ARIZONA HOUSE OF REPRESENTATIVES Fifty-fifth Legislature First Regular Session
	House: WM DP 6-4-0-0 | 3rd Read 58-1-1-0 Senate: FIN DPA 5-1-4-0 | 3rd Read 26-3-1-0

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HB 2838: income tax; partnerships; S corporations

Sponsor:  Representative Chaplik, LD 23

Transmitted to Governor

Overview

Creates an entity-level income tax for partnerships 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 and S corporations, that elect to pay the entity-level income tax and whose taxable income exceed $150,000, to make estimated tax payments beginning January 1, 2022.  (Sec. 2)

3. Allows for partnerships, limited liability companies and S corporations to elect into a 4.5% 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 DOR to adopt rules and prescribe forms to administer the entity-level tax.  (Sec. 3)

6. Requires, beginning January 1, 2022, that the amount deducted by a partnership or S corporation pursuant to the Internal Revenue Code for the amount paid to the state under the entity-level tax election and for taxes DOR determines are substantially similar to be added to Arizona gross income and requires this amount to be reflected in the partner's or shareholder's Arizona gross income and the partnership's or S corporations Arizona taxable income.  (Sec. 4)

7. Creates a credit, beginning January 1, 2022, to an Arizona taxpayer for substantially similar individual income taxes paid to other states for income received from a pass-through entity.  (Sec. 5)

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

9. Creates a credit, beginning January 1, 2022, 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)

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

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

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15.                   HB 2838

16. Initials VP  Page 0 Transmitted

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