For the latest news and updates on Arizona state and local tax
March 31, 2023
Arizona Senate Proposes Sales Tax Simplifications
On March 21, 2023, the Arizona Senate proposed SB 1325, which includes several sales tax simplification measures. Key provisions of the Senate Bill include:
- Allowing remote sellers to elect to collect and remit a single municipal TPT rate for the entire state. The state currently has 15 counties and over 90 municipalities, which all enforce their own tax rate. Remote sellers who elect the single rate would no longer be required to file county and municipal returns – all tax compliance would be handled with the state, significantly simplifying the compliance process for remote sellers.
- Changing the state’s economic nexus standard from $100,000 in gross sales in the state to $100,000 of taxable sales in the state. This will simplify the compliance process for remote sellers that do not make substantial taxable sales into Arizona.
- Increasing the time-frame to register once a remote seller exceeds the economic nexus threshold. Remote sellers would need to register and remit by January 1 of the next calendar year after exceeding the state’s economic nexus threshold rather than the current 30-day deadline.
June 3, 2022
Arizona Revises Entity-Level Tax Laws for Certain Pass-Through Entities
Arizona Governor Ducey signed Senate Bill 1579 (S.B. 1579) on May 20, 2022, which revises certain provisions regarding Arizona’s elective pass-through entity (PTE) tax often referred to as a SALT Workaround. S.B. 1579 enacts the following changes to Arizona’s PTE tax:
- S corporations that elected to pay the PTE tax must specify that their taxable income comprises all distributive income passed through to shareholders;
- Partners or shareholders that are individuals, estates, or trusts that waive their right to opt-out of the election must be included in the election;
- The credit for the entity-level income tax must be the portion of the tax paid by the partnership or S corporation that is attributable to the partner’s or shareholder’s share of Arizona taxable income; and
- The amount of the credit not used to offset income taxes cannot be carried forward for more than five (5) consecutive taxable years.
May 6, 2022
Arizona Disallows Credits for Taxes Paid to California for Group Nonresident Return
Arizona residents who derive income from California sources cannot claim a credit against their Arizona tax liability for taxes paid to California pursuant to a California group nonresident tax return. Specifically, the credit for taxes paid to other states credits are forfeited when an Arizona taxpayer joins a Califorinia group of nonresident returns due to the reverse income tax credit mechanism between the two states. Arizona taxpayers who file a group nonresident return in states other than California are generally allowed the same credit as those filing an individual return. If you have any questions about state personal income taxes, please reach out to the Withum SALT team.
July 16, 2021
Arizona Will Phase in Flat 2.5% Individual Income Tax Rate
Arizona is on its way to imposing a 2.5% flat individual income tax rate. The Arizona governor signed legislation on June 30, 2021 that eliminates tax brackets and phases in a flat 2.5% rate beginning January 1, 2022. Provided Arizona’s general fund revenues meet certain thresholds, the rates decrease until they reach 2.5%. For additional information see L. 2021, S1828.
April 23, 2021
Arizona Updates IRC Conformity Date to March 11, 2021
The Arizona Department of Revenue recently released a notice explaining the State conforms to the Internal Revenue Code (“IRC”) in effect on March 11, 2021. Further, the IRC definition for use in computing taxes for the 2020 tax year has been amended to include changes made by the 2020 Cares Act, the federal Consolidated Appropriations Act of 2021, and the federal American Rescue Plan of 2021. For specific details applicable to each of those federal relief programs, please see Arizona 2020 Conformity Notice, Ariz. Dept. of Rev., 04/16/2021.
April 14, 2021
Arizona Amends Rules on Termination of Unused Tax Credits
As part of recently amended legislation (L. 2021, S1113), an unused Arizona tax a credit now must go unclaimed for four consecutive years before being terminated (previously the requirement was three years). Further, when an available credit from prior years is repealed, a saving clause will allow for the continued use of the carried forward amounts of the credit for the remainder of the appropriate carryforward period, as would have been specified in the repealed credit.
April 1, 2021
Arizona Passes Legislation Amending Qualified Facilities Tax Credit
Arizona’s Tax Credit for Qualified Facilities, which is a credit against income tax liability for new or expanded facilities in the state that create new full-time jobs, was recently amended (H.B. 2321) in two important ways. First, the amount permissible as a credit is modified, and is now 10% the lesser of:
- The amount the applicant has projected in total qualifying investment in the qualified facility; or
- If the totally qualifying investment is less than $2M, $200,000 for each net new full-time employment position projected by the applicant that has job duties associated with a qualified facility.
- If the total qualifying investment is $2M or more, $300,000 for each net new full -time employment position projected by the applicant that has job duties associated with a qualified facility.
Second, H.B. 2321 raises the total credits the Arizona Commerce Authority can pre-approve each year to $125 million (increased from $70 million). The definition of “qualified headquarters” was also amended to remove the requirement that the taxpayer be involved in manufacturing.
November 16, 2020
Arizona Threshold Changes for Nexus
Beginning on January 1, 2021, businesses with an annual TPT and/or use tax liability of $500 or more during the prior calendar year will be required to file and pay electronically starting reporting period of January 31, 2021 as noted on the Arizona News site. Taxpayers who do not file and pay electronically will be subject to the penalty of 5% of the tax amount due, including zero liability filed returns, with a minimum of $25 as well as 5% of the amount paid via cash or check and 4.5% penalty of the tax due for each late month or fraction of the month with a minimum of $25 and max 25% of the tax due, or $100.
Beginning on January 1, 2021, the economic nexus threshold for remote sellers will decrease to $100,000 as the House Bill (H.B. 2757) introduced on September 30, 2019 for businesses with no physical presence in the state. Economic nexus is established if the thresholds determined by state either were met in the previous calendar year or are met in the current year. Marketplace facilitators with Arizona gross sales (before any deductions) of more than $100,000 in sales are required to register and collect and remit the tax. For remote sellers, the thresholds for required registration have decreased each year. The thresholds for Arizona gross sales (before any deductions) of more than $200,000 in sales in 2019, $150,000 in 2020, and $100,00 in 2021 and beyond are required to register with the department and collect and remit.
Sales that are made by remote sellers or marketplace sellers through a marketplace facilitator are not included in the remote seller’s economic nexus threshold calculation as the marketplace facilitator should collect, report, and remit the tax. Remote sellers are required to be licensed and collect once the threshold is met. The tax must be reported within 30 days after the threshold is met and remote sellers and marketplace facilitators must continue to collect and remit going forward.
March 20, 2020
Deadline for Filing and Paying State Income Taxes Moved to July 15, 2020
In following with the IRS, the Arizona Department of Revenue (ADOR) has moved the deadline for filing and paying state income taxes from April 15 to July 15, 2020. This applies to the filing of individual, corporate and fiduciary tax returns. The new deadline means taxpayers filing state tax returns or submitting payments after the previous April 15 deadline will not be assessed late filing or late payment penalties. Taxpayers anticipating they will need more time beyond the new July 15 deadline to file state income taxes should consider filing for an extension by submitting Arizona Form 204 by July 15th. Taxpayers do not need to submit Arizona Form 204 if they have already received a Federal extension from the IRS.
Remote Sellers and Marketplace Facilitators
Remote sellers are required to pay privilege tax on sales of tangible personal property if they surpass a certain threshold. The gross income threshold is set at $200,000 for 2019, $150,000 for 2020 and $100,000 for 2021 and on. Marketplace facilitators are to use $100,000 threshold for sales to determine filing requirements.
The State and Local Tax (SALT) laws vary from state to state and are constantly changing. Reach out to Withum’s SALT Team for guidance on how to navigate your state’s local tax laws.