Arizona Legislature Passes IRC Conformity Bill, Awaits Governor’s Signature

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Although it took much longer than normal, and there was much uncertainty about what the Legislature would ultimately do in the end, the Legislature managed to pass an IRC conformity bill as part of the budget process.

HB 2757 scraped through both chambers with the bare minimum number of votes to clear each chamber.  It is expected that the Governor will sign this bill.[1]

The bill consists of a number of changes to the law, most of which are effective for tax years beginning after December 31, 2018 (that is, 2019 calendar years).  For 2018 the law simply rolls forward the IRC conformity date to January 1, 2018 for 2018 income tax returns (which includes the Tax Cuts and Jobs Act).  For 2019, that roll forward date moves to January 1, 2019.[2]

New tax rates will apply beginning in 2019.[3] For single individuals and married individuals filing separately the new tax rates are set at the following levels:

If taxable income is The tax is
$0 – $26,000 2.59% of taxable income
$26,001-$53,000 $686 plus 3.34% of the amount over $26,000
$53,001-$159,000 $1,571 plus 4.17% of the amount over $53,000
$159,001 and over $5,991 plus 4.5% of the amount over $159,000

In the case of a married couple filing a joint return or a single person who is head of household:

If taxable income is The tax is
$0 – $53,000 2.59% of taxable income
$53,001-$106,000 $1,373 plus 3.34% of the amount over $53,000
$106,001-$318,000 $3,143 plus 4.17% of the amount over $106,000
$318,001 and over $11,983 plus 4.5% of the amount over $318,000

These brackets will be adjusted for inflation in 2020 and later years using the Metropolitan Phoenix Consumer Price Index.[4]

The up to $5,000 deduction for winnings from the Arizona state lottery is repealed, effective in 2019.[5]

The deduction for dependents is removed from Arizona law effective for 2019, to be replaced by a credit under ARS §43-1073.01.[6]  For taxpayers whose income is less than $200,000 for a single person, married person filing a separate return or single person filing head of household or $400,000 for a married couple filing a joint return, the credit is $100 for each dependent who is under age 17 at the end of the taxable year and $25 for each other dependent.[7]  The $200,000 and $400,000 limits are referred to as the applicable threshold amounts.

For taxpayers with incomes above the credit applicable threshold amounts, the credit is:

  • For each dependent under age 17 $100 less 5% for each $1,000, or fraction thereof, by which the taxpayer’s income exceeds the applicable threshold amounts and
  • For each other dependent $25 less 5% for each $1,000 or fraction thereof, by which the taxpayer’s income exceeds the applicable threshold amounts.[8]

For nonresident or part year resident taxpayers, the credit is allowed in the percentage that the taxpayer’s Arizona adjusted gross income is of Federal adjusted gross income.[9]

The Arizona standard deduction is increased to $12,200 for a single individual or a married person filing a separate return,[10] $18,350 for a single person filing as head of household[11] and $24,400 for a married couple filing a joint return.[12]  These amounts will be indexed for inflation beginning in 2020 in the same manner as the federal standard deduction.[13]

The standard deduction will be increased each year by an amount equal to 25% of the taxpayer’s charitable contributions.[14] However, a taxpayer who does opt to use the charitable contribution deduction will not be able to use the Arizona short form to file Arizona taxes.[15]

For Arizona corporate income taxes, gross up income as described in IRC §78 (gross up for deemed foreign tax credit), global intangible low-taxed income (GILTI) as defined in IRC §951A and Subpart F income as defined in IRC §952 shall be treated as foreign dividends for purposes of the subtraction under ARS §43-1122.11.[16]

[1] https://www.azleg.gov/legtext/54leg/1R/bills/HB2757H.htm

[2] ARS §43-105 as amended

[3] ARS §43-1011.A.6 as amended

[4] ARS §43-1011.D as amended

[5] ARS §43-1022 as amended

[6] ARS §43-1023.B as amended

[7] ARS §43-1073.01.B as amended

[8] ARS §43-1073.01.C as amended

[9] ARS §43-1073.01.D as amended

[10] ARS §43-1041.A.2 as amended

[11] ARS §43-1041.A.3 as amended

[12] ARS §43-1041.A.4 as amended

[13] ARS §43-1041.H as amended

[14] ARS §43-1041.I as amended

[15] ARS §43-323.B.2 as amended

[16] ARS §43-1122.11 as amended

2 thoughts on “Arizona Legislature Passes IRC Conformity Bill, Awaits Governor’s Signature

  1. Interesting how you have an link to the last words of Christ, given that as I read about this bill what came to mind was “It is finished”

    1. When they were getting ready to start, my Google Music account’s radio station playing in the background starting playing Sarah McLaughlin’s “Building a Mystery” which seemed strangely appropriate as well…

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