The Aerospace & Defense Forum Arizona Chapter March 10, 2015 DOING BUSINESS IN ARIZONA Programs & Incentives For Arizona Aerospace Companies MITCHEL ALLEN, DIRECTOR BUSINESS DEVELOPMENT GREATER PHOENIX ECONOMIC COUNCIL March 10, 2015 Greater Phoenix Economic Council Region’s Economic Development Organization • A true regional model where public and private members collaborate to promote Greater Phoenix as a great place to grow business • Supported by Maricopa County, 22 cities and towns, and 170+ private-sector businesses • Services include regional operating costs analysis; economic impact and labor studies; HR employment assistance; connection to local resources, universities and companies; site selection • Since 1989, GPEC has assisted more than 600 companies in locating to the region resulting in $13.4 billion in capital investment and more than 110,000 jobs 1
The Aerospace & Defense Forum Arizona Chapter March 10, 2015 Market Size and Growth Greater Phoenix Population: More than 4 million Maricopa County • Greater Phoenix topped larger expected to grow metros as the best place for more than 14% by 2020 recruitment and attraction (Expansion Management) • Arizona among the top 5 friendliest states for business and #1 for our quality and WEST WEST availability of workforce PHOENIX PHOENIX VALLEY VALLEY (CNBC) 1,485,751 1,485,751 771,387 771,387 EAST EAST • Arizona is one of the top 10 VALLEY VALLEY states for doing business 1,406,273 1,406,273 (Development Counselors International) ASU ranked 5 th in the nation • Population: Maricopa County for recruiting new hires 3,944,859 (Wall Street Journal) GPEC Communities 3,762,437 GPEC Member Communities 2
The Aerospace & Defense Forum Arizona Chapter March 10, 2015 Commitment to Lower Taxes Competitive Economic Development Programs Arizona’s policymakers have consistently lowered taxes • Corporate income tax rate will fall to 4.9% (HB 2001) • Sales factor for export-oriented business will increase to 100% (HB2001) • Commercial property taxes will be reduced by 10% (HB 2001) • Aggressive accelerated depreciation schedules enhanced (HB 2001) • Companies exporting intangible property get 100% sales factor treatment • Sales tax exemption for data center construction and equipment Competitive Economic Development Programs • Quality Jobs Tax Credit Program • Job Training Program • Arizona Competes Fund • Arizona R&D Tax Credit Program Economic Development Programs Tax Changes • Corporate Income Tax – The corporate income tax is levied on corporations that engage in business within Arizona. The tax rate prior to the Competitiveness Package was 6.968% of net business income in Arizona with a minimum tax of $50. The corporate income tax is expected to decrease from 6.968% in 2013 to 4.9% in 2017. Starting TY 2014 TY 2015 TY 2016 TY 2017 Rate 6.968% 6.500% 6.000% 5.500% 4.900% • Sales Factor – Sales factor is a tool designed to attract and retain export industries and high wage jobs. A multi-state company must allocate a portion of its income to Arizona through corporate income tax, which is based on the company’s property, payroll, and sales within Arizona as a percentage of their global income. For companies with a high percentage of sales outside of Arizona, increasing the apportionment of corporate income tax assigned to sales reduces the percentage dedicated to payroll and property. Starting TY 2014 TY 2015 TY 2016 TY 2017 Rate 80% 85% 90% 95% 100% 3
The Aerospace & Defense Forum Arizona Chapter March 10, 2015 Economic Development Programs Tax Changes • Additional Depreciation – Companies can elect to use additional depreciation to fully depreciate their personal property more quickly Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Previous Additional 30% 46% 62% 78% 94% 100% Depreciation Rate New Additional 25% 41% 57% 73% 89% 100% Depreciation Rate • Personal Property Exemption – will now be calculated as the average of four separate employment cost indices for the past two years. Previously, it was a single index for the past year. • Capital Gains – on investments made by both individuals and corporations in small businesses will be exempt from taxation beginning in TY2014. Economic Development Programs Job Training Grant • Net New Grant: covers up to 75% of training costs for new jobs – Maximum of $8,000 per position in rural Arizona or for employers with less than 100 employees company-wide – Maximum $5,000 per position trained for all other employers – Net new grant applications are accepted on a first-come, first-served basis • Incumbent Grant: covers up to 50% of training costs for supplement training plan for current employees – Maximum of $4,000 per position in rural Arizona or for employers with less than 100 employees company wide – $2,500 per position trained for all other employers – Incumbent training grant applications are accepted in the order established by random blind drawings 4
The Aerospace & Defense Forum Arizona Chapter March 10, 2015 Economic Development Programs Quality Jobs Tax Credit • $9K of corporate income tax credits per job, spread over three years ($3000/employee/year). • $5 million capital investment is required in Metro area; 25 full time employees must be hired with pay at least $35,090 per year (county median wage) and at least 65% of benefits package covered by employer. • Capped at 10,000 jobs per year. Economic Development Programs Qualified Facilities Refundable Tax Credit • Make capital investment to establish or expand a facility in Arizona that devotes at least 80% of the square footage of the facility and payroll at the facility to one or more of the following: – Manufacturing facility where at least 65% of the products are sold outside of Arizona. – Research and development facility where activities are conducted for a manufacturing company that derives at least 65% of its revenues from sales outside of Arizona. • Headquarters facility for a manufacturing company that derives at least 65% of its revenues from sales outside of Arizona • The program offers a refundable income tax credit equal to the lesser of: – 10% of the qualifying capital investment, or – $20,000 per net new full-time employment position at the facility, or – $30,000,000 per taxpayer • Requires wages of greater than 125% of median wage (125% of median wage is currently $42,709 through 5/31/2015) and at least 80% of benefits package covered by employer. • Minimum investment of $250,000 5
The Aerospace & Defense Forum Arizona Chapter March 10, 2015 Economic Development Programs R&D Tax Credit Program • There are three types of corporate income R&D credits: – Regular R&D credit (Nonrefundable) – Refundable R&D Credit – Additional R&D Credit for University Research (Nonrefundable) • Credit amount is 24% of first $2.5 million in qualifying expenses plus 15% of the qualifying expenses in excess of $2.5 million. If Expenses ≤ $2.5M, R&D Credit is: Tax Year If Expenses > $2.5M, R&D Credit is: 2011-2017 24% of amount up to $600,000 $600,000 plus 15% of amount exceeding $2.5M 2018 20% of amount up to $500,000 $500,000 plus 11% of amount exceeding $2.5M • Qualifying small companies (less than 150 FTE) can apply to make their credit refundable (75% of nonrefundable credit value). A company can receive up to $2M in refundable credits per year. • R&D Credit for University Research is 10% the amount of basic research payments above the base amount paid to one or more state universities Economic Development Programs Foreign Trade Zone Program (FTZ) • Merchandise may be brought in duty-free for purposes such as storage, repacking, display, assembly or manufacturing. • Imports may be landed and stored quickly without full customs formalities. • Arizona is one of two states that have additional benefits for companies located within a foreign trade zone. Locating a company in Arizona in an activated foreign trade zone or subzone provides a lower assessment ratio on property taxes. Both real and personal property can be reclassified from class one commercial property (20% assessment ratio) to class six (5% assessment ratio), which may result in property tax savings of up to 75% per year. 6
The Aerospace & Defense Forum Arizona Chapter March 10, 2015 Economic Development Programs Military Reuse Zone Program (MRZ) • Exemption from transaction privilege tax on contracts for certain types of construction at an MRZ • Arizona income/premium tax credits for up to five years for each net new job created, totaling up to $7,500 per non-dislocated employee and up to $10,000 per dislocated employee • Both real and personal property can be reclassified from class one commercial property (20% assessment ratio) to class six (5% assessment ratio), which may result in property tax savings of up to 72.9% for a period of five years. • To qualify: • Be located in an MRZ • Be primarily (more than 50%) engaged in providing aviation or aerospace services; or Manufacturing, assembling or fabricating aviation or aerospace products • Enter into a Memorandum of Understanding with Commerce • Report annually to Commerce THANK YOU! Questions? 602.256.7700 | www.gpec.org @GPEC GPEC4JOBS gpecgreaterphoenix Greater Phoenix Economic Council (Groups) 7
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