ARIZONA HOUSE OF REPRESENTATIVES Fifty-fifth Legislature First Regular Session
	House: WM DP 6-4-0-0

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HB 2838: income tax; partnerships; S corporations

Sponsor:  Representative Chaplik, LD 23

Caucus & COW

Overview

Creates an entity-level income tax for partnerships, limited liability companies and S corporations  to allow them to deduct state income taxes at the federal level.

History

Current law taxes an individual carrying on a business in a partnership at the individual income tax level. (Title 43, Chapter 14) S corporations make an annual election pursuant to A.R.S. § 43-1126 to determine their tax status.

Provisions

1. Adds the credit for entity-level income tax to the credit review schedule. (Sec. 1)

2. Requires partnerships, limited liability companies and S corporations, that elect to pay the entity-level income tax and whose taxable income exceed $150,000, to make estimated tax payments. (Sec. 2)

3. Allows for partnerships, limited liability companies and S corporations to elect into a 4% entity-level tax based on their taxable income. (Sec. 3)

4. Provides for how to calculate taxable income for the entity-level tax and how the Department of Revenue (DOR) will collect any amounts owed. (Sec. 3)

5. Requires that all members or shareholders of a partnership, limited liability company or S corporation to be Arizona residents in order to elect into the entity-level tax. (Sec. 3)

6. Allows DOR to adopt rules and prescribe forms to administer the entity-level tax. (Sec. 3)

7. Creates an addition to Arizona gross income, for taxable years beginning 2018, for a partner's, member's or shareholder's pro rata share of the amount deducted by the partnership, limited liability company or S corporation. (Sec. 4)

8. Creates a credit, for taxable years beginning 2018, to an Arizona taxpayer for substantially similar individual income taxes paid to other states for income received from a pass-through entity. (Sec. 5)

9. Limits the credit to the amount taxed at the individual level. (Sec. 5)

10. Creates a credit, for taxable years beginning 2018, to an Arizona taxpayer for taxes paid at the entity-level, specifies how the credit is determined and allows for a five-year carryforward. (Sec. 6)

11. Contains a purpose clause. (Sec. 7)

12. Contains a retroactivity clause. (Sec. 8)

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16.                   HB 2838

17. Initials VP  Page 0 Caucus & COW

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