HB2153 - 572R

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

Section 1. Section 42-1001, Arizona Revised Statutes, is amended to read:

START_STATUTE42-1001. Definitions

In this title, unless the context otherwise requires:

1. "Board" or "state board" means either the state board of tax appeals or the state board of equalization, as applicable.

2. "Court" means the tax court or superior court, whichever is applicable.

3. "Department" means the department of revenue.

4. "Director" means the director of the department.

5. "Electronically send" or "send electronically" means to send by either email or the use of an electronic portal.

6. "Electronic portal" means a secure location on a website established by the department that requires the receiver to enter a password to access.

7. "Email" means:

(a) An electronic transmission of a message to an email address.

(b) If the message contains confidential information, the electronic transmission of a message to an email address using encryption software that requires the receiver to enter a password before the message can be retrieved and viewed.

8. "Internal revenue code" means the United States internal revenue code of 1986, as amended and in effect as of January 1, 2025 2026, including those provisions that became effective during 2024 2025 with the specific adoption of their retroactive effective dates but excluding all changes to the code enacted after January 1, 2025 2026. END_STATUTE

Sec. 2. Section 43-105, Arizona Revised Statutes, is amended to read:

START_STATUTE43-105. Internal revenue code; definition; application

A. For the purposes of computing income tax pursuant to this title, for taxable years beginning from and after December 31, 2025, "internal revenue code" means the United States internal revenue code of 1986, as amended, in effect on January 1, 2026, including those provisions that became effective during 2025 with the specific adoption of all retroactive effective dates, but excluding any changes to the code enacted after January 1, 2026.

A. B. For the purposes of computing income tax pursuant to this title, for taxable years beginning from and after December 31, 2024 through December 31, 2025, "internal revenue code" means the United States internal revenue code of 1986, as amended, in effect on January 1, 2025, including those provisions that became effective during 2024 with the specific adoption of all retroactive effective dates, but excluding any changes to the code enacted after January 1, 2025 and including those provisions that are retroactively effective during taxable years beginning from and after December 31, 2024 through December 31, 2025.

B. C. For the purposes of computing income tax pursuant to this title, for taxable years beginning from and after December 31, 2023 through December 31, 2024, "internal revenue code" means the United States internal revenue code of 1986, as amended, in effect on January 1, 2024, including those provisions that became effective during 2023 with the specific adoption of all retroactive effective dates, and including those provisions that are retroactively effective during taxable years beginning from and after December 31, 2023 through December 31, 2024.

C. D. For the purposes of computing income tax pursuant to this title, for taxable years beginning from and after December 31, 2022 through December 31, 2023, "internal revenue code" means the United States internal revenue code of 1986, as amended, in effect on January 1, 2023, including those provisions that became effective during 2022 with the specific adoption of all retroactive effective dates, and including those provisions that are retroactively effective during taxable years beginning from and after December 31, 2022 through December 31, 2023.

D. E. For the purposes of computing income tax pursuant to this title, for taxable years beginning from and after December 31, 2021 through December 31, 2022, "internal revenue code" means the United States internal revenue code of 1986, as amended, in effect on January 1, 2022, including those provisions that became effective during 2021 with the specific adoption of all retroactive effective dates, and including those provisions of the chips and science act of 2022 (P.L. 117-167), the inflation reduction act of 2022 (P.L. 117-169) and the consolidated appropriations act, 2023 (P.L. 117-328) that are retroactively effective during taxable years beginning from and after December 31, 2021 through December 31, 2022.

E. F. For the purposes of computing income tax pursuant to this title, for taxable years beginning from and after December 31, 2020 through December 31, 2021, "internal revenue code" means the United States internal revenue code of 1986, as amended, in effect on March 11, 2021, including those provisions that became effective during 2020 with the specific adoption of all retroactive effective dates and including those provisions of the PPP extension act of 2021 (P.L. 117-6) and the infrastructure investment and jobs act (P.L. 117-58) that are retroactively effective during taxable years beginning from and after December 31, 2020 through December 31, 2021.

F. G. For the purposes of computing income tax pursuant to this title, for taxable years beginning from and after December 31, 2019 through December 31, 2020, "internal revenue code" means the United States internal revenue code of 1986, as amended, in effect on January 1, 2020, including those provisions that became effective during 2019 with the specific adoption of all retroactive effective dates, and including those provisions of the families first coronavirus response act (P.L. 116-127), the coronavirus aid, relief, and economic security act (P.L. 116-136), the paycheck protection program flexibility act of 2020 (P.L. 116-142), the consolidated appropriations act, 2021 (P.L. 116-260) and the American rescue plan act of 2021 (P.L. 117-2) that are retroactively effective during taxable years beginning from and after December 31, 2019 through December 31, 2020.

G. H. For the purposes of computing income tax pursuant to this title, for taxable years beginning from and after December 31, 2018 through December 31, 2019, "internal revenue code" means the United States internal revenue code of 1986, as amended, in effect on January 1, 2019, including those provisions that became effective during 2018 with the specific adoption of all retroactive effective dates, and including those provisions of the taxpayer first act (P.L. 116-25), the further consolidated appropriations act, 2020 (P.L. 116-94), the coronavirus aid, relief, and economic security act (P.L. 116-136) and the consolidated appropriations act, 2021 (P.L. 116-260) that are retroactively effective during taxable years beginning from and after December 31, 2018 through December 31, 2019.

H. I. For the purposes of computing income tax pursuant to this title, for taxable years beginning from and after December 31, 2017 through December 31, 2018, "internal revenue code" means the United States internal revenue code of 1986, as amended, in effect on January 1, 2018, including those provisions that became effective during 2017 with the specific adoption of all retroactive effective dates, and including those provisions of the bipartisan budget act of 2018 (P.L. 115-123), the consolidated appropriations act, 2018 (P.L. 115-141), the further consolidated appropriations act, 2020 (P.L. 116-94), the coronavirus aid, relief, and economic security act (P.L. 116-136) and the consolidated appropriations act, 2021 (P.L. 116-260) that are retroactively effective during taxable years beginning from and after December 31, 2017 through December 31, 2018.

I. J. For the purposes of computing income tax pursuant to this title, for taxable years beginning from and after December 31, 2016 through December 31, 2017, "internal revenue code" means the United States internal revenue code of 1986, as amended, in effect on January 1, 2017, including those provisions that became effective during 2016 with the specific adoption of all federal retroactive effective dates, and including those provisions of the disaster tax relief and airport and airway extension act of 2017 (P.L. 115-63), the tax cuts and jobs act (P.L. 115-97), the bipartisan budget act of 2018 (P.L. 115-123), the consolidated appropriations act, 2018 (P.L. 115-141), the further consolidated appropriations act, 2020 (P.L. 116-94) and the coronavirus aid, relief, and economic security act (P.L. 116-136) that are retroactively effective during taxable years beginning from and after December 31, 2016 through December 31, 2017.

J. K. For the purposes of computing income tax pursuant to this title, for taxable years beginning from and after December 31, 2015 through December 31, 2016, "internal revenue code" means the United States internal revenue code of 1986, as amended, in effect on January 1, 2016, including those provisions that became effective during 2015 with the specific adoption of all federal retroactive effective dates, and including those provisions of the United States appreciation for olympians and paralympians act of 2016 (P.L. 114-239), the tax cuts and jobs act (P.L. 115-97), the consolidated appropriations act, 2018 (P.L. 115-141), the further consolidated appropriations act, 2020 (P.L. 116-94) and the coronavirus aid, relief, and economic security act (P.L. 116-136) that are retroactively effective during taxable years beginning from and after December 31, 2015 through December 31, 2016.

K. For the purposes of computing income tax pursuant to this title, for taxable years beginning from and after December 31, 2014 through December 31, 2015, "internal revenue code" means the United States internal revenue code of 1986, as amended, in effect on January 1, 2015, including those provisions that became effective during 2014 with the specific adoption of all federal retroactive effective dates, and including those provisions of the slain officer family support act of 2015 (P.L. 114-7), the don't tax our fallen public safety heroes act (P.L. 114-14), the surface transportation and veterans health care choice improvement act of 2015 (P.L. 114-41), the consolidated appropriations act, 2016 (P.L. 114-113), the consolidated appropriations act, 2018 (P.L. 115-141) and the coronavirus aid, relief, and economic security act (P.L. 116-136) that are retroactively effective during taxable years beginning from and after December 31, 2014 through December 31, 2015.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 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. 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. 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. 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 43-323, Arizona Revised Statutes, is amended to read:

START_STATUTE43-323. Place and form of filing returns

A. All returns required by this title shall be in such a form as the department may from time to time prescribe and shall be filed with the department.

B. The department shall prescribe a short form return for individual taxpayers who:

1. Are eligible and elect to pay tax based on the optional tax tables pursuant to section 43-1012.

2. Elect to claim the optional standard deduction pursuant to section 43-1041, subsection A, but not the increased amount for charitable deductions under section 43-1041, subsection I H.

3. Elect not to file for credits against income tax liability other than those contained in sections 43-1072, 43-1072.01, 43-1072.02, 43-1073 and 43-1073.01.

4. Are not required to add any income under section 43-1021 and do not elect any subtractions under section 43-1022, except for the exemptions allowed under section 43-1023.

C. The department may provide a simplified return form for individual taxpayers who:

1. Are eligible and elect to pay tax based on the optional tax tables pursuant to section 43-1012.

2. Are residents for the full taxable year.

3. File as single individuals or married couples filing joint returns under section 43-309.

4. Are not sixty-five years of age or older or blind at the end of the taxable year.

5. Claim no exemptions under section 43-1023 for the taxable year.

6. Elect to claim the optional standard deduction under section 43-1041, subsection A, but not the increased amount for charitable deductions under section 43-1041, subsection I H.

7. Are not required to add any income under section 43-1021 and do not elect to claim any subtractions under section 43-1022 or file for any credits under chapter 10, article 5 of this title, except the credits provided by sections 43-1072.01, 43-1072.02 and 43-1073.

8. Do not elect to contribute a portion of any tax refund as provided by any provision of chapter 6, article 1 of this title. Notwithstanding any provision of chapter 6, article 1 of this title, a simplified return form under this subsection shall not include any space for the taxpayer to so contribute a portion of a refund.

D. The department shall prepare blank forms for the returns and furnish them on request. Failure to receive or secure the form does not relieve any taxpayer from making any return required.

E. An individual income tax preparer who prepares more than ten original income tax returns that are timely filed during any taxable year that begins from and after December 31, 2017 shall file electronically all individual tax returns prepared by that tax preparer, for that taxable year and each subsequent taxable year. An individual income tax preparer may not charge a separate fee to the taxpayer for filing a return using the department's electronic filing program. This subsection does not apply if the taxpayer elects to have the return filed on paper or if the return cannot be filed electronically for reasons outside of the tax preparer's control.

F. Fiduciary returns, partnership returns, withholding returns and corporate returns shall be filed electronically for taxable years beginning from and after December 31, 2019, or when the department establishes an electronic filing program, whichever is later. Any person who is required to file electronically pursuant to this subsection may apply to the director, on a form prescribed by the department, for an annual waiver from the electronic filing requirement. The director may grant the waiver, which may be renewed for one subsequent year, if any of the following applies:

1. The taxpayer has no computer.

2. The taxpayer has no internet access.

3. Any other circumstance considered to be worthy by the director exists.

G. A waiver is not required if the return cannot be electronically filed for reasons beyond the taxpayer's control, including situations in which the taxpayer was instructed by either the internal revenue service or the department of revenue to file by paper. END_STATUTE

Sec. 5. Section 43-1022, Arizona Revised Statutes, is amended to read:

START_STATUTE43-1022. Subtractions from Arizona gross income

In computing Arizona adjusted gross income, the following amounts shall be subtracted from Arizona gross income:

1. The amount of exemptions allowed by section 43-1023.

2. Benefits, annuities and pensions in an amount totaling not more than $2,500 received from one or more of the following:

(a) The United States government service retirement and disability fund, the United States foreign service retirement and disability system and any other retirement system or plan established by federal law, except retired or retainer pay of the uniformed services of the United States that qualifies for a subtraction under paragraph 26 of this section.

(b) The Arizona state retirement system, the corrections officer retirement plan, the public safety personnel retirement system, the elected officials' retirement plan, an optional retirement program established by the Arizona board of regents under section 15-1628, an optional retirement program established by a community college district board under section 15-1451 or a retirement plan established for employees of a county, city or town in this state.

3. A beneficiary's share of the fiduciary adjustment to the extent that the amount determined by section 43-1333 decreases the beneficiary's Arizona gross income.

4. Interest income received on obligations of the United States, minus any interest on indebtedness, or other related expenses, and deducted in arriving at Arizona gross income, that were incurred or continued to purchase or carry such obligations.

5. The excess of a partner's share of income required to be included under section 702(a)(8) of the internal revenue code over the income required to be included under chapter 14, article 2 of this title.

6. The excess of a partner's share of partnership losses determined pursuant to chapter 14, article 2 of this title over the losses allowable under section 702(a)(8) of the internal revenue code.

7. The amount allowed by section 43-1025 for contributions during the taxable year of agricultural crops to charitable organizations.

8. The portion of any wages or salaries paid or incurred by the taxpayer for the taxable year that is equal to the amount of the federal work opportunity credit, the empowerment zone employment credit, the credit for employer paid social security taxes on employee cash tips and the Indian employment credit that the taxpayer received under sections 45A, 45B, 51(a) and 1396 of the internal revenue code.

9. The amount of exploration expenses that is determined pursuant to section 617 of the internal revenue code, that has been deferred in a taxable year ending before January 1, 1990 and for which a subtraction has not previously been made. The subtraction shall be made on a ratable basis as the units of produced ores or minerals discovered or explored as a result of this exploration are sold.

10. The amount included in federal adjusted gross income pursuant to section 86 of the internal revenue code, relating to taxation of social security and railroad retirement benefits.

11. To the extent not already excluded from Arizona gross income under the internal revenue code, compensation received for active service as a member of the reserves, the national guard or the armed forces of the United States, including compensation for service in a combat zone as determined under section 112 of the internal revenue code.

12. The amount of unreimbursed medical and hospital costs, adoption counseling, legal and agency fees and other nonrecurring costs of adoption. The subtraction under this paragraph may be taken for the costs that are described in this paragraph and that are incurred in prior years, but the subtraction may be taken only in the year during which the final adoption order is granted. The amount subtracted may not exceed:

(a) In taxable years beginning before December 31, 2025, $3,000. In the case of a husband and wife who file separate returns, the subtraction may be taken by either taxpayer or may be divided between them, but the total subtractions allowed both husband and wife may not exceed $3,000.

(b) In taxable years beginning from and after December 31, 2025, $5,000 for a single individual or head of household.

(c) For taxable years beginning from and after December 31, 2025, $10,000 for a married couple filing a joint return. In the case of a husband and wife who file separate returns, the subtraction may be taken by either taxpayer or may be divided between them, but the total subtractions allowed both husband and wife may not exceed $10,000.

13. The amount authorized by section 43-1027 for the taxable year relating to qualified wood stoves, wood fireplaces or gas fired fireplaces.

14. The amount by which a net operating loss carryover or capital loss carryover allowable pursuant to section 43-1029, subsection F exceeds the net operating loss carryover or capital loss carryover allowable pursuant to section 1341(b)(5) of the internal revenue code.

15. Any amount of qualified educational expenses that is distributed from a qualified state tuition program determined pursuant to section 529 of the internal revenue code and that is included in income in computing federal adjusted gross income.

16. Any item of income resulting from an installment sale that has been properly subjected to income tax in another state in a previous taxable year and that is included in Arizona gross income in the current taxable year.

17. For property placed in service:

(a) In taxable years beginning before December 31, 2012, an amount equal to the depreciation allowable pursuant to section 167(a) of the internal revenue code for the taxable year computed as if the election described in section 168(k) of the internal revenue code had been made for each applicable class of property in the year the property was placed in service.

(b) In taxable years beginning from and after December 31, 2012 through December 31, 2013, an amount determined in the year the asset was placed in service based on the calculation in subdivision (a) of this paragraph. In the first taxable year beginning from and after December 31, 2013, the taxpayer may elect to subtract the amount necessary to make the depreciation claimed to date for the purposes of this title the same as it would have been if subdivision (c) of this paragraph had applied for the entire time the asset was in service. Subdivision (c) of this paragraph applies for the remainder of the asset's life. If the taxpayer does not make the election under this subdivision, subdivision (a) of this paragraph applies for the remainder of the asset's life.

(c) In taxable years beginning from and after December 31, 2013 through December 31, 2015, an amount equal to the depreciation allowable pursuant to section 167(a) of the internal revenue code for the taxable year as computed as if the additional allowance for depreciation had been ten percent of the amount allowed pursuant to section 168(k) of the internal revenue code.

(d) In taxable years beginning from and after December 31, 2015 through December 31, 2016, an amount equal to the depreciation allowable pursuant to section 167(a) of the internal revenue code for the taxable year as computed as if the additional allowance for depreciation had been fifty-five percent of the amount allowed pursuant to section 168(k) of the internal revenue code.

(e) In taxable years beginning from and after December 31, 2016, an amount equal to the depreciation allowable pursuant to section 167(a) of the internal revenue code for the taxable year as computed as if the additional allowance for depreciation had been the full amount allowed pursuant to section 168(k) of the internal revenue code.

18. With respect to property that is sold or otherwise disposed of during the taxable year by a taxpayer that complied with section 43-1021, paragraph 11 with respect to that property, the amount of depreciation that has been allowed pursuant to section 167(a) of the internal revenue code to the extent that the amount has not already reduced Arizona taxable income in the current or prior taxable years.

19. The amount contributed during the taxable year to college savings plans established pursuant to section 529 of the internal revenue code on behalf of the designated beneficiary to the extent that the contributions were not deducted in computing federal adjusted gross income. The amount subtracted may not exceed:

(a) $2,000 per beneficiary for a single individual or a head of household.

(b) $4,000 per beneficiary for a married couple filing a joint return. In the case of a husband and wife who file separate returns, the subtraction may be taken by either taxpayer or may be divided between them, but the total subtractions allowed both husband and wife may not exceed $4,000 per beneficiary.

20. The portion of the net operating loss carryforward that would have been allowed as a deduction in the current year pursuant to section 172 of the internal revenue code if the election described in section 172(b)(1)(H) of the internal revenue code had not been made in the year of the loss that exceeds the actual net operating loss carryforward that was deducted in arriving at federal adjusted gross income. This subtraction only applies to taxpayers who made an election under section 172(b)(1)(H) of the internal revenue code as amended by section 1211 of the American recovery and reinvestment act of 2009 (P.L. 111-5) or as amended by section 13 of the worker, homeownership, and business assistance act of 2009 (P.L. 111-92).

21. For taxable years beginning from and after December 31, 2013, the amount of any net capital gain included in federal adjusted gross income for the taxable year derived from investment in a qualified small business as determined by the Arizona commerce authority pursuant to section 41-1518.

22. An amount of any net long-term capital gain included in federal adjusted gross income for the taxable year that is derived from an investment in an asset acquired after December 31, 2011, as follows:

(a) For taxable years beginning from and after December 31, 2012 through December 31, 2013, ten percent of the net long-term capital gain included in federal adjusted gross income.

(b) For taxable years beginning from and after December 31, 2013 through December 31, 2014, twenty percent of the net long-term capital gain included in federal adjusted gross income.

(c) For taxable years beginning from and after December 31, 2014, twenty-five percent of the net long-term capital gain included in federal adjusted gross income. For the purposes of this paragraph, a transferee that receives an asset by gift or at the death of a transferor is considered to have acquired the asset when the asset was acquired by the transferor. If the date an asset is acquired cannot be verified, a subtraction under this paragraph is not allowed.

23. If an individual is not claiming itemized deductions pursuant to section 43-1042, the amount of premium costs for long-term care insurance, as defined in section 20-1691.

24. The amount of eligible access expenditures paid or incurred during the taxable year to comply with the requirements of the Americans with disabilities act of 1990 (P.L. 101-336) or title 41, chapter 9, article 8 as provided by section 43-1024.

25. For taxable years beginning from and after December 31, 2017, the amount of any net capital gain included in Arizona gross income for the taxable year that is derived from the exchange of one kind of legal tender for another kind of legal tender. For the purposes of this paragraph:

(a) "Legal tender" means a medium of exchange, including specie, that is authorized by the United States Constitution or Congress to pay debts, public charges, taxes and dues.

(b) "Specie" means coins having precious metal content.

26. Benefits, annuities and pensions received as retired or retainer pay of the uniformed services of the United States in amounts as follows:

(a) For taxable years through December 31, 2018, an amount totaling not more than $2,500.

(b) For taxable years beginning from and after December 31, 2018 through December 31, 2020, an amount totaling not more than $3,500.

27. For taxable years beginning from and after December 31, 2020, the amount contributed during the taxable year to an achieving a better life experience account established pursuant to section 529A of the internal revenue code on behalf of the designated beneficiary to the extent that the contributions were not deducted in computing federal adjusted gross income. The amount subtracted may not exceed:

(a) $2,000 per beneficiary for a single individual or a head of household.

28. For taxable years beginning from and after December 31, 2020, Arizona small business gross income but only if an individual taxpayer has elected to separately report and pay tax on the taxpayer's Arizona small business adjusted gross income on the Arizona small business income tax return.

29. To the extent not already excluded from Arizona gross income under the internal revenue code, the value of virtual currency and non-fungible tokens the taxpayer received pursuant to an airdrop at the time of the airdrop. This paragraph may not be interpreted as providing a subtraction for any appreciation in value that occurs from holding the virtual currency after the initial receipt of the airdrop. For the purposes of this paragraph:

(a) "Airdrop" means the receipt of virtual currency through a means of distribution of virtual currency to the distributed ledger addresses of multiple taxpayers.

(b) "Non-fungible token" has the same meaning prescribed in section 43-1028.

30. The amount allowed as a subtraction by section 43-1028 for gas fees not already included in the taxpayer's virtual currency or non-fungible token basis.

31. for taxable years beginning from and after december 31, 2024, To the extent not already excluded from Arizona gross income under the internal revenue code, the amount of qualified tips received during the taxable year that is deducted under section 224 of the internal revenue code.

32. for taxable years beginning from and after december 31, 2024, To the extent not already excluded from Arizona gross income under the internal revenue code, the amount of qualified overtime compensation received during the taxable year that is deducted under section 225 of the internal revenue code.

33. For taxable years beginning from and after December 31, 2024, to the extent not already excluded from Arizona gross income under the internal revenue code, the amount of a distribution from an account established pursuant to section 530A of the internal revenue code.

34. for taxable years beginning from and after december 31, 2024, To the extent not already excluded from Arizona gross income under the internal revenue code, the amount of child and dependent care expenses for a qualifying individual under section 21 of the internal revenue code paid or incurred by the taxpayer for the taxable year that exceeds the amount of the federal credit that the taxpayer received under section 21 of the internal revenue code.

35. for taxable years beginning from and after december 31, 2024, The amount authorized by section 43-1030 for the taxable year relating to distributions from a pension or retirement account.

36. for taxable years beginning from and after December 31, 2024, the amount totaling not more than $6,000 that is contributed during the taxable year to A retirement account to the extent that the contributions were not deducted in computing federal adjusted gross income. The total amount subtracted under this paragraph and section 43-1030 may not exceed $6,000 for a taxpayer who is a single person, a married person filing separately or a head of household or $12,000 for a married couple filing a joint return. For the purposes of this paragraph, "Retirement account" means A Roth individual retirement account under section 408A of the internal revenue code. END_STATUTE

Sec. 6. Title 43, chapter 10, article 3, Arizona Revised Statutes, is amended by adding section 43-1030, to read:

START_STATUTE43-1030. Subtraction for distributions from a pension or retirement account; limits; definitions

A. for taxable years beginning from and after December 31, 2024, in computing Arizona adjusted gross income, a taxpayer who is sixty years of age or older during the taxable year may subtract from Arizona gross income, to the extent not already excluded from Arizona gross income pursuant to section 43-1022 or the internal revenue code, an amount totaling not more than $6,000 received from a distribution to a qualified individual from a pension or retirement account.

B. For a taxpayer whose Arizona gross income is $75,000 or more for a taxpayer who is a single person, a married person filing separately or a head of household or $150,000 or more for a married couple filing a joint return, The subtraction amount prescribed by subsection A of this section shall be reduced by six percent of the amount that the taxpayer's income exceeds the amount prescribed by this subsection for the taxpayer's filing status, but not below zero.

C. The total amount subtracted under this section and section 43-1022, paragraph 36 may not exceed $6,000 for a taxpayer who is a single person, a married person filing separately or a head of household or $12,000 for a married couple filing a joint return.

D. For the purposes of this section:

1. "Pension" means either of the following:

(a) A defined benefit plan authorized under the internal revenue code paid to an individual.

(b) Periodic, fixed amount retirement payments made by the United States military, the United States civil service or a state or local government or a private employer to former employees and surviving spouses of former employees for prior services performed.

2. "Qualified individual" means:

(a) The taxpayer, if the taxpayer has attained sixty years of age before the close of the taxable year.

(b) In the case of a joint return, the taxpayer's spouse, if the taxpayer's spouse has attained sixty years of age before the close of the taxable year.

3. "Retirement account" includes:

(a) A qualified retirement plan under sections 401 and 403 of the internal revenue code and an eligible deferred compensation plan under section 457 of the internal revenue code.

(b) An individual retirement account under section 408 of the internal revenue code, including a simplified employee pension as defined in section 408(k) of the internal revenue code and a simple retirement account as defined in section 408(p) of the internal revenue code. END_STATUTE

Sec. 7. Section 43-1041, Arizona Revised Statutes, is amended to read:

START_STATUTE43-1041. Optional standard deduction

A. A taxpayer may elect to take a standard deduction as follows:

1. In the case of a single person or a married person filing separately, the standard deduction is $12,200, subject to subsection H of this section.

2. In the case of a single person who is a head of a household, the standard deduction is $18,350, subject to subsection H of this section.

3. In the case of a married couple filing a joint return, the standard deduction is $24,400, subject to subsection H of this section. The amount of the standard deduction is the amount of the federal basic standard deduction determined pursuant to section 63 of the internal revenue code for the taxpayer's filing status.

B. The standard deduction provided for in subsection A of this section is in lieu of all itemized deductions allowed by section 43-1042, which are to be subtracted from Arizona adjusted gross income in computing taxable income.

C. The standard deduction is allowed if the taxpayer so elects. The election is made by the taxpayer claiming on the tax return the amount provided for in this section in lieu of the itemized deductions allowed under section 43-1042. Electing to file a short form return or a simplified return that does not allow itemized deductions to be claimed is considered to be an election to claim the standard deduction.

D. In the case of a husband and wife, the standard deduction provided for in subsection A of this section is not allowed to either if the taxable income of one of the spouses is determined without regard to the standard deduction.

E. The standard deduction provided for by subsection A of this section is not allowed in the case of a taxable year of less than twelve months on account of a change in the accounting period.

F. Except as provided in subsection G of this section, a change of an election to take, or not to take, the standard deduction for any taxable year may be made after the filing of the return for that year.

G. A taxpayer is not allowed to change an election to take, or not to take, the standard deduction if:

1. The spouse of the taxpayer filed a separate return for any taxable year corresponding, for the purposes of subsection D of this section, to the taxable year of the taxpayer unless both of the following apply:

(a) The spouse makes a change of election with respect to the standard deduction for the taxable year covered in the separate return consistent with the change of election sought by the taxpayer.

(b) The taxpayer and spouse consent in writing to the assessment, within such a period as may be agreed on with the department, of any deficiency, to the extent attributable to the change of election, even though at the time of filing the consent the assessment of the deficiency would otherwise be prevented by the operation of any law or rule of law.

2. The tax liability of the taxpayer or the taxpayer's spouse for the taxable year has been compromised.

H. For each taxable year beginning from and after December 31, 2019, the department shall adjust the dollar amounts prescribed by subsection A, paragraphs 1, 2 and 3 of this section for inflation in the same manner in which the federal basic standard deduction is adjusted for inflation pursuant to section 63 of the internal revenue code.

I. For taxable years beginning from and after December 31, 2018,

H. The standard deduction allowed under subsection A of this section shall be increased as follows:

1. For taxable years beginning from and after December 31, 2018 through December 31, 2025, by the amount equal to twenty-five percent of the total amount of a taxpayer's charitable deductions that would have been allowed if the taxpayer elected to claim itemized deductions under section 43-1042 rather than elect the standard deduction. For taxable years beginning from and after December 31, 2021 through December 31, 2025, the department shall adjust the percentage prescribed in this subsection paragraph according to the average annual change in the metropolitan Phoenix consumer price index published by the United States department of labor, bureau of labor statistics, except that the adjusted percentage may not exceed one hundred percent. The revised percentage shall be raised to the nearest whole percent and may not be revised below the amounts prescribed in the prior taxable year.

2. For taxable years beginning from and after December 31, 2025, by an amount equal to the total amount of a taxpayer's charitable contributions as defined in section 170(c) of the internal revenue code. The increase allowed by this paragraph may not exceed:

(a) In the case of a single person or a married person filing separately, $1,000.

(b) In the case of a married couple filing a joint return, $2,000. END_STATUTE

Sec. 8. Section 43-1042, Arizona Revised Statutes, is amended to read:

START_STATUTE43-1042. Itemized deductions

A. Except as provided by subsections B, and C and D of this section, at the election of the taxpayer, and in lieu of the standard deduction allowed by section 43-1041, in computing taxable income the taxpayer may take the amount of itemized deductions allowable for the taxable year pursuant to subtitle A, chapter 1, subchapter B, parts VI and VII, but subject to the limitations limits prescribed by sections 67, 68 and 274 of the internal revenue code.

B. In lieu of the amount of the federal itemized deduction for expenses paid for medical care allowed under section 213 of the internal revenue code, the taxpayer may deduct the full amount of such expenses.

C. A taxpayer shall not claim both a deduction provided by this section and a credit allowed by this title with respect to the same charitable contributions. This subsection applies to any contribution for which a credit is allowed by this title even if the contribution is treated as a payment of state income tax.

D. In lieu of the amount of the federal itemized deduction for state and local taxes allowed under section 164(b)(7) of the internal revenue code, the taxpayer may deduct up to $10,000 of that amount for such state and local taxes.

D. E. The taxpayer may add any interest expense paid by the taxpayer for the taxable year that is equal to the amount of federal credit for interest on certain home mortgages allowed by section 25 of the internal revenue code.END_STATUTE

Sec. 9. Section 43-1073.01, Arizona Revised Statutes, is amended to read:

START_STATUTE43-1073.01. Dependent tax credit

A. A credit is allowed against the taxes imposed by this title for a taxable year for each dependent of a taxpayer as provided by this section.

B. For taxpayers whose federal adjusted gross income is less than $200,000 for a taxpayer who is a single person, a married person filing separately or a head of household or is less than $400,000 for a married couple filing a joint return, the amount of the credit is:

1. $100 $125 for each dependent who is under seventeen years of age at the end of the taxable year.

2. $25 for each dependent who is at least seventeen years of age at the end of the taxable year.

C. For taxpayers whose federal adjusted gross income is $200,000 or more for a taxpayer who is a single person, a married person filing separately or a head of household or is $400,000 or more for a married couple filing a joint return, the amount of the credit is:

1. $100 $125 minus five percent for each $1,000, or fraction thereof, by which the taxpayer's federal adjusted gross income exceeds the applicable threshold provided in this subsection for each dependent who is under seventeen years of age at the end of the taxable year.

2. $25 minus five percent for each $1,000, or fraction thereof, by which the taxpayer's federal adjusted gross income exceeds the applicable threshold provided in this subsection for each dependent who is at least seventeen years of age at the end of the taxable year.

D. In the case of a nonresident or part-year resident taxpayer, the credit allowed under this section is allowed in the percentage that the taxpayer's Arizona gross income is of the federal adjusted gross income. END_STATUTE

Sec. 10. Title 43, Arizona Revised Statutes, is amended by adding chapter 18, to read:

CHAPTER 18

SCHOLARSHIP GRANTING ORGANIZATIONS

ARTICLE 1. GENERAL PROVISIONS

START_STATUTE43-1801. State election to participate; federal tax credit for individual contributions to scholarship granting organizations

A. This state elects to participate in the federal tax credit established by section 25F of the internal revenue code for individuals who make qualified contributions to scholarship granting organizations.

B. The department shall comply with all federal laws and regulations to administer the federal tax credit established by section 25F of the internal revenue code to ensure this state is eligible to participate in taxable years beginning from and after December 31, 2026 and annually submit all of the required information to the United States secretary of the treasury for participation. END_STATUTE

START_STATUTE43-1802. Scholarship granting organizations; certification; list; rules

A. A nonprofit organization in this state that is exempt or that has applied for exemption from federal taxation under section 501(c)(3) of the internal revenue code may apply to the department for certification as a scholarship granting organization, and the department shall certify that the scholarship granting organization meets the requirements of section 25F of the internal revenue code and the applicable regulations or guidance issued by the United States secretary of the treasury.

B. On or before January 1 of each year, the department shall:

1. Submit to the United States secretary of the treasury a list of the scholarship granting organizations that are certified pursuant to this section and that are located in this state.

2. Post the list submitted pursuant to paragraph 1 of this subsection on the department's official website.

C. THe department shall adopt rules and publish and prescribe forms and procedures necessary to administer this section. END_STATUTE

START_STATUTE43-1803. Scholarships

From and after December 31, 2026, a scholarship granting organization that is certified by the department and on the list submitted pursuant to section 43-1802, subsection B, paragraph 1 may provide scholarships to eligible students for any qualified elementary or secondary education expenses to the extent allowed under federal law.END_STATUTE

Sec. 11. Retroactivity

This act applies retroactively to taxable years beginning from and after December 31, 2024.