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ARIZONA STATE SENATE
Fifty-Seventh Legislature, First Regular Session
AMENDED
2025-2026; taxation; omnibus
Purpose
Extends, until June 30, 2029, the specified purposes for which a public school may use monies contributed for the purposes of the Public School Extracurricular Activity Fees Tax Credit. Increases, effective January 1, 2026, the business personal property tax exemption to $500,000. Exempts the property of a veteran with a service-connected disability whose U.S. Department of Veterans Affairs (VA) disability rating is 100 percent, or the veteran's surviving spouse, from the full amount of property tax. Increases, for taxable years beginning January 1, 2026, the individual income tax subtraction for unreimbursed adoption expenses from $3,000 to $5,000 for a single individual or head of household and $10,000 for a married couple filing jointly or separately. Expands the transaction privilege tax (TPT) deduction and use tax exemption relating to pipes to include pipes or valves that are four inches in diameter or larger that are used to transport wastewater.
Background
Business Personal Property Tax Exemption
Personal property is classified and valued by each county assessor, except for centrally assessed personal property which is valued by the Arizona Department of Revenue (ADOR). After the county assessor values locally assessed personal property, it is placed on the personal property tax roll. Locally assessed personal property, except manufactured housing or mobile homes, is assessed based on the property's full cash value (A.R.S. §§ 42-13304; 42-15053; and 42-19002).
The Arizona Constitution grants the Legislature the authority to determine by law the qualifications for, and the amount of, a property tax exemption for personal property used in trade or business or for agricultural purposes. Current statute exempts up to $207,366 of specified personal property used in trade or business or for agricultural purposes from property tax. The exemption is commonly referred to as the business personal property tax exemption. ADOR annually adjusts the exemption amount for the following tax year to account for inflation. For TY 2025, the exemption is $269,905 (Ariz. Const. art. 9, § 2; A.R.S. §§ 42-11127 and 42-15002).
Public School Extracurricular Activity Fees Tax Credit
Statute allows
for a credit against individual income tax liability for fees paid or cash contributions
made to a public school for: 1) standardized testing for college credit or
readiness; 2) the career and technical education industry certification assessment;
3) preparation courses and materials for standardized testing; 4)
cardiopulmonary resuscitation training; 5) extracurricular activities; and 6)
character education programs. Laws 2019, Chapter
164 authorized additional purposes for contributions until June 30, 2022,
including: 1) the acquisition of specified capital items; 2) community school
meal programs; 3) student consumable health care supplies; and
4) playground equipment and shade structures for playground equipment. In 2021,
the Legislature extended the expiration date for the additional authorized
purposes until June 30, 2024 (Laws 2021, Ch. 412).
Adoption Expenses Income Tax Subtraction
Individual income tax is levied on Arizona residents’ taxable income. The tax base begins with Arizona gross income, which is equivalent to the taxpayer's federal adjusted gross income. Statute authorizes various amounts to be added or subtracted when computing an individual's Arizona adjusted gross income, which is further reduced by standard or itemized deductions to arrive at Arizona taxable income. An individual must subtract up to $3,000 of unreimbursed medical and hospital costs, adoption counseling, legal and agency fees and other nonrecurring costs of adoption. The subtraction may include costs incurred in prior years but may only be taken in the year in which the final adoption order is granted (A.R.S. § 43-1022).
Veteran Property Tax Exemption
All property in
Arizona is subject to taxation with certain exemptions outlined in the Arizona
Constitution and prescribed by statute. The property of Arizona residents who
are widows, widowers, persons with total and permanent disabilities or veterans
with service or nonservice-connected disabilities are exempt from property tax subject
to the conditions and limitations prescribed by statute. For TY 2025, the
exemption amount is: 1) $4,476, if the person's total property assessment does
not exceed $31,347; or 2) no exemption if the person's total property
assessment exceeds $31,347. A veteran with a service or nonservice-connected
disability is eligible for a portion of the maximum exemption amount that is
equal to the percentage of the person's disability, as rated by the VA. To
qualify for a property tax exemption, a claimant's total income from all
sources is subject to a statutory cap. Certain monies are excluded when
calculating a claimant's total income from all sources, including payments from
veteran disability pensions. The Arizona Department of Revenue annually adjusts
the exemption amount, income cap and property assessment limit for inflation. A
widow, widower, person with a total and permanent disability or veteran with a
service or non-service connected disability must initially establish
eligibility for the property tax exemption by filing an affidavit with the
county assessor (A.R.S.
§§ 42-11002 and 42-11111).
Transaction Privilege Tax Pipe Exemption
TPT is a gross receipts tax levied for the privilege of conducting business in Arizona and is imposed under 16 business classifications. Statute requires businesses to file a TPT return monthly and pay TPT to ADOR by the 20th day of the following month after the tax is incurred (A.R.S. §§ 42-5008 and 42-5014). Use tax is a tax imposed on individuals who purchase taxable products from out-of-state locations or online retailers and as a result, do not pay TPT (ADOR).
The gross proceeds of sales or gross income derived from sales of certain tangible personal property must be deducted from the tax base for the retail classification of TPT, including pipes or valves that are four inches in diameter or larger and are used to transport oil, natural gas, artificial gas, water or coal slurry, including compressor units, regulators, machinery and equipment, fittings, seals and any other part used for operating the pipes or valves (A.R.S. § 42-5061).
The Joint Legislative Budget Committee's FY 2026 budget analysis includes estimates on the provisions of S.B. 1749 (JLBC Budget Bills As Introduced).
Provisions
1. Increases, effective January 1, 2026, the business personal property tax exemption to $500,000.
2. Extends, until June 30, 2029, and retroactive to June 29, 2024, the use of Public School Extracurricular Activity Fees Tax Credit contributions for the following authorized purposes:
a) the acquisition of outlined capital items;
b) community school meal programs;
c) student consumable health care supplies; and
d) playground equipment and shade structures for playground equipment.
3. Exempts, from the full amount of property tax, the property of a veteran with a service-connected disability whose U.S. Department of Veterans Affairs (VA) disability rating is 100 percent.
4. Allows the surviving spouse of a veteran with a service-connected disability whose VA disability rating is 100 percent to continue to claim the full property tax exemption as long as the spouse does not remarry and the property is used as the spouse's primary residence.
5. Exempts the property of a veteran with a service or nonservice-connected disability from the requirement to be valued below the statutory property assessment limit to qualify for the exemption.
6. Excludes payments from any veterans pensions, rather than only veterans disability pensions, from the calculation of income from all sources for the purpose of the exemption income cap.
7. Increases, for taxable years beginning January 1, 2026, the individual income tax subtraction for unreimbursed adoption expenses from $3,000 to:
a) $5,000 for a single individual or head of household; or
b) $10,000 for a married couple filing a joint return.
8. Specifies that, in the case of a husband and wife who file separate returns, the subtraction may be taken by either taxpayer or divided between the taxpayers, but the total subtractions allowed may not exceed $10,000.
9. Expands the transaction privilege tax (TPT) deduction and use tax exemption relating to pipes to include pipes or valves that are four inches in diameter or larger that are used to transport wastewater.
10. Applies the modified TPT wastewater pipe deduction and use tax exemption to taxable periods beginning on or after the first day of the month following the general effective date.
11. Makes technical and conforming changes.
12. Makes technical changes.
13. Becomes effective on the general effective date, with a retroactive provision and delayed effective date as noted.
Amendments Adopted by Committee of the Whole
1.
Exempts, from the full amount of property tax, the property of a veteran
with a
service-connected disability whose VA disability rating is 100 percent.
2. Allows the surviving spouse of a veteran with a service-connected disability whose VA disability rating is 100 percent to continue to claim the full property tax exemption as long as the spouse does not remarry and the property is used as the spouse's primary residence.
3. Exempts the property of a veteran with a service or nonservice-connected disability from the requirement to be valued below the statutory property assessment limit to qualify for the exemption.
4. Excludes payments from any veterans pensions, rather than only veterans disability pensions, from the calculation of income from all sources for the purpose of the exemption income cap.
5. Increases, for taxable years beginning January 1, 2026, the individual income tax subtraction for unreimbursed adoption expenses from $3,000 to:
a) $5,000 for a single individual or head of household; or
b) $10,000 for a married couple filing a joint return.
6. Specifies that, in the case of a husband and wife who file separate returns, the subtraction may be taken by either taxpayer or divided between the taxpayers, but the total subtractions allowed may not exceed $10,000.
7. Expands the TPT deduction and use tax exemption relating to pipes to include pipes or valves that are four inches in diameter or larger that are used to transport wastewater.
8. Applies the modified TPT wastewater pipe deduction and use tax exemption to taxable periods beginning on or after the first day of the month following the general effective date.
9. Makes technical and conforming changes.
Senate Action
APPROP 6/17/25 DP 8-2-0
Prepared by Senate Research
June 19, 2025
MG/ci