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ARIZONA STATE SENATE
Fifty-Seventh Legislature, Second Regular Session
tax returns; late filing; penalties
Purpose
Retroactive to January 1, 2026, prohibits late filing penalties from being assessed on a taxpayer if the taxpayer's income tax or transaction privilege tax (TPT) liability is zero.
Background
If a taxpayer fails to make and file a tax return by the due date, the penalty is 4.5 percent of the tax required to be shown on the return which must be added to the tax for each month or fraction of a month elapsing between the return's due date and the date the return is filed. The total late filing penalty may not exceed 25 percent of the tax found to be remaining due.
If a taxpayer fails or refuses to file a return on notice and demand by the
Arizona Department of Revenue (ADOR), the taxpayer must pay a penalty of 25
percent of the tax in addition to any late filing penalty. ADOR may abate the late
filing and notice and demand filing penalties when it is found that the failure
is due to reasonable cause. Reasonable cause means a reasonable basis
for the taxpayer to believe that the tax did not apply to the business activity
or the storage, use or consumption of the taxpayer's tangible personal property
in Arizona (A.R.S.
§ 42-1125).
Except as otherwise outlined, monies received for and belonging to the state are deposited in the state treasury and credited to the state General Fund (A.R.S. § 35-142). If prohibiting late filing penalties from being assessed when tax liability is zero results in a change to civil penalty revenues that would have otherwise been collected and deposited in the state General Fund, there may be a fiscal impact to the state General Fund associated with this legislation.
Provisions
1. Prohibits a late filing penalty from being assessed on a taxpayer if the taxpayer's income tax liability is zero.
2. Exempts a taxpayer from the requirement to pay a late filing penalty if the taxpayer's TPT or municipal tax that is shown on the tax return is zero.
3. Becomes effective on the general effective date, retroactive to January 1, 2026.
House Action
WM 1/21/26 DP 8-1-0-0
3rd Read 2/23/26 42-15-3
Prepared by Senate Research
March 12, 2026
MG/hk