House Bill 2586 Provides Much Needed Transparency of ‘Economic Development’ Tax Credits

R&D

Every year, lobbyists and special interest groups go to the Capitol to advocate for various special incentives and tax credits for their particular industry. Whether it is subsidies for green energy or tax credits for the movie industry, there is a constant struggle over picking winners and losers at the legislature.

When discussing the various tax credit proposals, there is one economic development tax credit that is often touted as being broad based and fair: the Research and Development Tax Credit. This particular carve out in the tax code was created by the legislature as a way to incentivize R&D activity in Arizona. To avoid the criticism that confronted other industry specific tax credits, the R&D tax credit included no cost cap, set loose limits on qualification and carry forward requirements, and opened up the credit to all businesses.  It was a win-win for the advocates of the program–promote additional R&D in Arizona while addressing the concerns that the concept picks winners and losers.

The supporters were right about one thing: it is very broad based.  It is so broad based, in fact, the program has become one of the most expensive tax credits Arizona has to offer. In 2011 alone, Arizona paid out over $70 Million in R&D tax credits, with an additional BILLION DOLLARS in carry forward credits set to be claimed by employers over the next several years. Annual payouts from the program are expected to exceed $100 million in the very near future.  Many even suspect that the R&D tax credit program is directly responsible for sagging Arizona corporate income tax collections.

Proponents might argue that the cost of the credit is worth all of the new R&D occurring in Arizona.  Unfortunately, there is no way to prove this point since taxpayers are prevented from seeing who receives these tax credits. The Free Enterprise Club hopes to change this with HB 2586, legislation that requires annual disclosure of the recipients of ‘economic development’ tax credits by the Department of Revenue. Taxpayers have a right to know who is receiving these credits and in what amount so we can determine if it is a good investment for Arizona. At a cost of $100 million dollars a year, a little sunshine wouldn’t be such a bad idea.

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The Arizona Free Enterprise Club is a free market policy and advocacy group dedicated to promoting a strong and vibrant Arizona economy.