidence that they will be available for the foreseeable future. Likewise, companies mulling an investment in Arizona need to know that using a legitimate state-sponsored tax credit program won’t result in a report from the state tax collector that might contain details about a company’s tax position that could be used for mischief.
The fact that the ACA already publishes an annual report chock full of information about tax credit programs begs the question as to why we need to get the Revenue Department in on the act of reporting on corporate taxpayers’ use of tax credits, too.
Companies eyeing Arizona shouldn’t be used as a pawn in a debate over whether certain tax credit programs ought to exist.
The Legislature and Gov. Ducey deserve tremendous credit for cultivating an environment that makes the state more attractive to job creation. Let’s continue to focus on policy moves that positively affect a broad cross section of the business community, not unforced errors. We don’t need this bill.