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BILL # HB 2383 |
TITLE: conformity; internal revenue code. |
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SPONSOR: Carter |
STATUS: House Engrossed |
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PREPARED BY: Benjamin Newcomb |
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HB 2383 would conform Arizona tax statute to the Internal Revenue Code as of January 1, 2023, to reflect changes from the Inflation Reduction Act (IRA) of 2022, Creating Helpful Incentives to Produce Semiconductors (CHIPS) and Science Act of 2022, and the Consolidated Appropriations Act, 2023 (CAA) adopted by the U.S. Congress.
Estimated Impact
We estimate that conforming state tax statutes to the federal provisions contained in HB 2383 would reduce General Fund income tax collections by $(1.5) million in FY 2023 and increase revenues by $12.2 million and $10.7 million in FY 2024 and FY 2025, respectively. Our conformity estimates by federal tax provision are displayed in Table 1 on the following page.
The Department of Revenue (DOR) estimates that conformity to HB 2383 would increase General Fund revenues by $3.47 million in FY 2023, $10.24 million in FY 2024, and $11.62 million in FY 2025.
Table 1 summarizes the state revenue impact of conformity to IRA and CAA provisions. We derived our estimates through FY 2025 by prorating the nationwide Joint Committee on Taxation (JCT) information. We estimate that conforming to IRA would cost $(0.14) million in FY 2023, $(0.11) million in FY 2024 and $(0.10) million in FY 2025. Conforming to CAA would decrease General Fund revenue by $(1.4) million in FY 2023 and increase revenue by $12.3 million in FY 2024 and $10.8 million in FY 2025. The CHIPS Act of 2022 does not have a conformity impact.
Local Government Impact
Beginning in FY 2024, incorporated cities and towns will receive 18% of individual and corporate income tax collections from 2 years prior from the Urban Revenue Sharing Fund (URSF) established by A.R.S. § 43-206. Therefore, the bill would decrease overall URSF distributions to cities and towns by $(0.3) million in FY 2025. URSF distributions would increase by $2.2 million in FY 2026 and $1.9 million in FY 2027.
(Continued)
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Table 1 |
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State Revenue Impact Under Conformity (HB 2383) |
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($ in Millions) |
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Inflation Reduction Act (IRA) 2022 Provisions |
Tax Type 1/ |
FY 2023 |
FY 2024 |
FY 2025 |
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Energy efficient commercial building deductions |
IIT/CIT |
(0.14) |
(0.11) |
(0.10) |
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Total IRA Conformity Impact |
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(0.14) |
(0.11) |
(0.10) |
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Consolidated Appropriations Act (CAA) 2023 Provisions |
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Expand automatic enrollment in deferred compensation plans |
IIT |
0.00 |
0.00 |
(0.96) |
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Increase age for required mandatory distributions from deferred compensation plans from 72 to 73 |
IIT |
(1.46) |
(1.74) |
(1.65) |
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Index IRA catch-up limit for inflation |
IIT |
0.00 |
(0.03) |
(0.04) |
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Higher indexed IRA catch-up limit to apply at age 60, 61, 62, 63 |
IIT |
0.00 |
0.00 |
(0.03) |
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Treatment of student loan payments as elective deferrals for purposes of matching contributions |
IIT |
0.00
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(0.30)
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(0.43)
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Exempt the first $1,000 of early withdrawal from penalty for emergency expenses |
IIT |
0.00 |
8.98 |
5.95 |
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Allow additional nonelective contributions to SIMPLE plans |
IIT |
0.00 |
(0.12) |
(0.17) |
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Increase contribution limit for SIMPLE plans |
IIT |
0.00 |
(0.14) |
(0.20) |
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Change in tax treatment of certain nontrade or business SEP contributions |
IIT |
(0.02) |
(0.02) |
(0.02) |
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Make enrollment in company retirement plans easier for part-time workers |
IIT |
(0.02) |
(0.04) |
(0.04) |
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Provide special rules for certain distributions from long-term qualified tuition programs to Roth IRAs |
IIT |
(0.01)
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(0.20)
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(0.40)
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Provide emergency savings accounts linked to individual account plans |
IIT |
0.00 |
0.86 |
1.50 |
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Remove required minimum distribution barriers for life annuities |
IIT |
(0.14) |
(0.28) |
(0.38) |
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Change in qualifying longevity annuity contracts |
IIT |
(0.12) |
(0.14) |
(0.14) |
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Reduce required minimum distribution amounts on partial annuities |
IIT |
0.02 |
0.05 |
0.08 |
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Recovery of retirement plan overpayments |
IIT |
0.31 |
0.24 |
0.10 |
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Reduction in excise tax on certain accumulations in qualified retirement plans |
IIT |
(0.02) |
(0.02) |
(0.02) |
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One-time election for qualified charitable distribution to split-interest entity; increase in qualified charitable distribution limitation |
IIT |
(0.55)
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(2.14) |
(1.49)
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Application of top-heavy rules to defined contribution plans covering excludable employees |
IIT |
0.00
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0.05
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0.08
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Provide that employer may rely on employee for certifying that deemed hardship distribution conditions are met |
IIT |
0.06
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0.09
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0.10
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Provide penalty-free withdrawal from retirement plans for individual in case of domestic abuse |
IIT |
0.00
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(0.02)
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(0.02)
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Reform of family attribution rule |
IIT |
0.00 |
(0.10) |
(0.18) |
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Surviving spouse election to be treated as employee |
IIT |
0.00 |
(0.06) |
(0.10) |
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Repeal of direct payment requirement on exclusion from gross income of distributions from governmental plans for health and long-term care insurance |
IIT |
(0.05)
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(0.05)
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(0.06)
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Provide special rules for use of retirement funds in connection with qualified federally declared disasters |
IIT |
(1.60)
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(1.75)
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(0.79)
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SIMPLE and SEP contributions eligible to be treated as Roth IRAs |
IIT |
0.06 |
0.09 |
0.12 |
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Change in hardship withdrawal rules for 403(b) plans |
IIT |
0.02 |
0.06 |
0.09 |
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Certain catch-up contributions required to be made on a Roth IRA basis |
IIT |
0.00 |
4.23 |
5.40 |
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Employer matching or nonelective contributions may be made on a Roth IRA basis |
IIT |
1.48 |
1.99 |
2.42 |
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Limitation on deduction for qualified conservation contributions |
IIT |
0.79 |
2.91 |
2.15 |
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Total CAA Conformity Impact |
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(1.39) |
12.27 |
10.79 |
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Total Combined IRA and CAA State Revenue Conformity Impact |
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(1.5) |
12.2 |
10.7 |
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____________ 1/ IIT means individual income tax. CIT means corporate income tax. |
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2/17/23