ARIZONA
HOUSE OF REPRESENTATIVES
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HB2757: tax provisions; omnibus. |
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PRIME SPONSOR: Representative Toma (with permission of committee on Rules), LD 22 BILL STATUS: Caucus & COW |
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Provides for the adoption of provisions under the transaction privilege and use tax statutes for the taxation of retail sales into Arizona by marketplace facilitators and remote sellers. Additionally, it provides for an economic presence test and safe harbor and undue burden provisions.
Conforms Arizona's income tax
calculation to the changes made to the internal revenue code effective on
January 1, 2018 and reforms sections of the income tax cod
e for taxable years beginning from and
after December 31, 2018.
History
On June 21, 2018, the United States Supreme Court, in the Wayfair v. South Dakota case, reversed the long-standing Quill case (1992) that required a physical presence test for a state to impose a sales tax on a remote seller. The Wayfair decision said that South Dakota's tax system appears designed to prevent undue burdens upon interstate commerce. This decision resulted from three main findings. First, South Dakota applies a safe harbor to sellers that have limited business in the state. Second, South Dakota is not applying their tax retroactively. Third, South Dakota has adopted the Streamlined Sales and Use Tax Agreement, which standardizes taxes to reduce administrative and compliance costs. Current Arizona law taxes the sale of tangible personal property under the retail classification, A.R.S. §42-5061, while cities and towns tax retail sales under the Model City Tax Code. Also, nexus is established by a physical presence test.
Current A.R.S. §43-105 does not conform to current internal revenue code, as amended, and in effect on January 1, 2018, including provisions effective in 2017, the bipartisan act of 2018 and the consolidated appropriations act of 2018. Generally, each year changes are made to the internal revenue code that Arizona must choose to conform to.
Provisions
1. Prohibits a city or town from requiring a person to obtain a business license to conduct business with purchasers in that city or town if the person is required to pay tax in this state only because the person's business exceeds the prescribed threshold in A.R.S § 42-5043. (Sec. 1)
2. Updates the definition of the internal revenue code (IRC) as of January 1, 2019 to include provisions that became effective during 2018 but to exclude changes enacted after January 1, 2019. (Sec. 2)
3. Removes the definition of electronic portal. (Sec. 3)
4. Defines marketplace, marketplace facilitator, marketplace seller and remote seller. (Sec. 4)
5. Adds marketplace facilitator and remote seller to the definition of person. (Sec. 4)
6. Adds transactions facilitated by a marketplace facilitator on behalf of a marketplace seller to the definition of sale. (Sec. 4)
7. Exempts a marketplace facilitator or remote seller from a municipal privilege tax fee or renewal fee that is only required to obtain a transaction privilege tax license pursuant to A.R.S. § 42-5043. (Sec. 5)
8. Establishes that a marketplace facilitator is not liable for failing to pay the correct amount of transaction privilege tax for a marketplace seller's sales if the facilitator and the seller are unaffiliated and:
a. The marketplace seller gave the marketplace facilitator incorrect information; or
b. The failure to pay the correct amount of tax was due to an error other than an error in sourcing the sale. (Sec. 6)
9. Prohibits the liability relief for a marketplace facilitator from exceeding:
b. Three percent of the total tax due on taxable sales facilitated by the marketplace facilitator for calendar year 2020; and
c. Zero percent of the total tax due on taxable sales facilitated by the marketplace facilitator for calendar year 2021 and thereafter. (Sec. 6)
10. Establishes the liability relief for a remote seller that failed to pay the correct amount of tax due to an error other than an error in sourcing may not exceed:
a. Five percent of the total tax due under this chapter on taxable sales for calendar year 2019;
b. Three percent of the total tax due under this chapter on taxable sales for calendar year 2020; and
c. Zero percent of the total tax due under this chapter on taxable sales for calendar year 2021 and thereafter. (Sec. 6)
11. Permits the Department to waive penalties and interest if the marketplace facilitator or remote seller seeks liability relief, the department rules that reasonable cause exists and the marketplace facilitator or marketplace seller paid tax on sales during the period for which relief is sought. (Sec. 6)
12. Authorizes the Department to determine the manner in which a marketplace facilitator or remote seller may claim liability relief. (Sec. 6)
13. States that a taxpayer may file a refund claim or appeal a refund denial pursuant to current law. (Sec. 6)
14. States that an audit of a marketplace facilitator may not automatically cause an audit of a marketplace seller. (Sec. 6)
15. Defines affiliated person for this section as a person that, with respect to another person, either:
a. Has an ownership interest of more than five percent, whether direct or indirect, in that other person; or
b. Is related to the other person because a third person, or a group of third persons that are affiliated persons with respect to each other, holds an ownership interest of more than five percent, whether direct or indirect, in the related persons. (Sec. 6)
16. Requires a remote seller, not facilitated by a marketplace facilitator, to pay transaction privilege tax on retail sales of tangible personal property if their gross proceeds or gross income with customers in this state pursuant to ARS § 42-5061 is more than the following:
a. $200,000 for calendar year 2019;
b. $150,000 for calendar year 2020; and
c. $100,000 for calendar year 2021 and thereafter. (Sec. 6)
17. Requires a marketplace facilitator to pay transaction privilege tax on retail sales of tangible personal property if their gross proceeds or gross income with customers in this state pursuant to ARS § 42-5061 is more than $100,000. (Sec. 6)
18. States that for the purpose of determining whether a person meets the economic nexus threshold, all affiliated persons shall be aggregated. (Sec. 6)
19. States that a person must obtain a transaction privilege tax license from the Department once the threshold is met, even if it is met partway through the calendar year and must begin remitting the tax on the first day of the month that starts at least thirty days after the threshold is met. (Sec. 6)
20. States that if a person does not meet the threshold in the next calendar year, the person is not required to remit transaction privilege tax for the following calendar year and may cancel the transaction privilege tax license. (Sec. 6)
21. Permits the Department to adopt rules to carry out A.R.S. § 42-5043. (Sec. 6)
22. Requires a marketplace facilitator to report the tax due from transactions facilitated on behalf of marketplace sellers. (Sec. 6)
23. Allows a marketplace facilitator to report the tax due on transactions facilitated on behalf of a marketplace seller and transactions made directly by the marketplace facilitator on a combined or separate return. (sec. 6)
24. Defines, for A.R.S. 42-5043, affiliated person. (Sec. 4)
25. Excludes sales of tangible personal property by a marketplace seller that are facilitated by a marketplace facilitator in which the marketplace facilitator has remitted or will remit the tax to the Department from the tax imposed on the retail classification. (Sec. 7, 8)
26. States a city or town may exempt proceeds from fine art if such works of fine art are sold by the original artist. (Sec. 9)
27. Establishes A.R.S. § 42-5061 supersedes all county, city or town ordinances. (Sec. 10, 11)
28. States the municipal tax rate for businesses selling tangible personal property at retail for marketplace facilitators is in effect at the rate on September 30, 2019, until the city or town changes the rate. (Sec. 11)
29. Allows a city or town to levy a transaction privilege tax on the gross proceeds of sales or gross income derived from the business derived from:
a. The business of selling food at retail;
b. A bookstore selling textbooks that are required by any state university or community college;
c. The sales of livestock and poultry feed, salts, vitamins and other additives for livestock or poultry consumption used for specific consumption purposes;
d. The sale of nonmetalliferous mined materials at retail; and
e. The sale of works of fine art. (Sec. 11)
30. Allows a city or town to exempt from transaction privilege, sales, use or other similar tax the sale of paintings, sculptures or similar works of fine art, if such works of fine art are sold by the original artist. (Sec. 11)
31. Defines food, marketplace facilitator and remote seller. (Sec. 11)
32. Defines the IRC, for taxable years beginning from and after December 31, 2018, as the IRC 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, but excluding any changes to the code enacted after January 1, 2019. (Sec. 12)
33. Includes the Bipartisan Budget Act of 2018 and the Consolidated Appropriations Act, 2018 to the definition of internal revenue code during taxable years beginning from and after December 31, 2017 through December 31, 2018. (Sec. 12)
34. Removes the definition of internal revenue code for taxable years beginning from and after December 31, 2007 through December 31, 2008. (Sec. 12)
35. Includes A.R.S. § 43-1073.01 in the income tax credit review schedule. (Sec. 13)
36. Requires the Department to prescribe a short form or may prescribe a simplified form for individual taxpayers that claim the optional standard deduction but not the increased amount for charitable deductions. (Sec. 14)
37. States the tax for a single person or a married person filing separately for taxable years beginning from and after December 31, 2018 is:
a. 2.59% of taxable income between $0 - $26,500;
b. $686, plus 3.34% of taxable income between $26,501 - $53,000;
c. $1,571, plus 4.17% of taxable income between $53,001 - $159,000; and
d. $5,991, plus 4.50% of taxable income for $159,001 and over. (Sec. 17)
38. States the tax for a married couple filing a joint return or a person who is a head of household for taxable years beginning from and after December 31, 2018 is:
a. 2.59% of taxable income between $0 - $53,000;
b. $1,373, plus 3.34% of taxable income between $53,001 - $106,000;
c. $3,143, plus 4.17% of taxable income between $106,001 - $318,000; and
d. $11,983, plus 4.50% of taxable income for $318,001 and over. (Sec. 17)
39. States the Department of Revenue shall adjust the income dollar amount for each rate bracket prescribed in statute according to the average annual change in the metropolitan Phoenix consumer price index published by the United States Department of Labor for each taxable year beginning from and after December 31, 2019. (Sec. 17)
40. States the revised dollar amounts shall be raised to the nearest whole dollar and may not be revised below the amounts prescribed in the prior taxable year. (Sec. 17)
41. Removes the subtraction from gross income of prizes or winnings less than five thousand dollars in a single taxable year from any of the state lotteries. (Sec. 19)
42. Removes the $2,300 tax exemption for each dependent of the taxpayer. (Sec. 20)
43. Changes the heading of title 43, chapter 10, article 4 from "DEDUCTIONS AND PERSONAL EXEMPTIONS" to "DEDUCTIONS". (Sec. 22)
44. Increases the standard deduction to $12,200 for a single person or a married person filing separately. (Sec. 23)
45. Increases the standard deduction to $18,350 for a single person who is a head of a household. (Sec. 23)
46. Increases the standard deduction to $24,400 for a married couple filing a joint return. (Sec. 23)
47. Applies inflation to the Arizona standard deduction in the same way the Federal basic standard deduction is calculated for each taxable year beginning from and after December 31, 2019. (Sec. 23)
48. Allows 25% of a taxpayer's charitable donations to be added to the standard deduction beginning for taxable years from and after December 31, 2018. (Sec. 23)
49. Repeals A.R.S § 43-1043 personal exemptions; annual adjustments. (Sec. 24)
50. States the amount of credit for increased transaction privilege or excise taxes paid for education shall not exceed $25 for each person who is a resident of this state and who is a dependent and shall not exceed $100 for all persons in the taxpayer's household. (Sec. 25)
51. Creates a dependent tax credit of $100 for each dependent who is under 17 years of age and $25 for each dependent who is 17 years of age or older at the end of the taxable year for a single person, a married person filing separately or a head of household whose federal adjusted gross income is less than $200,000 or a married couple filing a joint return whose federal adjusted gross income is less than $400,000. (Sec. 27)
52. Reduces the dependent tax credit by $100 minus 5% for each $1,000, or fraction thereof, for each dependent who is under 17 years of age or $25 minus 5% for each $1,000, or fraction thereof, for each dependent who is 17 years of age or older at the end of the taxable year for taxpayers whose federal adjusted gross income $200,000 or more for 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. (Sec. 27)
53. Modifies the apportionment of deductions in computing Arizona taxable income for a nonresident. (Sec. 28)
54. Modifies the apportionment of exemptions provided in A.R.S. § 43-1023 for blind persons and persons 65 years of age or older. (Sec. 29)
55. Includes specific income to dividend income from foreign corporations as a subtraction from Arizona gross income to calculate taxable income for a corporation. (Sec. 31)
56. Exempts the Department of Revenue from rulemaking requirements for one year after the effective date of this act. (Sec. 32)
57. Contains a legislative intent. (Sec. 33)
58. States the purpose of this act is to mitigate the costs incurred by taxpayers who care for dependents. (Sec. 34)
59. Applies prospectively to taxable periods beginning from and after September 30, 2019 for ARS §§ 42-5001, 42-5005, 42-5159, 42-6002, 42-5061, 9-491.02, 42-5042, 42-5043 and 42-6017. (Sec. 35)
60. Applies retroactively to taxable years beginning from and after December 31, 2017 for ARS §§ 42-1001 and 43-105. (Sec. 36)
61. Applies retroactively to taxable years beginning from and after December 31, 2018 for ARS §§ 42-1108, 43-222, 43-323, 43-945, 43-1001, 43-1011, 43-1021, 43-1022, 43-1023, 43-1024, 43-1041, 43-1072.02, 43-1073, 43-1095, 43-1098, 43-1121, 43-1122, 43-1073.01 and 43-1043.
62. Contains a conditional enactment. (Sec. 37)
63. Makes technical and conforming changes.
64.
65.
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67. Fifty-fourth Legislature HB 2757
68. First Regular Session Version 2: Caucus & COW
69.
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