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ARIZONA STATE SENATE
Fifty-Seventh Legislature, Second Regular Session
income tax changes; notification; forms
Purpose
Requires the Governor's Office of Strategic Planning and Budgeting (OSPB) and the Joint Legislative Budget Committee (JLBC) to each annually evaluate whether the fiscal impact of conforming Arizona law to the changes adopted by the U.S. Congress in the prior year will exceed $100 million. Requires the Governor, in a year determined to have a fiscal impact of at least $100 million, to determine if a special session of the Legislature is necessary for the purposes of conformity. Prohibits the Arizona Department of Revenue (ADOR) from prescribing tax return forms that are inconsistent with the statutes in effect on the date the forms are issued and modifies reporting requirements.
Background
The Arizona Legislature periodically updates the statutory definition of the U.S. IRC to include any federal provisions that became effective in the preceding calendar year as a means of paralleling the computation of Arizona income tax and other statutory references throughout the Arizona Revised Statutes to the amended U.S. IRC. Tax conformity with the U.S. IRC is deemed necessary because the calculation of Arizona corporate income tax liability begins with federal taxable income. Similarly, federal adjusted gross income (FAGI) is the starting point for individual income tax assessment.
Conformity means an amendment to A.R.S. § 43-105 that results in adoption of the definition of the U.S. IRC for the taxable year. Nonconformity means either: 1) conformity plus another amendment that does not conform to specific provisions of the U.S. IRC as statutorily defined for the taxable year; or 2) no amendment to the definition of U.S. IRC for the taxable year (A.R.S. § 43-107).
By January 10 each year, the Director of the Arizona Department of Revenue must prepare and submit to the Legislature a report containing a summary of all revisions made to the U.S. IRC during the preceding calendar year (A.R.S. § 42-1005).
By adopting the income tax statutes, the Legislature declared its intent to adopt the provisions of the U.S. IRC relating to FAGI and federal taxable income, subject only to modifications contained in state law (A.R.S. § 43-102).
All tax returns required by state law must be in a form that is prescribed by ADOR, and ADOR must prepare blank return forms and furnish the forms on request (A.R.S. § 43-323).
There is no anticipated fiscal impact to the state General Fund associated with this legislation.
Provisions
1. Requires both OSPB and JLBC to annually evaluate and determine if conforming Arizona law to the changes made to the U.S. IRC for calculating FAGI for the purpose of calculating taxable income in Arizona will result in an increase or decrease of income tax revenues of $100 million or more compared to the amount of revenues that would be collected if Arizona law did not conform to the U.S. IRC changes.
2. Requires the Governor, before September 30 of each year in which either OSPB or JLBC determines that conforming to the U.S. IRC will increase or decrease income tax revenues by $100 million or more, to determine if a special session of the Legislature is necessary to conform Arizona law to the U.S. IRC changes.
3. Requires the Governor, if the Governor determines that a special session is necessary to conform Arizona law to the U.S. IRC changes, to notify the President of the Senate and the Speaker of the House of Representatives in writing of the determination and the reasons that support the determination.
4. Prohibits ADOR from prescribing tax return forms that are inconsistent with the statutes in effect on the date the forms are issued.
5. Requires the Director of ADOR, by September 30 each year, to prepare and submit to the Legislature an initial report containing a summary of all revisions made to the U.S. IRC during the preceding calendar year.
6. Specifies that the report submitted by the Director of ADOR to the Legislature on January 10 of each year must be a final report of the revisions made to the U.S. IRC during the preceding calendar year.
7. Makes technical changes.
8. Becomes effective on the general effective date.
House Action
WM 2/11/26 DPA 5-4-0-0
3rd Read 2/26/26 31-23-6
Prepared by Senate Research
March 18, 2026
MG/hk