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Most states have some sort of tax credit for charitable giving on the books according to a 2018 research paper from the law schools at the University of California, Los Angeles, and University of California, San Francisco.
"Roughly 39 states impose a state individual income tax. Almost all those states are very much in line with federal adjusted gross income as the starting point," Arizona Department of Revenue Tax Policy Executive Rory Wilson. "And if you itemize deductions, you can take a charitable tax deduction, and most of those flow through when you get the deduction. Arizona has obviously taken that, you know, another step forward with tax credits."
Tax credits allow for a dollar-for-dollar match for donations to qualifying organizations, meaning a dollar given to an entity on that list counts the same on your taxes as a dollar paid to the state. That differs from a tax deduction, which lowers the amount of income that the government considers taxable.
Arizona has eight different laws that set up tax credits for giving to certain organizations, the second highest in the country, according to that paper. Those credits range from giving to qualify and foster care nonprofits to paying for private school tuition. Forbes found that almost half of Arizonans made a charitable contribution of $25 or more in 2021.
"Our most recent data for an entire year is for 2021. In that year, we had 189,000 claims for the QCO credit, the qualified charitable organization credit, and that generated credits of $101 million," said ADORDeputy Assistant Director Elaine Smith. "For the QFCO, which is for foster care organizations, we had 43,000 claims for $33 million in credits. These amounts have grown consistently from year to year."
Those contributions have increased over the 20+ years that such matching tax credits have been available.
Organizations have to meet a handful of criteria to appear on either the QCO or QFCO list. Most deal with the population they serve, what they provide and how much of their money goes toward charitable work.
"Currently, we have 1200 charities in our QCO list, and 56 charities on our QFCO list," said Smith. "To get on the list, an organization needs to submit an application and supplemental information, such as their 501(c)(3) certification from the IRS, a narrative explaining the population they serve and the and the services that they provide, and recent financials. That's the initial process, and then we work with organizations through phone calls and emails to go back and forth and make sure that we have a full understanding."
For one non-profit that made it onto the QCO list in October, the process was not daunting.
"I just Googled how to do it. I went on the website, the .gov website that they have and looked at what they needed. And for me, the hardest part was putting together the financials that they needed, because I had never done that before," said Kathleen Pickrel, executive director of the Terrence Pickrel Heart Fund. "Actually, I would like to give a shout out if I may to Alejandra Garcia. I submitted stuff. And she's like, 'this is not the format, we need it.' Okay, let me try again. And no, this is still not quite right. And like, I just didn't know what I was doing. And she got on the phone, she walked me through the process, I would not have been able to do it without her."
The Terrence Pickrel Heart Fund provides critical financial support for low income heart transplant patients throughout the process. The fund was named after Kathleen's husband, who died of heart failure in his late 50s.
She said she looks forward to how the QCO designation will change her ability to fundraise.
"You can donate up until April 15. I'm curious to see how it goes. But I'm getting a lot of feedback and people telling me, oh, I know I'm going to oh this year so I will donate to your charity. This can be a real game changer for us."
Aside from charities, donations and fees paid to schools also qualify for a tax credit.
"It does vary from district to district charter, charter and private to private," said Pima County Public Schools Superintendent Dustin Williams. "So finding out the total, I'd really have to get with some of our finance people to find out what those totals look like. But I know it's into the hundreds of thousands across Pima County
Williams said those funds are often directed to certain causes within a school or district.
"Typically, the school district or the school itself will give parents or constituents choices in different areas: extracurricular activities, it could be ACT or testing assistance. Whatever it is, the school is really earmarking or focusing on. And then if parents still would like to have it go to the general fund for the tax dollar distributions, that can go that way as well. "
But, Williams pointed out, the tax credit for private school tuition and expenses is two-and-a-half times greater than what can be claimed for public school donations.
"So you have a big distribution difference. A lot of people think, 'Is this equal? Is this fair?' And especially now with universal vouchers, where we have private entities taking the exact public dollars, now public schools should be able to up that ante and have the ability to donate more in the arena of public schools."
A note of disclosure, AZPM is a not-for-profit and does not qualify for any of the tax credit donations mentioned in this episode.