SB1473 - 551R

Be it enacted by the Legislature of the State of Arizona:

Section 1. Section 42-2201, Arizona Revised Statutes, is amended to read:

START_STATUTE42-2201. Election for relief from joint and several liability; definition

A. Notwithstanding section 43-301, subsection C B and section 43-562, after filing a joint income tax return pursuant to section 43-309, a taxpayer may seek relief from joint and several liability under the following circumstances:

1. There is an understatement of tax attributable to erroneous items of one of the taxpayers filing the joint return.

2. The taxpayer making an election under this section establishes that in signing the return the taxpayer did not know, and had no reason to know, that there was an understatement.

3. Taking into account all of the facts and circumstances, it is inequitable to hold that taxpayer liable for the deficiency attributable to the understatement.

B. If a taxpayer qualifies for relief under subsection A of this section, the relief extends to the amount of liability for tax, interest and penalties that is attributable to the understatement.

C. If a taxpayer would qualify for relief under subsection A of this section except that under subsection A, paragraph 2 the taxpayer establishes that in signing the return the taxpayer did not know, and had no reason to know, the extent of the understatement, the relief extends only to the extent the liability for tax, interest and penalties is attributable to the portion of the understatement of which the taxpayer did not know and had no reason to know.

D. The department shall make any determination under this section without regard to community property laws.

E. An election made by an individual under this section after the department has collected tax attributable to the erroneous items is considered to be a claim for refund pursuant to section 42-1118. The individual making an election after making the payment shall make the election within six months after making the payment or within the time limits prescribed by section 42-1106, whichever period expires later.

F. A taxpayer may appeal a determination under this section pursuant to section 42-1251 or 42-1253.

G. Except in the case of a jeopardy assessment under section 42-1111, the department shall not levy or proceed in court to collect any tax for taxable years from which the taxpayer is claiming relief under this section until all determinations are final. The period of limitations under section 42-1104 is suspended for the same period for which collection activities are suspended.

H. The department shall notify and allow the other joint filer to participate in any administrative proceeding under this section.

I. For the purposes of this section, "understatement" has the same meaning prescribed by section 6662(d)(2)(A) of the internal revenue code.END_STATUTE

Sec. 2. Section 42-2202, Arizona Revised Statutes, is amended to read:

START_STATUTE42-2202. Separate liability election; definition

A. Notwithstanding section 43-301, subsection C B and section 43-562, a taxpayer who filed a joint income tax return under section 43-309 for a taxable year and who meets the following requirements may elect to limit the taxpayer's liability pursuant to this section with respect to a deficiency assessed for that return:

1. At the time the election is filed, the electing taxpayer is no longer married to, or is legally separated from, the spouse with whom the taxpayer filed the joint return.

2. The electing taxpayer was not a member of the same household as the spouse with whom the joint return was filed at any time during the twelve month twelve-month period ending on the date the election is filed.

B. If the department grants relief under this section, the taxpayer's liability for any deficiency assessed with respect to the return shall not exceed the portion of the deficiency properly allocable to the electing taxpayer.

C. The department shall allocate a deficiency under this section as follows:

1. The portion of any deficiency allocated to an individual under this section is the amount that bears the same ratio to the deficiency as the net amount of items taken into account in computing the deficiency and allocable to the individual under subsection D of this section bears to the net amount of all items taken into account in computing the deficiency.

2. If all or part of a deficiency is attributable to the disallowance of a credit, and that credit is allocated to one individual under subsection D of this section, the deficiency or portion shall be allocated to that individual. That amount shall not be taken into account under paragraph 1 of this subsection.

D. For the purposes of this section, items giving rise to the deficiency shall be allocated as follows:

1. Any item giving rise to a deficiency on a joint return shall be allocated to the individuals filing the return in the same manner as it would have been allocated if the individuals had filed separate returns for the taxable year, without regard to community property laws.

2. An item otherwise allocable to an individual under paragraph 1 of this subsection shall be allocated to the other individual filing the joint return to the extent the item gave rise to a tax benefit on the joint return to the other individual.

3. The director may provide for allocation of any item in a different manner if the department establishes that the different allocation is appropriate due to fraud of one or both individuals.

E. If the tax liability of the taxpayer's child is included on the joint return:

1. The child's liability shall be disregarded in computing the liability of either spouse.

2. The child's liability shall be allocated appropriately between the spouses.

F. Any deficiency that is assessed with respect to the return shall not exceed the portion of the deficiency properly allocable to the individual.

G. Each electing individual under this section has the burden of proof with respect to establishing the portion of any deficiency allocable to that individual.

H. An election under this section is invalid if the department demonstrates that assets were transferred between individuals filing a joint return as part of a fraudulent scheme by those individuals.

I. If the department demonstrates that an individual making an election under this section had actual knowledge at the time the individual signed the return of any item giving rise to all or part of a deficiency that is not allocable to that individual under subsection E of this section, the election does not apply to that deficiency. This subsection does not apply if the individual with actual knowledge establishes that the return was signed under duress.

J. Any determination under this section shall be made without regard to community property laws.

K. An election made by an individual under this section after the department has collected tax attributable to the deficiency is considered to be a claim for refund pursuant to section 42-1118. The individual making an election after making the payment must make the election within six months after making the payment or within the time limits prescribed by section 42-1106, whichever period expires later.

L. A taxpayer may appeal a determination under this section pursuant to section 42-1251 or 42-1253.

M. Except in the case of a jeopardy assessment under section 42-1111, the department may not levy or proceed in court to collect any tax for taxable years from which the taxpayer is claiming relief under this section until all determinations are final. The period of limitations under section 42-1104 is suspended for the same period for which collection activities are suspended.

N. The department shall notify and allow the other joint filer to participate in any administrative proceeding under this section.

O. The portion of the deficiency for which the electing individual is liable, without regard to this subsection, shall be increased by the value of any disqualified asset, as defined in section 6015(c)(4)(B) of the internal revenue code, transferred to the individual.

P. For the purposes of this section, "deficiency" has the same meaning prescribed by section 6211 of the internal revenue code.END_STATUTE

Sec. 3. Section 43-301, Arizona Revised Statutes, is amended to read:

START_STATUTE43-301. Individual returns; definition

A. A full-year or part-year resident or nonresident individual shall file a return with the department if, for the taxable year, the individual's gross income was greater than the amount of the standard deduction allowed under subsection section 43-1041, subsection A as adjusted for inflation pursuant to section 43-1041, subsection H.

B. A nonresident individual shall file a return with the department if, for the taxable year, the individual's gross income was greater than the amount under subsection A of this section determined for a full-year or part-year resident individual multiplied by the percentage that the individual's Arizona gross income is of the individual's federal adjusted gross income.

C. B. In the case of a husband and wife, the spouse who controls the disposition of or who receives or spends community income as well as the spouse who is taxable on such income is liable for the payment of taxes imposed by this title on such income. If a joint return is filed, the liability for the tax on the aggregate income is joint and several.

D. C. This section applies regardless of whether an individual is required to file a return under the internal revenue code or whether the individual has any federal adjusted gross income for the taxable year.

E. D. For the purposes of this section, "gross income" means gross income as defined in the internal revenue code minus income included in gross income but excluded from taxation under this title. END_STATUTE

Sec. 4. Section 43-581, Arizona Revised Statutes, is amended to read:

START_STATUTE43-581. Payment of estimated tax; rules; penalty; forms

A. An individual who is subject to the tax imposed by this title and whose Arizona gross income, as defined by section 43-1001, or as described by section 43-1091 in the case of nonresidents whose income from sources within this state, for the taxable year exceeds seventy-five thousand dollars $75,000 or one hundred fifty thousand dollars $150,000 if a joint return is filed and whose Arizona gross income was greater than seventy-five thousand dollars $75,000 in the preceding taxable year or one hundred fifty thousand dollars $150,000 in the preceding taxable year if a joint return is filed shall make payments of estimated tax during the individual's taxable year. The amount of the payments of estimated tax shall be an amount that reasonably reflects a taxpayer's Arizona income tax liability that will be unpaid at the end of the taxpayer's taxable year. This amount shall be paid in four installments on or before the due dates established by the internal revenue code and shall total, when combined with the taxpayer's withholding tax, at least ninety percent of the tax due for the current taxable year or one hundred percent of the tax due for the preceding taxable year.

B. Any other individual who is subject to the tax imposed by this title may make payments of estimated tax during the individual's taxable year. The amount of any estimated tax payments for the taxable year shall be an amount that reasonably reflects a taxpayer's Arizona income tax liability that will be unpaid at the end of the taxpayer's taxable year.

C. The department shall prescribe rules for the payments of estimated tax that shall provide for estimated payments in a manner similar to the manner prescribed in the internal revenue code.

D. If the taxpayer does not pay the estimated tax required by subsection A of this section on or before the prescribed dates, there is assessed and the department shall collect a penalty on the unpaid amount as prescribed by section 42-1125, subsection Q. No Penalties or interest shall not be assessed or collected if either of the following applies:

1. The estimated tax payments made pursuant to this section are allowable exceptions under section 6654 of the internal revenue code.

2. The taxpayer's Arizona income tax liability due on the taxpayer's return is less than one thousand dollars $1,000. For the purposes of this paragraph, "Arizona income tax liability due on the taxpayer's return" means the amount of tax due on the return minus the amount of Arizona income tax withheld and tax credits claimed by the taxpayer.

E. The department shall make available suitable forms and instructions to taxpayers who make estimated tax payments pursuant to this article. END_STATUTE

Sec. 5. Section 43-1071, Arizona Revised Statutes, is amended to read:

START_STATUTE43-1071. Credit for income taxes paid to other states; definitions

A. Subject to the following conditions, residents shall be are allowed a credit against the taxes imposed by this chapter for net income taxes imposed by and paid to another state or country on income taxable under this chapter:

1. The credit shall be is allowed only for taxes paid to the other state or country on income that is derived from sources within that state or country and that is taxable under its laws irrespective of the residence or domicile of the recipient.

2. The credit shall is not be allowed if the other state or country allows residents of this state a credit against the taxes imposed by that state or country for taxes paid or payable under this chapter.

3. The credit shall not exceed the proportion of the tax payable under this chapter as the income subject to tax in the other state or country and also taxable under this title bears to the taxpayer's entire income on which the tax is imposed by this chapter.

B. If any taxes paid to another state or country for which a taxpayer has been allowed a credit under this section are at any time credited or refunded to the taxpayer:

1. The taxpayer shall immediately report that fact to the department.

2. A tax equal to the credit allowed for the taxes credited or refunded by the other state or country is due and payable from the taxpayer on notice and demand from the department.

3. Interest shall be added to and collected as a part of the tax at the rate determined pursuant to section 42-1123 from the date the credit was allowed under this chapter to the date of the notice and demand.

4. If the tax and interest are not paid within ten days from after the date of notice and demand, there shall be collected as a part of the tax interest on the unpaid amount of tax and interest at the rate of twelve percent a year from the date of the notice and demand until the amount is paid.

C. The credit against the taxes imposed by this chapter for net income taxes paid to another state or country shall is not be allowed to any taxpayer or any class of taxpayers if the allowances of the credit will result in any invalid or illegal discrimination against another taxpayer or another class of taxpayers.

D. For taxable years beginning on or after January 1, 2002 and subject to the following conditions, a resident of this state, who is also considered to be a resident of another state under the laws of the other state, is allowed a credit against the taxes imposed by this title for net income taxes imposed by and paid to that state on income taxable under this title as follows:

1. The credit is allowed only if the other state taxes the income to the resident of this state and does not allow the taxpayer a credit against taxes imposed by that state on that income for taxes paid or payable on that income under this title.

2. The credit is allowed only for the proportion of the taxes paid to the other state as the income taxable under this title and also subject to tax in the other state bears to the entire income on which the taxes paid to the other state are imposed.

3. The credit may not exceed the proportion of the tax payable under this title as the income taxable under this title and also subject to tax in the other state bears to the entire income taxable under this title.

4. For the purpose of the credit allowed under this subsection, "income taxable under this title and also subject to tax in the other state" means income that would be sourced to the other state if the other state were imposing its income tax on the taxpayer as if the taxpayer was a nonresident of that other state.

E. The taxpayer may apply the allowable credit only against Arizona income tax for the same taxable year in which the income is subject to tax in the other state.

F. An individual who participates in a composite income tax return in another state may claim a credit for taxes paid to the other state if the taxpayer meets all of the requirements of this section and the taxes paid to the other state are imposed on and paid directly by the individual taxpayer and not the entity. For the purposes of this subsection, taxes are considered to be imposed on and paid directly by the individual under one or more of the following circumstances:

1. The individual makes direct payment to the other state.

2. The individual makes direct payment to the entity filing the composite income tax return.

3. The entity charges the individual's loan account for the amount of the tax.

4. The entity reduces the individual's capital account.

G. If the taxpayer claims the credit for taxes paid to a foreign country, the taxpayer shall use the conversion rate in effect on the date the taxpayer paid the taxes to the foreign country.

H. For the purposes of this section:

1. "Composite income tax return" means a single income tax return that is filed with another state on behalf of a group of individuals who are partners or shareholders of the partnership or S corporation that filed the return on their behalf.

2. "Entire income on which the other state's or country's tax is imposed" means the other state's or country's income computed under the equivalent of section 43-1094 for nonresidents but does not include any exemption allowable under the equivalent of section 43-1023.

3. "Entire income on which the tax is imposed by this chapter" means Arizona adjusted gross income as defined and computed under section 43-1001 but does not include any exemption allowed under section 43-1023.

4. "Income subject to tax in the other state or country and also taxable under this title" means the portion of income that is included in entire income on which the tax is imposed by this chapter that is also included in the entire income on which the other state's or country's tax is imposed. The taxpayer shall increase or reduce the portion of income that is included in the entire income on which the tax is imposed by this chapter by any related additions under section 43-1021 and by any related subtractions under section 43-1022. The taxpayer shall increase or reduce the portion of income that is included in the entire income on which the other state's or country's tax is imposed by any related additions and subtractions under the other state's equivalent of sections 43-1021 and 43-1022, as applicable.

5. "Net income tax":

(a) Means:

(i) A tax that grants deductions or exemptions from gross income.

(ii) Any tax imposed by another country that qualifies for a credit under sections 901 and 903 of the internal revenue code and the regulations under those sections, even if withheld from income.

(b) Except as specifically included in subdivision (a) of this paragraph, does not include:

(i) A system of taxation that assesses taxes on gross income, gross receipts or gross dividends.

(ii) Taxes withheld from income.

6. "Tax payable under this chapter" means the income tax imposed by this state on the taxpayer's taxable income as defined under section 43-1001 minus any tax credit amount claimed for the taxable year under this article but not including the credit amount allowed under this section. END_STATUTE

Sec. 6. Section 43-1091, Arizona Revised Statutes, is amended to read:

START_STATUTE43-1091. Nonresidents; income from disaster recovery

A. In the case of nonresidents, Arizona gross income includes only that portion of federal adjusted gross income which represents income from sources within this state.

B. Income of a nonresident from the wages or salary received by the nonresident employee who is in this state on a temporary basis for the purpose of performing disaster recovery from a declared disaster during a disaster period as defined in section 42-1130 is not considered income from sources within this state. END_STATUTE

Sec. 7. Repeal

Section 43-1094, Arizona Revised Statutes, is repealed.

Sec. 8. Title 43, chapter 10, article 6, Arizona Revised Statutes, is amended by adding a new section 43-1094, to read:

START_STATUTE43-1094. Tax rate computation for nonresidents

For taxable years beginning from and after December 31, 2021, the tax due from a nonresident taxpayer for each taxable year is equal to the tax computed pursuant to sections 43-1011 and 43-1013 as if the nonresident were a resident, multiplied by a fraction, the numerator of which is the taxpayer's income from sources within this state and the denominator of which is that taxpayer's gross income for the taxable year as if that taxpayer were a resident. END_STATUTE

Sec. 9. Repeal

Section 43-1095, Arizona Revised Statutes, is repealed.

Sec. 10. Section 43-1096, Arizona Revised Statutes, is amended to read:

START_STATUTE43-1096. Credit for income taxes paid by nonresidents; definitions

A. Subject to the following conditions, nonresidents shall be are allowed a credit against taxes imposed by this title for net income taxes imposed by and paid to the state or country of residence on income taxable under this title:

1. The credit shall be is allowed only if the state or country of residence either does not tax income of residents of this state derived from sources within that state or country or allows residents of this state a credit against taxes imposed by that state or country on the income for taxes paid or payable under this title.

2. The credit shall is not be allowed for taxes paid to a state or country that allows its residents a credit against the taxes imposed by that state or country for income taxes paid or payable under this title irrespective of whether its residents are allowed a credit against the taxes imposed by this title for income taxes paid to that state or country.

3. The credit shall be is allowed only for the proportion of the taxes paid to the state or country of residence as the income taxable under this title and also subject to tax in the state or country of residence bears to the entire income on which the taxes paid to the state or country of residence are imposed.

4. The credit shall not exceed the proportion of the tax payable under this title as the income taxable under this title and also subject to tax in the state or country of residence bears to the entire income taxable under this title.

B. The taxpayer may apply the allowable credit only against Arizona income tax for the same taxable year in which the income is subject to tax in the other state.

C. If the taxpayer claims the credit for taxes paid to a foreign country, the taxpayer shall use the conversion rate in effect on the date the taxpayer paid the taxes to the foreign country.

D. For the purposes of this section:

1. "Entire income on which the taxes paid to the state or country of residence are imposed" means the other state's or country's adjusted gross income computed under the equivalent of section 43-1001, but does not include any exemption allowable under the equivalent of section 43-1023.

2. "Entire income taxable under this title" means Arizona adjusted gross income computed under section 43-1094 but does not include any exemption allowed under section 43-1023.

3. "Income taxable under this title and also subject to tax in the state or country of residence" means the portion of income that is included in entire income taxable under this title that is also included in the entire income on which the taxes paid to the state or country of residence are imposed. The taxpayer shall increase or reduce the portion of income that is included in the entire income taxable under this title by any related additions under section 43-1021 and by any related subtractions under section 43-1022. The taxpayer shall increase or reduce the portion of income that is included in the entire income on which taxes paid to the state or country of residence are imposed by any related additions and subtractions under the other state's equivalent of sections 43-1021 and 43-1022, as applicable.

4. "Net income tax":

(a) Means:

(i) A tax that grants deductions or exemptions from gross income.

(ii) Any tax imposed by another country that qualifies for a credit under sections 901 and 903 of the internal revenue code and the regulations under those sections, even if withheld from income.

(b) Except as specifically included in subdivision (a) of this paragraph, does not include:

(i) A system of taxation that assesses taxes on gross income, gross receipts or gross dividends.

(ii) Taxes withheld from income.

5. "Tax payable under this title" means the income tax imposed by this state on the taxpayer's taxable income as computed under section 43-1095 43-1094 minus any tax credit amount claimed for the taxable year under article 5 of this chapter but not including the credit amount allowed under this section. END_STATUTE

Sec. 11. Repeal

Sections 43-1097 and 43-1098, Arizona Revised Statutes, are repealed.

Sec. 12. Retroactivity

This act applies retroactively to taxable years beginning from and after December 31, 2020.