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ARIZONA STATE SENATE
Fifty-Sixth Legislature, First Regular Session
REVISED
income tax rate; reduction; surplus
Purpose
Directs the Joint Legislative Budget Committee (JLBC) to determine certain state revenue metrics beginning in FY 2024 and requires, for each taxable year beginning January 1, 2024, the Arizona Department of Revenue (ADOR) to reduce the individual income tax rate by 50 percent of the structural surplus, as determined by the JLBC.
Background
Individual income tax is levied on the personal income of full-time residents and prorated for part-time residents of Arizona. The starting point for Arizona individual income tax is the federal adjusted gross income. In 2021, the Legislature directed ADOR to use a single individual income tax rate of 2.5 percent following receipt of a notification that the state General Fund had met a specific threshold. As of September 29, 2022, the threshold was met and the individual income tax rate for TY 2023 and each year thereafter is 2.5 percent (JLBC-OSPB Notice).
The Joint Legislative Budget Committee estimates that S.B. 1577 will not have a fiscal impact during the state's current three-year budget planning period due to the metrics used as starting points for the calculations under S.B. 1577. The fiscal note contains a sample scenario to provide details on the potential effect on the individual income tax rate resulting from state revenues exceeding the growth limit (JLBC fiscal note).
Provisions
1. Directs, for FY 2024 and each fiscal year thereafter, the JLBC to determine:
a) the growth limit and the amount of excess state tax collections; and
b) the structural surplus and the Arizona taxpayer return, if ongoing state General Fund revenues are more than the growth limit.
2. Requires ADOR, for each taxable year beginning January 1, 2024, to reduce the individual income tax rate for the current taxable year so that the amount of the rate reduction equals the Arizona taxpayer return for that taxable year.
3. Defines Arizona taxpayer return as 50 percent of the structural surplus.
4. Defines structural surplus as the difference between ongoing state General Fund revenues and ongoing state General Fund expenditures after adjusting for revenue and expenditure increases as estimated by the JLBC.
5. Defines excess state tax collections as the amount of ongoing state General Fund revenues that exceed the growth limit for the immediately following fiscal year.
6. Defines growth limit as the ongoing state General Fund revenues for FY 2023 as determined by the JLBC, annually increased by the sum of the percentage change in inflation plus the percentage change in population growth.
7. Defines inflation and population growth.
8. Becomes effective on the general effective date.
Revisions
· Updates the fiscal impact statement.
Prepared by Senate Research
February 22, 2023
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