Who can participate in the corporate tax credit program? How does it work?

• C-Corporations
• S-Corporations & LLCs that file as an S-Corp
• Insurance Companies that pay premium taxes in Arizona

C-Corporations can allocate up to 100% of their state income tax liabilities for the given tax year as long as it does not exceed the statewide cap for the year. Credit can be carried forward for up to 5 years.

S-Corporations, (as defined in section 1361 of the Internal Revenue Code) can either claim the credit against income taxes at the corporate level (income tax reported on an Arizona 120S corporate income tax return) or it may make an irrevocable election to pass the credit through to its individual shareholders.  The S-Corp must make a minimum aggregate contribution of $5,000 within their taxable year in order to pass the credit through to its shareholders and may allocate up to 100% of their state income tax liability for the given tax year, receive a dollar-for-dollar tax credit; then pass the credit on to its shareholders proportionately. If a corporation allocates more than their tax liability, it can be carried forward for up to 5 years. The contribution must be made by the S-corp, not a shareholder, in order to be eligible for the corporate tax credit. Each individual shareholder may claim only a pro-rata share of the credit based on the individual’s ownership interest in the S-corp. (A.R.S. § 43-1089.04).

LLCs that are taxed as S-corporations for federal and state purposes are eligible to contribute for tax credit.

Insurance companies that pay Arizona state tax liability on their premium income can allocate up to 100% of their premium tax liabilities.

• A credit is allowed against the premium tax liability incurred by an insurer pursuant to section 20-224, 20-837, 20-1010, 20-1060, or 20-1097.07 for the amount of voluntary cash contributions made by the insurer during the tax year to a school tuition organization.
• The amount of the credit is the total amount of the insurer’s contributions for the tax year under subsection A of this section that is preapproved by the department of revenue pursuant to section 43-1183, subsection D.

(Use tax form 335 to claim your credit)