Arizona Department of Revenue Liaison Meeting

ASPA has been invited to meet with ADOR Director, Gale Garriott, and have a direct dialogue with ADOR about issues important to tax practitioners and their clients.  You are invited to present your issues to ADOR and invited to attend a meeting where these issues are discussed.   ADOR has asked that we alert them to the issues prior to our meeting so they may have pertinent staff in attendance to more promptly address issues.

We anticipate a mid-morning hour long meeting in the last half of October.  Janiece Seager has agreed to coordinate this activity.  Please relay your issues and interest in attending the meeting directly to her at 623-780-8078. 

2005 Arizona Tax Legislation

Income Tax; Military Exemption [Senate Bill 1027]

SB 1027 provides that in addition to the subtraction under ARS §§ 43-1022 and 43-1332, an individual or an estate may subtract compensation received for active service as a member of the armed forces to the extent not already excluded from Arizona gross income under the internal revenue code or subtracted from Arizona gross income. 

This bill will exempt active duty military pay from Arizona income tax.  In the case where a taxpayer’s only source of income is active duty military pay, the taxpayer is exempt from filing an Arizona income tax return unless the taxpayer must file to claim a refund.  This legislation will only apply to the 2006 taxable year.

Income Tax Credit; National Guard Employees [Senate Bill 1224]

This bill adds new APR §§ 43-1079.01 and 43-1167.01 to provide an income tax credit for a taxpayer whose employee is a member of the Arizona National Guard, if the employee is placed on active duty.  The amount of the credit is $1000 for each employee who is placed on active duty by the AZ  National Guard.  To qualify for the credit, the employee must be a member of the AZ National Guard who is employed by the taxpayer in a full-time equivalent position when the employee is placed on active duty.  Each member of the AZ National Guard who is employed must have served during the taxable year on active duty for training that exceeds the required annual training period, including any activitation for federal or state contengencies or emergencies.  Any unused credit may be carried forward for not more than five consecutive taxable years’ income tax liability. 

Co-owners, including partners in a partnership and shareholders of an S corporation, may claim only the pro rata share of their allowable credit based on their ownership interest.  The credits wll become effective beginning with the 2006 taxable year. 

National Guard Relief; Tax Checkoff [Senate Bill 1466]

This bill establishes a national guard relief fund and establishes a new refund check-off on the individual income tax return form.  Under this bill, a taxpayer may designate an amount of the taxpayer’s refund as a voluntary contribution to the national guard relief fund.  Applies to tax year 2006. 

Budget; Revenue; Marriage; Taxation [Senate Bill 1529]

This bill conforms the Arizona definition of “internal revenue code” to the Internal Revenue Code in effect on January 1, 2005 including those provisions that became effective during 2004 and adopts the retroactive effective dates of all retroactive provisions. 

This bill will continue to exclude the three provisions where Arizona did not previously conform to the federal changes.  Taxpayers must make an adjustment to add back the amount taken at the federal level and subtract the amount allowable by AZ for the 30% special bonus depreciation of the 2002 Act and both the 50% percent bonus depreciation and Section 179 expensing of the 2003 Act. 

The bill provides for inflation indexing for the standard deduction.  This provision is effective retroactively to taxable years beginning from and after 12-31-04.

This bill amends the Credit for Contributions to Charities that Provide Assistance to the Working Poor to increase the maximum credit allowed to married taxpayers to twice the amount allowed to single or head or household taxpayers.  Phased in over two years, the maximum credit will be $300 for 2005 and $400 for 2006 and later years for MFJ. 

The bill amends the Credit for Contributions to School Tuition Organizations to increase the credit to married taxpayers to twice the single or head of household amount allowed.  Phased in over two years, the maximum credit will be $825 for 2005 and $1,000 for 2006 and later years for MFJ.

This bill amends the Credit for Fees Paid or Contributions Made to Public Schools for married taxpayers to twice the amount allowed for single or head of household taxpayers.  Phased in over two years the maximum credit will be $300 for 2005 and $400 for 2006 and later years for MFJ.