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ARIZONA STATE SENATE
Fifty-Fifth Legislature, First Regular Session
tax corrections act of 2022
Purpose
Corrects errors and obsolete language, addresses blending problems and provides clarifying changes to tax statutes.
Background
The Arizona Department of Revenue (ADOR) and Legislative Council review the tax statutes for errors, obsolete language and blending problems. These recommendations are then compiled into an annual bill.
Current statute requires ADOR to include the repeal of an individual or corporate income tax credit that has not been used for four years in the annual Tax Corrections Act (A.R.S. § 43-224).
There is no anticipated fiscal impact to the state General Fund associated with this legislation.
Provisions
Tax Credits
1. Repeals the following tax credits and removes the credits from the income tax credit review schedule:
a) the individual Credit for Pollution Control Equipment;
b) the corporate Credit for Construction Costs of Qualified Environmental Technology Facility; and
c) the corporate Credit for Employment by a Healthy Forest Enterprise.
2. Specifies that the repeal of the tax credits does not affect the continuing validity of any amount of the credit carried forward from previous taxable years for application against tax liabilities.
3. Prohibits partners in a partnership that is not a corporation from claiming a share of the corporate Credit for Pollution Control Equipment.
Credit for
Entity-Level Income Tax
(Retroactive to January 1, 2022)
4. Establishes the corporate Credit for Entity-Level Income Tax, allowed against corporate income tax for a taxpayer who is a partner in a partnership or a shareholder of an S corporation that has elected to pay the entity-level tax.
5. Specifies that the amount of the individual Credit for Entity-Level Income Tax paid by the partnership or S corporation that is attributable to the partner or shareholder's share of income taxable in Arizona.
6. Requires the estate or trust and its noncorporate beneficiaries to apportion the Credit for Entity-Level Income Tax in the same proportion as their respective shares of the federal distributable net income of the estate or trust from the partnership or S corporation.
7. Requires noncorporate beneficiaries to treat their share of the corporate Credit for Entity-Level Income Tax as an individual Credit for Entity-Level Income Tax.
8. Allows the corporate Credit for Entity-Level Income Tax to be carried forward for no more than five consecutive TYs, if the allowable credit exceeds the taxes due or if there are no taxes due.
9. Specifies that the taxable income of an S corporation who has elected to pay the entity-level tax is the total of all distributive income passed through to the shareholders.
10. Clarifies that the entity-level election applies to a partner or shareholder who is an individual, estate or trust that waived the right to opt out of the election.
ADOR Administration
11. Includes, as a form of written authorization allowing ADOR to disclose personal income tax information to a taxpayer's designee, a taxpayer's Arizona small business income tax return.
12. Allows a taxpayer's confidential information to be disclosed to the Arizona Department of Agriculture to ascertain agriculture licensure compliance.
Income Tax
13. Prohibits a taxpayer who elects to file an Arizona small business income tax return from making individual income tax additions or subtractions on their individual income tax return for amounts that are correctly made as additions or subtractions on their Arizona small business income tax return.
14. Includes, in determining a taxpayer's Arizona adjusted gross income (AGI) for the Family Income Tax Credit, the amount of any net long-term capital gain included in federal AGI.
15. Delays, from January 1, 2021, until January 1, 2022, retroactive to January 1, 2022, ADOR's annual adjustment of the income dollar amount for the tax rate brackets of estates and trusts.
Miscellaneous
16. Includes a fantasy sports contest operator and an event wagering operator in the entities required to deduct and withhold federal withholding tax from each payment of prize winnings.
17. Makes technical and conforming changes.
18. Becomes effective on the general effective date, with retroactive provisions as noted.
Prepared by Senate Research
February 7, 2022
MG/slp