SB1734 - 561R

Be it enacted by the Legislature of the State of Arizona:

Section 1. Section 43-1014, Arizona Revised Statutes, is amended to read:

START_STATUTE43-1014. Entity-level tax election; partnerships; S corporations; rules

A. For taxable years beginning from and after December 31, 2021, the partners or shareholders of a business that is treated as a partnership or S corporation for federal income tax purposes may consent to be taxed at the entity level at a tax rate that is the same as the tax rate prescribed by section 43-1011 applicable to the entire portion of its taxable income that is attributable to its resident partners or shareholders and the portion of its taxable income derived from sources within this state that is attributable to its nonresident partners or shareholders for that taxable year. The election under this subsection must be made on or before the due date or extended due date of the business's return under this title.

B. If the election is made under subsection A of this section, all of the following apply:

1. The taxable income of the partnership or S corporation is as follows:

(a) For a partnership:

(i) For taxable years through december 31, 2022, the Arizona taxable income determined under chapter 14 of this title.

(ii) For taxable years beginning from and after December 31, 2022, the Arizona taxable income determined under chapter 14 of this title, including the items that require separate computation under section 43-1412, paragraphs 1 through 16.

(b) For an S corporation, the total of all distributive income passed through to the shareholders under section 43-1126, subsection B.

2. If the partnership or S corporation does not pay the amount owed to the department as a result of the election under this section, the department may collect the amount from the partners or shareholders based on the proportionate share of income that is attributable to each partner or shareholder for Arizona tax purposes.

3. The partnership or S corporation shall pay estimated tax pursuant to section 43-581 as necessary.

C. The election under subsection A of this section does not apply to the following:

1. Partners or shareholders that are not individuals, estates or trusts. The portion of the taxable income attributable to a partner or shareholder that is not an individual, estate or trust is not included in the entity-level tax under subsection A of this section.

2. Partners or shareholders who are individuals, estates or trusts and who opt out of the election pursuant to subsection D of this section. The portion of the taxable income attributable to a partner or shareholder who is an individual, estate or trust and who opts out of the election pursuant to subsection D of this section is not included in the entity-level tax under subsection A of this section.

D. A partnership or S corporation that intends to make the election under subsection A of this section shall notify all partners or shareholders who are individuals, estates or trusts of the intent to make the election and that each partner or shareholder who is an individual, estate or trust has the right to opt out of the election. The notice shall allow each partner or shareholder who is an individual, estate or trust at least sixty days after receiving the notice to notify the partnership or S corporation that the partner or shareholder who is an individual, estate or trust is exercising the partner's or shareholder's right to opt out of the election. If the partner or shareholder who is an individual, estate or trust does not respond within the sixty-day period or waives the right to opt out, the partner or shareholder will be included in the election.

E. The department shall adopt rules and prescribe forms and procedures as necessary to administer this section. END_STATUTE

Sec. 2. Individual income tax subtraction; adoption expenses; taxable years 2023, 2024 and 2025; amount; retroactivity; delayed repeal

A. Notwithstanding any other law, for taxable years beginning from and after December 31, 2022 through December 31, 2025, the subtraction amount allowed under section 43-1022, paragraph 12, Arizona Revised Statutes, is the amount of unreimbursed medical and hospital costs, adoption counseling, legal and agency fees and other nonrecurring costs of adoption not to exceed $40,000. For a married couple filing separate returns, the subtraction may be taken by either taxpayer or may be divided between them, but the total subtractions allowed to each spouse may not exceed $40,000. The subtraction may be taken for the costs that are described in this subsection and that are incurred in prior years, but the subtraction may be taken only in the year during which the final adoption order is granted.

B. This section applies retroactively to taxable years beginning from and after December 31, 2022.

C. This section is repealed from and after December 31, 2029.

Sec. 3. Individual income tax general welfare rebate; eligibility; claim application; subtraction from Arizona gross income; appeal; report; legislative findings; delayed repeal; definitions

A. The department of revenue shall issue a onetime individual income tax general welfare rebate, known as the Arizona families tax rebate, to an Arizona taxpayer who filed a full-year resident tax return for taxable year 2021, claimed a dependent tax credit under section 43-1073.01, Arizona Revised Statutes, on the return and who meets one of the following qualifications:

1. Had a tax liability of at least $1 on the filed full-year resident tax return for taxable year 2021.

2. If the taxpayer does not meet the tax liability requirement for taxable year 2021, filed a full-year resident tax return for taxable year 2020 under the identical filing status used on the taxpayer's taxable year 2021 full-year resident tax return and had a tax liability of at least $1 on the full-year resident tax return for taxable year 2020.

3. If the taxpayer does not meet the tax liability requirement for taxable years 2021 or 2020, filed a full-year resident tax return for taxable year 2019 under the identical filing status used on the taxpayer's full-year resident tax returns for taxable years 2020 and 2021 and had a tax liability of at least $1 on the full-year resident tax return for taxable year 2019.

B. If the taxpayer does not meet any of the requirements in subsection A of this section, the department of revenue shall conclude that the taxpayer does not meet the criteria to be issued a rebate under this section.

C. One rebate will be issued for each full-year resident tax return for taxable year 2021 that qualifies under subsection A of this section. The primary taxpayer's taxpayer identification number as reported on the taxpayer's full-year resident tax return for taxable year 2021 shall be used as needed in subsection A of this section for matching and verification purposes.

D. The department of revenue shall issue to a qualifying taxpayer a rebate of $250 for each dependent tax credit claimed on the taxpayer's full-year resident tax return for taxable year 2021 who was under seventeen years of age at the end of taxable year 2021 and $100 for each dependent who was at least seventeen years of age at the end of taxable year 2021.

E. The department of revenue shall issue a rebate for a maximum of three dependents for a qualifying taxpayer under this section. For a taxpayer who claimed more than three dependents on the taxpayer's full-year resident tax return for taxable year 2021, the rebate will be calculated by first counting the dependents who were under seventeen years of age at the end of taxable year 2021 and then, if additional dependents may be claimed to meet the maximum number, the dependents who were at least seventeen years of age at the end of taxable year 2021.

F. If a qualifying taxpayer is deceased, the taxpayer's surviving spouse, personal representative or executor or another official representative of the estate designated pursuant to applicable state law may receive the rebate for the deceased taxpayer.

G. The department of revenue shall pay all rebates issued pursuant to this section on or before November 15, 2023, but not earlier than October 15, 2023. The department shall attempt to pay a qualifying taxpayer's rebate by electronic funds transfer using the routing and account information provided by the taxpayer on the taxpayer's full-year resident tax return for taxable year 2021 or more recent routing and account information provided by the taxpayer. If such attempt fails, or if the taxpayer did not provide such routing and account information, the department shall issue the rebate check by mail to the most recent home address provided by the taxpayer. Any notification from the department that relates to the rebate issued under this section shall state the following: "This rebate is being issued pursuant to Senate Bill 1734, as passed by the fifty-sixth legislature, first regular session, and signed into law by the governor." No letter relating to the Arizona families tax rebate issued under this section shall be sent from the governor's office, be sent on the governor's letterhead or reference the governor's office.

H. A taxpayer who does not receive the rebate issued pursuant to this section on or before November 15, 2024 may claim the rebate by filing a claim application online in the form and manner prescribed by the department of revenue. The claim application must include the claimant's name, address, taxpayer identification number and individual income tax filing status. The department shall review each claim application and verify the information provided. The department may request that a claimant provide evidence to verify the claimant's eligibility for the rebate.

I. In computing Arizona adjusted gross income, any rebate received by a taxpayer pursuant to this section and required to be included in Arizona gross income under the internal revenue code shall be subtracted from the taxpayer's Arizona gross income.

J. Notwithstanding any other administrative proceedings established by law or by rule, all appealable agency actions as defined in section 41-1092, Arizona Revised Statutes, and contested cases as defined in section 41-1001, Arizona Revised Statutes, relating to a rebate issued pursuant to this section are governed by title 41, chapter 6, article 10, Arizona Revised Statutes.

K. On or before February 15, 2025, the director of the department of revenue shall report the following information to the president of the senate, the speaker of the house of representatives and the director of the joint legislative budget committee:

1. The total dollar amount of rebates paid under this section.

2. The administrative costs associated with the department's program for issuing the rebates under this section.

3. The total number of tax rebates issued.

L. The legislature finds that:

1. Inflation is at a forty-year high, putting gas, groceries and other necessities out of reach for many Arizonans.

2. Responsible budgeting has allowed this state to take action to mitigate the harmful impacts of inflation by returning a portion of the surplus to this state's taxpayers with dependents.

M. This section is repealed from and after December 31, 2029.

N. For the purposes of this section:

1. "Arizona small business taxable income" has the same meaning prescribed in section 43-1701, Arizona Revised Statutes.

2. "Arizona small business tax liability" means an Arizona small business taxpayer's Arizona small business taxable income multiplied by the Arizona small business' applicable tax rate as prescribed by section 43-1711, Arizona Revised Statutes, plus any amount of recaptured Arizona small business income tax credits, minus any nonrefundable and refundable Arizona small business income tax credits claimed by the Arizona small business taxpayer under title 43, chapter 17, article 5, Arizona Revised Statutes.

3. "Taxable income" has the same meaning prescribed in section 43-1001, Arizona Revised Statutes.

4. "Tax liability" means the taxpayer's taxable income multiplied by the taxpayer's applicable tax rate as prescribed in section 43-1011, Arizona Revised Statutes, plus any amount of recaptured income tax credits and the taxpayer's Arizona small business tax liability, if any, minus the sum of nonrefundable and refundable income tax credits claimed by the taxpayer under title 43, chapter 10, article 5, Arizona Revised Statutes.

Sec. 4. Legislative intent

The legislature intends:

1. That in fiscal year 2023-2024 the fee prescribed in section 42-5041, subsection B, Arizona Revised Statutes, be assessed and collected pursuant to the following guidelines:

(a) The total amount of fees for all counties, cities, towns, councils of governments and regional transportation authorities may not exceed $6,597,200 in fiscal year 2023-2024.

(b) The share of fees assessed to all counties pursuant to subdivision (a) of this paragraph shall be in proportion to the aggregate amount of monies distributed to counties for the fiscal year two years preceding the current fiscal year pursuant to sections 42-5029, 42-6103, 42-6107, 42-6108, 42-6108.01, 42-6109, 42-6109.01, 42-6110, 42-6111 and 42-6112, Arizona Revised Statutes, as a percentage of aggregate distributions to all counties, cities, towns, councils of governments and regional transportation authorities located in a county with a population of more than eight hundred thousand persons for the fiscal year two years preceding the current fiscal year pursuant to sections 42-5029, 42-6001, 42-6103, 42-6105, 42-6106, 42-6107, 42-6108, 42-6108.01, 42-6109, 42-6109.01, 42-6110, 42-6111, 42-6112 and 43-206, Arizona Revised Statutes.

(c) The share of fees assessed to all cities and towns pursuant to subdivision (a) of this paragraph shall be in proportion to the aggregate amount of monies distributed to cities and towns for the fiscal year two years preceding the current fiscal year pursuant to sections 42-5029, 42-6001 and 43-206, Arizona Revised Statutes, as a percentage of aggregate distributions to all counties, cities, towns, councils of governments and regional transportation authorities located in a county with a population of more than eight hundred thousand persons for the fiscal year two years preceding the current fiscal year pursuant to sections 42-5029, 42-6001, 42-6103, 42-6105, 42-6106, 42-6107, 42-6108, 42-6108.01, 42-6109, 42-6109.01, 42-6110, 42-6111, 42-6112 and 43-206, Arizona Revised Statutes.

(d) The share of fees assessed to all councils of governments pursuant to subdivision (a) of this paragraph shall be in proportion to the aggregate amount of monies distributed to all councils of governments for the fiscal year two years preceding the current fiscal year pursuant to section 42-6105, Arizona Revised Statutes, as a percentage of aggregate distributions to all counties, cities, towns, councils of governments and regional transportation authorities located in a county with a population of more than eight hundred thousand persons for the fiscal year two years preceding the current fiscal year pursuant to sections 42-5029, 42-6001, 42-6103, 42-6105, 42-6106, 42-6107, 42-6108, 42-6108.01, 42-6109, 42-6109.01, 42-6110, 42-6111, 42-6112 and 43-206, Arizona Revised Statutes.

(e) The share of fees assessed to all regional transportation authorities located in a county with a population of more than eight hundred thousand persons pursuant to subdivision (a) of this paragraph shall be in proportion to the aggregate amount of monies distributed to all regional transportation authorities located in a county with a population of more than eight hundred thousand persons for the fiscal year two years preceding the current fiscal year pursuant to section 42-6106, Arizona Revised Statutes, as a percentage of aggregate distributions to all counties, cities, towns, councils of governments and regional transportation authorities located in a county with a population of more than eight hundred thousand persons for the fiscal year two years preceding the current fiscal year pursuant to sections 42-5029, 42-6001, 42-6103, 42-6105, 42-6106, 42-6107, 42-6108, 42-6108.01, 42-6109, 42-6109.01, 42-6110, 42-6111, 42-6112 and 43-206, Arizona Revised Statutes.

(f) Except as provided by sections 42-5033 and 42-5033.01, Arizona Revised Statutes, the population of a county as determined by the most recent United States decennial census plus any revision to the decennial census certified by the United States census bureau shall be used as the basis for apportioning monies pursuant to subdivision (b) of this paragraph.

(g) Except as provided by sections 42-5033 and 42-5033.01, Arizona Revised Statutes, the population of a city or town as determined by the most recent United States decennial census plus any revision to the decennial census certified by the United States census bureau shall be used as the basis for apportioning monies pursuant to subdivision (c) of this paragraph.

2. That in fiscal year 2023-2024 the transfer prescribed in section 42-5041, subsection E, Arizona Revised Statutes, not exceed $800,000.

3. That in fiscal year 2023-2024 the transfer prescribed in section 42-5041, subsection F, Arizona Revised Statutes, not exceed $178,100.