As legislators work to come to an agreement on the state budget, Sen. Shope and Rep. Hernandez discuss their goals for this year and the process of negotiating their priorities into the final version of budget legislation. A major part of the proposed budget is a tax omnibus, including a shift to a flat income tax for Arizonans. The full impacts of the shifts are hotly debated, whether it is a reduction in revenues to cities and towns and if it will achieve its intended goal of stimulating the economy.   

In terms of the legislative process, the two agree that as Arizona continues to grow the number of legislative districts needs to be reviewed for lawmakers to better represent their constituencies.

So why does the Arizona Legislature have to consider this bill each year? Rather than create a separate tax code with separate definitions, Arizona uses the IRC as the base for the state, making taxes less complicated for taxpayers. Since state returns use the federal definitions as the starting point, any changes at the federal level mean Arizona needs to update, or taxpayers face increased complexity and higher likelihood of amended returns or errors.

It turns out the Arizona Constitution prohibits the delegation of legislative authority, meaning state legislators can’t designate the IRC as the definition for Arizona taxes on a rolling basis, automatically adopting any changes made at the federal level. Instead, the state uses fixed date conformity, which aligns Arizona taxes to the IRC as of a specific date in time and allows lawmakers the ability to assess federal changes each year. 

That hasn’t always been the case. Prior to 1980 Arizona did not conform to the IRC at all, and instead made its own definitions of what was taxable at the state level. That meant individuals and businesses had to keep federal and state definitions in mind when filing both returns, making the filing process a laborious one. To simplify the process and ease the burden on taxpayers, Arizona began conforming on a fixed date basis to the IRC. 

In most years income tax conformity is noncontroversial and viewed as a technical exercise, updating the date in Arizona Revised Statute that refers to the IRC. When Congress enacts major changes or overhauls, like with the Tax Cuts and Jobs Act of 2017, there are potential revenue impacts in Arizona. In those instances, the process of conforming can become more complex and delve more into policy considerations, often delaying legislative resolution and thereby causing uncertainty for Arizona taxpayers. 

ASCPA members and tax experts David Walser, Anne Cornelius, Ed Zollars and Jared Van Arsdale provide insights on income tax conformity and why it matters to Arizonans. Longtime ASCPA lobbyist Kevin DeMenna shares historical context and the politics behind this annual exercise. Arizona Department of Revenue Deputy Director Dr. Grant Nülle gives an overview of the process from the department’s perspective. 

Please see the resources available on the AZDOR website at https://azdor.gov/transaction-privilege-tax/retail-sales-subject-tpt/out-state-sellers

You can also reach the dedicated AZDOR E-Commerce Compliance and Outreach Team, who are subject matter experts:
833-AZeSALE (833-293-7253) or azesale@azdor.gov

Remote Sales Into Arizona
On May 31, 2019, Arizona Governor Doug Ducey signed House Bill (H.B.) 2757 into law. This legislation requires remote sellers and marketplace facilitators—to begin filing and paying transaction privilege tax (TPT) in Arizona starting October 1, 2019. The legislation is the result of a 2018 ruling by the U.S. Supreme Court in the South Dakota v. Wayfair case. The decision allows states to require out-of-state businesses without a physical presence to collect and remit tax on sales from transactions in their state.

Because of Arizona’s new laws, retailers selling items of tangible personal property into Arizona should carefully review the information provided on the AZDOR website to determine whether they must pay Arizona TPT.

Outline of Podcast:
5:20 Discussion on Arizona HB 2757
7:50 How litigation or congressional action could impact the legislation
8:15 Execution of the law we have in Arizona – What the AZDOR is working on to define who is a remote seller

• Defining who they believe qualifies under the Wayfair structure
• Outreach to those who qualify
• Providing resources on the AZDOR website

12:25 Dr. Nülle talks about the implementation methods
16:35 Most difficult element to implement to date – communicating the change
19:23 Liability relief that might be available to businesses who may make mistakes as they work to implement Wayfair
22:20 Major implementation dates and dedicated AZDOR team contact information