Tag Archives: capital investments

arizona flag 2011

Legislation to help re-establish Arizona as an economic leader

Gov. Jan Brewer today called the Legislature into Special Session for the consideration of a comprehensive plan to put Arizona back to work. Known as the Arizona Competitiveness Package, the proposal includes a mix of targeted business incentives and broad tax reforms designed to rev the Arizona economy.

“The Competitiveness Package will make Arizona a magnet for business expansion, relocation, capital formation and investment,” Brewer said. “This is our roadmap for future economic growth.” Improving Arizona’s competitiveness in the global marketplace is the first of the governor’s Four Cornerstones of Reform that she unveiled earlier this year. The centerpiece of the plan is her creation of an Arizona Commerce Authority.

Replacing the Arizona Commerce Department and its hodge-podge of more than 50 mandates and responsibilities, the Commerce Authority will have a single focus: the retention and recruitment of quality jobs for Arizona. The Commerce Authority will be overseen by a public-private board comprised of Arizona leaders in business and policy.

Designed to be nimble and flexible in responding to economic opportunities, the board will be armed with a $25 million deal-closing fund to help land some of the nation’s most highly-sought corporations and business ventures for Arizona. No dollars will be awarded prior to performance, and “claw-back provisions” and an independent, 3rd-party economic analysis will ensure that companies awarded public funds meet their promised obligations.

“This package of tax reforms and targeted investments will give Arizona the tools it needs to compete for economic development on the global stage,” said Don Cardon, president and CEO of the Arizona Commerce Authority. “Arizona can’t afford to wait for economic growth. We’re going to aggressively pursue quality jobs and stable industries that will become the bedrock of this state’s economic future.”

The Arizona Competitiveness Package is focused on both urban and rural job creation, and is intended to make this state a destination for business growth and development. Specific aspects of the plan include:

• The creation of a Quality Jobs Program, with corporate tax credits of up to $9,000 for each qualifying new job. ($3,000 per job, per year, with a 400-job cap).

• An increase in the electable state corporate income-tax sales factor to 100 percent, up from the current 80 percent. This will encourage firms to establish headquarters and manufacturing centers in Arizona.

• Re-authorization of the Arizona Job Training Program, providing job-specific, reimbursable grants to train employees for new careers.

• A four-year, phased-in reduction of the state’s corporate income tax to 4.9 percent, beginning in January 2014. This will give Arizona the nation’s fifth most competitive corporate income-tax rate.

• A 10 percent increase in the state’s Research & Development tax credit, encouraging further collaboration between Arizona’s research universities and the private sector.

• A 5 percent acceleration of the depreciation schedule for business personal property, spurring purchases of new equipment and other capital investments.

The Arizona Competitiveness Package is consistent with Brewer’s long-held call for corporate tax relief that would be phased-in after Proposition 100 expires and the state’s budget is on firmer footing.

“The development of a stable and growing economy is the key to Arizona’s future,” she said. “It will provide good jobs for our citizens and revenue for the state programs and services everyone enjoys. I urge legislators to act quickly in enacting these reforms and furthering Arizona’s economic recovery.”

Three Things Building Owners Need To Know To Reduce Their Taxes - AZ Business Magazine June 2010

Three Things Building Owners Need To Know To Reduce Their Taxes

In today’s economy everybody is looking for ways to improve their cash flow, especially as it relates to real estate. Implementing tax-saving strategies is certainly a way to help cash flow in the current year, and in some cases these strategies will provide benefits for years to come. While there are numerous strategies for lowering taxes, three of the more popular current items for building owners are outlined below.

Repair and maintenance deductions
The difference between deductible expenses and capital expenditures can mean significant tax savings for property owners who perform regular maintenance and repairs. The key is when certain costs can be considered expenses that are deductible from current income.
Generally, taxpayers must capitalize expenditures that:

  • Substantially prolong the life of the property.
  • Materially increase the value of the property.
  • Adapt property to a new use.
  • “Put” the property into a useful condition.
  • By contrast, taxpayers may be able to deduct expenditures for:
  • Routine maintenance.
  • Incidental repairs.
  • Equipment and materials that “keep” the property in an ordinary, efficient operating condition.

In most cases, taxpayers will reduce taxes by classifying an expenditure as a repair and taking the current deduction, rather than recovering the cost through depreciation. The IRS has recently adopted more liberal standards for expensing large-ticket items previously considered capital investments.
The difference between repair and maintenance, and capital improvement can be subtle. For example, the wooden shingles on a building are damaged. Replacing the roof with new wooden or asphalt shingles would be considered maintenance and repairs, and it would not have to be capitalized. However, upgrading to a maintenance-free roof system with an expected lifespan of 50 years would have to be capitalized as a long-term improvement to the building.

Many building owners have improperly classified maintenance and repair costs as capital expenditures, creating opportunities to go back and reclassify certain expenditures and recover previously paid taxes.

To claim the deduction, the building owner must submit Form 3115 to request an automatic change in accounting method. The accounting change allows the taxpayer to claim a current-year deduction for expenditures that should have been a deduction in a prior year.

Cost Segregation
Under IRS guidelines, most buildings constructed, purchased or renovated since 1986 are eligible for a cost segregation study. The goal of the study is to make sure business owners are using the appropriate depreciable life for their assets. A cost-segregation study allows a building owner to change the useful life of certain assets and take advantage of any tax savings that may result.

The standard depreciation period for most commercial buildings is 39 years. When buildings are constructed (or renovated) many companies incorrectly use the 39-year depreciation life, even though parts of a building should be depreciated over a much shorter period. Special use items, such as floor coverings, fixtures, and specialty electrical and HVAC equipment, often can be depreciated over a shorter term. It is best to complete a cost-segregation study in the year a building is acquired, although the IRS does allow adjustments to prior depreciation deductions. If the proper amount was not claimed in prior years, depreciation not previously claimed is now allowed as a deduction in the current year by filing Form 3115.

Section 179D Energy Efficiency Deduction
This popular deduction allows the owner of a commercial building to qualify for deductions of up to $1.80 per square foot for buildings that are constructed or renovated to reduce total annual energy use.

The primary beneficiaries are owners or lessees of commercial property and certain residential buildings. Government buildings, such as schools and universities, courthouses, jails, and office buildings, also may qualify. However, since government entities do not pay tax, the deduction can be transferred by written delegation to a tax-paying entity, such as an architect or engineer.

Qualified property owners are able to claim the $1.80-per-foot deduction for buildings constructed or renovated to save 50 percent or more of total annual energy costs as determined by national engineering standards.

Energy savings must be achieved by constructing or retrofitting any of the envelope, interior lighting, or heating, cooling and hot water systems. A building not meeting the 50 percent savings requirement may still qualify for a portion of the deduction. Before the 179D deduction can be claimed, the property owner must obtain independent certification of energy savings from a professional engineer or third-party contractor using software qualified by the Department of Energy.

Arizona Business Magazine June 2010