Renewable Energy tax credit
The Renewable Energy tax credit (A.R.S. § 41-1511) was established by the Arizona legislature in 2009 to promote the renewable energy industry in the state. During the 2010 legislative session, technical corrections were proposed through Senate Bill 1201. These amendments became effective on July 29, 2010 and are retroactive to September 30, 2009.
The goal is to encourage business investment that will produce high-quality employment opportunities and enhance Arizona’s position as a center for production and use of renewable energy products. The program accomplishes this goal by providing incentives to companies in the solar, wind, geothermal and other renewable energy industries who are expanding or locating in Arizona. The program offers a refundable income tax credit up to 10% of the new qualifying investment.
For more detailed information please see below or direct questions to the Program Manager.
BASIC ELIGIBILITY REQUIREMENTS
A company may be eligible for tax credit, if it:
- Is primarily (more than 50%) engaged in the manufacturing of or headquarters for producing systems and components that are used or useful in manufacturing renewable energy equipment
- Is expanding or locating either a renewable energy manufacturing or headquarters facility in Arizona
- Creates full-time employment positions of which at least 51% are paid at least 125% of the state’s annual median wage
- Offers to pay at least 80% of the health insurance costs for all net new full-time employment positions
- Spends at least $250,000 in qualifying investments during each twelve-month period
Income Tax Credits: Arizona Commerce Authority (Commerce) may authorize up to $70 million per calendar year in tax credits to qualified companies beginning January 2013 through December 2019. The tax credits will be authorized on a first-come, first-served basis, according to a priority placement number assigned by the ACA at the time of Pre-Approval. It is important to note that the program cap ($70MM) is shared between the Qualified Facility program and the Renewable Energy tax incentive. Download the Tax Credit Allocation Table to view the amount of tax credits available this year.
Businesses making new qualifying investments in manufacturing and/or headquarter operations in Arizona in renewable energy industries are eligible for a tax credit if they meet the following requirements:
- At least 51% of the net new full-time employment positions are paid 125% or more of the state’s annual median wage; and
- The company offers to pay at least 80% of the employee’s health insurance costs for all net new full-time employment positions at the facility.
The tax credit amount is based on the total qualifying investment made and the number of jobs being created by the company. To generate tax credits, a renewable energy manufacturing companies must create 1.5 new full-time jobs for every $500,000 of capital investment. Alternatively, a renewable energy headquarters operation must create 1 new full-time job for every $200,000 of capital investment.
Property Tax Reclassification: Real and personal property and improvements constructed or installed that are primarily dedicated to renewable energy manufacturing or headquarters operations and that are certified by Commerce can be designated as Class 6 property (A.R.S. § 42-12006 (9)).
Up to 10% of the aggregate full cash value of the property may be derived from uses that are ancillary to and intrinsically associated with the manufacturing process or headquarters operation. Any additional property that is unrelated to the renewable energy operation is not qualified for reclassification.This reclassification qualifies the property for a 5% assessment ratio for both primary and secondary tax purposes, effectively constituting up to a 75% savings in business property taxes (A.R.S. § 42-15006 (1)).
Companies must make new qualifying investment of $25 million in renewable energy manufacturing and/or headquarter operations in Arizona to be eligible. The property tax reclassification benefit is available to an eligible company for not more than:
- 10 years, if the company pays at least 51% of the net new full-time employment positions between 125% and 199% of the annual median wage and pays at least 80% of the health insurance costs for all net new employees.
- 15 years, if the company pays at least 51% of the net new full-time employment positions at least 200% of the annual median wage and pays at least 80% of the health insurance costs for all net new employees.
To become a qualified company and receive pre-approval for tax incentives, eligible applicants must follow the process below:
- Note: Prior to submittal of an application to ACA, a company may request a letter of good standing from the Arizona Department of Revenue (Revenue) by submitting form Tax Clearance Application to Revenue. Further, a company must also request a letter of good standing from the County Treasurer of the county in which the project is located.
- To apply electronically for program incentives, click here.
- Upon receipt of an initial application, ACA will assign a priority placement number for receipt of tax incentives.
- Within 30 days of receipt of a complete application, the ACA will notify the company of pre-approval or denial. If a company is pre-approved, the ACA will issue a Letter of Qualification to the company and transmit a copy to the Arizona Department of Revenue and the County Assessor.
Note: Pre-approval does not guarantee receipt of tax incentives under this program because pre-approval is issued before the ACA determines final eligibility. The final determination of eligibility will be made after a company applies for post-approval.
Within 12-months of the pre-approval date, a company must demonstrate it has spent at least $250,000 in qualified expenses.
Complete the 12-month Interim Report and attach documentation of qualified expenditures.
AFTER THE FACILITY IS OPERATIONAL
- Once the facility begins operations, the company must enter into a written managed review agreement with the ACA. At the company’s expense, the company will select a certified public accountant, who is licensed in Arizona and who is approved by the ACA, to conduct the written managed review.
- After the certified public accountant furnishes its findings in writing to the ACA, the company must submit an electronic Application for Post-Approval to the ACA by clicking here.
- The ACA may issue post-approval to the company after reviewing the application for post-approval and verifying the company’s eligibility. Once post-approval is received, a qualified company may claim the tax credits and begin receiving property tax reductions.
SUPPLEMENTAL APPLICATION MATERIALS
The ACA will soon begin the process of drafting permanent rules for the Renewable Energy Tax Incentive Program and will seek public comment. If you would like to be notified as this process takes place, please place your email address on our list. Please click here to send an email requesting notification. Please be sure to identify the renewable energy program as the program for which you would like notification.