Can Corporations Receive a Dollor-for-Dollar Arizona Tax Credit?
Yes, any eligible business with an Arizona tax liability can donate to the Institute for Better Education to benefit either the Low-Income Scholarship Program and/or the Disabled/Displaced Scholarship Program. These programs help children who are low-income, disabled, or have been a ward of the state (displaced) to attend the private school that best fits their needs, all while giving the donating corporation a dollar-for-dollar tax credit! Your corporation can even recommend a school to benefit from these scholarships!
Corporate Tax Credit Program Facts
- Eligible businesses are C-Corporations, S-Corporations, Insurance companies who pay taxes on their premiums collected in Arizona, and LLCs that file taxes as an S-Corporation.
- The donation must be made to an STO (School Tuition Organization). Institute for Better Education (IBE) is a certified STO by the Arizona Department of Revenue and a federal non-profit organization (501(c)(3)).
- The corporation can designate their donation for either the Low-Income Corporate Scholarship Program and/or the Disabled/Displaced Corporate Scholarship Program.
- The minimum contribution amount is $5,000 for S-corporations or LLCs that file as an S-corp. There is no minimum for C-corporations or insurance companies. There is no maximum contribution, but the state sets a donation cap for all contributions received for both programs each year. The Low-Income Corporate Tax Credit donation limit increases 20% each year. For fiscal year 2020/21, the limit is $123,042,188. The Disabled/Displaced Corporate Tax Credit donation limit is constant each year at $5 million dollars.
- The donation approval process (see below) starts July 6, 2020 and is on a first come/first serve basis until the tax credit limit is reached. In past years, both tax credit programs have reached their limit quickly.
- The corporation may carry forward any unused tax credits for 5 years.
Corporate Tax Credit Process
- Determine your corporation’s donation amount based on your state income tax liability.
- Complete the Corporate Donation Application and email to the Corporate Program Coordinator, Wendi Hauser, at firstname.lastname@example.org.
- IBE will submit your donation request to the Arizona Department of Revenue (ADOR) for pre-approval.
- The ADOR will respond with an approval/denial within a few business days. IBE will then notify the corporation and the corporation has twenty days from the date of approval to provide IBE with the donation amount approved. IBE then notifies the ADOR that the donation is complete.
- The Corporate Tax Credit donation amount can then be claimed when filing your company’s taxes.
Additional S-Corporation Information
- The Corporate Tax Credit is available to an S-Corporation as defined in Section 1361 of the Internal Revenue Code.
- LLCs taxed as S-Corporations for federal and state purposes are eligible to donate to IBE for a Corporate Tax Credit.
- The S-Corporation may make an irrevocable election to pass the credit through to its individual shareholders instead of claiming the credit against income taxed at the corporate level (on the 120S).
- The S-Corporation does not need to have a liability in order to pass the credit through to its shareholders. The shareholders will apply their share of the tax credit against their individual income tax liability.
- Any pro rata shares that would be distributed to non-eligible partners (individual partners in a partnership) or estates or trusts (shareholders in an S-Corporation) are lost.
- The donation to IBE must be made by the S-Corporation in order to be eligible for the tax credit, not the individual taxpayer.
- For Low-Income Corporate Tax Credit donations – Form 335 and Form 335-S will be completed by the S-Corporations and submitted with their 120S. A copy of Form 335-S is also to be forwarded to the shareholders.
- For Disabled/Displaced Corporate Tax Credit donations – Form 341 and Form 341-S will be completed by the S-Corporation and submitted with their 120S. A copy of Form 341-S is also to be forwarded to the shareholders.
Individual Shareholder Reporting Requirements
- There is no limit on the Corporate Tax Credit claimed by the individual taxpayer. If the taxpayer’s share of the S-corporation credit is $3,000 then their credit will be $3,000.
- Form 335-S or 341-S will be completed by the S-Corporation and forwarded to the shareholder. The individual taxpayer will claim their share of the credit on Form 341-I.
- The Corporate Tax Credit does not impact the individual taxpayer’s ability to claim the Original or PLUS tax credit.
- The individual taxpayer may carry forward any unused credit for 5 years.