PHOENIX — State revenue officials are preparing new individual income tax forms with changes in law demanded by Gov. Doug Ducey that will take an additional $170 million or more out of the pockets of Arizonans even though the Legislature has yet to consider them.
In an announcement Thursday, the state Department of Revenue acknowledges the forms and instructions it is crafting are based on the presumption that lawmakers eventually will agree to the governor’s call to “conform” Arizona tax laws to changes made by Congress in the Internal Revenue Code. The goal is to ensure state tax forms will be available online and in paper by Jan. 28, the first day that federal tax forms can be filed.
But that presumes lawmakers vote to give Ducey what he wants. And that could prove to be an uphill fight for the governor given the price tag.
Conformity is designed to make the filing of state tax forms easier, as Arizona residents can use the same definitions and figures from the federal tax forms for income and deductions. In prior years those conformity bills have gone through without much debate.
But House Speaker J.D. Mesnard said it isn’t some simple tweak this year.
He cited figures from legislative and revenue staffers that show conforming this year would mean a big boost in what some state residents owe. And Mesnard, who is moving to the Senate and will chair the Finance Committee when the session begins Monday, said he will fight Ducey’s plan — the one the Department of Revenue is using to craft tax forms — as an unfair “windfall” for the state at the expense of Arizona taxpayers.
What that means is those who use the new forms do so at their own risk. If lawmakers reject Ducey’s plan, they might have to file amended tax returns.
In fact, Mesnard is suggesting the best course of action for Arizona taxpayers is to wait and see what legislators approve. That could mean seeking an automatic extension from the April 15 filing deadline if there is no final decision.
But gubernatorial spokesman Patrick Ptak said having the Department of Revenue print forms now, with tax-law changes that lawmakers may never approve, is actually in the best interest of residents. He said it allows them to file their state returns at the same time as the federal returns — even if those state forms are based on tax-law provisions that are never adopted.
Arizona tax laws generally mirror the federal tax code. So those items that can be subtracted from income on the federal tax form, like unreimbursed moving expenses, also do not count as state income. More significant are the deductions for things like charitable contributions, taxes paid and interest on home mortgages.
In late 2017, President Trump signed the Tax Cuts and Jobs Act, which is the largest revision to the Internal Revenue Code in more than 30 years.
Those changes, including some new limits on deductions and subtractions, kicked in for the 2018 tax year. But the trade-off for individuals was a sharply higher federal standard deduction, meaning many who used to itemize now will do much better without itemizing.
The federal tax forms going out reflect those changes. And now, with Thursday’s announcement, so will the state forms.
But here’s the thing: While conforming to federal law disallows or reduces deductions, there is no commensurate increase in the state’s standard deductions. So that hikes what Arizonans will owe.
Legislative budget staffers put the additional burden on affected individuals at about $174 million; the Department of Revenue estimates taxpayers will shell out an extra $228 million — all just to keep state tax laws in conformity with the federal code.
Mesnard said that’s a high price for Arizonans to pay. The simplest option, he said, would be for the agency to hold off.