It is no secret that the Club is critical of special interest tax credit programs that distort our tax code and pick winners and losers in the market. Though a few of these tax credits have been enacted by the legislature over the years, there is one program on the books that has grown into the billions and has successfully evaded any real scrutiny: the Research and Development tax credit program.
The Research and Development tax credit program piggybacks off the federal program and operates under the premise that it will increase the amount of investment corporations make in Arizona on research and development. The program is very generous, allowing corporations to claim a 24% credit on the first $2.5M in qualifying expenses and an additional 15% up and above the $2.5M. If a corporation effectively eliminates their tax liability, they are allowed to carry forward the excess credits for up to 10 years. For businesses with fewer than 150 employees, the pot is even sweeter, as they are allowed to claim a refund of up to 75% of the excess credits and cash out up to $5M every year in what is called a “refundable” tax credit. In other words, direct taxpayer subsidies for select businesses.
Because of the sheer size of the R&D tax credit program and the fact that the credits are not capped, the bank of unused tax credits being carried forward has grown to almost $2B! For perspective, the state only generates around $850M in corporate taxes a year – this clearly demonstrates that there is simply not enough corporate income tax liability (taxes being paid) to draw down the available credits. As these unused credits have grown, there has been more pressure from corporate lobbies that currently have zero corporate income tax liability to find creative ways to simply cash the credits out.
This year’s attempt has taken shape in SB1643, which expands the existing program for “small” firms receiving refundable credits from $5M to $10M a year and creates a new program that allows up to $50M a year in unused credits by larger companies to be converted (i.e. made refundable) for reinvestment. This is a massive expansion in the refundability of the program and lays the groundwork for all $2 billion to be given away in subsidies to big business.
Considering how the program has ballooned, lawmakers would be far better served to examine the structure and necessity of the corporate income tax entirely, instead of creating complicated credit schemes.
SB1643 is bad policy and bad politics
Under the provisions of the bill, corporate entities can apply their unused credits at a rate of $0.60 per dollar for qualifying expenses which include everything from “sustainability” projects, updating R&D facilities, “workforce development projects,” tuition reimbursement for employees, and capital expenditures supported by federal matching dollars, or national grant programs.
In other words, large companies will get taxpayer money to fund various liberal endeavors, including efforts to combat climate change, empower HR departments’ woke workforce initiatives, and promote the out-of-control spending of the federal government.
This isn’t just conjecture—many of these corporations have implemented these activities in the workplace, and SB1643 simply forces taxpayers to now subsidize these woke initiatives.
And while republican lawmakers tell their constituents that they oppose taxpayer subsidies, oppose CRT, and dislike green new deal policies, a majority of Republican Senators voted for SB1643 as did a majority of House Republicans in the Appropriations committee. Their opposition is schizophrenic, to say the least.
Now we are moving into budget season at the legislature, and it is becoming more and more likely that this corporate welfare R&D package will be rammed into the budget. The only question now is when that occurs, who will stand up against this woke taxpayer giveaway, and who will be for it.
Tell Your Senators to Vote NO on Corporate Welfare Bill SB1643!
SB1643 would allow $50M a year in tax credits for R&D companies and increase the “refundability” from $5 M to $10 M a year. There are currently over $1 BILLION in backlogged R&D tax credits because the state programs have generously allowed these companies to entirely zero out their tax liability!!
SB1643 is a straight $10M/year appropriation to these companies subsidized by TAXPAYERS. This is CORPORATE WELFARE and it’s WRONG!!
Send a message to Arizona Senators right now and tell them to vote NO on SB1643!