A.R.S. tit. 43 | Title 43 — Taxation of Income

Chapter 1 Definitions and General Provisions

Article 1 General Provisions

§ 43-101 Title

This title shall be known and may be cited as the Arizona income tax act of 1978.

§ 43-102 Declaration of intent

A. It is the intent of the legislature by the adoption of this title to accomplish the following objectives:

To adopt the provisions of the federal internal revenue code relating to the measurement of adjusted gross income for individuals, to the end that adjusted gross income reported each taxable year by an individual to the internal revenue service shall be the identical sum reported to this state, subject only to modifications contained in this title.
To adopt the provisions of the federal internal revenue code relating to the measurement of taxable income for corporations, trusts, estates and partnerships, to the end that taxable income reported each taxable year by a corporation, trust, estate or partnership to the internal revenue service shall be the identical sum reported to this state, subject only to modifications contained in this title.
To achieve the results in paragraphs 1 and 2 by the application of the various provisions of the federal internal revenue code relating to the definitions of income, exceptions, deductions, accounting methods, taxation of individuals, corporations, trusts, estates and partnerships, basis and other pertinent provisions relating to gross income as defined, resulting in an amount called adjusted gross income for individuals and taxable income for corporations, trusts, estates and partnerships in the internal revenue code.
To impose on each resident of this state a tax measured by taxable income wherever derived.
To impose on each nonresident and each corporation with a business situs in this state a tax measured by taxable income which is the result of activity within or derived from sources within this state.

B. Nothing contained in this title shall be construed to require a taxpayer to include an item of income or permit a taxpayer to deduct an expense item more than once in computing Arizona taxable income.

§ 43-103 Effective date

The provisions of this act shall apply only to taxable years beginning after December 31, 1978.

§ 43-104 Definitions

In this title, unless the context otherwise requires:

"Assessment" includes a proposed additional assessment.
"Board" means the state board of tax appeals or, if applicable, a division of the state board.
"Corporation" means a corporation, joint stock company, bank, insurance company, business trust or so-called "Massachusetts trust", investment company or building and loan association and any other association whether incorporated or unincorporated.
"Department" means the department of revenue, the director or the director's authorized delegate, as the context requires.
"Director" means the director of the department of revenue.
"Fiduciary" means a guardian, trustee, personal representative, executor, administrator, receiver or conservator, whether individual or corporate, or any person acting in any fiduciary capacity for any person, estate or trust.
"Fiscal year" means an accounting period of twelve months ending on the last day of any month other than December.
"Foreign country" means any jurisdiction other than one embraced within the United States.
"Income derived from or attributable to sources within this state" includes income from tangible or intangible property located or having a situs in this state and income from any activities carried on in this state, regardless of whether carried on in intrastate, interstate or foreign commerce.
"Income tax act of 1954" means this title, as enacted by Laws 1954, chapter 65, as amended.
"Income year" means "taxable year".
"Individual" means a natural person.
"Military or naval forces of the United States" includes the army, the navy, the air force, the marine corps, the coast guard, the army nurse corps, female, the women's army auxiliary corps, the navy nurse corps, female, and the women's reserve branch of the naval reserve, and all auxiliary branches of service.
"Nonresident" means every individual other than a resident.
"Paid or incurred" and "paid or accrued" shall be construed according to the method of accounting on the basis of which the taxable income is computed under this title.
"Partner" means a member of a partnership.
"Partnership" includes a syndicate, group, pool, joint venture or other unincorporated organization, through or by means of which any business, financial operation or venture is carried on and that is not, within the meaning of this title, a trust, estate or corporation.
"Person" includes individuals, fiduciaries, partnerships and corporations.
"Resident" includes:

(a) Every individual who is in this state for other than a temporary or transitory purpose.

(b) Every individual who is domiciled in this state and who is outside the state for a temporary or transitory purpose. Any individual who is a resident of this state continues to be a resident even though temporarily absent from the state.

(c) Every individual who spends in the aggregate more than nine months of the taxable year within this state shall be presumed to be a resident. The presumption may be overcome by competent evidence that the individual is in this state for a temporary or transitory purpose.

"Small business taxpayer" means any individual taxpayer who reports on the taxpayer's federal income tax return any income that constitutes Arizona small business gross income as defined in section 43-1701.
"State" includes the states of the United States, the District of Columbia and the possessions of the United States.
"Tax" means the taxes imposed under this title.
"Taxable year" means:

(a) The calendar year or the fiscal year, ending during such calendar year, on the basis of which the taxable income is computed under this title.

(b) If no fiscal year has been established, the calendar year.

(c) In the case of a return made for a fractional part of a year under this title or under rules prescribed by the department, the period for which the return is made.

"Taxpayer":

(a) Means any person subject to a tax imposed by this title.

(b) Does not include the United States, this state, counties, cities, towns, school districts or other political subdivisions or units of this state or the federal government.

"Trade or business" includes the performance of the functions of a public office.
"United States", when used in a geographical sense, includes the states, the District of Columbia and the possessions of the United States.

§ 43-105 Internal revenue code; definition; application

A. For the purposes of computing income tax pursuant to this title, for taxable years beginning from and after December 31, 2024, "internal revenue code" means the United States internal revenue code of 1986, as amended, in effect on January 1, 2025, including those provisions that became effective during 2024 with the specific adoption of all retroactive effective dates, but excluding any changes to the code enacted after January 1, 2025.

B. For the purposes of computing income tax pursuant to this title, for taxable years beginning from and after December 31, 2023 through December 31, 2024, "internal revenue code" means the United States internal revenue code of 1986, as amended, in effect on January 1, 2024, including those provisions that became effective during 2023 with the specific adoption of all retroactive effective dates, and including those provisions that are retroactively effective during taxable years beginning from and after December 31, 2023 through December 31, 2024.

C. For the purposes of computing income tax pursuant to this title, for taxable years beginning from and after December 31, 2022 through December 31, 2023, "internal revenue code" means the United States internal revenue code of 1986, as amended, in effect on January 1, 2023, including those provisions that became effective during 2022 with the specific adoption of all retroactive effective dates, and including those provisions that are retroactively effective during taxable years beginning from and after December 31, 2022 through December 31, 2023.

D. For the purposes of computing income tax pursuant to this title, for taxable years beginning from and after December 31, 2021 through December 31, 2022, "internal revenue code" means the United States internal revenue code of 1986, as amended, in effect on January 1, 2022, including those provisions that became effective during 2021 with the specific adoption of all retroactive effective dates, and including those provisions of the chips and science act of 2022 (P.L. 117-167), the inflation reduction act of 2022 (P.L. 117-169) and the consolidated appropriations act, 2023 (P.L. 117-328) that are retroactively effective during taxable years beginning from and after December 31, 2021 through December 31, 2022.

E. For the purposes of computing income tax pursuant to this title, for taxable years beginning from and after December 31, 2020 through December 31, 2021, "internal revenue code" means the United States internal revenue code of 1986, as amended, in effect on March 11, 2021, including those provisions that became effective during 2020 with the specific adoption of all retroactive effective dates and including those provisions of the PPP extension act of 2021 (P.L. 117-6) and the infrastructure investment and jobs act (P.L. 117-58) that are retroactively effective during taxable years beginning from and after December 31, 2020 through December 31, 2021.

F. For the purposes of computing income tax pursuant to this title, for taxable years beginning from and after December 31, 2019 through December 31, 2020, "internal revenue code" means the United States internal revenue code of 1986, as amended, in effect on January 1, 2020, including those provisions that became effective during 2019 with the specific adoption of all retroactive effective dates, and including those provisions of the families first coronavirus response act (P.L. 116-127), the coronavirus aid, relief, and economic security act (P.L. 116-136), the paycheck protection program flexibility act of 2020 (P.L. 116-142), the consolidated appropriations act, 2021 (P.L. 116-260) and the American rescue plan act of 2021 (P.L. 117-2) that are retroactively effective during taxable years beginning from and after December 31, 2019 through December 31, 2020.

G. For the purposes of computing income tax pursuant to this title, for taxable years beginning from and after December 31, 2018 through December 31, 2019, "internal revenue code" means the United States internal revenue code of 1986, as amended, in effect on January 1, 2019, including those provisions that became effective during 2018 with the specific adoption of all retroactive effective dates, and including those provisions of the taxpayer first act (P.L. 116-25), the further consolidated appropriations act, 2020 (P.L. 116-94), the coronavirus aid, relief, and economic security act (P.L. 116-136) and the consolidated appropriations act, 2021 (P.L. 116-260) that are retroactively effective during taxable years beginning from and after December 31, 2018 through December 31, 2019.

H. For the purposes of computing income tax pursuant to this title, for taxable years beginning from and after December 31, 2017 through December 31, 2018, "internal revenue code" means the United States internal revenue code of 1986, as amended, in effect on January 1, 2018, including those provisions that became effective during 2017 with the specific adoption of all retroactive effective dates, and including those provisions of the bipartisan budget act of 2018 (P.L. 115-123), the consolidated appropriations act, 2018 (P.L. 115-141), the further consolidated appropriations act, 2020 (P.L. 116-94), the coronavirus aid, relief, and economic security act (P.L. 116-136) and the consolidated appropriations act, 2021 (P.L. 116-260) that are retroactively effective during taxable years beginning from and after December 31, 2017 through December 31, 2018.

I. For the purposes of computing income tax pursuant to this title, for taxable years beginning from and after December 31, 2016 through December 31, 2017, "internal revenue code" means the United States internal revenue code of 1986, as amended, in effect on January 1, 2017, including those provisions that became effective during 2016 with the specific adoption of all federal retroactive effective dates, and including those provisions of the disaster tax relief and airport and airway extension act of 2017 (P.L. 115-63), the tax cuts and jobs act (P.L. 115-97), the bipartisan budget act of 2018 (P.L. 115-123), the consolidated appropriations act, 2018 (P.L. 115-141), the further consolidated appropriations act, 2020 (P.L. 116-94) and the coronavirus aid, relief, and economic security act (P.L. 116-136) that are retroactively effective during taxable years beginning from and after December 31, 2016 through December 31, 2017.

J. For the purposes of computing income tax pursuant to this title, for taxable years beginning from and after December 31, 2015 through December 31, 2016, "internal revenue code" means the United States internal revenue code of 1986, as amended, in effect on January 1, 2016, including those provisions that became effective during 2015 with the specific adoption of all federal retroactive effective dates, and including those provisions of the United States appreciation for olympians and paralympians act of 2016 (P.L. 114-239), the tax cuts and jobs act (P.L. 115-97), the consolidated appropriations act, 2018 (P.L. 115-141), the further consolidated appropriations act, 2020 (P.L. 116-94) and the coronavirus aid, relief, and economic security act (P.L. 116-136) that are retroactively effective during taxable years beginning from and after December 31, 2015 through December 31, 2016.

K. For the purposes of computing income tax pursuant to this title, for taxable years beginning from and after December 31, 2014 through December 31, 2015, "internal revenue code" means the United States internal revenue code of 1986, as amended, in effect on January 1, 2015, including those provisions that became effective during 2014 with the specific adoption of all federal retroactive effective dates, and including those provisions of the slain officer family support act of 2015 (P.L. 114-7), the don't tax our fallen public safety heroes act (P.L. 114-14), the surface transportation and veterans health care choice improvement act of 2015 (P.L. 114-41), the consolidated appropriations act, 2016 (P.L. 114-113), the consolidated appropriations act, 2018 (P.L. 115-141) and the coronavirus aid, relief, and economic security act (P.L. 116-136) that are retroactively effective during taxable years beginning from and after December 31, 2014 through December 31, 2015.

§ 43-107 Nonconformity in application of internal revenue code; abatement of penalties and interest; definitions

A. Notwithstanding sections 42-1123 and 42-1125, no interest or penalty may be assessed on a nonconformity deficiency if all of the following are true for a taxable year:

The taxpayer filed a return and paid the taxes due, relying on the department's published forms and instructions.
Conformity does not occur.
The department supplements its published forms and instructions related to nonconformity and requires the taxpayer to file an amended return.
By the extended due date of the next taxable year's return, the taxpayer amends its return to report the nonconformity deficiency and pays the additional tax in the manner prescribed by the department.

B. Notwithstanding section 42-1123, the department shall not pay interest on refunds resulting from an amended return related to nonconformity unless the refund is paid more than sixty days after the due date set forth in subsection A, paragraph 4 of this section or filing date, whichever is later.

C. For the purposes of this section:

"Conformity" means an amendment to section 43-105 that results in adoption of the definition of the internal revenue code for the taxable year.
"Nonconformity" means either:

(a) Conformity plus another amendment to this title that does not conform to specific provisions of the internal revenue code as defined in section 43-105 for the taxable year.

(b) No amendment to section 43-105 for the taxable year.

§ 43-108 Subtraction from gross income; ordinary and necessary expenses; marijuana establishments and marijuana testing facilities; definitions

(Caution: 1998 Prop. 105 applies)

A. Notwithstanding any other law, in computing Arizona adjusted gross income or Arizona taxable income for a taxpayer, all ordinary and necessary expenses paid or incurred during the taxable year in carrying on a trade or business as a marijuana establishment, marijuana testing facility, or dual licensee that elects to operate on a for-profit basis pursuant to title 36, chapter 28.2 shall be subtracted from Arizona gross income to the extent not already excluded from Arizona gross income.

B. For the purposes of this section, "dual licensee," "marijuana establishment," and "marijuana testing facility" have the same meanings prescribed in section 36-2850.

Chapter 2 Administration

Article 1 General Administrative Provisions

§ 43-201 Preemption by state of income taxation

The area of income taxation is preempted by the state, and a county, city, town or other political subdivision of this state shall not levy an income tax, so long as the urban revenue sharing fund is maintained as provided in section 43-206.

§ 43-202 Object of tax

The object for which the taxes are imposed by this title is to assist in defraying the cost of maintenance of the state government and to lessen the burden in this regard resting upon tangible property. All taxes collected under the provisions of this title shall be used, together with revenue from other sources, to pay appropriations for the maintenance of the state government.

§ 43-203 Severability

If any provision of this title be held invalid, such invalidity shall not affect other provisions which can be given effect without the invalid provision and to this end the provisions of this title are declared to be severable.

§ 43-204 Repeal; savings clause

The "income tax act of 1933", being sections 73-1501 to 73-1551, inclusive, as amended, Arizona code of 1939, is repealed. The "income tax act of 1954", as amended, Arizona Revised Statutes of 1956, is also repealed. Such repeals shall not affect any act done or any right accruing or accrued, or any suit or proceeding had or commenced in any civil cause before such repeals, but all rights and liabilities under such acts shall continue, and may be enforced in the same manner, as if such repeals had not been made. All offenses committed, and all penalties, assessments or forfeitures incurred or imposed under such acts repealed, may be prosecuted and punished in the same manner and with the same effect as if this title had not been passed.

§ 43-206 Urban revenue sharing fund; allocation; distribution; withholding

A. The urban revenue sharing fund is established. Through fiscal year 2022-2023, the fund consists of an amount equal to fifteen percent of the net proceeds of the state income taxes for the fiscal year two years preceding the current fiscal year. Beginning in fiscal year 2023-2024, the fund consists of an amount equal to eighteen percent of the net proceeds of the state income taxes for the fiscal year two years preceding the current fiscal year. The fund shall be distributed to incorporated cities and towns as provided in this section, except that a city or town shall receive at least an amount equal to what a city or town with a population of fifteen hundred or more persons would receive. The transfer of net proceeds prescribed by section 49-282, subsection B does not affect the calculation of net proceeds prescribed by this subsection.

B. Each city or town shall share in the urban revenue sharing fund in the proportion that the population of each bears to the population of all. Except as provided by sections 42-5033 and 42-5033.01, the population of a city or town as determined by the most recent United States decennial census plus any revisions to the decennial census certified by the United States bureau of the census shall be used as the basis for apportioning monies pursuant to this subsection.

C. The treasurer, on instruction from the department, shall transmit, not later than the tenth day of each month, to each city or town an amount equal to one-twelfth of that city's or town's total entitlement for the current fiscal year from the urban revenue sharing fund as determined by the department.

D. A newly incorporated city or town shall share in the urban revenue sharing fund beginning the first month of the first full fiscal year following incorporation.

E. On receipt of a certificate of default from the greater Arizona development authority pursuant to section 41-2257 or 41-2258, the state treasurer, to the extent not otherwise expressly prohibited by law, shall withhold from the next succeeding distribution of monies pursuant to this section due to the city or town the amount specified in the certificate of default and immediately deposit the amount withheld in the greater Arizona development authority revolving fund. The state treasurer shall continue to withhold and deposit the monies until the authority certifies to the state treasurer that the default has been cured. The state treasurer may not withhold any amount that is necessary, as certified by the defaulting political subdivision to the state treasurer and the authority, to make any required deposits then due for the payment of principal and interest on bonds of the political subdivision that were issued before the date of the loan repayment agreement or bonds and that have been secured by a pledge of distributions made pursuant to this section.

F. Except as otherwise provided by this subsection, on notice from the attorney general pursuant to section 41-194.01, subsection B, paragraph 1 that an ordinance, regulation, order or other official action adopted or taken by the governing body of a city or town violates state law or the Constitution of Arizona, the state treasurer shall withhold the distribution of monies pursuant to this section to the affected city or town and shall continue to withhold monies pursuant to this subsection until the attorney general certifies to the state treasurer that the violation has been resolved. The state treasurer shall redistribute the monies withheld pursuant to this subsection among all other cities and towns in proportion to their population as provided by subsection B of this section. The state treasurer shall not withhold any amount that the city or town certifies to the attorney general and the state treasurer as being necessary to make any required deposits or payments for debt service on bonds or other long-term obligations of the city or town that were issued or incurred before committing the violation.

§ 43-207 Illegal income; duty of law enforcement or prosecuting agency; distribution of revenue; definitions

A. Whenever state or local law enforcement agency personnel in the course of an investigation obtain knowledge or a good faith belief that a person has received illegal income with an estimated value in excess of one thousand dollars, the person in charge of the investigation shall provide identifying information to the department. The law enforcement agency shall cooperate fully with the department in providing the department with information regarding the illegal income. Such cooperation and identifying information shall include but is not limited to the provision of names, addresses, the identity and location of income sources, and the identity and location of assets.

B. Whenever any person prosecuting a person on behalf of the state obtains information in the course of the prosecution which information shows that the person being prosecuted has received or may have received illegal income in excess of one thousand dollars and it appears that the information has not been previously reported to the department, the prosecutor shall immediately provide identifying information to the department. The prosecutor shall cooperate fully with the department in providing information regarding the person and amount of illegal income received.

C. The monies collected in taxes as a result of information provided to the department under this section shall be deposited in the state general fund.

D. For the purposes of this section:

"Illegal income" means any economic benefit of money or property of any kind derived from any unlawful activity, including but not limited to theft, robbery, forgery, bribery, prostitution, gambling, fraud, or unlawful sales.
"State or local law enforcement agency" means the department of public safety, county sheriff departments, and municipal police departments.

§ 43-208 Administration and enforcement

The department shall administer and enforce this title. In addition to the administrative provisions of this title, title 42, chapter 1, article 3, including the civil and criminal penalties prescribed by sections 42-1125 and 42-1127, applies to this title.

§ 43-209 Collection of tax on income of professional athletes earned in this state; separate accounting for tax revenue from professional football and baseball; definitions

A. The department shall adopt and enforce rules for the collection of tax under this title on the income earned for services rendered in this state by professional athletes and employees of professional sport franchise organizations.

B. On or before December 31 of each year each professional football franchise organization that is domiciled in this state and each professional baseball franchise organization that compensates individuals for services rendered at a major league baseball facility that is owned by a county stadium district pursuant to title 48, chapter 26 and that is operated by the county stadium district or the professional baseball franchise organization that occupies the facility shall provide to the department the federal taxpayer identification number, assigned pursuant to section 6109 of the internal revenue code, for each resident and nonresident employee of the organization who rendered services in this state for the organization during the calendar year. Unless due to reasonable cause and not due to wilful neglect, a professional football franchise organization or professional baseball franchise organization that fails to provide taxpayer identification numbers pursuant to this subsection shall pay a civil penalty of $5 for each such number.

C. For purposes of section 42-1116, subsection C, on or before March 31 of each year, the department shall separately account for and report to the state treasurer as a single aggregate amount the total net revenues collected during the preceding calendar year from the imposition of tax under this title on the income from all sources of:

Any professional football franchise organization that is domiciled in this state.
Resident and nonresident employees of any professional football franchise organization that is domiciled in this state. For reporting purposes under this subsection, the department shall include all income reported on joint returns, regardless of the spouse to whom it is attributable, and the income of an employee's spouse that is reported on a separate return.

D. For the purposes of section 42-1116, subsection D and subject to section 48-4238, on or before March 31 of each year through December 31, 2056, the department shall separately account for and report to the state treasurer as a single aggregate amount the total net revenues collected during the preceding calendar year from the imposition of tax under this title on the income from all sources of:

Any professional baseball franchise organization that is domiciled in this state.
Resident and nonresident employees who are members of any professional baseball franchise organization that is domiciled in this state. For reporting purposes under this subsection, the department shall include all income reported on joint returns, regardless of the spouse to whom it is attributable, and the income of an employee's spouse that is reported on a separate return.
Resident and nonresident employees who are members of any professional baseball franchise organization that is domiciled outside of this state for services rendered in this state at a major league baseball facility that is owned by a county stadium district pursuant to title 48, chapter 26 and that is operated by the county stadium district or the professional baseball franchise organization that occupies the facility.

E. For the purposes of this section:

"Member of any professional baseball franchise organization":

(a) Means an employee who is an active player, a player on the disabled list and any other person required to travel and who travels with and performs services for the professional baseball franchise organization on a regular basis.

(b) Includes coaches, managers, trainers and broadcasters.

"Professional baseball franchise organization" means an organization that has the right to field a team for participation in professional baseball contests scheduled by a nationwide league during a regular season held in the months of March through October each year.
"Professional football franchise organization" means an organization that has the right to field a team for participation in professional football contests scheduled by a nationwide league during a regular season held in the months of September through December each year.

§ 43-210 Premium tax credit; health insurance; certification of qualified persons; violation; classification; definitions

A. The department shall issue a certificate of eligibility to a person who files an application with the department in the form and manner prescribed by the department on a first come, first served basis, subject to subsection E. An application submitted to the department under this section shall contain or be verified by a written declaration that it is made under penalty of perjury. A person is entitled to receive a certificate if the department determines monies are available for this program pursuant to subsection E, the person has never before received a certificate and the person is either:

A small business.
An individual who satisfies all of the following:

(a) Earns less than two hundred fifty per cent of the federal poverty level.

(b) Is a legal resident of this state and a citizen of the United States or a legal resident alien.

(d) Is not enrolled in the Arizona health care cost containment system, medicare or any other state or federal government health insurance program.

B. A health care insurer that enrolls an individual or small business certified pursuant to this section shall deduct the amount of the certificate from the premium.

C. For an individual, the amount of the certificate is the lesser of:

One thousand dollars for coverage on a single person, five hundred dollars for coverage on a child or three thousand dollars for family coverage.
Fifty per cent of the health insurance premium.

D. For a small business, the amount of the certificate is the lesser of:

One thousand dollars for coverage on each single employee or three thousand dollars for each employee who elects family coverage.
Fifty per cent of the health insurance premium.

E. A health care insurer that enrolls an individual or small business certified pursuant to this section shall notify the department of the enrollment and the amount of premium tax credit it intends to claim for the current calendar year no later than the fifteenth day of the month following commencement of coverage. The department shall not issue any certificates under this section that exceed in the aggregate a combined total of five million dollars in any calendar year.

F. The initial certificate is valid for a period of ninety days after the date the department issues the certificate. If the individual or small business obtains health care insurance within this period of time the certificate is valid for one year from commencement of coverage.

G. Sixty days before the expiration of the certificate the department shall review the status of the individual or small business. If the individual or small business continues to meet the qualifications pursuant to subsection A, paragraph 1 or paragraph 2, subdivisions (a), (b) and (d), the department shall reissue the certificate of eligibility.

H. Individuals and small businesses are eligible for a maximum of two reissued certificates of eligibility.

I. This section does not guarantee health insurance coverage to an individual or small business pursuant to this section.

J. The department shall issue the certificate of eligibility in the name of a specific individual and the certificate is nontransferable. A person who sells, conveys, transfers or assigns the certificate to another person or attempts to sell, convey, transfer or assign the certificate to another person is guilty of a class 2 misdemeanor.

K. For the purposes of this section:

"Family" means any of the following:

(a) An adult and the adult's spouse.

(b) An adult, the adult's spouse and all unmarried dependent children under nineteen years of age or under twenty-five years of age if a full-time student.

(c) An adult and the adult's unmarried dependent children under nineteen years of age or under twenty-five years of age if a full-time student.

"Federal poverty level" means the federal poverty level guidelines published annually by the United States department of health and human services.
"Health care insurer" means a disability insurer, group disability insurer, blanket disability insurer, health care services organization, hospital service corporation, medical service corporation or hospital and medical service corporation that provides health insurance in this state.
"Health insurance" means a licensed health care plan or arrangement that pays for or furnishes medical or health care services and that is issued by a health care insurer.
"Small business" means a business that has been in existence for at least one calendar year in this state, that had not provided health insurance to its employees for at least six consecutive months before the application and that had at least two and no more than twenty-five employees during the most recent calendar year.

§ 43-211 I didn't pay enough fund

A. The I didn't pay enough fund is established consisting of monies received pursuant to section 43-621.

B. The director of the department of revenue shall administer the fund. On notice from the director, the state treasurer shall invest and divest monies in the fund as provided by section 35-313, and monies earned from investment shall be credited to the fund.

C. The department of revenue shall use the monies in the fund for the administrative costs of this section, except that administrative costs may not exceed ten per cent of the monies in the fund. Any unexpended monies revert to the state general fund at the close of the fiscal year.

§ 43-212 Individual income tax model; fiscal impact requests; staff access

A. The department shall maintain an individual income tax model that estimates the fiscal impact of proposed individual income tax legislation.

B. The individual income tax model shall:

At a minimum, allow for the adjustment of individual income tax law parameters against an anonymized representative sample of individual income tax returns.
Include procedures to protect taxpayer confidentiality under applicable state and federal law.

C. The department shall accept requests from the joint legislative budget committee staff and legislative staff for estimates of the fiscal impact of proposed individual income tax legislation using the individual income tax model. The department shall fulfill any request under this subsection in a prompt and timely manner.

D. On completion of the integrated tax system modernization project developed pursuant to section 42-5041, the individual income tax model required by this section shall provide department staff, joint legislative budget committee staff and the governor's office of strategic planning and budgeting staff direct access to the individual income tax model so that individual income tax law parameters may be interactively adjusted to develop immediate fiscal impact estimates without any additional programming required for each estimate.

Article 2 Income Tax Credit Review

§ 43-221 Joint legislative income tax credit review committee; report

A. The joint legislative income tax credit review committee is established consisting of the following members:

Five members of the house of representatives ways and means committee appointed by the speaker of the house of representatives. Not more than three appointees shall be of the same political party.
Five members of the senate finance committee appointed by the president of the senate. Not more than three appointees shall be of the same political party.

B. The committee shall determine the original purpose of existing tax credits and establish a standard for evaluating and measuring the success or failure of the tax credits. The standard for evaluating tax credits may include:

The history, rationale and estimated revenue impact of the credit.
Whether the credit has provided a benefit to this state including, for corporate tax credits, measurable economic development, new investments, creation of new jobs or retention of existing jobs in this state.
Whether the credit is unnecessarily complex in the application, administration and approval process.

C. The committee shall review the individual and corporate income tax credits pursuant to the schedule prescribed in section 43-222. The committee shall use the joint legislative budget committee staff and may use the staff of the department of revenue and legislative council for assistance.

D. After completing the review process, the committee shall determine whether the credit should be amended, repealed or retained. If the credit is recommended to be retained or amended, the committee shall recommend that the credit be returned to the income tax credit review schedule prescribed in section 43-222. The next review year shall be the fifth full calendar year following the date the credit was reviewed. The committee shall report its findings and recommendations to the president of the senate, the speaker of the house of representatives and the governor by December 15 of the year that the committee reviews the credit. The committee shall provide a copy of the report to the secretary of state.

§ 43-222 Income tax credit review schedule

The joint legislative income tax credit review committee shall review the following income tax credits:

For years ending in 0 and 5, sections 43-1079.01, 43-1088, 43-1089.04, 43-1167.01 and 43-1175.
For years ending in 1 and 6, sections 43-1072.02, 43-1074.02, 43-1075, 43-1076.01, 43-1077, 43-1078, 43-1083, 43-1083.02, 43-1162, 43-1164.03 and 43-1183.
For years ending in 2 and 7, sections 43-1073, 43-1082, 43-1085, 43-1086, 43-1089, 43-1089.01, 43-1089.02, 43-1089.03, 43-1164 43-1165, and 43-1181.
For years ending in 3 and 8, sections 43-1074.01, 43-1168, 43-1170 and 43-1178.
For years ending in 4 and 9, sections 43-1073.01, 43-1081.01, 43-1083.03, 43-1084, 43-1164.04, 43-1164.05 and 43-1184.

§ 43-223 Requirements for new income tax credits established by the legislature

Any new individual or corporate income tax credit that is enacted by the legislature shall include in its enabling legislation:

A specific review year for the joint legislative income tax credit review committee to review the credit. The specific review year shall be the fifth full calendar year following the date the credit is enacted.
A purpose clause that explains the rationale and objective of the tax credit.

§ 43-224 Individual and corporate income tax credits; annual report; termination of unused credits

A. On or before September 30 of each year, the department shall report to the directors of the joint legislative budget committee and the governor's office of strategic planning and budgeting on the amount of individual income tax credits and corporate income tax credits that were claimed in the previous fiscal year.

B. Except as provided by subsection C of this section, if, in any three consecutive reports under subsection A of this section, an individual or corporate income tax credit was not claimed by or allowed to any individual or corporate taxpayer, the director of the department of revenue shall:

Terminate the recognition and servicing of that credit for taxable years beginning from and after December 31 of the year in which the third report is issued.
Issue a public announcement, including on the department's website, of the termination of the credit under authority of this section.
Notify the governor's office of strategic planning and budgeting, the president of the senate, the speaker of the house of representatives, the joint legislative budget committee and the legislative council.
Include the repeal of all statutes relating to the terminated credit in technical tax correction legislation for enactment in the next regular session of the legislature. If the credit included for repeal in the technical tax correction legislation has unused credits carried forward from prior years, the technical tax correction legislation shall include a saving clause to allow for the continued use of the carried forward amounts for the remainder of the carryforward period specified in the repealed credit. If the legislature fails to enact this legislation, the director shall rescind the termination of the credit.

C. The director may not terminate under subsection B of this section the recognition and servicing of any income tax credit that is subject by law to preapproval by the Arizona commerce authority unless over any period of three consecutive calendar years both of the following conditions occur with respect to the credit:

The department has not received notice of preapproval of any applicant or project for the credit from the Arizona commerce authority.
In the report issued under subsection A of this section, the credit was not claimed by or allowed to any taxpayer.

D. For the purposes of this section, unused credits carried forward from prior years are not considered claimed or allowed in the year the credit carried forward is used.

Article 3 Miscellaneous Provisions

§ 43-241 Time for performance of acts; definition

A. Notwithstanding any other provision of this title or title 1, if the last day for performing any act under this title falls on a Saturday, Sunday or legal holiday, the act is considered timely if it is performed on the next day that is not a Saturday, Sunday or legal holiday.

B. For the purposes of this section "legal holiday" shall include holidays specified in section 1-301 and holidays determined by the United States secretary of the treasury for the purposes of section 7503 of the internal revenue code.

§ 43-242 Change of taxpayer organization; nontaxable event

Notwithstanding any provision of the internal revenue code or any federal rule or regulation adopted pursuant to the internal revenue code, a change in the organizational structure of a corporation, including an S corporation, or a limited liability company, a partnership or any other entity, however organized, into another organizational structure is not a taxable event for the purposes of this title if there is no change among the owners, their ownership interests or the assets of the organization.

§ 43-243 State general fund revenue notification; tax rate adjustment

A. On or before September 30, 2022, the director of the joint legislative budget committee and the director of the governor's office of strategic planning and budgeting shall jointly notify the department whether the fiscal year 2021-2022 state general fund revenue, excluding the beginning balance, was $12,782,800,000 or more.

B. On or before September 30, 2023 and on or before September 30 of each year until the notice is provided as prescribed in subsection A of this section or paragraph 1 of this subsection, and paragraph 2 of this subsection, the director of the joint legislative budget committee and the director of the governor's office of strategic planning and budgeting shall jointly notify the department whether the previous fiscal year state general fund revenue, excluding the beginning balance, was either of the following amounts:

More than $12,782,800,000 but less than $12,976,300,000. The notice required pursuant to this paragraph is not required if the notice required pursuant to subsection A of this section was provided on or before September 30, 2022.
$12,976,300,000 or more.

C. On receipt of the notice required pursuant to subsection A or subsection B, paragraph 1 of this section, the department shall use the tax rates provided in section 43-1011, subsection A, paragraph 8 for taxable years beginning from and after December 31 of the year in which the notice required pursuant to subsection A or subsection B, paragraph 1 of this section is received. The tax rate prescribed in section 43-1011, subsection A, paragraph 8 applies until the department receives the notice required pursuant to subsection B, paragraph 2 of this section.

D. On receipt of the notice required pursuant to subsection B, paragraph 2 of this section, the department shall use the tax rates provided in section 43-1011, subsection A, paragraph 9 for taxable years beginning from and after December 31 of the year in which the notice required pursuant to subsection B, paragraph 2 of this section is received.

E. The director of the joint legislative budget committee and the director of the governor's office of strategic planning and budgeting shall notify the department as required pursuant to subsection B, paragraphs 1 and 2 of this section only on the first occurrence that each state general fund revenue threshold is met.

§ 43-244 State general fund revenue notification; tax rate adjustment

More than $12,782,800,000 but less than $12,976,300,000. The notice required pursuant to this paragraph is not required if the notice required pursuant to subsection A of this section was provided on or before September 30, 2022.
$12,976,300,000 or more.

C. On receipt of the notice required pursuant to subsection A or subsection B, paragraph 1 of this section, the department shall use the tax rates provided in section 43-1311, subsection B, paragraph 3 for taxable years beginning from and after December 31 of the year in which the notice required pursuant to subsection A or subsection B, paragraph 1 of this section is received. The tax rate prescribed in section 43-1311, subsection B, paragraph 3 applies until the department receives the notice required pursuant to subsection B, paragraph 2 of this section.

D. On receipt of the notice required pursuant to subsection B, paragraph 2 of this section, the department shall use the tax rates provided in section 43-1311, subsection B, paragraph 4 for taxable years beginning from and after December 31 of the year in which the notice required pursuant to subsection B, paragraph 2 of this section is received.

Chapter 3 Returns

Article 1 Taxpayers Required to File Returns

§ 43-301 Individual returns; definition

A. A full-year or part-year resident individual shall file a return with the department if, for the taxable year, the individual's gross income was greater than the amount of the standard deduction allowed under subsection 43-1041, subsection A as adjusted for inflation pursuant to section 43-1041, subsection H.

B. A nonresident individual shall file a return with the department if, for the taxable year, the individual's gross income was greater than the amount under subsection A of this section determined for a full-year or part-year resident individual multiplied by the percentage that the individual's Arizona gross income is of the individual's federal adjusted gross income.

C. In the case of a husband and wife, the spouse who controls the disposition of or who receives or spends community income as well as the spouse who is taxable on such income is liable for the payment of taxes imposed by this title on such income. If a joint return is filed, the liability for the tax on the aggregate income is joint and several.

D. This section applies regardless of whether an individual is required to file a return under the internal revenue code or whether the individual has any federal adjusted gross income for the taxable year.

E. For the purposes of this section, "gross income" means gross income as defined in the internal revenue code minus income included in gross income but excluded from taxation under this title.

§ 43-302 Arizona small business income tax return; election; revocation

A. For taxable years beginning from and after December 31, 2020, a small business taxpayer may elect to file a return for the taxable year with the department to report that small business taxpayer's share of Arizona small business gross income. The election shall be made separately for each taxable year and is effective by reporting Arizona small business adjusted gross income on a timely filed Arizona small business income tax return.

B. The election under subsection A of this section may be revoked on a timely filed amended Arizona small business income tax return and a corresponding Arizona individual income tax return.

§ 43-303 Returns by agent or guardian

If the taxpayer is unable to make his own return, the return shall be made by a duly authorized agent or by the guardian or other person charged with the care of the person or property of the taxpayer.

§ 43-304 Fiduciary returns

A. Every fiduciary, except a receiver appointed by authority of law in possession of part only of the property of an individual, shall make a return for any of the following taxpayers for whom the fiduciary acts:

Every individual who is required to file an individual income tax return under section 43-301.
Every estate or trust that has Arizona taxable income for the taxable year.
Every estate or trust of which the gross income for the taxable year is $5,000 or over, regardless of the amount of the Arizona taxable income.
Every decedent, for the year in which death occurred and for prior years, if returns for such years should have been filed but have not been filed by the decedent, under such rules as the department may prescribe.

B. Any fiduciary required to make a return for an individual is subject to the provisions of this title that apply to individuals.

§ 43-305 Fiduciary returns; two or more fiduciaries

Under such rules and regulations as the department may prescribe, a return filed by one of two or more joint fiduciaries is sufficient. The fiduciary filing the return shall state:

That he has sufficient knowledge of the affairs of the taxpayer for whom the return is made to enable him to make the return.
That the return is, to the best of his knowledge and belief, true and correct.

§ 43-306 Partnership returns

A. Except as provided in subsections B and C of this section, every partnership shall make a return for each taxable year, stating the taxable income computed in accordance with subtitle A, chapter 1, subchapter K of the internal revenue code and any adjustments required pursuant to chapter 14 of this title. The return shall include the names and addresses of the individuals, whether residents or nonresidents, who would be entitled to share in the taxable income if distributed and the amount of the distributive share of each individual. The allocation and apportionment of income of a partnership that has nonresident partners shall be made pursuant to chapter 11, article 4 of this title. The return shall contain or be verified by a written declaration that it is made under the penalties of perjury and signed by one of the partners.

B. An out-of-state partnership that is temporarily in this state and whose only income in this state is from performing disaster recovery from a declared disaster during a disaster period as defined in section 42-1130 is not required to file a partnership return in this state.

C. A partnership that has no Arizona income, deductions or credits for a taxable year is not required to file a partnership return for that year.

§ 43-307 Corporation returns

A. Every corporation subject to the tax imposed by this title shall make a return to the department. Every corporation return required by this title to be filed with the department shall be signed by one or more of the following officers:

The president.
The treasurer.
Any other principal officer of the taxpayer.

B. If receivers, trustees in bankruptcy or assignees are operating the property or business of a corporation, such receivers, trustees or assignees shall make returns for such corporation in the same manner and form as such a corporation is required to make a return. Any tax due on the basis of returns made by receivers, trustees or assignees shall be collected in the same manner as if collected from the corporation of whose business or property they have custody and control.

C. This section applies regardless of whether a corporation is required to file a return under the internal revenue code or whether the corporation has any federal taxable income for the taxable year.

D. An out-of-state corporation that is temporarily in this state and whose only income in this state is from performing disaster recovery from a declared disaster during a disaster period as defined in section 42-1130 is not required to file a corporation return in this state. This subsection does not preclude the corporation from being included in a consolidated or combined group return subject to section 42-1130, subsection C.

§ 43-308 Gross income defined for purposes of determination to file

For purposes of this article, the term "gross income" shall be gross income as defined in the internal revenue code.

§ 43-309 Joint returns of husband and wife

If a husband and wife are required to file a return pursuant to section 43-301, they may file a joint return under the following conditions:

A joint return shall not be made if husband and wife have different taxable years. If such taxable years begin on the same day and end on different days because of the death of either or of both, the joint return may be made with respect to the taxable year of each. Such an exception does not apply if the surviving spouse remarried before the close of the surviving spouse's taxable year or if the taxable year of either spouse is a fractional part of a year under section 43-931.
In the case of the death of one or both spouses, the joint return with respect to the decedent may be made only by the decedent's executor or administrator, except that in the case of the death of one spouse the joint return may be made by the surviving spouse with respect to both the surviving spouse and the decedent if all of the following apply:

(a) A return for the taxable year has not been made by the decedent.

(b) An executor or administrator has not been appointed.

(c) An executor or administrator is not appointed before the last day prescribed by law for filing the return of the surviving spouse. If an executor or administrator of the decedent is appointed after the making of the joint return by the surviving spouse, the executor or administrator may disaffirm the joint return by making, within one year after the last day prescribed by law for filing the return of the surviving spouse, a separate return for the taxable year of the decedent with respect to which the joint return was made, in which case the return made by the survivor shall constitute the survivor's separate return.

For the purposes of this section, the status as husband and wife of two individuals having taxable years beginning on the same day shall be determined:

(a) If both have the same taxable year, as of the close of such year.

(b) If one dies before the close of the taxable year of the other, as of the time of such death.

§ 43-310 Separate returns after filing joint returns

A. If a husband and wife have filed a joint return for a taxable year for which separate returns could have been made by them under section 43-309, and the time prescribed by this title for filing the return for such taxable year has expired, the spouses may nevertheless make separate returns for such taxable year. Separate returns filed by the spouses in such a case shall constitute their returns for such taxable year, and all payments, credits, refunds or other repayments made or allowed with respect to the joint return for such taxable year shall be taken into account in determining the extent to which the taxes based on the separate returns have been paid.

B. Separate returns may be filed under subsection A of this section only if there is paid in full all of the following, at or before the time of filing such returns:

All amounts previously assessed with respect to both spouses for such taxable year.
All amounts shown as the tax by the spouses upon their joint return for such taxable year.
Any amount determined, at the time of the filing of the separate returns, as a deficiency with respect to the spouses for such taxable year, if, prior to such filing, a notice of proposed deficiency under section 42-1108 has been mailed.

C. Separate returns may not be filed under subsection A of this section:

After the expiration of four years from the last date prescribed by this title for filing the return for such taxable year, determined without regard to any extension of time granted for the filing of the joint return.
After there has been mailed to the spouses, with respect to such taxable year, a notice of deficiency under section 42-1108, or if the spouses, as to such notice, appeal to the department under section 42-1251, or appeal to the state board under section 42-1253.
After the spouses have commenced a suit in court for the recovery of any part of the tax paid for the taxable year with respect to the joint return.
After the spouses have entered into a closing agreement under section 42-1113, with respect to such taxable year as to the tax payable by the spouse under their joint return.

D. If separate returns are made under subsection A of this section, any election, other than the election to file the joint return, made by the spouses in their joint return for such taxable year with respect to the treatment of any income, deduction or credit shall not be changed in the making of the separate returns where such election would have been irrevocable if the separate returns had not been filed.

E. If separate returns are made under subsection A of this section after the death of either spouse, such return with respect to the decedent may be made only by the decedent's personal representative.

F. Where the aggregate amount of the taxes shown by the spouses on their separate returns filed pursuant to subsection A of this section exceeds the tax shown on their joint return:

If any of such excess is attributable to negligence or intentional disregard of rules and regulations of the department, but without intent to defraud, at the time of making the joint return, then five per cent of the total amount of such excess on each return shall be assessed, collected and paid as if it were a deficiency.
If any part of such excess is attributable to fraud with intent to evade tax at the time of the making of the joint return, then fifty per cent of the total amount of such excess shall be so assessed, collected and paid, in lieu of the fifty per cent addition to the tax provided in section 42-1125.

G. For the purposes of section 42-1104, relating to periods of limitations upon assessment and collection, and for the purposes of section 42-1125, subsection A, relating to delinquent returns, separate returns made under this section shall be deemed to have been filed on the date on which the joint return was filed.

H. For the purposes of section 42-1118, relating to refunds and credits, separate returns made under this section shall be deemed to have been filed on the last date prescribed by this title for filing the return for such taxable year, determined without regard to any extension of time granted for the filing of the joint return.

I. If separate returns are made under subsection A of this section, the period of limitations provided in section 42-1104 on the making of assessments and collecting taxes shall, with respect to such returns, include one year immediately after the date of filing of such separate returns, computed without regard to the provisions of subsection G of this section.

J. For the purposes of section 42-1125, relating to penalties in the case of fraudulent returns, the term "return" includes a joint return filed by spouses with respect to a taxable year for which separate returns are made under subsection A of this section after the filing of such joint return.

§ 43-311 Joint return after filing separate return

A. If an individual has filed a separate return for a taxable year for which the individual and spouse could have filed a joint return under section 43-309, and the time prescribed by this title for filing the return for such taxable year has expired, such individual and spouse may nevertheless make a joint return for such taxable year. A joint return filed by the husband and wife for such taxable year, and all payments, credits, refunds or other repayments made or allowed with respect to the separate return of either spouse for such taxable year, shall be taken into account in determining the extent to which the tax based upon the joint return has been paid.

B. A joint return may be made under subsection A of this section only if there is paid in full at or before the time of the filing of the joint return:

All amounts previously assessed with respect to either spouse for such taxable year.
All amounts shown as the tax by either spouse upon his or her separate return for such taxable year.
Any amount determined, at the time of the filing of the joint return, as a proposed deficiency with respect to either spouse for such taxable year if, prior to such filing, a notice under section 42-1108 of such proposed deficiency has been mailed.

C. A joint return may not be made under subsection A of this section:

After the expiration of four years from the last date prescribed by law for filing the return for such taxable year, determined without regard to any extension of time granted to either spouse.
After there has been mailed to either spouse, with respect to such taxable year, a notice of deficiency under section 42-1108, if the spouse, as to such notice, appeals to the department under section 42-1251, or appeals to the state board under section 42-1253.
After either spouse has commenced a suit in any court for the recovery of any part of the tax for such taxable year.
After either spouse has entered into a closing agreement under section 42-1113, with respect to such taxable year.

D. If a joint return is made under subsection A of this section, any election, other than the election to file a separate return, made by either spouse in the separate return for such taxable year with respect to the treatment of any income, deduction or credit of such spouse shall not be changed in the making of the joint return where such election would have been irrevocable if the joint return had not been made.

E. If a joint return is made under subsection A of this section after the death of either spouse, such return with respect to the decedent may be made only by the decedent's personal representative.

F. Where the amount shown as the tax by the husband and wife on a joint return made under subsection A of this section exceeds the aggregate of the amounts shown as the tax upon the separate return of each spouse:

If any part of such excess is attributable to negligence or intentional disregard of rules and regulations, but without intent to defraud, at the time of the making of such separate return, then five per cent of the total amount of such excess shall be assessed, collected and paid as if it were a deficiency.
If any part of such excess is attributable to fraud with intent to evade tax at the time of the making of such separate return, then fifty per cent of the total amount of such excess shall be so assessed, collected and paid in lieu of the fifty per cent addition to the tax provided in section 42-1125.

G. For the purposes of section 42-1104, relating to periods of limitations upon assessment and collection, and for the purposes of section 42-1125, subsection A, relating to delinquent returns, a joint return made under this section shall be deemed to have been filed:

Where both spouses filed separate returns prior to making the joint return, on the date the last separate return was filed, but not earlier than the last date prescribed by this title for filing the return of either spouse.
Where one spouse filed a separate return prior to the making of the joint return, and the other spouse had less than one thousand dollars of taxable income and less than five thousand dollars of gross income for such taxable year, on the date of the filing of such separate return, but not earlier than the last date prescribed by law for the filing of such separate return.
Where only one spouse filed a separate return prior to the making of a joint return and the other spouse had a taxable income of more than one thousand dollars or a gross income of more than five thousand dollars for such taxable year, on the date of the filing of such joint return.

H. For the purposes of section 42-1118, relating to refunds and credits, a joint return made under this section shall be deemed to have been filed on the last date prescribed by this title for filing the return for such taxable year, determined without regard to any extension of time granted to either spouse.

I. If a joint return is made under subsection A of this section, the period of limitations provided in section 42-1104 on the making of assessments and collecting taxes shall with respect to such return include one year immediately after the date of the filing of such joint return, computed without regard to the provisions of subsection G of this section.

J. For the purposes of section 42-1125, relating to penalties in the case of fraudulent returns, the term "return" includes a separate return filed by a spouse with respect to a taxable year for which a joint return is made under subsection A of this section after the filing of such separate return.

§ 43-312 Information return of sales; nonresident real estate transactions; escrow agents; reports

A. A person licensed under section 6-813 to conduct escrow business for the purchase and sale of real property located in this state shall file an information return of sales of real property located in this state that are reported pursuant to federal reporting requirements under section 6045(e) of the internal revenue code. The person shall file the information return required by this subsection:

On or before the thirty-first day of March with respect to sales of real property located in this state that are closed on or before December 31 of the preceding calendar year.
Using the same form and format of the return filed with the internal revenue service under section 6045(e) of the internal revenue code.

B. On or before June 30, 2020, the department shall report to the joint legislative budget committee and the governor's office of strategic planning and budgeting on the estimated amount of capital gains tax paid by nonresidents of this state on real estate transactions in this state from the most recent year before tax year 2019 based on available data from the internal revenue service. On or before June 30 of each year, the department shall estimate and report to the joint legislative budget committee and the governor's office of strategic planning and budgeting on the amount of revenue collected from the sale of real estate by nonresidents that is attributed to the information return prescribed by this section in the prior tax year.

Article 2 Form, Place and Time of Filing Returns

§ 43-321 Information required in returns

Each return required to be filed under this title shall contain the following:

It shall contain or be verified by a declaration that it is made under penalties of perjury. The declaration shall be written or in a form prescribed by the department pursuant to section 42-1105, subsection B or section 42-1131.
A specific statement of the items of the taxpayer's gross income and the adjustments, deductions and credits allowed by this title.
Such other information as the department may by rule prescribe for the purpose of carrying out the provisions of this title.

§ 43-322 Signature presumed to be taxpayer's

The fact that an individual's name is signed to a return, statement or other document filed, or that the return, statement or document is signed, subscribed or verified in a manner prescribed by the department pursuant to section 42-1105, subsection B, shall be a presumption of fact that the return, statement or other document was actually signed by him.

§ 43-323 Place and form of filing returns

A. All returns required by this title shall be in such a form as the department may from time to time prescribe and shall be filed with the department.

B. The department shall prescribe a short form return for individual taxpayers who:

Are eligible and elect to pay tax based on the optional tax tables pursuant to section 43-1012.
Elect to claim the optional standard deduction pursuant to section 43-1041, subsection A, but not the increased amount for charitable deductions under section 43-1041, subsection I.
Elect not to file for credits against income tax liability other than those contained in sections 43-1072, 43-1072.01, 43-1072.02, 43-1073 and 43-1073.01.
Are not required to add any income under section 43-1021 and do not elect any subtractions under section 43-1022, except for the exemptions allowed under section 43-1023.

C. The department may provide a simplified return form for individual taxpayers who:

Are eligible and elect to pay tax based on the optional tax tables pursuant to section 43-1012.
Are residents for the full taxable year.
File as single individuals or married couples filing joint returns under section 43-309.
Are not sixty-five years of age or older or blind at the end of the taxable year.
Claim no exemptions under section 43-1023 for the taxable year.
Elect to claim the optional standard deduction under section 43-1041, subsection A, but not the increased amount for charitable deductions under section 43-1041, subsection I.
Are not required to add any income under section 43-1021 and do not elect to claim any subtractions under section 43-1022 or file for any credits under chapter 10, article 5 of this title, except the credits provided by sections 43-1072.01, 43-1072.02 and 43-1073.
Do not elect to contribute a portion of any tax refund as provided by any provision of chapter 6, article 1 of this title. Notwithstanding any provision of chapter 6, article 1 of this title, a simplified return form under this subsection shall not include any space for the taxpayer to so contribute a portion of a refund.

D. The department shall prepare blank forms for the returns and furnish them on request. Failure to receive or secure the form does not relieve any taxpayer from making any return required.

E. An individual income tax preparer who prepares more than ten original income tax returns that are timely filed during any taxable year that begins from and after December 31, 2017 shall file electronically all individual tax returns prepared by that tax preparer, for that taxable year and each subsequent taxable year. An individual income tax preparer may not charge a separate fee to the taxpayer for filing a return using the department's electronic filing program. This subsection does not apply if the taxpayer elects to have the return filed on paper or if the return cannot be filed electronically for reasons outside of the tax preparer's control.

F. Fiduciary returns, partnership returns, withholding returns and corporate returns shall be filed electronically for taxable years beginning from and after December 31, 2019, or when the department establishes an electronic filing program, whichever is later. Any person who is required to file electronically pursuant to this subsection may apply to the director, on a form prescribed by the department, for an annual waiver from the electronic filing requirement. The director may grant the waiver, which may be renewed for one subsequent year, if any of the following applies:

The taxpayer has no computer.
The taxpayer has no internet access.
Any other circumstance considered to be worthy by the director exists.

G. A waiver is not required if the return cannot be electronically filed for reasons beyond the taxpayer's control, including situations in which the taxpayer was instructed by either the internal revenue service or the department of revenue to file by paper.

§ 43-324 Rounding to the nearest dollar

The department may round fractional dollars to the nearest whole dollar and may require the taxpayer to do so in preparing any return under this title.

§ 43-325 Time for filing returns

Unless otherwise indicated:

Returns made on the basis of the calendar year shall be filed on or before the fifteenth day of April following the close of the calendar year.
Returns made on the basis of a fiscal year shall be filed on or before the fifteenth day of the fourth month following the close of the fiscal year.
For taxable years beginning from and after December 31, 2015, partnership returns are due on or before the fifteenth day of the third month following the close of the taxable year.

§ 43-327 Recomputation of tax or amended return due after federal adjustment; definition

A. If the amount of taxable income for any year of any taxpayer as reported to the United States treasury department is changed or corrected by the commissioner of internal revenue or other officer of the United States or other competent authority, or if a renegotiation of a contract or subcontract with the United States results in a change in taxable income, such taxpayer within ninety days after the final determination of such change or correction or renegotiation shall either:

File with the department a copy of the final determination, concede the accuracy of the determination or state any errors and request the department to recompute the tax owed to this state. Recomputing the tax by the department is not considered to be an audit for purposes of section 42-2059.
File an amended return as required by the department of revenue.

B. For federal changes to which section 43-1414 applies:

If the partnership passes through to each partner the partner's distributive share of any adjustments pursuant to section 43-1414, subsection B, paragraph 2, the statement provided to each partner under section 43-1414, subsection B, paragraph 2 is considered to be a change in taxable income of the partner by the commissioner of internal revenue for the taxable year of the partner in which the reviewed year of the partnership ends. The partners shall each file an amended return within one hundred fifty days after the final determination of the partnership adjustments by the internal revenue service to report their share of the partnership adjustments as reported to them in the statement provided by the partnership pursuant to section 43-1414, subsection B, paragraph 2.
If the partnership is required to report federal changes and pay the tax pursuant to section 43-1414, subsection B, paragraph 1, the partnership shall file the return required under section 43-1414, subsection A and pay the tax within ninety days after the final determination of the partnership adjustments by the internal revenue service.

C. The department may require an amended return if the department lacks the necessary information to recompute the tax owed to this state.

D. Any taxpayer filing an amended return with the United States treasury department shall also file within ninety days of the final determination by the United States treasury department an amended return with the department of revenue, which shall contain such information as it shall require.

E. For the purposes of this section, assessments under a partial agreement, closing agreement covering specific matters, jeopardy or advance payment are considered part of the final determination and must be submitted to the department with the final determination.

F. If a partial agreement, a closing agreement covering specific matters or any other agreement with the United States treasury department would be final except for a federal extension still open for flow through adjustments from other entities or other jurisdictions, the final determination is the date the taxpayer signs the agreement. Flow through adjustments are finally determined based on criteria specified in subsection H of this section.

G. The department is not required to issue refunds based on any agreement other than a final determination.

H. For the purposes of this section, "final determination" means the appeal rights of both parties have expired or have been exhausted relative to the tax year.

§ 43-328 Returns filed by persons outside the United States

If it is determined by the department, under regulations prescribed by it, that by reason of an individual being outside the United States, it is impossible or impractical to perform any one or more of the acts specified in this title, then in determining under this title whether the act was performed within the prescribed time, in respect of any liability for taxes, interest or penalties affected by the failure to perform the act within such time and in determining the amount of any credit or refund, including interest, affected by such failure, there shall be disregarded the period such person was thus unable to conform to the provisions of this title.

Article 5 Confidentiality

§ 43-381 Confidentiality of information if returns prepared by person other than taxpayer; violation; classification

A. Except as otherwise provided in section 42-2003 and excluding authorized agents of the department and of the United States internal revenue service, a person who prepares at the request of a taxpayer any report or return required under this title or who receives information from such taxpayer in order to prepare any such report or return shall not disclose to any other person in any manner except by the express permission of the taxpayer any of the information received from such taxpayer.

B. Any disclosure or use of such information other than in preparing such report or return in violation of this section is a class 1 misdemeanor.

§ 43-382 Solicitation of return preparation prohibited; classification

It is a class 1 misdemeanor for any person to solicit preparation of returns or reports required by this title by offering or giving cash or credit to the taxpayer directly or indirectly based upon all or part of an anticipated refund to the taxpayer indicated by the report or return, or to require by any contract, agreement or pledge an assignment or other transfer of all or any part of an anticipated refund to the taxpayer as indicated by the report or return.

Chapter 4 Withholding

Article 1 Withholding by Employer

§ 43-401 Withholding tax; rates; election by employee

A. Except as provided by subsections B and H of this section, every employer at the time of the payment of wages, salary, bonus or other emolument to any employee whose compensation is for services performed within this state shall deduct and retain from the compensation an amount prescribed by tables adopted by the department.

B. An employer may voluntarily elect to not withhold tax during December by notifying:

The department on a form prescribed by the department.
The employer's employees in writing in a manner prescribed by the department.

C. If the amount collected and payable by the employer to the department in each of the preceding four calendar quarters did not exceed an average of one thousand five hundred dollars, the amount collected shall be paid to the department on or before April 30, July 31, October 31 and January 31 for the preceding calendar quarter. If the amount exceeded one thousand five hundred dollars in each of the preceding four calendar quarters, the employer shall pay to the department the amount the employer deducts and retains pursuant to this section at the same time as the employer is required to make deposits of federal tax pursuant to section 6302 of the internal revenue code. On or before April 30, July 31, October 31 and January 31 each year, the employer shall reconcile the amounts payable during the preceding calendar quarter in a manner prescribed by the department, except that if the full amount collected and payable is paid timely to the department under this subsection, the employer may reconcile the amounts on or before May 10, August 10, November 10 and February 10 each year. The department by rule may allow and determine which employers qualify for annual payments of withholding taxes, with an annual report by the employer pursuant to section 43-412, subsection B, if the qualifying employer has established sufficient payment history to indicate that the employer is current and in good standing pursuant to standards established by rule. For any business that has not had a withholding certificate for the four preceding consecutive quarters, the quarterly average shall be computed in a manner prescribed by the department.

D. If an employer fails to make a timely monthly payment because prior to that reporting period it reported on a quarterly basis instead of on a monthly basis, the department shall notify the employer that it is out of compliance with this section. Notwithstanding section 42-1125, the department shall not assess a penalty against an employer for failing to make a timely monthly payment if the employer had filed and remitted all taxes due on a quarterly basis and brings all filings and payments into current compliance within thirty days after being notified by the department.

E. Each employee shall elect the amount authorized by subsection A of this section to be withheld for application toward the employee's state income tax liability. The election provided under this subsection shall be exercised by each employee, in writing on a form prescribed by the department. The election shall be made within five days of employment. Each employer shall notify the employees of the election made available under this subsection and shall have election forms available at all times. Each form shall be completed in triplicate, with one copy each for the department, the employer and the employee. The employer shall file a copy of each completed form with the department. Any employee failing to complete an election form as prescribed shall be deemed to have elected the withholding percentage prescribed by the department.

F. Before July 1 of each year, each employer who chooses to not withhold tax pursuant to subsection B of this section shall notify each employee that:

State income taxes will not be withheld from compensation in December.
The employee may elect to change the rate of withholding tax prescribed by this section to compensate for the resulting change in annual withholdings from the employee's compensation.

G. At an employee's written request, the employer may agree to reduce the amount withheld under this section by the amount of credit that the employee represents to the employer that the employee will qualify for and be entitled to under sections 43-1088, 43-1089, 43-1089.01 and 43-1089.03. The employee's request must include the name and address of the qualifying charitable organization, qualified school tuition organization or public school. Within thirty days after agreeing to the employee's request, the employer shall reduce the withholding amount by the amount of the credit, but not below zero, prorated for the number of pay periods remaining in the employee's taxable year after the employee makes the request. If an employer agrees to reduce the withholding amount pursuant to this subsection, the following apply:

Within fifteen days after the end of each calendar quarter, the employer must pay the entire amount of the reduction in withholding tax for that quarter to the designated charitable organization, school tuition organization or public school. These payments are considered to be on the employee's behalf, and not the employer's, for the purposes of qualifying for the income tax credits under sections 43-1088, 43-1089, 43-1089.01 and 43-1089.03.
The employee is responsible and accountable for the accuracy and the amount of reduction in withholding tax and the payments to the charitable organization, school tuition organization or public school.
The employer is responsible and accountable to the charitable organization, school tuition organization or public school, to the employee and to the department for actually making the required payments.
Within thirty days after the end of each calendar year, or within fifteen days after the termination of employment, the employer must furnish to each electing employee a statement of the amount withheld and paid on behalf of the employee during that year.

H. An employer shall not withhold tax on the wages of the employer's nonresident employees who are in this state on a temporary basis for the purpose of performing disaster recovery from a declared disaster during a disaster period as defined in section 42-1130.

§ 43-402 Definition of "employer"

For the purposes of this article, "employer" means the person for whom an individual performs or performed any service of whatever nature, as the employee of such person including any officer or department of the state, any political subdivision or agency of the state, any city organized under a charter or any political body not a subdivision or agency of the state, except that if the person for whom the individual performs or performed the services does not have control of the payment of the wages for such services, "employer" means the person having control of the payment of such wages.

§ 43-403 Employment excluded from withholding

A. No amount shall be deducted or retained from:

Wages or salary paid to an employee of a common carrier when such employee is a nonresident of this state as defined in section 43-104 and regularly performs services both within and without this state.
Wages paid for domestic service in a private home.
Wages paid for casual labor not in the course of the employer's trade or business.
Wages paid to part-time or seasonal employees whose services to the employer consist solely of labor in connection with the planting, cultivating, harvesting or field packing of seasonal agricultural crops, except such employees whose principal duties are operating any mechanically-driven device in such operations.
Wages or salary paid to a nonresident of this state who is:

(a) An employee of an individual, fiduciary, partnership, corporation or limited liability company having property, payroll and sales in this state, or of a related entity having more than fifty per cent direct or indirect common ownership.

(b) Physically present in this state for less than sixty days in a calendar year for the purpose of performing a service that will benefit the employer or the related entity. For purposes of determining the number of days of service in this state, days spent in the following activities are not included:

(i) In transit.

(ii) Engaging in personal activities.

(iii) Participating in training or professional development activities or attending meetings that are not directly connected to the Arizona operations of the employer or the related entity.

Wages or salary paid to a nonresident who is in this state on a temporary basis for the purpose of performing disaster recovery from a declared disaster during a disaster period as defined in section 42-1130.

B. In addition to the exemptions from the withholding provisions contained in subsection A of this section, because of the temporary nature of such employment, no amount shall be deducted or retained from wages paid to a nonresident of this state engaged in any phase of motion picture production when, prior to the time of payment of such wages, an application is made by the employer to the department, on forms prescribed by the department, for an exemption from the withholding provisions of this section and the department determines that the nonresident would be allowed a credit under section 43-1096 against all of the taxes upon such wages imposed by this chapter.

C. Subsection A, paragraph 5 of this section does not apply to a nonresident employee who is in this state solely for athletic or entertainment purposes.

D. Notwithstanding subsection A, paragraphs 4 and 5 of this section:

A nonresident employee under subsection A, paragraph 5 of this section or a part-time or seasonal employee under subsection A, paragraph 4 of this section may elect to have withholding deducted in the manner prescribed by section 43-401, subsection E and the employer shall withhold tax pursuant to that election.
The employer may elect to withhold tax from the nonresident employee before the sixty-day limitation has elapsed.

§ 43-404 Extension of withholding to pensions, annuities, retirement accounts; definitions

A. For the purposes of this title, a payment from a pension or annuity or a distribution from a retirement account to an individual, if at the time the payment or distribution is made a request by the individual that such pension, annuity, retirement account be subject to withholding under this section is in effect, shall be treated as if it were a payment of wages by an employer to an employee for a payroll period.

B. A request that payment from a pension or annuity or distribution from a retirement account be subject to withholding under this section shall be made by the payee in writing to the person that is making the pension or annuity payments or retirement account distributions and shall be accompanied by a form, prescribed by the department, executed in accordance with section 43-401, subsection E. Such a request may be denied or terminated by furnishing to the person making the payment or distribution a written statement of denial or termination.

C. Distributions from a retirement account are eligible for withholding, but only to the extent that amount is includable in the Arizona gross income of the individual who receives the distribution.

D. A request to initiate, adjust or terminate withholding under this section may be executed in writing by paper or electronic means on either a paper form prescribed by the department or the form's electronic equivalent.

E. For the purposes of this section:

"Annuity" means either of the following:

(a) An employee annuity authorized under the internal revenue code paid to an individual, but only to the extent that the amount is includable in the Arizona gross income of such individual.

(b) Specified income payable at stated intervals to an individual for a fixed or contingent period, often for that individual's life, but only to the extent that the amount is includable in the Arizona gross income of such individual.

"Pension" means either of the following:

(a) A defined benefit plan authorized under the internal revenue code paid to an individual, but only to the extent that amount is includable in the Arizona gross income for such individual.

(b) Periodic, fixed amount retirement payments made by the United States military, the United States civil service or a state or local government or a private employer to former employees and surviving spouses of former employees for prior services performed, but only to the extent that amount is includable in the Arizona gross income of such individuals.

"Retirement account" includes:

(a) A qualified retirement plan under sections 401, 403 and 457 of the internal revenue code.

(b) An individual retirement account under section 408 of the internal revenue code, including a simplified employee pension fund as defined in section 408(k) of the internal revenue code and a simple retirement account as defined in section 408(p) of the internal revenue code.

§ 43-405 Extension of withholding to gambling winnings

A. For the purposes of this title, payments of prize winnings that are subject to federal withholding pursuant to section 1441 or section 3402(q) of the internal revenue code by any of the following shall be treated as if they were payments of wages by an employer to employees for a payroll period:

The Arizona state lottery commission under title 5, chapter 5.1.
A permittee conducting horse or dog racing under title 5, chapter 1.
A fantasy sports contest operator under title 5, chapter 10.
An event wagering operator under title 5, chapter 11.

B. The entities listed in subsection A of this section shall deduct and withhold from each payment of prize winnings made to an individual an amount equal to the highest tax rate prescribed by section 43-1011.

§ 43-406 Extension of withholding to premature withdrawals of state and local government retirement contributions

For the purposes of this title and except for eligible rollover distributions transferred to an eligible retirement plan pursuant to section 401(a)(31) of the internal revenue code, amounts withdrawn from the state retirement system, the elected officials' retirement plan or a county or city retirement plan by an employee upon termination of employment prior to retirement shall be treated as if the withdrawn amounts are payment of wages by an employer to an employee and shall be subject to withholding. The amount withheld by the retirement plan or system at the time of withdrawal shall be equal to five per cent of the total amount withdrawn.

§ 43-407 Extension of withholding to unemployment compensation payments

A. For the purposes of this title, any payment of unemployment compensation to an individual who has made an election to have state income tax withheld as specified in section 23-792, subsection A, paragraph 4, shall be treated as a payment of wages by an employer to an employee for a payroll period. The amount withheld at the time of payment shall be ten per cent of federal income tax deducted and withheld.

B. An election that unemployment compensation payments be subject to withholding under this section shall be made by the payee in writing to the person making unemployment compensation payments and shall be accompanied by a form as prescribed by the department. A request to terminate withholding may be submitted at any time by the payee and shall be in writing to the payor.

§ 43-408 Voluntary withholding on out-of-state wages

A. If a resident of this state is employed outside the state, the person may request the employer to withhold taxes pursuant to this article on wages earned for the services performed outside the state.

B. If the employee and employer agree to the voluntary withholding of tax, in a manner prescribed by the department, the employee and employer are subject to this chapter as if the employer were required to withhold taxes.

§ 43-409 Job creation withholdings clearing account

A. The job creation withholdings clearing account is established consisting of $10,500,000 in each fiscal year.

B. On the twentieth day of each month, the state treasurer shall credit the following amounts from the clearing account:

To the Arizona commerce authority fund established by section 41-1506, one-twelfth of the annual sum of $10,000,000 in each fiscal year.
To the Arizona competes fund established by section 41-1545.01, one-twelfth of the annual sum of $500,000 in each fiscal year.

Article 2 Rights and Duties of Employers

§ 43-411 Employer entitled to address of employee

When necessary to make effective the provisions of this chapter, the name and address of the recipient of income shall be furnished upon demand of the person paying the wages. The department shall furnish the person paying the wages with forms to be signed by the person from whom the tax is being withheld. Such forms shall provide for the information the department deems necessary.

§ 43-412 Returns of withholding to be filed with department

A. Every employer at the time of filing a reconciliation pursuant to section 43-401, subsection C shall deliver to the department a return in the form prescribed by the department showing the total amount of wages, salaries, bonuses or other emoluments paid to employees, the amount deducted pursuant to this chapter and such other information as the department may require. The employer shall advise the employee of the amount of monies withheld, in accordance with such rules as the department may prescribe, using printed forms furnished by the department for such purposes or, when requested by the employer, on forms approved by the department.

B. The employer shall make an annual return for the calendar year to the department on forms provided by it summarizing the total compensation paid and the tax withheld for each employee during the calendar year and shall file the return with the department on or before January 31 of the year following the year for which the report is made. The department may extend the filing deadline on a showing of good cause by the employer. The return required by this section shall contain or be verified by a written declaration that it is made under the penalties of perjury.

§ 43-413 Statement of withholding to employees

The employer, within thirty-one days after the end of each calendar year, shall furnish each employee with either a statement of the amount withheld during the previous tax year, showing the gross earnings and the amount of tax withheld or, if the termination of employment is before the end of the year, within fifteen days after the termination of employment, a summary statement showing the total earnings for the tax year and the amount of taxes withheld from compensation.

§ 43-414 Liability for failure to withhold

The employer shall be liable to the department for the payment of the tax required to be deducted and withheld under this chapter, and the employee shall not be liable for the amount of any such payment nor shall the employer be liable to any person or any employee for the amount of any such payment. For the purpose of making penalty sections of this title applicable, any amount deducted or required to be deducted and remitted to the department under this chapter shall be considered the tax of the employer and with respect to such amounts he shall be considered as a taxpayer.

§ 43-415 Withholdings as trust fund for state

Whenever any employer is required to collect or withhold the tax imposed by this title from any employee and to pay such tax over to the department, the amount of tax so collected or withheld shall be held to be a special fund in trust for this state. The amount of such fund shall be assessed, collected and paid in the same manner and subject to the same provisions, limitations and penalties as are applicable with respect to the taxes from which such fund arose.

§ 43-416 Failure to remit withholding; classification

Any employer entrusted with or having in his control any tax required to be collected or withheld and constituting a "special fund in trust for this state" pursuant to section 43-415, who fraudulently appropriates, or secretes with a fraudulent intent to appropriate, to any use or purpose not in the due and lawful execution of the trust, pursuant to this article or any portion is guilty of a class 4 felony.

§ 43-417 Withholding without resort to legal action

Any person required to withhold and transmit any amount pursuant to this chapter shall comply with the requirement without resort to any legal or equitable action in a court of law or equity.

§ 43-418 Payroll service company; registration; definitions

A. For withholding tax returns due to be filed from and after May 31, 2011, a person shall not act as a payroll service company unless the person is registered with the department under this section.

B. A person shall apply to the department electronically for registration as a payroll service company under this subsection and the department shall grant the application if the application indicates that the person will comply with this section.

C. A payroll service company registered with the department under this section shall:

Be authorized in writing pursuant to section 42-2003 by each client to act on behalf of the client with respect to this state's withholding tax.
Keep a client's monies held for payment of state withholding taxes or other obligations in an account separate from the payroll service company's own monies.
Make payments electronically and file returns electronically with the department in compliance with the department's requirements for electronic payments and electronic filing.
Electronically provide to the department a client list and electronically update the client list at least monthly, by the first of every month. The client list shall include at least the name, address, tax identification number and federal deposit frequency of each client. The address listed for the client must be the client's actual street or post office box address and not the payroll service company's address.
Timely file all returns and timely make all withholding tax payments required under its contracts with its clients.
On request, provide to the department, within the time specified in the request, a copy of any contract with a client.
Comply with all other requirements of this section or rules adopted pursuant to this section.

D. A payroll service company may terminate its registration by written notice to the department.

E. For the purposes of this section:

"Client" means another employer for whom a payroll service company provides payroll services for a fee.
"Payroll service company" means a person who has custody or control over a client's monies for the purpose of paying the withheld taxes and filing returns of a client with the department.
"Person" means an individual, fiduciary, partnership, corporation, limited liability company, association or other entity organized under the laws of this state or any other jurisdiction.

§ 43-419 Electronic remittance and filing required by payroll service company; penalty; definitions

A. For withholding tax returns due to be filed from and after May 31, 2011, a payroll service company remitting amounts due as prescribed in section 43-401, subsection C on behalf of a client shall make all payments electronically. If a payroll service company remits a payment in a manner other than electronically, the payroll service company shall pay a penalty in the amount of twenty-five dollars per client, per payment, unless it is shown that the failure to pay electronically is due to reasonable cause and not due to wilful neglect.

B. For withholding tax returns due to be filed from and after May 31, 2011, a payroll service company reconciling amounts payable during the preceding quarter in accordance with section 43-401, subsection C on behalf of a client shall file all required quarterly returns electronically. If a payroll service company files a required quarterly return in a manner other than electronically, the payroll service company shall pay a penalty in the amount of twenty-five dollars per client, per return, unless it is shown that the failure to file electronically is due to reasonable cause and not due to wilful neglect.

C. For withholding tax returns due to be filed from and after May 31, 2011, a payroll service company filing an annual payment return as allowed by rule and in accordance with section 43-401, subsection C on behalf of a client shall file all required annual returns electronically. If a payroll service company files a required annual return in a manner other than electronically, the payroll service company shall pay a penalty in the amount of twenty-five dollars per client, per return, unless it is shown that the failure to file electronically is due to reasonable cause and not due to wilful neglect.

D. For the purposes of this section, "client", "payroll service company" and "person" have the same meanings prescribed in section 43-418.

Article 3 Withholding as Payment of Tax for Employee

§ 43-431 Amounts withheld considered part payment of tax

The amounts deducted from the wages of an employee during any calendar year in accordance with the provisions of this chapter shall be considered to be paid in part payment of the tax on such employee's taxable income for his tax year which begins within such calendar year, and the return made by the employer pursuant to section 43-412 may be accepted by the department as prima facie evidence of the amounts so deducted from his wages.

§ 43-432 Refund for excess withholding

A. When the total amount withheld under section 43-401 exceeds the amount of the tax on the employee's entire taxable income as computed under this title, the department shall, after auditing the annual return filed by the employee in accordance with chapter 3 of this title, and without requiring a filing of a refund claim as provided in section 42-1106, subsection A, refund the amount of the excess withheld, subject to setoff for debts pursuant to section 42-1122. Failure of the department to make such refund shall not limit the right of the taxpayer to file a claim for a refund as provided in chapter 6, article 1 of this title. If the excess tax withheld is less than one dollar, no refund shall be made unless specifically requested by the taxpayer at the time such return is filed. In no event shall any excess be allowed as a credit against any tax accruing on a return filed for a year subsequent to the year during which such excess was withheld, the provisions of chapter 6 of this title notwithstanding.

B. The department may make separate refunds of withheld taxes upon request by a husband or wife who has filed a joint return, the refund payable to each spouse being proportioned to the gross earnings of each shown by the information returns filed by the employer or otherwise shown to the satisfaction of the department. If a taxpayer entitled to a refund under this subsection dies, the department may certify to the department of administration that the refund be made to the taxpayer's duly appointed executor, administrator or personal representative.

§ 43-433 Remedies for withheld taxes

Any taxpayer from whom a tax is collected by withholding under this chapter is entitled to the remedies set forth in chapter 6 of this title.

§ 43-434 Exemption in case of nonresident employees

In the case of nonresident employees who are residents of another state and are allowed a tax credit for income taxes paid to their state of residency or domicile under the provisions of section 43-1096, sufficient in amount to offset the tax required by this chapter to be withheld from the wages of an employee, the department may by rules and regulations relieve the employers of such employees from withholding requirements of this chapter with respect to such employees.

§ 43-435 Failure to collect and pay over tax; personal liability

Any person required to collect, truthfully account for and pay over any tax imposed by this title who fails to do so is, in addition to other penalties provided by law, personally liable for the total amount of the tax not collected or accounted for and paid over.

Chapter 5 Payment and Collection of Tax

Article 1 Time and Place for Payment of Tax

§ 43-501 When taxes are payable

The tax imposed under this title shall be paid on the fifteenth day of April following the close of the calendar year or, if the return is made on the basis of a fiscal year, on the fifteenth day of the fourth month following the close of the fiscal year, except that:

For an S corporation the tax imposed shall be paid on the fifteenth day of the third month following the close of the taxable year.
For unrelated business taxable income of a tax exempt organization the tax imposed shall be paid on the fifteenth day of the fifth month following the close of the taxable year.

§ 43-504 Tax payments made in advance

Any taxpayer may elect to pay the tax prior to the date prescribed for its payment.

§ 43-505 Tax payments made to department; order of crediting

A. The tax and any interest and penalties shall be paid to the department. Remittances may be in the form of a check payable to the department during such time and under such regulations as the director may prescribe. If a check is not paid by the bank on which it is drawn, the taxpayer tendering the check shall remain liable for the payment of the tax and all interest and penalties as if he had not tendered the check.

B. The department shall credit payments against a taxpayer's unpaid tax liability before crediting payments against any interest or penalties.

Article 5 Collections

§ 43-562 Husband and wife, liability for tax

The spouse who controls the disposition of or who receives or spends community income as well as the spouse who is taxable on such income is liable for the payment of the taxes imposed by this title on such income. If a joint return is filed, the liability for the tax on the aggregate income is joint and several.

§ 43-563 Recovery of erroneous refunds

The department of revenue may recover any refund or credit or any portion which is erroneously made or allowed, together with interest at the rate determined pursuant to section 42-1123 from the date the refund was made or the credit allowed, in an action brought within two years after the refund or credit was made in a court of competent jurisdiction in Maricopa county in the name of the department of revenue. The action shall be tried in Maricopa county unless the court with the consent of the department of law orders a change of place of trial. The department of law shall prosecute the action, and the rules of civil procedure in the superior court of Arizona, as amended, relating to service of summons, pleadings, proofs, trials and appeals are applicable to the proceeding.

§ 43-567 Lien for tax on trust income

A. Upon the recording of an abstract of judgment or a copy thereof by the department with the county recorder of any county for any taxes, interest and penalties due from the grantor of the trust on income of the trust which is taxable to the grantor under chapter 13 of this title, and upon its giving notice of the recording to the fiduciary or fiduciaries of the trust, the amount of the taxes, interest and penalties constitute a lien upon all property of the trust in the county owned by the trust and any property acquired before the expiration of the lien. The lien has the force, effect and priority of a judgment lien.

B. The notice required to be given by subsection A of this section may be served upon the fiduciary personally or by mail. If made by mail, service shall be made by registered mail and shall be addressed to the fiduciary at his address as it appears in the records of the department.

Article 6 Estimated Tax

§ 43-581 Payment of estimated tax; rules; penalty; forms

A. An individual who is subject to the tax imposed by section 43-1011 and whose Arizona gross income, as defined by section 43-1001, or as described by section 43-1091 in the case of nonresidents, for the taxable year exceeds $75,000 or $150,000 if a joint return is filed and whose Arizona gross income was greater than $75,000 in the preceding taxable year or $150,000 in the preceding taxable year if a joint return is filed shall make payments of estimated tax during the individual's taxable year. The amount of the payments of estimated tax shall be an amount that reasonably reflects a taxpayer's Arizona income tax liability that will be unpaid at the end of the taxpayer's taxable year. This amount shall be paid in four installments on or before the due dates established by the internal revenue code and shall total, when combined with the taxpayer's withholding tax, at least ninety percent of the tax due for the current taxable year or one hundred percent of the tax due for the preceding taxable year.

B. Any other individual who is subject to the tax imposed by this title may make payments of estimated tax during the individual's taxable year. The amount of any estimated tax payments for the taxable year shall be an amount that reasonably reflects a taxpayer's Arizona income tax liability that will be unpaid at the end of the taxpayer's taxable year.

C. For taxable years beginning from and after December 31, 2021, an entity that is treated as a partnership or S corporation for federal income tax purposes, that elects to pay the tax under section 43-1014 and whose taxable income for the taxable year exceeds $150,000 in the preceding taxable year shall make payments of estimated tax during the taxable year in a manner that is consistent with the manner prescribed in this section for individuals.

D. The department shall prescribe rules for the payments of estimated tax that shall provide for estimated payments in a manner similar to the manner prescribed in the internal revenue code.

E. If the taxpayer does not pay the estimated tax required by subsection A or C of this section on or before the prescribed dates, there is assessed and the department shall collect a penalty on the unpaid amount as prescribed by section 42-1125, subsection Q. Penalties or interest shall not be assessed or collected if either of the following applies:

The estimated tax payments made pursuant to this section are allowable exceptions under section 6654 of the internal revenue code.
The taxpayer's Arizona income tax liability due on the taxpayer's return is less than $1,000. For the purposes of this paragraph, "Arizona income tax liability due on the taxpayer's return" means the amount of tax due on the return minus the amount of Arizona income tax withheld and tax credits claimed by the taxpayer.

F. The department shall make available suitable forms and instructions to taxpayers who make estimated tax payments pursuant to this article.

§ 43-582 Payment of estimated tax by corporations; penalty; forms

A. A corporation that is subject to the tax imposed by this title shall pay estimated tax during the corporation's taxable year if the corporation's tax liability under this title for the taxable year is at least one thousand dollars. The tax liability under this title is the excess of the tax imposed by section 43-1111 over any tax credits allowed by this title.

B. Except as otherwise provided in this section, the amount of the required annual payment is the lesser of:

Ninety per cent of the tax shown on the return for the taxable year or, if no return is filed, ninety per cent of the tax for that year.
One hundred per cent of the tax shown on the corporation's return for the preceding taxable year, except that this paragraph does not apply if:

(a) The preceding taxable year was not a taxable year of twelve months.

(b) The corporation did not file a return for the preceding taxable year showing a liability for tax.

C. The required annual payment under subsection B of this section for a large corporation is the amount prescribed by subsection B, paragraph 1 of this section except for purposes of determining the amount of the first required installment for the taxable year. Any reduction in the first installment by reason of this subsection shall be recaptured by increasing the amount of the next required installment determined under subsection B, paragraph 1 of this section by the amount of the reduction. For the purposes of this subsection, "large corporation" means a corporation or unitary group of corporations if the corporation, or a predecessor corporation, had federal taxable income of one million dollars or more for any of the immediately preceding three taxable years, excluding any federal net operating loss or capital loss carrybacks or carryovers.

D. The required annual payment for an S corporation, as defined in section 1361 of the internal revenue code, is the lesser of:

The amount determined under subsection B, paragraph 1 of this section.
The sum of:

(a) The amount determined under subsection B, paragraph 1 of this section for the portion of the tax liability under this title that is attributable to built in gains income or certain capital gains income.

(b) One hundred per cent of the tax liability under this title that is attributable to excess passive income on the return of the S corporation for the preceding taxable year.

E. For the purposes of subsection D of this section:

The requirement that the S corporation's return for the previous taxable year show a liability for tax related to excess passive income does not apply.
Subsection D, paragraph 2 of this section does not apply if the preceding taxable year had fewer than twelve months.

F. Four installments of payments of estimated tax are required each taxable year. The due dates for the installments are the due dates prescribed by section 6655 of the internal revenue code. Unless otherwise prescribed by this section, the amount of each installment payment is twenty-five per cent of the required annual payment, but a lower required installment payment, as established and in the manner prescribed by section 6655 of the internal revenue code, applies if the lower installment is less than twenty-five per cent of the required annual payment. If a taxable year begins on a date other than January 1, the installment payments are due during months of that fiscal year that correspond to the prescribed months of a calendar year.

G. If a taxpayer fails to pay the full amount of estimated tax, or any required installment, under this section, the taxpayer is subject to a penalty, as prescribed by section 42-1125, subsection Q. For the purposes of this subsection:

The amount of underpayment is the excess of the required installment payment over the amount, if any, of the installment paid on or before the due date for the payment.
A payment of estimated tax shall be credited against unpaid required installment payments in the order in which the installments are required to be paid.

H. The department shall:

Apply this section to taxable years of less than twelve months according to the treasury regulations for section 6655 of the internal revenue code.
Adopt rules that are necessary to administer and enforce this section.
Make available suitable forms and instructions to taxpayers that make estimated tax payments pursuant to this section.

§ 43-583 Payment of estimated tax by small business taxpayers; penalty; forms

A. A small business taxpayer that is subject to the tax imposed by chapter 17 of this title shall pay estimated tax during the small business taxpayer's taxable year if the small business taxpayer's tax liability under chapter 17 of this title for the taxable year is at least $1,000. The tax liability under chapter 17 of this title is the excess of the tax imposed by section 43-1711 over any tax credits allowed by chapter 17, article 5.

B. Except as otherwise provided in this section, the amount of the required annual estimated tax payment is the lesser of:

Ninety percent of the tax shown on the return for the taxable year or, if no return is filed, ninety percent of the tax for that year.
One hundred percent of the tax shown on the small business income tax return for the preceding taxable year, except that this paragraph does not apply if:

(a) The preceding taxable year was not a taxable year of twelve months.

(b) The small business did not file a return for the preceding taxable year showing a liability for tax.

Zero for taxable years beginning on or before December 31, 2021.

C. Four installments of estimated tax payments are required each taxable year. The due dates for the installments are the due dates prescribed by section 6654 of the internal revenue code. Unless otherwise prescribed by this section, the amount of each installment payment is twenty-five percent of the required annual estimated tax payment. If a taxable year begins on a date other than January 1, the installment payments are due during months of that fiscal year that correspond to the prescribed months of a calendar year.

D. If a taxpayer fails to pay the full amount of estimated tax or any required installment under this section, the taxpayer is subject to a penalty as prescribed by section 42-1125, subsection Q. For the purposes of this subsection:

The amount of underpayment is the excess of the required installment payment over the amount, if any, of the installment paid on or before the due date for the payment.
A payment of estimated tax shall be credited against unpaid required installment payments in the order in which the installments are required to be paid.

E. The department shall:

Adopt rules that are necessary to administer and enforce this section.
Make available suitable forms and instructions to taxpayers who make estimated tax payments pursuant to this section.

Chapter 6 Abatements, Credits and Refunds

Article 1 Refunds

§ 43-611 Protest of tax deemed claim for refund

If, with or after the filing of a protest or an appeal with the department of revenue, state board of tax appeals or the superior court, a taxpayer pays the tax protested or appealed before the department, board or superior court acts upon the protest or the appeal, such body shall treat the protest or the appeal as a claim for refund or an appeal from the denial of a claim for refund filed under this article.

§ 43-612 Contribution of portion of income tax refund to political parties trust fund

A. The department shall provide a space on the individual income tax return form in which the taxpayer may designate an amount of the taxpayer's refund as a voluntary contribution to the political parties trust fund established under section 16-807. The form shall allow the taxpayer to choose among contribution amounts of ten dollars, five dollars or two dollars and shall require the taxpayer to designate the contribution to a political party currently qualified for representation on the state primary and general election ballot pursuant to title 16, chapter 5, article 1. If the contribution is not designated to a qualified political party, the monies shall not be subtracted from the refund and the refund shall be handled as if no voluntary contribution was made.

B. After subtracting any setoff for debts pursuant to section 42-1122 the department shall subtract the designated amount from the refund due the taxpayer and deposit it, pursuant to sections 35-146 and 35-147, in the fund.

C. The taxpayer may also donate any amount to the political parties trust fund, in lieu of or in addition to the designated portion of the refund, by an appropriate indication on the return and by including such amount with the return. If no political party is designated with the donation, the donation shall be returned.

§ 43-613 Contribution to child abuse prevention fund

A. Unless not required pursuant to subsection B of this section, the department shall provide a space on the individual income tax return form in which the taxpayer may designate an amount of the taxpayer's refund as a voluntary contribution to the child abuse prevention fund established under section 8-550.01.

B. After subtracting any setoff for debts pursuant to section 42-1122 the department of revenue shall subtract the designated amount from the refund due the taxpayer and transfer it to the department of child safety for credit to the fund. The department of child safety shall separately account for the monies in the fund derived from contributions under this section and notify the department of revenue if such monies exceed ten million dollars. If these monies do exceed ten million dollars on June 30, this section does not apply and the department of revenue shall not provide the space otherwise required by this section on the tax return for that taxable year.

C. The taxpayer may also donate any amount to the child abuse prevention fund, in lieu of or in addition to the designated portion of the income tax refund, by an appropriate indication on the return and by including that amount with the return.

§ 43-614 Contribution of portion of refund to special olympics

B. After subtracting any setoff for debts pursuant to section 42-1122 the department of revenue shall subtract the designated amount from the refund due the taxpayer. The department of revenue shall transfer the designated amount to the department of economic security for credit to the special olympics tax refund fund.

C. The taxpayer may also donate any amount to the special olympics tax refund fund, in lieu of or in addition to the designated portion of the income tax refund, by an appropriate indication on the return and by including that amount with the return.

§ 43-615 Contribution to game, nongame, fish and endangered species fund

C. The taxpayer may also donate any amount to the game, nongame, fish and endangered species fund, in lieu of or in addition to the designated portion of the income tax refund, by an appropriate indication on the return and by including such amount with the return.

§ 43-616 Contribution to neighbors helping neighbors fund

C. The taxpayer may also donate any amount to the fund, in lieu of or in addition to the designated portion of the income tax refund, by an appropriate indication on the return and by including that amount with the return.

§ 43-617 Contribution for solutions teams assigned to schools

A. The department shall provide a space on the individual income tax return form in which the taxpayer may designate all or any amount of the taxpayer's refund as a voluntary contribution for funding solutions teams assigned to schools as provided in section 15-973.01.

B. After subtracting any setoff for debts pursuant to section 42-1122, the department shall subtract the designated amount from the refund due the taxpayer and transfer it to the state board of education, which shall credit the amount of the contribution to the assistance for education fund established pursuant to section 15-973.01. The department shall determine the initial administrative cost of this section and report the amount to the state board of education, which shall transfer that amount from the assistance for education fund to the state general fund.

§ 43-618 Contribution to domestic violence services fund

C. The taxpayer may also donate any amount to the fund, in lieu of or in addition to the designated portion of the tax refund, by an appropriate indication on the return and by including that amount with the return.

§ 43-619 Contribution to the spaying and neutering of animals fund

A. The department shall provide a space on the individual income tax return form in which a taxpayer may designate an amount of the taxpayer's refund as a voluntary contribution to the spaying and neutering of animals fund established by section 28-2422.02. The taxpayer may also donate any additional amount to the spaying and neutering of animals fund, in lieu of or in addition to the designated portion of the tax refund, by an appropriate indication on the return and by including that amount with the return.

B. After subtracting any setoff for debts pursuant to section 42-1122, the department shall subtract the designated amount from the refund due the taxpayer or add to the liability owed by the taxpayer and transfer it to the companion animal spay and neuter committee established by section 28-2422.01 for deposit in the spaying and neutering of animals fund. The department shall determine the initial administrative cost of this section and report that amount to the companion animal spay and neuter committee, which shall transfer that amount to the state general fund.

§ 43-620 Contribution to veterans' donations fund

B. After subtracting any setoff for debts pursuant to section 42-1122, the department of revenue shall subtract the designated amount from the refund due the taxpayer and transfer it to the department of veterans' services for deposit in the veterans' donations fund. The department of revenue shall determine the initial administrative cost of this section and report the amount to the department of veterans' services. The department of veterans' services shall transfer that amount to the state general fund.

C. The taxpayer may also donate any amount to the veterans' donations fund, in lieu of or in addition to the designated portion of the tax refund, by an appropriate indication on the return and by including that amount with the return.

§ 43-621 Contribution to I didn't pay enough fund

C. The taxpayer may also donate any amount to the I didn't pay enough fund, in lieu of or in addition to the designated portion of the tax refund, by an appropriate indication on the return and by including that amount with the return.

§ 43-622 Contribution to sustainable state parks and roads fund

C. The taxpayer may also donate any amount to the sustainable state parks and roads fund, in lieu of or in addition to the designated portion of the tax refund, by an appropriate indication on the return and by including that amount with the return.

Article 3 Other Tax Abatements

§ 43-645 Interest on related items or where related taxpayers exist

A. If the correction of an erroneous inclusion or deduction of an item or items in the computation of income of a trust, estate or individual for any year results in an overpayment for such year by such trust, estate or individual and also results in a deficiency for the same year for a grantor of such trust or beneficiary of such estate or trust or spouse or child of such individual or spouse of such child, the overpayment, if the period within which credit for the overpayment may be allowed has not expired, shall be credited on the deficiency if the period within which the deficiency may be proposed has not expired, and the balance, if any, shall be credited or refunded. No interest shall be assessed on such portion of the deficiency as is extinguished by the credit for the period of time subsequent to the date the overpayment was made.

B. If the correction of an erroneous inclusion or deduction of an item or items in the computation of income of a grantor or a trust, beneficiary of an estate or trust, a child, or spouse of such child, or a spouse for any year results in an overpayment for such year by such grantor, beneficiary, child or spouse, and also results in a deficiency for the same year for such trust, estate or individual, the overpayment, if the period within which credit for the overpayment may be allowed has not expired, shall be credited on the deficiency, if the period within which the deficiency may be proposed has not expired, and the balance, if any, shall be credited or refunded. No interest shall be assessed on such portion of the deficiency as is extinguished by the credit for the period of time subsequent to the date the overpayment was made.

C. This section is not intended, nor shall it be construed as a limitation on the department's right to offset or recoup barred assessments against overpayments.

Chapter 7 Jeopardy Assessments; Bankruptcy; Receivership

Article 2 Bankruptcy or Receivership

§ 43-721 Immediate assessment upon bankruptcy or receivership

Upon the adjudication of bankruptcy of any taxpayer in any bankruptcy proceeding or the appointment of a receiver for any taxpayer in any receivership proceeding before any court of the United States or of any state, any deficiency, interest, additional amounts or additions to the tax provided for by law determined by the department in respect of a tax imposed by this title upon the taxpayer may be immediately assessed.

§ 43-722 Notice of bankruptcy or receivership to department

The trustee in bankruptcy or receiver shall give notice in writing to the department of the adjudication of bankruptcy or the appointment of the receiver. The running of the statute of limitations on the making of assessments shall be suspended for the period from the date of adjudication in bankruptcy or the appointment of the receiver to a date thirty days after the date upon which the notice from the trustee or receiver is received by the department but in no case shall the suspension be for a period in excess of two years.

§ 43-723 Claim for tax in case of bankruptcy or receivership

Claims for the deficiency and such interest, additional amounts and additions to the tax may be presented, for adjudication in accordance with law, to the court before which the bankruptcy or receivership proceeding is pending despite the pendency of proceedings for reassessment of the deficiency pursuant to a protest or an appeal to the department or an appeal to the superior court. No appeal from the action of the department to a superior court may be filed after the adjudication of bankruptcy or the appointment of a receiver.

§ 43-724 Collection of tax in case of bankruptcy or receivership

Upon notice and demand from the department after termination of the bankruptcy or receivership proceeding, the taxpayer shall pay any portion of the claim allowed in the proceeding which is unpaid. Such unpaid amount may be collected in the manner provided in this title for the collection of delinquent taxes at any time within six years after the termination of the proceeding.

Chapter 9 General Accounting Provisions

Article 1 Accounting Considerations

§ 43-901 Taxable income computation

Taxable income shall be computed on the basis of the taxpayer's taxable year as defined in section 441 of the internal revenue code.

§ 43-902 Period in which deductions and credits to be taken

The deductions and credits provided for in this title shall be taken for the taxable year in which "paid or accrued" or "paid or incurred", dependent upon the method of accounting upon the basis of which the taxable income is computed, unless in order clearly to reflect the income the deductions or credits should be taken as of a different period. In the case of the death of a taxpayer whose taxable income is computed upon the basis of the accrual method of accounting, amounts except amounts includible in computing a partner's taxable income under section 43-1412, accrued as deductions and credits only by reason of the death of the taxpayer, shall not be allowed in computing taxable income for the period in which falls the date of the taxpayer's death.

Article 2 Change in Law; Effect on Fiscal Year Taxpayer

§ 43-921 Computation of tax when law changed

The tax for any period beginning in one calendar year ("first calendar year") and ending in the following calendar year ("second calendar year") where the law applicable to the computation of taxes for taxpayers reporting on a calendar year basis differs for the second calendar year from the law applicable to the first calendar year, shall, except as otherwise provided, be the sum of paragraphs 1 and 2:

The same proportion of a tax for the entire period, determined under the law applicable to the first calendar year and at the rates for such year, which the portion of such period falling within the first calendar year is of the entire period.
The same proportion of a tax for the entire period, determined under the law applicable to the second calendar year and at the rates for such year, which the portion of such period falling within the second calendar year is of the entire period.

§ 43-922 Payment or refund of tax when law changed

If any tax which has been paid under the law applicable to the first calendar year exceeds the tax imposed by section 43-921, the excess shall be refunded or credited to the taxpayer. Any tax in addition to that paid under the law applicable to the first calendar year made necessary by such section is immediately due and payable upon notice and demand from the department.

§ 43-923 Change in tax rates

If any rate of tax imposed by this title changes and if the taxable year includes the effective date of the change, unless that date is the first day of the taxable year, then:

Tentative taxes shall be computed by applying the rate for the period before the effective date of the change, and the rate for the period on and after such date, to the taxable income for the entire taxable year.
The tax for such taxable year shall be the sum of that proportion of each tentative tax which the number of days in each period bears to the number of days in the entire taxable year.

Article 3 Returns for a Period of Less Than Twelve Months

§ 43-931 Change of accounting period; computation of income; due date of return

If a separate return is made under section 443 of the internal revenue code on account of a change in the accounting period, and in all other cases in which a separate return is required or allowed by treasury regulations to be made for a fractional part of a year, the income shall be computed on the basis of the period for which the separate return is made. Except for partnership and S corporation returns, the due date of the separate return for the period is the fifteenth day of the fourth month following the close of that period unless the short period return is due to a change in ownership of a corporation, in which case the due date shall be determined pursuant to treasury regulations. For a partnership or S corporation, the due date of the separate return for the period is the fifteenth day of the third month following the close of that period.

§ 43-932 Return for a taxpayer not in existence throughout a complete taxable year

In the case of a taxpayer not in existence during the whole of an annual accounting period ending on the last day of a month or if the taxpayer has no annual accounting period or does not keep books during the whole of a calendar year, the return shall be made for the fractional part of the year during which the taxpayer was in existence.

Article 4 Allocation of Income and Deductions by the Department

§ 43-941 Allocation in the case of affiliated taxpayers

A. In any case of two or more persons, organizations, trades or businesses, whether or not organized in the United States and whether or not affiliated, owned or controlled directly or indirectly by the same interests, the department may distribute, apportion or allocate gross income, deductions, credits or allowances between or among such taxpayers, if it determines that such distribution, apportionment or allocation is necessary in order to prevent evasion of taxes or clearly to reflect the income of any such taxpayers.

B. For the purpose of enforcing this section, the department may require the filing of a combined report and such other information as it deems necessary unless the taxpayer has elected or is required to file a consolidated return pursuant to section 43-947.

§ 43-942 Allocation in the case of controlled corporations

A. In any case of two or more corporations owned or controlled directly or indirectly by the same interests, the department may distribute, apportion or allocate gross income, deductions, credits or allowances between or among such taxpayers, if it determines that such distributions, apportionment or allocation is necessary in order to prevent evasion of taxes or clearly to reflect the income of any such taxpayer.

§ 43-943 Allocation in the case of husband and wife

If husband and wife file separate returns, the department may distribute, apportion or allocate gross income between the spouses, if it is determined that such distribution, apportionment or allocation is necessary in order to reflect the proper income of the spouses.

§ 43-944 Disclosure by department of basis of allocation

If the department reallocates income or deductions upon its examination of any return, it shall, upon the written request of the taxpayer, disclose to him the basis upon which its reallocation has been made.

§ 43-945 Allocation of exemptions for blind persons and persons over sixty-five years of age

In the case of a return made for a fractional part of the year, the exemptions allowed under section 43-1023 shall be reduced respectively to an amount that bears the same ratio to the full exemptions provided as the number of months in the period for which the return is made bears to twelve months.

§ 43-946 Transactions between corporations and affiliated taxpayers

In the case of a corporation doing business within the meaning of this title, whether under agreement or otherwise, in such manner as either directly or indirectly to benefit any members or stockholders of the corporation or any person or persons directly or indirectly interested in such business by rendering services of any nature whatsoever or acquiring or disposing of its products or the goods or commodities in which it deals, at less than a fair price therefor, the department, in order to prevent evasion of taxes or clearly to reflect the income of such corporation, may require a report of such facts as it deems necessary and may determine the amount which shall be deemed to be the entire taxable income allocable to this state of the business of such corporation for the calendar or fiscal year and compute the tax upon such taxable income. In determining the entire taxable income the department shall have regard to the fair profits which, but for any agreement, arrangement or understanding, might be or could have been obtained from dealing in such products, goods or commodities.

§ 43-947 Consolidated returns by an affiliated group of corporations; definitions

A. On or before the due date, including any extensions, for filing the original return for taxable years beginning from and after December 31, 1993, the common parent of an affiliated group may elect to consolidate the taxable income of all members of the affiliated group, regardless of whether each member is subject to tax under this title.

B. The affiliated group shall file a consolidated return for the year of election and for each succeeding taxable year, unless the department consents to a change of filing method. The election under subsection A by the common parent of the affiliated group is not effective unless it is accompanied by written consents to the election signed by each of the members of the affiliated group. In taxable years after the year of the election, a corporation that was not a member of the Arizona affiliated group in the year of the election but is a member of the affiliated group in the current year is considered to have waived any objection to the filing of the consolidated return to this state by its consent, if any, to join in filing a federal consolidated return pursuant to section 1501 of the internal revenue code by the election previously made by the common parent of the Arizona affiliated group and by the consent of the other members of the Arizona affiliated group previously given and shall be included in the Arizona affiliated group.

C. The department may require a consolidated return for an affiliated group that is eligible, but has not elected, to file a consolidated return under this section if the department determines that a consolidated return is necessary to prevent evasion of taxes or to clearly reflect the taxable income that is attributable to the business conducted in this state by the affiliated group.

D. An affiliated group may file a consolidated return to this state only if the affiliated group properly elected or was required to file a consolidated federal return under section 1501 of the internal revenue code.

E. The Arizona gross income of an Arizona affiliated group is the consolidated federal taxable income of the affiliated group.

F. The affiliated group shall allocate and apportion its income to this state in the manner prescribed in chapter 11, article 4 of this title. For the purposes of allocation and apportionment of income, the Arizona affiliated group is considered to be and shall be treated as a single taxpayer.

G. The department may adopt administrative rules as appropriate to implement this title and title 42 as they relate to consolidated returns by Arizona affiliated groups.

H. For any tax year, all members of an Arizona affiliated group that elected or were required to file a consolidated return to this state under this section are jointly and severally liable for the taxes, interest and penalties of the Arizona affiliated group under this title and title 42.

I. As used in this section:

"Affiliated group" means the corporations that have properly elected or are required to file consolidated federal income tax returns under section 1501 of the internal revenue code.
"Arizona affiliated group" means the corporations for which a proper election to file a consolidated return under this section has been made or the corporations that are required to file a consolidated return under subsection C.

Article 5 Transferee Liability

§ 43-951 Assessment against transferee for tax

The taxes imposed by this title upon any taxpayer other than a transferee, for whose payment any bank or person other than the taxpayer is liable at law or in equity, may be assessed against such bank or person in the same manner as is provided in chapter 5 of this title for the assessment of deficiencies and may be assessed within the periods specified in section 43-953. The provisions of this section and other provisions of this title respecting the collection of taxes shall apply to the collection of such taxes from such bank or person to the same extent and with the same force and effect as though such bank or person were the taxpayer.

§ 43-952 Liability of transferee of assets

A. The amounts of the following liabilities, except as hereinafter provided in this section and section 43-953, shall be assessed, collected and paid in the same manner and subject to the same provisions and limitations as in the case of a deficiency in a tax imposed by this title, including the provisions in the case of a delinquency in payment after notice and demand, the provisions authorizing proceeding in court for collection and the provisions prohibiting claims and suits for refunds:

The liability, at law or in equity, of a transferee of property of a taxpayer, in respect of the tax, including interest, additional amounts and additions to the tax provided by law, imposed upon the taxpayer by this title.
The liability of a fiduciary under this title, in respect of the payment of any such tax from the estate of the taxpayer.

B. Any such liability may be either as to the amount of tax shown on the return or as to any deficiency in tax.

§ 43-953 Period of limitation relating to transferees

The period of limitation for assessment of such liability of a transferee or fiduciary of the taxpayer shall be as follows:

In the case of the liability of an initial transferee of the property of the taxpayer, within one year after the expiration of the period of limitation for assessment against the taxpayer.
In the case of the liability of a transferee of a transferee of the property of the taxpayer, within one year after the expiration of the period of limitation for assessment against the preceding transferee but only if within three years after the expiration of the period of limitation for assessment against the taxpayer, except that if before the expiration of the period of limitation for the assessment of the liability of the transferee of a transferee a court proceeding for the collection of the tax or liability in respect thereof has been begun against the taxpayer or last preceding transferee, respectively, the period of limitation for assessment of the liability of the transferee of a transferee shall expire one year after the return of execution in the court proceeding.
In the case of the liability of a fiduciary, not later than one year after the liability arises or not later than the expiration of the period for collection of the tax in respect of which such liability arises, whichever is the later.
If before the expiration of the time prescribed in paragraph 1, 2 or 3 for the assessment of the liability, both the department and the transferee or fiduciary have consented in writing to its assessment after such time, the liability may be assessed at any time prior to the expiration of the period agreed upon. The period so agreed upon may be extended by subsequent agreements in writing made before the expiration of the period previously agreed upon.

Article 6 Items Not Deductible

§ 43-961 Items not deductible in computation of taxable income

In computing taxable income no deduction shall in any case be allowed in respect of:

Personal, living or family expenses, except medical expenses allowed pursuant to section 43-1042.
With respect to financial institutions, as defined in section 6-101, that portion of any amount otherwise allowable as an interest expense deduction pursuant to the internal revenue code and determined by dividing the total of the amount of interest income received on obligations of the United States, this state or any political subdivision of this state by the sum of tax exempt interest as defined in section 103 of the internal revenue code plus gross income determined pursuant to the internal revenue code, and by multiplying the result thus obtained by any interest deduction allowed pursuant to section 163 or 591 of the internal revenue code without regard to the application of section 265 of the internal revenue code, and by adding to such result an amount equal to ten per cent of the total of the amount of interest income received on obligations of the United States, this state or any political subdivision of this state. The total amount disallowed by operation of this paragraph shall be reduced to the extent such disallowance would cause the tax payable by the financial institution under this title to exceed the total of gross income determined pursuant to the internal revenue code, plus the amount of interest income received on obligations of any state, territory or possession of the United States, or any political subdivision thereof, located outside this state, less the amount of interest income received on obligations of the United States.
Any amount paid or accrued on indebtedness incurred or continued to purchase a single premium life insurance or endowment contract. For the purposes of this paragraph, if substantially all the premiums of a life insurance or endowment contract are paid within a period of four years from the date on which such contract is purchased, such contract shall be considered a single premium life insurance or endowment contract.
Expenses attributable to Arizona gross income derived from illegal activities nor shall any deductions be allowed to any taxpayer on any of his Arizona gross income derived from any other activities which tend to promote or to further, or are connected or associated with, such illegal activities.
Any amount, not otherwise provided for by this section, that would otherwise be allowable as a deduction or an adjustment, which is allocable to one or more classes of income, whether or not any amount of income of that class or classes is received or accrued, and that is not required to be included in a person's Arizona adjusted gross income or Arizona taxable income.

Chapter 10 Individuals

Article 1 Definitions

§ 43-1001 Definitions

In this chapter, unless the context otherwise requires:

"Arizona adjusted gross income" of a resident individual means the individual's Arizona gross income subject to modifications specified in sections 43-1021 and 43-1022.
"Arizona gross income" of a resident individual means the individual's federal adjusted gross income for the taxable year, computed pursuant to the internal revenue code.
"Dependent" has the same meaning prescribed by section 152 of the internal revenue code.
"Federal adjusted gross income" of a resident individual means the individual's adjusted gross income computed pursuant to the internal revenue code.
"Head of household" has the same meaning prescribed by sections 2(b) and 2(c) of the internal revenue code. Head of household includes an individual who meets the qualifications of a surviving spouse under section 2(a) of the internal revenue code.
"Married person" means a married person on the last day of the taxable year subject to the rules in section 43-1002.
"Net income" means taxable income.
"Person" means an individual.
"Single person" means any person who is not married or who was legally separated on the last day of the person's taxable year.
"Spouse" means the wife or husband of the taxpayer.
"Taxable income" of a resident individual means Arizona adjusted gross income less the deductions allowed in article 4 of this chapter.
"Taxpayer" means any person who is subject to a tax imposed by this chapter.

§ 43-1002 Married person; application of definition

The following rules shall apply to the definition of "married person" in section 43-1001:

An individual who is legally separated from his or her spouse under a decree of dissolution of marriage or of separate maintenance shall not be considered as married.
A taxpayer shall be considered as married at the close of the taxable year if his or her spouse died during the taxable year and the taxpayer would have been considered married at the date of the death of such spouse.

Article 2 Tax Rates and Tables

§ 43-1011 Taxes and tax rates

(L21, Ch. 411, sec. 4)

A. There shall be levied, collected and paid for each taxable year on the entire taxable income of every resident of this state and on the entire taxable income of every nonresident that is derived from sources within this state taxes determined in the following manner:

For taxable years beginning from and after December 31, 1996 through December 31, 1997:

(a) In the case of a single person or a married person filing separately:

If taxable income is: The tax is:

$0 — $10,000 2.90% of taxable income

$10,001 — $25,000 $290, plus 3.30% of the excess over $10,000

$25,001 — $50,000 $785, plus 3.90% of the excess over $25,000

$50,001 — $150,000 $1,760, plus 4.80% of the excess over $50,000

$150,001 and over $6,560, plus 5.17% of the excess over $150,000

(b) In the case of a married couple filing a joint return or a single person who is a head of a household:

If taxable income is: The tax is:

$0 — $20,000 2.90% of taxable income

$20,001 — $50,000 $580, plus 3.30% of the excess over $20,000

$50,001 — $100,000 $1,570, plus 3.90% of the excess over $50,000

$100,001 — $300,000 $3,520, plus 4.80% of the excess over $100,000

$300,001 and over $13,120, plus 5.17% of the excess over $300,000

For taxable years beginning from and after December 31, 1997 through December 31, 1998:

(a) In the case of a single person or a married person filing separately:

If taxable income is: The tax is:

$0 — $10,000 2.88% of taxable income

$10,001 — $25,000 $288, plus 3.24% of the excess over $10,000

$25,001 — $50,000 $774, plus 3.82% of the excess over $25,000

$50,001 — $150,000 $1,729, plus 4.74% of the excess over $50,000

$150,001 and over $6,469, plus 5.10% of the excess over $150,000

(b) In the case of a married couple filing a joint return or a single person who is a head of a household:

If taxable income is: The tax is:

$0 — $20,000 2.88% of taxable income

$20,001 — $50,000 $576, plus 3.24% of the excess over $20,000

$50,001 — $100,000 $1,548, plus 3.82% of the excess over $50,000

$100,001 — $300,000 $3,458, plus 4.74% of the excess over $100,000

$300,001 and over $12,938, plus 5.10% of the excess over $300,000

For taxable years beginning from and after December 31, 1998 through December 31, 2005:

(a) In the case of a single person or a married person filing separately:

If taxable income is: The tax is:

$0 — $10,000 2.87% of taxable income

$10,001 — $25,000 $287, plus 3.20% of the excess over $10,000

$25,001 — $50,000 $767, plus 3.74% of the excess over $25,000

$50,001 — $150,000 $1,702, plus 4.72% of the excess over $50,000

$150,001 and over $6,422, plus 5.04% of the excess over $150,000

(b) In the case of a married couple filing a joint return or a single person who is a head of a household:

If taxable income is: The tax is:

$0 — $20,000 2.87% of taxable income

$20,001 — $50,000 $574, plus 3.20% of the excess over $20,000

$50,001 — $100,000 $1,534, plus 3.74% of the excess over $50,000

$100,001 — $300,000 $3,404, plus 4.72% of the excess over $100,000

$300,001 and over $12,844, plus 5.04% of the excess over $300,000

For taxable years beginning from and after December 31, 2005 through December 31, 2006:

(a) In the case of a single person or a married person filing separately:

If taxable income is: The tax is:

$0 — $10,000 2.73% of taxable income

$10,001 — $25,000 $273, plus 3.04% of the excess over $10,000

$25,001 — $50,000 $729, plus 3.55% of the excess over $25,000

$50,001 — $150,000 $1,617, plus 4.48% of the excess over $50,000

$150,001 and over $6,097, plus 4.79% of the excess over $150,000

(b) In the case of a married couple filing a joint return or a single person who is a head of a household:

If taxable income is: The tax is:

$0 — $20,000 2.73% of taxable income

$20,001 — $50,000 $546, plus 3.04% of the excess over $20,000

$50,001 — $100,000 $1,458, plus 3.55% of the excess over $50,000

$100,001 — $300,000 $3,233, plus 4.48% of the excess over $100,000

$300,001 and over $12,193, plus 4.79% of the excess over $300,000

Subject to subsections B and C of this section, for taxable years beginning from and after December 31, 2006 through December 31, 2018:

(a) In the case of a single person or a married person filing separately:

If taxable income is: The tax is:

$0 — $10,000 2.59% of taxable income

$10,001 — $25,000 $259, plus 2.88% of the excess over $10,000

$25,001 — $50,000 $691, plus 3.36% of the excess over $25,000

$50,001 — $150,000 $1,531, plus 4.24% of the excess over $50,000

$150,001 and over $5,771, plus 4.54% of the excess over $150,000

(b) In the case of a married couple filing a joint return or a single person who is a head of a household:

If taxable income is: The tax is:

$0 — $20,000 2.59% of taxable income

$20,001 — $50,000 $518, plus 2.88% of the excess over $20,000

$50,001 — $100,000 $1,382, plus 3.36% of the excess over $50,000

$100,001 — $300,000 $3,062, plus 4.24% of the excess over $100,000

$300,001 and over $11,542, plus 4.54% of the excess over $300,000

Subject to subsections D and E of this section, for taxable years beginning from and after December 31, 2018:

(a) In the case of a single person or a married person filing separately:

If taxable income is: The tax is:

$0 — $26,500 2.59% of taxable income

$26,501 — $53,000 $686, plus 3.34% of the amount

over $26,500

$53,001 — $159,000 $1,571, plus 4.17% of the

amount over $53,000

$159,001 and over $5,991, plus 4.50% of the amount

over $159,000

(b) In the case of a married couple filing a joint return or a single person who is a head of a household:

If taxable income is: The tax is:

$0 — $53,000 2.59% of taxable income

$53,001 — $106,000 $1,373, plus 3.34% of the amount over $53,000

$106,001 — $318,000 $3,143, plus 4.17% of the amount

over $106,000

$318,001 and over $11,983, plus 4.50% of the amount over $318,000

B. For the taxable year beginning from and after December 31, 2014 through December 31, 2015, the department shall adjust the income dollar amounts for each rate bracket prescribed by subsection A, paragraph 5 of this section according to the average annual change in the metropolitan Phoenix consumer price index published by the United States department of labor, bureau of labor statistics. The revised dollar amounts shall be raised to the nearest whole dollar. The income dollar amounts for each rate bracket may not be revised below the amounts prescribed in the prior taxable year.

C. For each taxable year beginning from and after December 31, 2015 through December 31, 2018, the department shall adjust the income dollar amounts for each rate bracket prescribed by subsection A, paragraph 5 of this section according to the average annual change in the metropolitan Phoenix consumer price index published by the United States department of labor, bureau of labor statistics. The revised dollar amounts shall be raised to the nearest whole dollar. The income dollar amounts for each rate bracket may not be revised below the amounts prescribed in the prior taxable year.

D. For each taxable year beginning from and after December 31, 2019, the department shall adjust the income dollar amount for each rate bracket prescribed by subsection A, paragraph 6 of this section according to the average annual change in the metropolitan Phoenix consumer price index published by the United States department of labor, bureau of labor statistics. The revised dollar amounts shall be raised to the nearest whole dollar. The income dollar amounts for each rate bracket may not be revised below the amounts prescribed in the prior taxable year.

E. For each taxable year beginning from and after December 31, 2020, for taxable income that is subject to the income tax surcharge imposed by section 43-1013, the combined tax rate of the income tax surcharge imposed by section 43-1013 and the highest tax rate imposed by subsection A, paragraph 6, 7, 8 or 9 of this section may not exceed four and one-half percent. If the combined tax rate exceeds four and one-half percent, the highest tax rate imposed by subsection A, paragraph 6, 7, 8 or 9 of this section shall be reduced so that the combined tax rate is four and one-half percent. The department may adopt rules pursuant to title 41, chapter 6 to carry out this subsection.

§ 43-1011 (Version 2) Taxes and tax rates

(L21, Ch. 412, sec. 15.)

For taxable years beginning from and after December 31, 1996 through December 31, 1997:

(a) In the case of a single person or a married person filing separately:

If taxable income is: The tax is:

$0 — $10,000 2.90% of taxable income

$10,001 — $25,000 $290, plus 3.30% of the excess over $10,000

$25,001 — $50,000 $785, plus 3.90% of the excess over $25,000

$50,001 — $150,000 $1,760, plus 4.80% of the excess over $50,000

$150,001 and over $6,560, plus 5.17% of the excess over $150,000

(b) In the case of a married couple filing a joint return or a single person who is a head of a household:

If taxable income is: The tax is:

$0 — $20,000 2.90% of taxable income

$20,001 — $50,000 $580, plus 3.30% of the excess over $20,000

$50,001 — $100,000 $1,570, plus 3.90% of the excess over $50,000

$100,001 — $300,000 $3,520, plus 4.80% of the excess over $100,000

$300,001 and over $13,120, plus 5.17% of the excess over $300,000

For taxable years beginning from and after December 31, 1997 through December 31, 1998:

(a) In the case of a single person or a married person filing separately:

If taxable income is: The tax is:

$0 — $10,000 2.88% of taxable income

$10,001 — $25,000 $288, plus 3.24% of the excess over $10,000

$25,001 — $50,000 $774, plus 3.82% of the excess over $25,000

$50,001 — $150,000 $1,729, plus 4.74% of the excess over $50,000

$150,001 and over $6,469, plus 5.10% of the excess over $150,000

(b) In the case of a married couple filing a joint return or a single person who is a head of a household:

If taxable income is: The tax is:

$0 — $20,000 2.88% of taxable income

$20,001 — $50,000 $576, plus 3.24% of the excess over $20,000

$50,001 — $100,000 $1,548, plus 3.82% of the excess over $50,000

$100,001 — $300,000 $3,458, plus 4.74% of the excess over $100,000

$300,001 and over $12,938, plus 5.10% of the excess over $300,000

For taxable years beginning from and after December 31, 1998 through December 31, 2005:

(a) In the case of a single person or a married person filing separately:

If taxable income is: The tax is:

$0 — $10,000 2.87% of taxable income

$10,001 — $25,000 $287, plus 3.20% of the excess over $10,000

$25,001 — $50,000 $767, plus 3.74% of the excess over $25,000

$50,001 — $150,000 $1,702, plus 4.72% of the excess over $50,000

$150,001 and over $6,422, plus 5.04% of the excess over $150,000

(b) In the case of a married couple filing a joint return or a single person who is a head of a household:

If taxable income is: The tax is:

$0 — $20,000 2.87% of taxable income

$20,001 — $50,000 $574, plus 3.20% of the excess over $20,000

$50,001 — $100,000 $1,534, plus 3.74% of the excess over $50,000

$100,001 — $300,000 $3,404, plus 4.72% of the excess over $100,000

$300,001 and over $12,844, plus 5.04% of the excess over $300,000

For taxable years beginning from and after December 31, 2005 through December 31, 2006:

(a) In the case of a single person or a married person filing separately:

If taxable income is: The tax is:

$0 — $10,000 2.73% of taxable income

$10,001 — $25,000 $273, plus 3.04% of the excess over $10,000

$25,001 — $50,000 $729, plus 3.55% of the excess over $25,000

$50,001 — $150,000 $1,617, plus 4.48% of the excess over $50,000

$150,001 and over $6,097, plus 4.79% of the excess over $150,000

(b) In the case of a married couple filing a joint return or a single person who is a head of a household:

If taxable income is: The tax is:

$0 — $20,000 2.73% of taxable income

$20,001 — $50,000 $546, plus 3.04% of the excess over $20,000

$50,001 — $100,000 $1,458, plus 3.55% of the excess over $50,000

$100,001 — $300,000 $3,233, plus 4.48% of the excess over $100,000

$300,001 and over $12,193, plus 4.79% of the excess over $300,000

Subject to subsections B and C of this section, for taxable years beginning from and after December 31, 2006 through December 31, 2018:

(a) In the case of a single person or a married person filing separately:

If taxable income is: The tax is:

$0 — $10,000 2.59% of taxable income

$10,001 — $25,000 $259, plus 2.88% of the excess over $10,000

$25,001 — $50,000 $691, plus 3.36% of the excess over $25,000

$50,001 — $150,000 $1,531, plus 4.24% of the excess over $50,000

$150,001 and over $5,771, plus 4.54% of the excess over $150,000

(b) In the case of a married couple filing a joint return or a single person who is a head of a household:

If taxable income is: The tax is:

$0 — $20,000 2.59% of taxable income

$20,001 — $50,000 $518, plus 2.88% of the excess over $20,000

$50,001 — $100,000 $1,382, plus 3.36% of the excess over $50,000

$100,001 — $300,000 $3,062, plus 4.24% of the excess over $100,000

$300,001 and over $11,542, plus 4.54% of the excess over $300,000

Subject to subsections D and E of this section, for taxable years beginning from and after December 31, 2018 through December 31, 2021:

(a) In the case of a single person or a married person filing separately:

If taxable income is: The tax is:

$0 — $26,500 2.59% of taxable income

$26,501 — $53,000 $686, plus 3.34% of the amount

over $26,500

$53,001 — $159,000 $1,571, plus 4.17% of the

amount over $53,000

$159,001 and over $5,991, plus 4.50% of the amount

over $159,000

(b) In the case of a married couple filing a joint return or a single person who is a head of a household:

If taxable income is: The tax is:

$0 — $53,000 2.59% of taxable income

$53,001 — $106,000 $1,373, plus 3.34% of the amount over $53,000

$106,001 — $318,000 $3,143, plus 4.17% of the amount

over $106,000

$318,001 and over $11,983, plus 4.50% of the amount over $318,000

Subject to subsections E and F of this section, for taxable years beginning from and after December 31, 2021 through December 31 of the year in which notice is provided to the department pursuant to section 43-243, subsection A or subsection B, paragraph 1:

(a) In the case of a single person or a married person filing separately:

If taxable income is: The tax is:

$0 — $27,272 2.55% of taxable income

$27,273 and over $695, plus 2.98% of the amount

over $27,272

(b) In the case of a married couple filing a joint return or a single person who is a head of a household:

If taxable income is: The tax is:

$0 — $54,544 2.55% of taxable income

$54,545 and over $1,391, plus 2.98% of the amount over $54,544

Subject to subsections E and F of this section, for taxable years beginning from and after December 31 of the year in which notice is provided to the department pursuant to section 43-243, subsection A or subsection B, paragraph 1 through December 31 of the year in which notice is provided to the department pursuant to section 43-243, subsection B, paragraph 2:

(a) In the case of a single person or a married person filing separately:

If taxable income is: The tax is:

$0 — $27,272 2.53% of taxable income

$27,273 and over $690, plus 2.75% of the amount

over $27,272

(b) In the case of a married couple filing a joint return or a single person who is a head of a household:

If taxable income is: The tax is:

$0 — $54,544 2.53% of taxable income

$54,545 and over $1,380, plus 2.75% of the amount over $54,544

Subject to subsection F of this section, for taxable years beginning from and after December 31 of the year in which notice is provided to the department pursuant to section 43-243, subsection B, paragraph 2, the tax is 2.5% of taxable income.

D. For each taxable year beginning from and after December 31, 2019 through December 31, 2021, the department shall adjust the income dollar amount for each rate bracket prescribed by subsection A, paragraph 6 of this section according to the average annual change in the metropolitan Phoenix consumer price index published by the United States department of labor, bureau of labor statistics. The revised dollar amounts shall be raised to the nearest whole dollar. The income dollar amounts for each rate bracket may not be revised below the amounts prescribed in the prior taxable year.

E. For each taxable year beginning from and after December 31, 2021, the department shall adjust the income dollar amount for each rate bracket prescribed by subsection A, paragraphs 7 and 8 of this section, as applicable, according to the average annual change in the metropolitan Phoenix consumer price index published by the United States department of labor, bureau of labor statistics. The revised dollar amounts shall be raised to the nearest whole dollar. The income dollar amounts for each rate bracket may not be revised below the amounts prescribed in the prior taxable year.

§ 43-1012 Optional tax table

A. In lieu of the tax imposed under section 43-1011, there shall be levied, collected and paid for each taxable year upon the taxable income of each individual who has been a resident of this state for the entire taxable year and whose taxable income for such year is less than fifty thousand dollars, regardless of filing status, a tax based on the rates prescribed by section 43-1011 as shown in optional tax tables developed by the department. The tables shall prescribe tax liability amounts, based on filing status, in fifty dollar increments of taxable income.

B. This section shall not apply to an individual filing a return for a period of less than twelve months on account of a change in the accounting period or to a married individual whose spouse files a return and computes the tax without regard to this section or section 43-1041, subsection A.

C. An individual, who is not a head of a household or a married person, shall be treated as a single person.

§ 43-1013 Income tax surcharge for public education

(Caution: 1998 Prop. 105 applies)

A. In addition to any other tax imposed by this chapter, for taxable years beginning from and after December 31, 2020, there shall be levied, collected and paid an income tax surcharge to advance public education in this state as follows:

In the case of a single person or a married person filing separately, a surcharge at the rate of three and one-half percent of taxable income in excess of $250,000.
In the case of a married couple filing a joint return or a single person who is a head of household, a surcharge at the rate of three and one-half percent of taxable income in excess of $500,000.

B. Notwithstanding sections 42-1116 and 43-206, the department shall separately account for revenues collected pursuant to the income tax surcharge imposed by this section, and shall deposit those revenues in the student support and safety fund established by section 15-1281.

C. The income tax surcharge levied by this section must be collected regardless of whether the income tax rate brackets in this chapter are changed, replaced or eliminated by an act of the legislature.

§ 43-1014 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 highest 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 is made by filing the business's return under this title.

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

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.

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.
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:

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.
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.

Article 3 Adjustments to Arizona Gross Income

§ 43-1021 Addition to Arizona gross income

In computing Arizona adjusted gross income, the following amounts shall be added to Arizona gross income:

A beneficiary's share of the fiduciary adjustment to the extent that the amount determined by section 43-1333 increases the beneficiary's Arizona gross income.
An amount equal to the ordinary income portion of a lump sum distribution that was excluded from federal adjusted gross income pursuant to the special rule for individuals who attained fifty years of age before January 1, 1986 under Public Law 99-514, section 1122(h)(3).
The amount of interest income received on obligations of any state, territory or possession of the United States, or any political subdivision thereof, located outside of this state, reduced, for taxable years beginning from and after December 31, 1996, by the amount of any interest on indebtedness and other related expenses that were incurred or continued to purchase or carry those obligations and that are not otherwise deducted or subtracted in arriving at Arizona gross income.
The excess of a partner's share of partnership taxable income required to be included under chapter 14, article 2 of this title over the income required to be reported under section 702(a)(8) of the internal revenue code.
The excess of a partner's share of partnership losses determined pursuant to section 702(a)(8) of the internal revenue code over the losses allowable under chapter 14, article 2 of this title.
Any amount of agricultural water conservation expenses that were deducted pursuant to the internal revenue code for which a credit is claimed under section 43-1084.
The amount by which the depreciation or amortization computed under the internal revenue code with respect to property for which a credit was taken under section 43-1081.01 or that is pollution control equipment for which a credit was taken before taxable year 2022 exceeds the amount of depreciation or amortization computed pursuant to the internal revenue code on the Arizona adjusted basis of the property.
The amount by which the adjusted basis computed under the internal revenue code with respect to property for which a credit was claimed under section 43-1074.02 or 43-1081.01 or that is pollution control equipment for which a credit was taken before taxable year 2022 and that is sold or otherwise disposed of during the taxable year exceeds the adjusted basis of the property computed under section 43-1074.02 or 43-1081.01 or for pollution control equipment, the section in which the credit was taken, as applicable.
The deduction referred to in section 1341(a)(4) of the internal revenue code for restoration of a substantial amount held under a claim of right.
The amount by which a net operating loss carryover or capital loss carryover allowable pursuant to section 1341(b)(5) of the internal revenue code exceeds the net operating loss carryover or capital loss carryover allowable pursuant to section 43-1029, subsection F.
The amount of any depreciation allowance allowed pursuant to section 167(a) of the internal revenue code to the extent not previously added.
The amount of a nonqualified withdrawal, as defined in section 15-1871, from a college savings plan established pursuant to section 529 of the internal revenue code that is made to a distributee to the extent the amount is not included in computing federal adjusted gross income, except that the amount added under this paragraph shall not exceed the difference between the amount subtracted under section 43-1022 in prior taxable years and the amount added under this section in any prior taxable years.
If a subtraction is or has been taken by the taxpayer under section 43-1024, in the current or a prior taxable year for the full amount of eligible access expenditures paid or incurred to comply with the requirements of the Americans with disabilities act of 1990 (P.L. 101-336) or title 41, chapter 9, article 8, any amount of eligible access expenditures that is recognized under the internal revenue code, including any amount that is amortized according to federal amortization schedules, and that is included in computing taxable income for the current taxable year.
For taxable years beginning from and after December 31, 2017, the amount of any net capital loss included in Arizona gross income for the taxable year that is derived from the exchange of one kind of legal tender for another kind of legal tender. For the purposes of this paragraph:

(a) "Legal tender" means a medium of exchange, including specie, that is authorized by the United States Constitution or Congress to pay debts, public charges, taxes and dues.

(b) "Specie" means coins having precious metal content.

For taxable years beginning from and after December 31, 2021, the amount deducted by the partnership or S corporation pursuant to the internal revenue code for the amount paid to this state under section 43-1014 and for taxes that the department determines are substantially similar to the tax imposed under section 43-1014. This amount shall be reflected in the partner's or shareholder's Arizona gross income and the partnership's or S corporation's Arizona taxable income.
The amount of any motion picture production costs that was deducted pursuant to the internal revenue code for which a tax credit is claimed under section 43-1082.

§ 43-1022 Subtractions from Arizona gross income

In computing Arizona adjusted gross income, the following amounts shall be subtracted from Arizona gross income:

The amount of exemptions allowed by section 43-1023.
Benefits, annuities and pensions in an amount totaling not more than $2,500 received from one or more of the following:

(a) The United States government service retirement and disability fund, the United States foreign service retirement and disability system and any other retirement system or plan established by federal law, except retired or retainer pay of the uniformed services of the United States that qualifies for a subtraction under paragraph 26 of this section.

(b) The Arizona state retirement system, the corrections officer retirement plan, the public safety personnel retirement system, the elected officials' retirement plan, an optional retirement program established by the Arizona board of regents under section 15-1628, an optional retirement program established by a community college district board under section 15-1451 or a retirement plan established for employees of a county, city or town in this state.

A beneficiary's share of the fiduciary adjustment to the extent that the amount determined by section 43-1333 decreases the beneficiary's Arizona gross income.
Interest income received on obligations of the United States, minus any interest on indebtedness, or other related expenses, and deducted in arriving at Arizona gross income, that were incurred or continued to purchase or carry such obligations.
The excess of a partner's share of income required to be included under section 702(a)(8) of the internal revenue code over the income required to be included under chapter 14, article 2 of this title.
The excess of a partner's share of partnership losses determined pursuant to chapter 14, article 2 of this title over the losses allowable under section 702(a)(8) of the internal revenue code.
The amount allowed by section 43-1025 for contributions during the taxable year of agricultural crops to charitable organizations.
The portion of any wages or salaries paid or incurred by the taxpayer for the taxable year that is equal to the amount of the federal work opportunity credit, the empowerment zone employment credit, the credit for employer paid social security taxes on employee cash tips and the Indian employment credit that the taxpayer received under sections 45A, 45B, 51(a) and 1396 of the internal revenue code.
The amount of exploration expenses that is determined pursuant to section 617 of the internal revenue code, that has been deferred in a taxable year ending before January 1, 1990 and for which a subtraction has not previously been made. The subtraction shall be made on a ratable basis as the units of produced ores or minerals discovered or explored as a result of this exploration are sold.
The amount included in federal adjusted gross income pursuant to section 86 of the internal revenue code, relating to taxation of social security and railroad retirement benefits.
To the extent not already excluded from Arizona gross income under the internal revenue code, compensation received for active service as a member of the reserves, the national guard or the armed forces of the United States, including compensation for service in a combat zone as determined under section 112 of the internal revenue code.
The amount of unreimbursed medical and hospital costs, adoption counseling, legal and agency fees and other nonrecurring costs of adoption. The subtraction under this paragraph may be taken for the costs that are described in this paragraph 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. The amount subtracted may not exceed:

(a) In taxable years beginning before December 31, 2025, $3,000. In the case of a husband and wife who file separate returns, the subtraction may be taken by either taxpayer or may be divided between them, but the total subtractions allowed both husband and wife may not exceed $3,000.

(b) In taxable years beginning from and after December 31, 2025, $5,000 for a single individual or head of household.

(c) For taxable years beginning from and after December 31, 2025, $10,000 for a married couple filing a joint return. In the case of a husband and wife who file separate returns, the subtraction may be taken by either taxpayer or may be divided between them, but the total subtractions allowed both husband and wife may not exceed $10,000.

The amount authorized by section 43-1027 for the taxable year relating to qualified wood stoves, wood fireplaces or gas fired fireplaces.
The amount by which a net operating loss carryover or capital loss carryover allowable pursuant to section 43-1029, subsection F exceeds the net operating loss carryover or capital loss carryover allowable pursuant to section 1341(b)(5) of the internal revenue code.
Any amount of qualified educational expenses that is distributed from a qualified state tuition program determined pursuant to section 529 of the internal revenue code and that is included in income in computing federal adjusted gross income.
Any item of income resulting from an installment sale that has been properly subjected to income tax in another state in a previous taxable year and that is included in Arizona gross income in the current taxable year.
For property placed in service:

(a) In taxable years beginning before December 31, 2012, an amount equal to the depreciation allowable pursuant to section 167(a) of the internal revenue code for the taxable year computed as if the election described in section 168(k) of the internal revenue code had been made for each applicable class of property in the year the property was placed in service.

(b) In taxable years beginning from and after December 31, 2012 through December 31, 2013, an amount determined in the year the asset was placed in service based on the calculation in subdivision (a) of this paragraph. In the first taxable year beginning from and after December 31, 2013, the taxpayer may elect to subtract the amount necessary to make the depreciation claimed to date for the purposes of this title the same as it would have been if subdivision (c) of this paragraph had applied for the entire time the asset was in service. Subdivision (c) of this paragraph applies for the remainder of the asset's life. If the taxpayer does not make the election under this subdivision, subdivision (a) of this paragraph applies for the remainder of the asset's life.

(c) In taxable years beginning from and after December 31, 2013 through December 31, 2015, an amount equal to the depreciation allowable pursuant to section 167(a) of the internal revenue code for the taxable year as computed as if the additional allowance for depreciation had been ten percent of the amount allowed pursuant to section 168(k) of the internal revenue code.

(d) In taxable years beginning from and after December 31, 2015 through December 31, 2016, an amount equal to the depreciation allowable pursuant to section 167(a) of the internal revenue code for the taxable year as computed as if the additional allowance for depreciation had been fifty-five percent of the amount allowed pursuant to section 168(k) of the internal revenue code.

(e) In taxable years beginning from and after December 31, 2016, an amount equal to the depreciation allowable pursuant to section 167(a) of the internal revenue code for the taxable year as computed as if the additional allowance for depreciation had been the full amount allowed pursuant to section 168(k) of the internal revenue code.

With respect to property that is sold or otherwise disposed of during the taxable year by a taxpayer that complied with section 43-1021, paragraph 11 with respect to that property, the amount of depreciation that has been allowed pursuant to section 167(a) of the internal revenue code to the extent that the amount has not already reduced Arizona taxable income in the current or prior taxable years.
The amount contributed during the taxable year to college savings plans established pursuant to section 529 of the internal revenue code on behalf of the designated beneficiary to the extent that the contributions were not deducted in computing federal adjusted gross income. The amount subtracted may not exceed:

(a) $2,000 per beneficiary for a single individual or a head of household.

(b) $4,000 per beneficiary for a married couple filing a joint return. In the case of a husband and wife who file separate returns, the subtraction may be taken by either taxpayer or may be divided between them, but the total subtractions allowed both husband and wife may not exceed $4,000 per beneficiary.

The portion of the net operating loss carryforward that would have been allowed as a deduction in the current year pursuant to section 172 of the internal revenue code if the election described in section 172(b)(1)(H) of the internal revenue code had not been made in the year of the loss that exceeds the actual net operating loss carryforward that was deducted in arriving at federal adjusted gross income. This subtraction only applies to taxpayers who made an election under section 172(b)(1)(H) of the internal revenue code as amended by section 1211 of the American recovery and reinvestment act of 2009 (P.L. 111-5) or as amended by section 13 of the worker, homeownership, and business assistance act of 2009 (P.L. 111-92).
For taxable years beginning from and after December 31, 2013, the amount of any net capital gain included in federal adjusted gross income for the taxable year derived from investment in a qualified small business as determined by the Arizona commerce authority pursuant to section 41-1518.
An amount of any net long-term capital gain included in federal adjusted gross income for the taxable year that is derived from an investment in an asset acquired after December 31, 2011, as follows:

(a) For taxable years beginning from and after December 31, 2012 through December 31, 2013, ten percent of the net long-term capital gain included in federal adjusted gross income.

(b) For taxable years beginning from and after December 31, 2013 through December 31, 2014, twenty percent of the net long-term capital gain included in federal adjusted gross income.

(c) For taxable years beginning from and after December 31, 2014, twenty-five percent of the net long-term capital gain included in federal adjusted gross income. For the purposes of this paragraph, a transferee that receives an asset by gift or at the death of a transferor is considered to have acquired the asset when the asset was acquired by the transferor. If the date an asset is acquired cannot be verified, a subtraction under this paragraph is not allowed.

If an individual is not claiming itemized deductions pursuant to section 43-1042, the amount of premium costs for long-term care insurance, as defined in section 20-1691.
The amount of eligible access expenditures paid or incurred during the taxable year to comply with the requirements of the Americans with disabilities act of 1990 (P.L. 101-336) or title 41, chapter 9, article 8 as provided by section 43-1024.
For taxable years beginning from and after December 31, 2017, the amount of any net capital gain included in Arizona gross income for the taxable year that is derived from the exchange of one kind of legal tender for another kind of legal tender. For the purposes of this paragraph:

(a) "Legal tender" means a medium of exchange, including specie, that is authorized by the United States Constitution or Congress to pay debts, public charges, taxes and dues.

(b) "Specie" means coins having precious metal content.

Benefits, annuities and pensions received as retired or retainer pay of the uniformed services of the United States in amounts as follows:

(a) For taxable years through December 31, 2018, an amount totaling not more than $2,500.

(b) For taxable years beginning from and after December 31, 2018 through December 31, 2020, an amount totaling not more than $3,500.

For taxable years beginning from and after December 31, 2020, the amount contributed during the taxable year to an achieving a better life experience account established pursuant to section 529A of the internal revenue code on behalf of the designated beneficiary to the extent that the contributions were not deducted in computing federal adjusted gross income. The amount subtracted may not exceed:

(a) $2,000 per beneficiary for a single individual or a head of household.

For taxable years beginning from and after December 31, 2020, Arizona small business gross income but only if an individual taxpayer has elected to separately report and pay tax on the taxpayer's Arizona small business adjusted gross income on the Arizona small business income tax return.
To the extent not already excluded from Arizona gross income under the internal revenue code, the value of virtual currency and non-fungible tokens the taxpayer received pursuant to an airdrop at the time of the airdrop. This paragraph may not be interpreted as providing a subtraction for any appreciation in value that occurs from holding the virtual currency after the initial receipt of the airdrop. For the purposes of this paragraph:

(a) "Airdrop" means the receipt of virtual currency through a means of distribution of virtual currency to the distributed ledger addresses of multiple taxpayers.

(b) "Non-fungible token" has the same meaning prescribed in section 43-1028.

The amount allowed as a subtraction by section 43-1028 for gas fees not already included in the taxpayer's virtual currency or non-fungible token basis.

§ 43-1023 Exemptions for blind persons and persons sixty-five years of age or older

A. A taxpayer is allowed an exemption of $1,500:

For a taxpayer who is blind or if either the taxpayer's central visual acuity does not exceed 20/200 in the better eye with correcting lenses or the taxpayer's visual acuity is greater than 20/200 but is accompanied by a limitation in the fields of vision such that the widest diameter of the visual field subtends an angle not greater than twenty degrees.
For the taxpayer's spouse if a separate return is made by the taxpayer and if the spouse is blind as described in paragraph 1 of this subsection, has no Arizona adjusted gross income for the calendar year in which the taxable year of the taxpayer begins and is not the dependent of another taxpayer. For the purposes of this paragraph, the determination of whether the spouse is blind shall be made at the close of the taxable year of the taxpayer. If the spouse dies during the taxable year, the determination shall be made as of the time of the spouse's death.

B. A taxpayer is allowed an exemption of $2,300 for:

Each person sixty-five years of age or older regardless of the person's relationship to the taxpayer:

(a) If the taxpayer pays more than one-fourth of the total cost of maintaining that person in a nursing care institution or residential care institution licensed pursuant to title 36, chapter 4, or an assisted living facility provider of a type certified pursuant to title 11, chapter 2, article 7, if such payments exceed $800 in the taxable year.

(b) If the taxpayer otherwise makes payments exceeding $800 in the taxable year for home health care or other types of medical care.

For taxable years beginning from and after December 31, 2003, each birth for which a certificate of birth resulting in stillbirth has been issued pursuant to section 36-330 if the child otherwise would have been a member of the taxpayer's household. The taxpayer may claim the exemption under this paragraph only in the taxable year in which the stillbirth occurred.

C. For taxable years beginning from and after December 31, 1998, a resident taxpayer is allowed an exemption of $10,000 for each parent or ancestor of a parent of the taxpayer, who is sixty-five years of age or older, who requires assistance with activities of daily living and who lives in the taxpayer's principal residence for the entire taxable year, if the taxpayer pays more than one-half of the person's total support and maintenance costs. An exemption under this subsection is in lieu of an exemption under subsection B of this section for the same person.

D. An exemption under subsection B or C of this section is in lieu of claiming a credit for the same person under section 43-1073.01.

E. A taxpayer is allowed an exemption of $2,100:

If the taxpayer has attained sixty-five years of age before the close of the taxable year filing a separate or joint return and the taxpayer is not claimed as a dependent by another taxpayer.
For the taxpayer's spouse if the spouse has attained sixty-five years of age before the close of the taxable year, a joint return is filed and the spouse is not a dependent of another taxpayer.

§ 43-1024 Americans with disabilities act access expenditures

A. For taxable years beginning from and after December 31, 2017, in computing Arizona adjusted gross income, a subtraction is allowed under section 43-1022, paragraph 24 for eligible business access expenditures paid or incurred by the taxpayer during the taxable year in order to comply with the requirements of the Americans with disabilities act of 1990 (P.L. 101-336) or title 41, chapter 9, article 8 by retrofitting developed real property that was originally placed in service at least ten years before the current taxable year.

B. For the purposes of this section, eligible business access expenditures include reasonable and necessary amounts paid or incurred to:

Remove any barriers that prevent a business from being accessible to or usable by individuals with disabilities.
Provide qualified interpreters or other methods of making audio materials available to hearing-impaired individuals.
Provide qualified readers, taped texts and other effective methods of making visually delivered materials available to individuals with visual impairments.
Acquire or modify equipment or devices for individuals with disabilities.
Provide other similar services, modifications, materials or equipment.

C. A taxpayer who has been cited for noncompliance with the Americans with disabilities act of 1990 or title 41, chapter 9, article 8 by either federal or state enforcement officials is ineligible for a subtraction under this section for any expenditure required to cure the cited violation.

§ 43-1025 Agricultural crops contributed to charitable organizations; definitions

A. In computing Arizona taxable income a subtraction is allowed for qualified crop contributions during the taxable year to one or more charitable organizations. It is not considered to be a double deduction to include both costs of producing the crop and the subtraction in computing Arizona taxable income.

B. The amount of the subtraction shall not:

Exceed the wholesale market price or the most recent sale price for the contributed crop, whichever is greater.
Include any amount deducted pursuant to section 170 of the internal revenue code with respect to crop contribution that exceeds the cost of producing the contributed crop.

C. The contribution qualifies for a subtraction under this section only if all of the following apply:

The use of the crop by the donee charitable organization is related to the purpose or function constituting the basis of the organization's tax-exempt status.
The crop is not transferred by the donee charitable organization in exchange for money, other property or services.
The donee charitable organization provides a written statement to the taxpayer that its use and disposition of the crop will comply with the requirements of this section.

D. For purposes of this section:

"Most recent sale price" means an amount equal to the price that the taxpayer would have received for the contributed crop, determined as if the crop had been sold by that taxpayer on the date of the most recent sale of such a crop and at the same price per unit as the crop that was sold on that date or at the price determined by an agricultural market service on the date the crop is contributed.
"Qualified crop contribution" means any contribution of a crop or portion of a crop grown in Arizona by a taxpayer engaged in the trade or business of farming or processing agriculture crops to a charitable organization located in Arizona that is exempt from tax under section 43-1201.
"Wholesale market price" means the average wholesale market price for the contributed crop in the nearest regional market during the month in which the contribution is made, determined without consideration of grade or quality of the crop and as if the quantity of the contributed crop was marketable.

§ 43-1026 Additions and subtractions; Arizona small business income tax returns

A taxpayer who elects to file an Arizona small business income tax return under section 43-302 for the taxable year may not make the additions or subtractions under section 43-1021 or 43-1022 to the taxpayer's individual income tax return for amounts that are correctly made as additions or subtractions on the taxpayer's Arizona small business income tax return under section 43-1721.

§ 43-1027 Subtraction for wood stoves, wood fireplace or gas fired fireplaces; definitions

A. For taxable years beginning from and after December 31, 1993, in computing Arizona adjusted gross income, a taxpayer may subtract from Arizona gross income an amount equal to the cost, exclusive of taxes, interest and other finance charges, but not more than five hundred dollars, for the conversion of an existing wood fireplace to a qualified wood stove, wood fireplace or gas fired fireplace and nonoptional equipment directly related to its operation on property that is located in this state.

B. For the purposes of this section:

"Permanently installed" means that the burner pan and associated equipment are affixed to the masonry or metal base of the fireplace.
"Qualified gas fired fireplace" means any of the following:

(a) Any device that burns natural or liquefied petroleum gas as its fuel through a burner system that is permanently installed in the fireplace.

(b) The conversion of an existing wood burning fireplace to noncombustible gas logs that are permanently installed in the fireplace.

"Qualified wood stove or wood fireplace" means any of the following:

(a) A residential wood heater that meets the standards of performance for new residential wood heaters manufactured on or after July 1, 1990 or sold at retail on or after July 1, 1992 pursuant to 40 Code of Federal Regulations part 60, subpart AAA.

(b) The conversion of an existing wood burning fireplace to a unit defined in subdivision (a) of this paragraph.

§ 43-1028 Sale of virtual currency or non-fungible tokens; calculation of gain or loss; gas fees; subtraction; definitions

A. If a taxpayer has included in Arizona gross income a gain or loss on the sale of virtual currency or a non-fungible token and in calculating the gain or loss the taxpayer did not include in the basis of the virtual currency or non-fungible token any gas fees paid on the purchase of the virtual currency or non-fungible token or did not otherwise deduct these gas fees in determining Arizona gross income, the taxpayer may subtract the amount of the gas fees from Arizona gross income.

B. For the purposes of this section:

"Foreign currency" means the coin and paper money of a country other than the United States that is designated as legal tender, circulates and is customarily used and accepted as a medium of exchange in the country of issuance.
"Gas fee" means a fee paid to the operator of a virtual network for the use of the network to facilitate the purchase, sale or exchange of virtual currency or a non-fungible token.
"Non-fungible token" means a non-fungible cryptographic asset on a blockchain that possesses unique identifiers or other metadata that distinguishes the asset from another token or asset in a manner that makes the asset irreplaceable and nonexchangeable for a similar token or asset.
"Virtual currency" means a digital representation of value that functions as a medium of exchange, a unit of account and a store of value other than a representation of the United States dollar or a foreign currency.

§ 43-1029 Restoration of a substantial amount held under claim of right; computation of tax

A. This section applies if:

An item of income was included in gross income for a prior taxable year or years because it appeared that the taxpayer had an unrestricted right to the item.
A deduction would be allowable under the internal revenue code or this title for the taxable year, without application of section 1341(b)(3) of the internal revenue code or section 43-1021, paragraph 9, because after the close of the prior taxable year or years it was established that the taxpayer did not have an unrestricted right to all or part of the item.
The amount of the deduction exceeds $3,000.

B. If all of the conditions in subsection A of this section apply, the tax imposed by this chapter for the taxable year is an amount equal to the tax for the taxable year computed without the deduction, minus the decrease in tax under this chapter for the prior taxable year or years that would result solely from excluding the item or portion of the item from gross income for the prior taxable year or years.

C. If the decrease in tax exceeds the tax imposed by this chapter for the taxable year, computed without the deduction, the excess is considered to be a payment of tax on the last day prescribed by law for the payment of tax for the taxable year and shall be refunded or credited in the same manner as if it were an overpayment for the taxable year.

D. Subsection B of this section does not apply to any deduction that is allowable with respect to an item that was included in gross income by reason of the sale or other disposition of stock in trade of the taxpayer, or other property of a kind that would properly have been included in the inventory of the taxpayer on hand at the close of the prior taxable year, or property that is held by the taxpayer primarily for sale to customers in the ordinary course of the taxpayer's trade or business. This subsection does not apply if the deduction arises out of refunds or repayments with respect to rates made by a regulated public utility that is listed in section 7701(a)(33)(A) through (H) of the internal revenue code, if the refunds or repayments are:

Required to be made by the government, political subdivision, agency or instrumentality referred to in that section.
Required to be made by an order of a court.
Made in settlement of litigation or under threat or imminence of litigation.

E. If the exclusion under subsection B of this section results in:

A net operating loss for the prior taxable year or years for purposes of computing the decrease in tax for the prior year or years under subsection B of this section:

(a) The loss shall be:

(i) Carried over under this chapter to the same extent and in the same manner as was provided under prior law for taxable years beginning on or before December 31, 1989.

(ii) Carried back and carried over to the same extent and in the same manner as provided under section 172 of the internal revenue code for taxable years beginning from and after December 31, 1989.

(b) No carryover beyond the taxable year may be taken into account.

A capital loss for the prior taxable year or years, for purposes of computing the decrease in tax for the prior taxable year or years under subsection B of this section:

(a) The loss shall be carried back and carried over to the same extent and in the same manner as is provided under section 1212 of the internal revenue code.

(b) No carryover beyond the taxable year may be taken into account.

F. In computing Arizona taxable income for taxable years subsequent to the current taxable year, the net operating loss or capital loss determined in subsection E of this section shall be taken into account to the same extent and in the same manner as a net operating loss or capital loss sustained for prior taxable years.

Article 4 Deductions

§ 43-1041 Optional standard deduction

A. A taxpayer may elect to take a standard deduction as follows:

In the case of a single person or a married person filing separately, the standard deduction is $12,200, subject to subsection H of this section.
In the case of a single person who is a head of a household, the standard deduction is $18,350, subject to subsection H of this section.
In the case of a married couple filing a joint return, the standard deduction is $24,400, subject to subsection H of this section.

B. The standard deduction provided for in subsection A of this section is in lieu of all itemized deductions allowed by section 43-1042, which are to be subtracted from Arizona adjusted gross income in computing taxable income.

C. The standard deduction is allowed if the taxpayer so elects. The election is made by the taxpayer claiming on the tax return the amount provided for in this section in lieu of the itemized deductions allowed under section 43-1042. Electing to file a short form return or a simplified return that does not allow itemized deductions to be claimed is considered to be an election to claim the standard deduction.

D. In the case of a husband and wife, the standard deduction provided for in subsection A of this section is not allowed to either if the taxable income of one of the spouses is determined without regard to the standard deduction.

E. The standard deduction provided for by subsection A of this section is not allowed in the case of a taxable year of less than twelve months on account of a change in the accounting period.

F. Except as provided in subsection G of this section, a change of an election to take, or not to take, the standard deduction for any taxable year may be made after the filing of the return for that year.

G. A taxpayer is not allowed to change an election to take, or not to take, the standard deduction if:

The spouse of the taxpayer filed a separate return for any taxable year corresponding, for the purposes of subsection D of this section, to the taxable year of the taxpayer unless both of the following apply:

(a) The spouse makes a change of election with respect to the standard deduction for the taxable year covered in the separate return consistent with the change of election sought by the taxpayer.

(b) The taxpayer and spouse consent in writing to the assessment, within such a period as may be agreed on with the department, of any deficiency, to the extent attributable to the change of election, even though at the time of filing the consent the assessment of the deficiency would otherwise be prevented by the operation of any law or rule of law.

The tax liability of the taxpayer or the taxpayer's spouse for the taxable year has been compromised.

H. For each taxable year beginning from and after December 31, 2019, the department shall adjust the dollar amounts prescribed by subsection A, paragraphs 1, 2 and 3 of this section for inflation in the same manner in which the federal basic standard deduction is adjusted for inflation pursuant to section 63 of the internal revenue code.

I. For taxable years beginning from and after December 31, 2018, the standard deduction allowed under subsection A of this section shall be increased by the amount equal to twenty-five percent of the total amount of a taxpayer's charitable deductions that would have been allowed if the taxpayer elected to claim itemized deductions under section 43-1042 rather than elect the standard deduction. For taxable years beginning from and after December 31, 2021, the department shall adjust the percentage prescribed in this subsection according to the average annual change in the metropolitan Phoenix consumer price index published by the United States department of labor, bureau of labor statistics, except that the adjusted percentage may not exceed one hundred percent. The revised percentage shall be raised to the nearest whole percent and may not be revised below the amounts prescribed in the prior taxable year.

§ 43-1042 Itemized deductions

A. Except as provided by subsections B and C of this section, at the election of the taxpayer, and in lieu of the standard deduction allowed by section 43-1041, in computing taxable income the taxpayer may take the amount of itemized deductions allowable for the taxable year pursuant to subtitle A, chapter 1, subchapter B, parts VI and VII, but subject to the limitations prescribed by sections 67, 68 and 274 of the internal revenue code.

B. In lieu of the amount of the federal itemized deduction for expenses paid for medical care allowed under section 213 of the internal revenue code, the taxpayer may deduct the full amount of such expenses.

C. A taxpayer shall not claim both a deduction provided by this section and a credit allowed by this title with respect to the same charitable contributions. This subsection applies to any contribution for which a credit is allowed by this title even if the contribution is treated as a payment of state income tax.

D. The taxpayer may add any interest expense paid by the taxpayer for the taxable year that is equal to the amount of federal credit for interest on certain home mortgages allowed by section 25 of the internal revenue code.

Article 5 Credits

§ 43-1071 Credit for income taxes paid to other states; definitions

A. Subject to the following conditions, residents are allowed a credit against the taxes imposed by this chapter for net income taxes imposed by and paid to another state or country on income taxable under this chapter:

The credit is allowed only for taxes paid to the other state or country on income that is derived from sources within that state or country and that is taxable under its laws irrespective of the residence or domicile of the recipient.
The credit is not allowed if the other state or country allows residents of this state a credit against the taxes imposed by that state or country for taxes paid or payable under this chapter.
The credit shall not exceed the proportion of the tax payable under this chapter as the income subject to tax in the other state or country and also taxable under this title bears to the taxpayer's entire income on which the tax is imposed by this chapter.

B. If any taxes paid to another state or country for which a taxpayer has been allowed a credit under this section are at any time credited or refunded to the taxpayer:

The taxpayer shall immediately report that fact to the department.
A tax equal to the credit allowed for the taxes credited or refunded by the other state or country is due and payable from the taxpayer on notice and demand from the department.
Interest shall be added to and collected as a part of the tax at the rate determined pursuant to section 42-1123 from the date the credit was allowed under this chapter to the date of the notice and demand.
If the tax and interest are not paid within ten days after the date of notice and demand, there shall be collected as a part of the tax interest on the unpaid amount of tax and interest at the rate of twelve percent a year from the date of the notice and demand until the amount is paid.

C. The credit against the taxes imposed by this chapter for net income taxes paid to another state or country is not allowed to any taxpayer or any class of taxpayers if the allowances of the credit will result in any invalid or illegal discrimination against another taxpayer or another class of taxpayers.

D. For taxable years beginning on or after January 1, 2002 and subject to the following conditions, a resident of this state, who is also considered to be a resident of another state under the laws of the other state, is allowed a credit against the taxes imposed by this title for net income taxes imposed by and paid to that state on income taxable under this title as follows:

The credit is allowed only if the other state taxes the income to the resident of this state and does not allow the taxpayer a credit against taxes imposed by that state on that income for taxes paid or payable on that income under this title.
The credit is allowed only for the proportion of the taxes paid to the other state as the income taxable under this title and also subject to tax in the other state bears to the entire income on which the taxes paid to the other state are imposed.
The credit may not exceed the proportion of the tax payable under this title as the income taxable under this title and also subject to tax in the other state bears to the entire income taxable under this title.
For the purpose of the credit allowed under this subsection, "income taxable under this title and also subject to tax in the other state" means income that would be sourced to the other state if the other state were imposing its income tax on the taxpayer as if the taxpayer was a nonresident of that other state.

E. The taxpayer may apply the allowable credit only against Arizona income tax for the same taxable year in which the income is subject to tax in the other state.

F. An individual who participates in a composite income tax return in another state may claim a credit for taxes paid to the other state if the taxpayer meets all of the requirements of this section and the taxes paid to the other state are imposed on and paid directly by the individual taxpayer and not the entity. For the purposes of this subsection, taxes are considered to be imposed on and paid directly by the individual under one or more of the following circumstances:

The individual makes direct payment to the other state.
The individual makes direct payment to the entity filing the composite income tax return.
The entity charges the individual's loan account for the amount of the tax.
The entity reduces the individual's capital account.

G. For taxable years beginning from and after December 31, 2021, a resident taxpayer is allowed a credit against the tax otherwise due under this title for the amount of any tax that the department determines is substantially similar to the tax imposed under section 43-1014 for the taxable year and that is imposed by another state of the United States or a political subdivision of such a state, or by the District of Columbia, with respect to the direct and indirect taxable income attributable to the resident taxpayer from a pass-through entity that is also subject to tax under this title. A credit allowed pursuant to this subsection may not exceed the amount that would have been allowed if the income were taxed at the individual level and not taxed at the entity level.

H. If the taxpayer claims the credit for taxes paid to a foreign country, the taxpayer shall use the conversion rate in effect on the date the taxpayer paid the taxes to the foreign country.

I. For the purposes of this section:

"Composite income tax return" means a single income tax return that is filed with another state on behalf of a group of individuals who are partners or shareholders of the partnership or S corporation that filed the return on their behalf.
"Entire income on which the other state's or country's tax is imposed" means the other state's or country's income computed under the equivalent of section 43-1094 but does not include any exemption allowable under the equivalent of section 43-1023.
"Entire income on which the tax is imposed by this chapter" means Arizona adjusted gross income as defined and computed under section 43-1001 but does not include any exemption allowed under section 43-1023.
"Income subject to tax in the other state or country and also taxable under this title" means the portion of income that is included in entire income on which the tax is imposed by this chapter that is also included in the entire income on which the other state's or country's tax is imposed. The taxpayer shall increase or reduce the portion of income that is included in the entire income on which the tax is imposed by this chapter by any related additions under section 43-1021 and by any related subtractions under section 43-1022. The taxpayer shall increase or reduce the portion of income that is included in the entire income on which the other state's or country's tax is imposed by any related additions and subtractions under the other state's equivalent of sections 43-1021 and 43-1022, as applicable.
"Net income tax":

(a) Means:

(i) A tax that grants deductions or exemptions from gross income.

(ii) Any tax imposed by another country that qualifies for a credit under sections 901 and 903 of the internal revenue code and the regulations under those sections, even if withheld from income.

(b) Except as specifically included in subdivision (a) of this paragraph, does not include:

(i) A system of taxation that assesses taxes on gross income, gross receipts or gross dividends.

(ii) Taxes withheld from income.

"Tax payable under this chapter" means the income tax imposed by this state on the taxpayer's taxable income as defined under section 43-1001 minus any tax credit amount claimed for the taxable year under this article but not including the credit amount allowed under this section.

§ 43-1072 Earned credit for property taxes; residents sixty-five years of age or older; definitions

A. There shall be allowed to each resident a credit against the taxes imposed by this title for a taxable year for property taxes accrued or rent, or both, paid in that taxable year, in accordance with subsection B of this section, if all of the following apply:

Such resident attained the age of sixty-five years prior to or during the taxable year or such resident is a recipient of public monies under title 16 of the social security act, as amended.
Such person paid either property taxes or rent during the taxable year.
Such person either:

(a) Did not live with a spouse or any other persons and had an income from all sources in the taxable year of less than three thousand seven hundred fifty-one dollars.

(b) Lived with a spouse or one or more persons and the combined income from all sources in the taxable year of all persons residing in the residence was less than five thousand five hundred one dollars.

B. The credit allowed under this section is the amount of property taxes actually paid during the taxable year or the amount computed as follows, whichever is less:

For a person eligible under subsection A, paragraph 3, subdivision (a) of this section, according to the following table:

Household Income Tax Credit

$ 0-1,750 $502

1,751-1,850 479

1,851-1,950 457

1,951-2,050 435

2,051-2,150 412

2,151-2,250 390

2,251-2,350 368

2,351-2,450 345

2,451-2,550 323

2,551-2,650 301

2,651-2,750 279

2,751-2,850 256

2,851-2,950 234

2,951-3,050 212

3,051-3,150 189

3,151-3,250 167

3,251-3,350 145

3,351-3,450 123

3,451-3,550 100

3,551-3,650 78

3,651-3,750 56

For a person eligible under subsection A, paragraph 3, subdivision (b) of this section, according to the following table:

Household Income Tax Credit

$ 0-2,500 $502

2,501-2,650 479

2,651-2,800 457

2,801-2,950 435

2,951-3,100 412

3,101-3,250 390

3,251-3,400 368

3,401-3,550 345

3,551-3,700 323

3,701-3,850 301

3,851-4,000 279

4,001-4,150 256

4,151-4,300 234

4,301-4,450 212

4,451-4,600 189

4,601-4,750 167

4,751-4,900 145

4,901-5,050 123

5,051-5,200 100

5,201-5,350 78

5,351-5,500 56

C. The owner or lessor of property leased or rented solely for residential purposes, on request, shall furnish to the tenants of the property a written statement of the percentage of rental payments that are attributable to property tax for purposes of this section.

D. Disposition of the claimant's allowable credit shall be as provided below:

If the allowable amount of such claim exceeds the income taxes otherwise due on the claimant's income, the amount of the claim not used as an offset against income taxes, after audit by the department, shall be paid in the same manner as a refund granted under chapter 6, article 1 of this title. Refunds made pursuant to this paragraph are subject to setoff under section 42-1122.
The amount of any claim otherwise payable for credit for property taxes accrued or rent may be applied by the department against any liability outstanding on the books of the department against the claimant or against the claimant's spouse who was a member of the claimant's household in the taxable year.

E. The department shall make available suitable forms with instructions for claimants. Claimants who certify on the prescribed form that they have no income tax liability for the taxable year shall not be required to file an individual income tax return. The claim shall be in such form as the department may prescribe but shall require the social security numbers of persons who were allowed to claim as dependents for the taxes imposed by this title claimants filing pursuant to this section. The claimant shall also submit a copy of the claimant's property tax statement or a suitable representation of the statement as prescribed by the department. The department shall audit a sufficient number of claims to enforce the provisions of this chapter.

F. No claim with respect to property taxes or with respect to rent shall be allowed or paid unless the claim is actually filed on or before April 15 for the next preceding calendar year. The department may, upon request, grant for a period of not to exceed six months an extension of time for filing the claim.

G. Only one claimant per household per year shall be entitled to a tax credit pursuant to this section.

H. In this section, unless the context otherwise requires:

"Claimant" means a person who has filed a claim for credit under this section and was a resident of this state during the entire taxable year. In the case of a claim for rent, the claimant shall have rented property in this state during the entire taxable year except as otherwise provided by this section. If two individuals of a household are able to meet the qualifications for a claimant, they may determine between them as to whom the claimant shall be. If they are unable to agree, the matter shall be referred to the department and its decision shall be final. If a homestead is occupied by two or more individuals and more than one individual is able to qualify as a claimant, and some or all of the qualified individuals are not related, the individuals may determine among them as to whom the claimant shall be. If they are unable to agree, the matter shall be referred to the department, and its decision shall be final.
"Gross rent" means rental paid for the right of occupancy of a homestead or space rental paid to a landlord for the parking of a mobile home. If the department is satisfied that the gross rent charge was paid solely for purposes of receiving a credit pursuant to this section, it shall not allow a claim.
"Homestead" means the principal dwelling, whether owned or rented by the claimant. "Homestead" may also include a mobile home and the land upon which it is located.
"Household" means the household of the claimant and such other persons as resided with the claimant in the claimant's homestead during the taxable year.
"Household income" means all income received by all persons of a household in a taxable year while members of the household.
"Income" means the sum of the following:

(a) Adjusted gross income as defined by the department.

(b) The amount of capital gains excluded from adjusted gross income.

(d) Nontaxable interest received from the federal government or any of its instrumentalities.

(e) Payments received from a retirement program paid by this state or any of its political subdivisions.

(f) Payments received from a retirement program paid by the United States through any of its agencies, instrumentalities or programs, except as provided in subsection I of this section.

(g) The gross amount of any pension or annuity not otherwise exempted except as provided in subsection I of this section.

"Property taxes" means property taxes levied on a claimant's homestead in this state in any taxable year. For purposes of this paragraph, property taxes are "levied" when the tax roll is delivered to the county treasurer for collection. If a claimant and the claimant's household own their homestead part of the taxable year and rent it or different homesteads for the rest of the same year, provided property taxes were levied on the homestead which was owned by the claimant and the claimant's household, such claimant shall be eligible for a credit pursuant to this section.

I. Income as defined in subsection H, paragraph 6, subdivisions (f) and (g) of this section shall not include monies received from cash public assistance and relief, relief granted under the provisions of this section, railroad retirement benefits, payments received under the federal social security act (49 Stat. 620), payments received under Arizona state unemployment insurance laws, payments received from veterans' disability pensions, payments received as workers' compensation, the gross amount of "loss of time" insurance, and gifts from nongovernmental sources or surplus foods or other relief in kind supplied by a governmental agency.

§ 43-1072.01 Credit for increased excise taxes paid

(Caution: 1998 Prop 105 applies)

A. Subject to the conditions prescribed by this section and if approved by the qualified electors voting at a statewide general election, for taxable years beginning from and after December 31, 2000 a credit is allowed against the taxes imposed by this chapter for a taxable year for a taxpayer who is not claimed as a dependent by any other taxpayer and whose federal adjusted gross income is:

Twenty-five thousand dollars or less for a married couple or a single person who is a head of a household.
Twelve thousand five hundred dollars or less for a single person or a married person filing separately.

B. The credit is considered to be in mitigation of increased tax rates pursuant to section 42-5010, subsection G and section 42-5155, subsection D.

C. The amount of the credit shall not exceed twenty-five dollars for each person who is a resident of this state and for whom a personal or dependent exemption is allowed with respect to the taxpayer pursuant to section 43-1023, subsection B, paragraph 1 and section 43-1043, but not more than one hundred dollars for all persons in the taxpayer's household, as defined in section 43-1072.

D. If the allowable amount of the credit exceeds the income taxes otherwise due on the claimant's income, the amount of the claim not used as an offset against income taxes shall be paid in the same manner as a refund granted under section 42-1118. Refunds made pursuant to this subsection are subject to setoff under section 42-1122.

E. The department shall make available suitable forms with instructions for claimants. Claimants who certify on the prescribed form that they have no income tax liability for the taxable year and who do not meet the filing requirements of section 43-301 are not required to file an individual income tax return. The claim shall be in a form prescribed by the department.

F. For taxable years beginning from and after December 31, 2002, a person who is sentenced for at least sixty days of the taxable year to the custody of the federal bureau of prisons, the state department of corrections or a county jail is not eligible to claim a credit pursuant to this section.

G. For taxable years beginning from and after December 31, 2014, any tax return or form prescribed by subsection E of this section must have:

A social security number that is valid for employment for the claimant.
Either a valid social security number or an individual taxpayer identification number issued by the internal revenue service for the claimant's spouse and any qualifying children of the claimant.

§ 43-1072.02 Credit for increased transaction privilege or excise tax paid for education

A. Subject to the conditions prescribed by this section, for taxable years beginning from and after December 31, 2020 and ending before January 1, 2042, a credit is allowed against the taxes imposed by this chapter for a taxable year for a taxpayer who is not claimed as a dependent by any other taxpayer and whose federal adjusted gross income is:

$25,000 or less for a married couple or a single person who is a head of a household.
$12,500 or less for a single person or a married person filing separately.

B. The credit is considered to be in mitigation of increased tax rates pursuant to section 42-5010.01 and section 42-5155, subsection E.

C. The amount of the credit may not exceed $25 for each person who is a resident of this state and who is either the taxpayer, the taxpayer's spouse who does not file a return or a dependent and shall not exceed $100 for all persons in the taxpayer's household as defined in section 43-1072.

E. A person who is sentenced for at least sixty days of the taxable year to the custody of the federal bureau of prisons, the state department of corrections or a county jail is not eligible to claim a credit pursuant to this section.

F. The department shall make available suitable forms with instructions for claimants. Claimants who certify on the prescribed form that they have no income tax liability for the taxable year and who do not meet the filing requirements of section 43-301 are not required to file an individual income tax return. The claim shall be in a form prescribed by the department.

G. A tax return or form prescribed pursuant to subsection F of this section must have:

A social security number that is valid for employment for the claimant.
Either a valid social security number or an individual taxpayer identification number issued by the internal revenue service for the claimant's spouse and any qualifying children of the claimant.

H. A taxpayer that claims a credit under this section may not claim the credit under section 43-1072.01 for the same taxable year. The credits under this section and section 43-1072.01 shall be collectively referred to as the excise tax credit and claimed using the same credit form or line on the tax return. For the purposes of the report required by section 43-224, the department shall report the credits under section 43-1072.01 and this section together as one credit.

§ 43-1073 Family income tax credit

A. Subject to the conditions prescribed by this section, a credit is allowed against the taxes imposed by this chapter for a taxable year for taxpayers whose Arizona adjusted gross income, plus the amount subtracted for exemptions under section 43-1023 and the amount subtracted for Arizona small business gross income under section 43-1022, paragraph 28, is:

$20,000 or less in the case of a married couple filing a joint return with not more than one dependent or a single person who is a head of a household with not more than one dependent.
$23,600 or less in the case of a married couple filing a joint return with two dependents.
$27,300 or less in the case of a married couple filing a joint return with three dependents.
$31,000 or less in the case of a married couple filing a joint return with four or more dependents.
$20,135 or less in the case of a single person who is a head of a household with two dependents.
$23,800 or less in the case of a single person who is a head of a household with three dependents.
$25,200 or less in the case of a single person who is a head of a household with four dependents.
$26,575 or less in the case of a single person who is a head of a household with five or more dependents.
$10,000 or less in the case of a single person or a married person filing separately.

B. The amount of the credit is equal to $40 for each person who is a resident of this state and who is either the taxpayer, the taxpayer's spouse who does not file a return or a dependent but may not exceed:

$240 in the case of a married couple filing a joint return or a single person who is a head of a household.
$120 in the case of a single person or a married couple filing separately.
For any taxpayer, the amount of taxes due under this chapter for the taxable year.

§ 43-1073.01 Dependent tax credit

A. A credit is allowed against the taxes imposed by this title for a taxable year for each dependent of a taxpayer as provided by this section.

B. For taxpayers whose federal adjusted gross income is less than $200,000 for a taxpayer who is a single person, a married person filing separately or a head of household or is less than $400,000 for a married couple filing a joint return, the amount of the credit is:

$100 for each dependent who is under seventeen years of age at the end of the taxable year.
$25 for each dependent who is at least seventeen years of age at the end of the taxable year.

C. For taxpayers whose federal adjusted gross income is $200,000 or more for a taxpayer who is a single person, a married person filing separately or a head of household or is $400,000 or more for a married couple filing a joint return, the amount of the credit is:

$100 minus five percent for each $1,000, or fraction thereof, by which the taxpayer's federal adjusted gross income exceeds the applicable threshold provided in this subsection for each dependent who is under seventeen years of age at the end of the taxable year.
$25 minus five percent for each $1,000, or fraction thereof, by which the taxpayer's federal adjusted gross income exceeds the applicable threshold provided in this subsection for each dependent who is at least seventeen years of age at the end of the taxable year.

D. In the case of a nonresident or part-year resident taxpayer, the credit allowed under this section is allowed in the percentage that the taxpayer's Arizona gross income is of the federal adjusted gross income.

§ 43-1074 Credit for new employment

A. For taxable years beginning from and after June 30, 2011, a credit is allowed against the taxes imposed by this title for net increases in full-time employees residing in this state and hired in qualified employment positions in this state as computed and certified by the Arizona commerce authority pursuant to section 41-1525.

B. Subject to subsection F of this section, the amount of the credit is equal to:

Three thousand dollars for each full-time employee hired in a qualified employment position in the first year or partial year of employment. Employees hired in the last ninety days of the taxable year are excluded for that taxable year and are considered to be new employees in the following taxable year.
Three thousand dollars for each full-time employee in a qualified employment position for the full taxable year in the second year of continuous employment.
Three thousand dollars for each full-time employee in a qualified employment position for the full taxable year in the third year of continuous employment.

C. The capital investment and the new qualified employment positions requirements of section 41-1525, subsection B must be accomplished within twelve months after the start of the required capital investment. A credit may not be claimed until both requirements are met. A business that meets the requirements of section 41-1525, subsection B for a location is eligible to claim first year credits for three years beginning with the taxable year in which those requirements are completed. Employees hired at the location before the beginning of the taxable year but during the twelve-month period allowed in this subsection are considered to be new employees for the taxable year in which all of those requirements are completed. The employees that are considered to be new employees for the taxable year under this subsection shall not be included in the average number of full-time employees during the immediately preceding taxable year until the taxable year in which all of the requirements of section 41-1525, subsection B are completed. An employee working at a temporary worksite in this state while the designated location is under construction is considered to be working at the designated location if all of the following occur:

The employee is hired after the start of the required investment at the designated location.
The employee is hired to work at the designated location after it is completed.
The payroll for the employees destined for the designated location is segregated from other employees.
The employee is moved to the designated location within thirty days after its completion.

D. To qualify for a credit under this section, the taxpayer and the employment positions must meet the requirements prescribed by section 41-1525.

E. A credit is allowed for employment in the second and third year only for qualified employment positions for which a credit was claimed and allowed in the first year.

F. The net increase in the number of qualified employment positions is the lesser of the total number of filled qualified employment positions created at the designated location or locations during the taxable year or the difference between the average number of full-time employees in this state in the current taxable year and the average number of full-time employees in this state during the immediately preceding taxable year. The net increase in the number of qualified employment positions computed under this subsection may not exceed the difference between the average number of full-time employees in this state in the current taxable year and the average number of full-time employees in this state during the immediately preceding taxable year.

G. If the allowable tax credit exceeds the income taxes otherwise due on the claimant's income, or if there are no state income taxes due on the claimant's income, the amount of the claim not used as an offset against the income taxes may be carried forward as a tax credit against subsequent years' income tax liability for a period not exceeding five taxable years.

H. Co-owners of a business, including partners in a partnership and shareholders of an S corporation, as defined in section 1361 of the internal revenue code, may each claim only the pro rata share of the credit allowed under this section based on the ownership interest. The total of the credits allowed all such owners of the business may not exceed the amount that would have been allowed for a sole owner of the business.

I. If the business is sold or changes ownership through reorganization, stock purchase or merger, the new taxpayer may claim first year credits only for the qualified employment positions that it created and filled with an eligible employee after the purchase or reorganization was complete. If a person purchases a taxpayer that had qualified for first or second year credits or changes ownership through reorganization, stock purchase or merger, the new taxpayer may claim the second or third year credits if it meets other eligibility requirements of this section. Credits for which a taxpayer qualified before the changes described in this subsection are terminated and lost at the time the changes are implemented.

J. A failure to timely report and certify to the Arizona commerce authority the information prescribed by section 41-1525, subsection E, and in the manner prescribed by section 41-1525, subsection F disqualifies the taxpayer from the credit under this section. The department shall require written evidence of the timely report to the Arizona commerce authority.

K. A tax credit under this section is subject to recovery for a violation described in section 41-1525, subsection H.

L. For the purposes of subsection B, paragraphs 2 and 3 of this section, if a full-time employee in the qualified employment position leaves during the taxable year, the employee may be replaced with another new full-time employee in the same employment position and the new employee will be treated as being in the employee's second or third full year of continuous employment for the purposes of the credit under this section if:

The total time the position was vacant from the date the employment position was originally filled to the end of the current tax year totals ninety days or less.
The new employee meets all of the same requirements as the original employee was required to meet.

§ 43-1074.01 Credit for increased research activities

A. A credit is allowed against the taxes imposed by this title in an amount determined pursuant to section 41 of the internal revenue code, except that:

The amount of the credit is based on the excess, if any, of the qualified research expenses for the taxable year over the base amount as defined in section 41(c) of the internal revenue code and is computed as follows:

(a) If the excess is $2,500,000 or less:

(i) For taxable years beginning before December 31, 2030, the credit is equal to twenty-four percent of that amount.

(ii) For taxable years beginning from and after December 31, 2030, the credit is equal to twenty percent of that amount.

(b) If the excess is over $2,500,000:

(i) For taxable years beginning before December 31, 2030, the credit is equal to $600,000 plus fifteen percent of any amount exceeding $2,500,000.

(ii) For taxable years beginning from and after December 31, 2030, the credit is equal to $500,000 plus eleven percent of any amount exceeding $2,500,000.

(c) For taxable years beginning from and after December 31, 2011, an additional credit amount is allowed if the taxpayer made basic research payments during the taxable year to a university under the jurisdiction of the Arizona board of regents. The additional credit amount is equal to ten percent of the excess, if any, of the basic research payments over the qualified organization base period amount for the taxable year. The department shall not allow credit amounts under this subdivision and section 43-1168, subsection A, paragraph 1, subdivision (d) that exceed, in the aggregate, a combined total of $10,000,000 in any calendar year. Subject to that limit, on application by the taxpayer, the department shall certify credit amounts under this subdivision and section 43-1168, subsection A, paragraph 1, subdivision (d) based on priority placement established by the date that the taxpayer filed the application. For taxable years beginning from and after December 31, 2014, any basic research payments used to determine the additional credit under this subdivision must first receive certification from the Arizona commerce authority pursuant to section 41-1507.01. The additional credit amount under this subdivision shall not exceed the amount allowed based on actual basic research payments or the department's certification, whichever is less. If an application, if certified in full, would exceed the $10,000,000 limit, the department shall certify only an amount within that limit. After the limit is attained, the department shall deny any subsequent applications regardless of whether other certified amounts are not actually claimed as a credit or other taxpayers fail to qualify to actually claim certified amounts. Notwithstanding subsections B and C of this section, any amount of the additional credit under this subdivision that exceeds the taxes otherwise due under this title is not refundable, but may be carried forward to the next five consecutive taxable years. For the purposes of this subdivision, "basic research payments" and "qualified organization base period amount" have the same meanings prescribed by section 41(e) of the internal revenue code without regard to whether the taxpayer is or is not a corporation.

Qualified research includes only research conducted in this state, including research conducted at a university in this state and paid for by the taxpayer.
If two or more taxpayers, including partners in a partnership and shareholders of an S corporation, as defined in section 1361 of the internal revenue code, share in the eligible expenses, each taxpayer is eligible to receive a proportionate share of the credit.
The credit under this section applies only to expenses incurred from and after December 31, 2000.
The termination provisions of section 41 of the internal revenue code do not apply.

B. Except as provided by subsection C of this section, if the allowable credit under this section exceeds the taxes otherwise due under this title on the claimant's income, or if there are no taxes due under this title, the amount of the credit that is claimed for taxable years beginning before January 1, 2022 and that is not used to offset taxes may be carried forward to the next fifteen consecutive taxable years and the amount of the credit that is claimed for taxable years beginning from and after December 31, 2021 and that is not used to offset taxes may be carried forward to the next ten consecutive taxable years. The amount of credit carryforward from taxable years beginning from and after December 31, 2002 that may be used in any taxable year may not exceed the taxpayer's tax liability under this title minus the credit under this section for the current taxable year's qualified research expenses. A taxpayer who carries forward any amount of credit under this subsection may not thereafter claim a refund of any amount of the credit under subsection C of this section.

C. For taxable years beginning from and after December 31, 2009, if a taxpayer who claims a credit under this section employs fewer than one hundred fifty persons in the taxpayer's trade or business and if the allowable credit under this section exceeds the taxes otherwise due under this title on the claimant's income, or if there are no taxes due under this title, in lieu of carrying the excess amount of credit forward to subsequent taxable years under subsection B of this section, the taxpayer may elect to receive a refund as follows:

The taxpayer must apply to the Arizona commerce authority for qualification for the refund pursuant to section 41-1507 and submit a copy of the authority's certificate of qualification to the department of revenue with the taxpayer's income tax return.
The amount of the refund is limited to seventy-five percent of the amount by which the allowable credit under this section exceeds the taxpayer's tax liability under this title for the taxable year. The remainder of the excess amount of the credit is waived.
The refund shall be paid in the manner prescribed by section 42-1118.
The refund is subject to setoff under section 42-1122.
If the department determines that a credit refunded pursuant to this subsection is incorrect or invalid, the excess credit issued may be treated as a tax deficiency pursuant to section 42-1108.

§ 43-1074.02 Credit for investment in qualified small businesses

A. For taxable years beginning from and after December 31, 2006 through December 31, 2034, a credit is allowed against the taxes imposed by this title for investment made after June 30, 2006 in qualified small businesses. The amount of the credit is the amount determined and authorized by the Arizona commerce authority as provided by section 41-1518.

B. To claim the credit under this section, the taxpayer shall attach to its tax return a copy of the Arizona commerce authority certification provided pursuant to section 41-1518. A credit is not allowed under this section unless the taxpayer provides the certification.

C. The basis of any investment with respect to which the taxpayer has claimed a credit under this section shall be reduced by the amount of the credit claimed with respect to that investment.

D. If the allowable tax credit exceeds the taxes due under this title on the claimant's income, or if there are no taxes due under this title, the amount of the claim not used to offset the taxes under this title may be carried forward to the next three consecutive taxable years as a credit against subsequent years' income tax liability.

E. Individuals who are co-owners of a business, including partners in a partnership and shareholders of an S corporation as defined in section 1361 of the internal revenue code, may each claim only their individual pro rata shares of the credit allowed under this section based on their ownership interests. The total of the credits allowed all such owners may not exceed the amount that would have been allowed a sole owner.

F. If the department of revenue determines that there has been a misrepresentation on an application submitted to the Arizona commerce authority under section 41-1518, the department of revenue shall deny the credit if the misrepresentation relates to whether the applicant was a qualified investor or made a qualified investment. If the misrepresentation relates to whether the investment was made to:

A qualified small business, the department of revenue shall deny the credit only if the applicant knew or should have known at any time before the certification that the representation was false.
A bioscience enterprise or a business that maintains its principal place of business in a rural county in this state, the department of revenue shall decrease the amount of the credit that would have been allowed only if the applicant knew or should have known at any time before the certification that the representation was false.

§ 43-1076.01 Healthy forest production tax credit; definitions

A. For taxable years beginning from and after December 31, 2020, a credit is allowed against the taxes imposed by this title for processing qualifying forest products.

B. The taxpayer is eligible for the credit if all of the following apply:

The taxpayer has a current healthy forest enterprise incentive certification and memorandum of understanding with the Arizona commerce authority pursuant to section 41-1516.
The taxpayer processes qualifying forest products from a qualifying project from and after December 31, 2020 and before January 1, 2031.
The facility that processes qualifying forest products is located within this state.

C. The taxpayer is eligible for the credit for the calendar year in which the qualifying project processes qualifying forest products pursuant to subsection B of this section.

D. If the allowable credit under this section exceeds the taxes otherwise due under this title on the claimant's income, or if there are no taxes due under this title, the taxpayer may carry forward the amount of the claim not used to offset the taxes under this title for not more than five consecutive taxable years' income tax liability.

E. The credit authorized by this section is based on the number of tons of qualifying forest products that a taxpayer processes during a calendar year. For a taxpayer who files on a fiscal year basis, the credit shall be claimed on the return for the taxable year in which the calendar year ends.

F. Subject to subsection H of this section, the amount of the credit is $10,000 for the first twenty thousand tons and $5,000 for every ten thousand tons thereafter of qualifying forest products the taxpayer processes in the calendar year.

G. To be eligible for the credit under this section, the taxpayer must apply to the department, on a form prescribed by the department, for certification of the credit. The department shall accept applications beginning January 2 through January 31 of the year following the calendar year for which the credit is being requested. The application shall include:

The taxpayer's name, address and social security number or federal employer identification number.
The location of the taxpayer's facility that processes qualifying forest products for which the credit is claimed.
The amount of the credit that is claimed.
The date the taxpayer began processing commercially marketable amounts of qualifying forest products.
Any additional information that the department requires.

H. The department shall review each application under subsection G of this section and certify to the taxpayer the amount of the credit authorized. The amount of the credit for any calendar year may not exceed $500,000 per taxpayer who processes qualifying forest products. Credits are allowed under this section and section 43-1162 on a first-come, first-served basis. The department may not authorize tax credits under this section and section 43-1162 that exceed in the aggregate a total of $2,000,000 for any calendar year.

I. The first time a taxpayer submits a qualified application under subsection G of this section, the department shall add the taxpayer's name to a credit authorization list in the order in which qualified applications are first received by the department on behalf of the taxpayer. A taxpayer's position on the credit authorization list shall be determined in the first year the taxpayer submits an application under subsection G of this section for processing qualifying forest products. The taxpayer's position on the list shall remain unchanged for the remainder of the period specified in subsection B, paragraph 2 of this section or until a year in which the taxpayer fails to submit a timely application under subsection G of this section or otherwise fails to comply with this section. If a taxpayer is removed from the credit authorization list for processing qualifying forest products, the taxpayer may establish a new position on the credit authorization list in a subsequent year by filing a timely application for processing qualifying forest products that qualifies for the credit.

J. If an application is received that, if authorized, would require the department to exceed the $2,000,000 limit, the department shall grant the applicant only the remaining credit amount that would not exceed the $2,000,000 limit. After the department authorizes $2,000,000 in tax credits, the department shall deny any subsequent applications received for that calendar year. The department may not authorize any additional tax credits that exceed the $2,000,000 limit even if the amounts that have been certified to any taxpayer were not claimed or a taxpayer otherwise fails to meet the requirements to claim the additional credit.

K. Co-owners of a facility that processes qualifying forest products, including partners in a partnership and shareholders of an S corporation as defined in section 1361 of the internal revenue code, may each claim the pro rata share of the credit allowed under this section based on ownership interest. The total of the credits allowed all such owners who process qualifying forest products may not exceed the amount that would have been allowed for a sole owner.

L. The department shall adopt rules and publish and prescribe forms and procedures as necessary to effectuate the purposes of this section.

M. For the purposes of this section:

"Processed" or "processing" means any change in the physical structure of qualifying forest products removed from a qualifying project into a marketable commercial product or component of a product that has commercial value to a consumer or purchaser and that is ready to be used with or without further altering its form.
"Qualifying forest products" means qualifying forest products as defined in section 41-1516 that are sourced within this state.
"Qualifying project" has the same meaning prescribed in section 41-1516.

§ 43-1077 Credit for entity-level income tax

A. For taxable years beginning from and after December 31, 2021, a credit is allowed against the taxes imposed by this title for a taxpayer who is a partner in a partnership or a shareholder of an S corporation that elects to pay the tax under section 43-1014.

B. The amount of the credit is the portion of the tax paid by the partnership or S corporation under section 43-1014 that is attributable to the partner's or shareholder's share of income taxable in this state.

C. If the allowable credit exceeds the taxes otherwise due under this title on the claimant's income, or if there are no taxes due under this title, the amount of the claim not used to offset taxes under this title may be carried forward for not more than five consecutive taxable years as a credit against subsequent years' income tax liability.

§ 43-1078 Credit for Arizona small business excess credit amount

A. A credit is allowed against the taxes imposed by this chapter in an amount that is equal to the excess amount determined pursuant to section 43-1742.

B. If any portion of the allowable credit exceeds the taxes due under this chapter or if there are no taxes due under this chapter, the amount of the credit not used to offset the taxes under this chapter may be carried forward as a credit under section 43-1742 to the following taxable year as a credit that is first available to offset the tax due under chapter 17 of this title.

§ 43-1079.01 Credit for employing national guard members

A. For taxable years beginning from and after December 31, 2005, a credit is allowed against the taxes imposed by this title for a taxpayer whose employee is a member of the Arizona national guard if the employee is placed on active duty. The amount of the credit is one thousand dollars for each employee who is placed on active duty by the Arizona national guard.

B. To qualify for the credit:

The employee must be a member of the Arizona national guard who is employed by the taxpayer in a full-time equivalent position when the employee is placed on active duty.
Each member of the Arizona national guard who is employed must have served during the taxable year on active duty for training that exceeds the required annual training period, including any activation for federal or state contingencies or emergencies.

D. The credit under this section may be claimed only once by the taxpayer in any taxable year with respect to each employee who is placed on active duty by the Arizona national guard, but may be claimed again for that employee in a subsequent taxable year if that employee remains on active duty or is placed again on active duty in a subsequent taxable year.

E. Co-owners of a business, including partners in a partnership and shareholders of an S corporation as defined in section 1361 of the internal revenue code, may each claim only the pro rata share of the credit allowed under this section based on the ownership interest. The total of the credits allowed all such owners may not exceed the amount that would have been allowed a sole owner.

§ 43-1081.01 Credit for agricultural pollution control equipment

A. A credit is allowed against the taxes imposed by this title for expenses that a taxpayer, involved in the commercial production of livestock, livestock products or agricultural, horticultural, viticultural or floricultural crops or products, incurred during the taxable year to purchase tangible personal property that is primarily used in the taxpayer's trade or business in this state to control or prevent pollution. The amount of the credit is equal to twenty-five percent of the cost of the real or personal property. The maximum credit that a taxpayer may claim under this section is $25,000 in a taxable year.

B. Property that qualifies for the credit under this section includes the portion of a structure, building, installation, excavation, machine, equipment or device and any attachment or addition to or reconstruction, replacement or improvement of that property that is directly used, constructed or installed in this state to prevent, monitor, control or reduce air, water or land pollution.

C. Amounts that qualify for a credit under this section must be includible in the taxpayer's adjusted basis for the property. The adjusted basis of any property with respect to which the taxpayer has claimed a credit shall be reduced by the amount of credit claimed with respect to that asset. This credit does not affect the deductibility for depreciation or amortization of the remaining adjusted basis of the asset.

D. Co-owners of a business, including individual partners in a partnership, may each claim only the pro rata share of the credit allowed under this section based on the ownership interest. The total of the credits allowed all such owners may not exceed the amount that would have been allowed a sole owner.

E. If the allowable tax credit exceeds the taxes otherwise due under this title on the claimant's income, or if there are no taxes due under this title, the amount of the claim not used to offset the taxes under this title may be carried forward to the next five consecutive taxable years as a credit against subsequent years' income tax liability.

§ 43-1082 Credit for motion picture production costs; qualifications; data maintenance; rules; definitions

(Rpld. 1/1/44)

A. For taxable years beginning from and after December 31, 2022, a tax credit is allowed against production costs paid by a motion picture production company in this state that are subject to taxation by this state and that are directly attributable to a motion picture production. The amount of the credit shall be determined as follows:

An amount equal to a percentage of the total amount of the qualified production costs as approved by the Arizona commerce authority pursuant to section 41-1517 as follows:

(a) For a motion picture production company that spends up to $10,000,000, fifteen percent.

(b) For a motion picture production company that spends more than $10,000,000 but less than $35,000,000, seventeen and one-half percent.

An additional two and one-half percent of the motion picture production company's production labor costs related to positions held by residents of this state as approved by the Arizona commerce authority pursuant to section 41-1517.
If the motion picture production company either:

(a) Uses a qualified production facility in this state to produce the motion picture production, an additional two and one-half percent of the total amount of qualified production costs as approved by the Arizona commerce authority pursuant to section 41-1517.

(b) Films primarily at a practical location, produces and films the motion picture production primarily in this state and performs all preproduction, postproduction and editing at a qualified production facility in this state, an additional two and one-half percent of the total qualified production costs as approved by the Arizona commerce authority pursuant to section 41-1517.

An additional two and one-half percent of the total amount of qualified production costs as approved by the Arizona commerce authority pursuant to section 41-1517 if the motion picture production is produced and filmed in association with a long-term tenant of a qualified production facility.

B. Tax credits under this section may not exceed the amount provided in the postapproval issued by the Arizona commerce authority pursuant to section 41-1517, subsection H. The taxpayer must include a copy of the postapproval with the taxpayer's income tax return for the taxable year in which the Arizona commerce authority issued the postapproval.

C. The department may not allow a tax credit under this section to a taxpayer who has a delinquent tax balance owed to the department under this title.

D. To qualify for a tax credit under this section, the motion picture production company must:

Do either of the following:

(a) Use a qualified production facility in this state to produce the motion picture production.

(b) If the motion picture production is filmed primarily at a practical location, produce and film the motion picture production primarily in this state and perform all preproduction, postproduction and editing at an industry standard facility, if such a facility for those functions is available.

Maintain the motion picture production company's production labor positions in this state.
Include in the credits for each motion picture production an acknowledgment that the production was filmed in Arizona.
Receive preapproval and postapproval from the Arizona commerce authority pursuant to section 41-1517.
Claim the tax credit by using the form prescribed by the department and include the form with the motion picture production company's income tax return for the taxable year in which the Arizona commerce authority issued the postapproval.

E. Co-owners of a motion picture production company, including partners in a partnership, members of a limited liability company and shareholders of an S corporation, as defined in section 1361 of the internal revenue code, may each claim the pro rata share of the tax credit allowed under this section based on ownership interests. The total of the tax credits allowed all such owners may not exceed the amount that would have been allowed a sole owner.

F. If the allowable tax credit for a taxable year exceeds the income taxes otherwise due on the claimant's income, or if there are no state income taxes due on the claimant's income, the amount of the claim not used as an offset against income taxes shall be paid to the taxpayer in the same manner as a refund under section 42-1118. Refunds made pursuant to this subsection are subject to setoff under section 42-1122. If the department determines that a refund is incorrect or invalid, the excess refund may be treated as a tax deficiency pursuant to section 42-1108.

G. The department shall maintain annual data on the total amount of monies credited pursuant to this section and shall provide the data to the Arizona commerce authority on request.

H. The department shall adopt fees and rules and publish and prescribe forms and procedures as necessary to administer this section and provide administrative support services.

I. The tax credit allowed by this section is in lieu of any allowance for state tax purposes of a deduction of those expenses allowed by the internal revenue code.

J. For the purposes of this section:

"Long-term tenant" means a person that enters into a lease of at least five years for the use of a qualified production facility.
"Motion picture production" has the same meaning prescribed in section 41-1517.
"Motion picture production company" has the same meaning prescribed in section 41-1517.
"Practical location" has the same meaning prescribed in section 41-1517.
"Production costs" has the same meaning prescribed in section 41-1517.
"Production labor" has the same meaning prescribed in section 41-1517.
"Qualified production facility" has the same meaning prescribed in section 41-1517.

§ 43-1083 Credit for solar energy devices

A. A credit is allowed against the taxes imposed by this title for each resident who is not a dependent of another taxpayer for installing a solar energy device, as defined in section 42-5001, during the taxable year in the taxpayer's residence located in this state. The credit is equal to twenty-five percent of the cost of the device.

B. The maximum credit in a taxable year may not exceed one thousand dollars. The person who provides the solar energy device shall furnish the taxpayer with an accounting of the cost to the taxpayer. A taxpayer may claim the credit under this section only once in a tax year and may not cumulate over different tax years tax credits under this section exceeding, in the aggregate, one thousand dollars for the same residence.

C. If the allowable tax credit exceeds the taxes otherwise due under this title on the claimant's income, or if there are no taxes due under this title, the amount of the claim not used to offset taxes under this title may be carried forward for not more than five consecutive taxable years as a credit against subsequent years' income tax liability.

D. A husband and wife who file separate returns for a taxable year in which they could have filed a joint return may each claim only one-half of the tax credit that would have been allowed for a joint return.

E. The credit allowed under this section is in lieu of any allowance for state tax purposes for exhaustion, wear and tear of the solar energy device under section 167 of the internal revenue code.

F. To qualify for the credit under this section the solar energy device and its installation shall meet the requirements of title 44, chapter 11, article 11.

G. A solar hot water heater plumbing stub out that was installed by the builder of a house or dwelling unit before title was conveyed to the taxpayer does not qualify for a credit under this section.

§ 43-1083.02 Renewable energy production tax credit; definitions

A. A credit is allowed against the taxes imposed by this title for the production of electricity using renewable energy resources.

B. The taxpayer is eligible for the credit:

If the taxpayer holds title to a qualified energy generator that first produces electricity from and after December 31, 2010 and before January 1, 2021.
For ten consecutive calendar years beginning with the calendar year in which the qualified energy generator begins producing electricity that is transmitted through a transmission facility to a grid connection with a public or private electric transmission or distribution utility system. That same date applies with respect to that generator until the expiration of the ten-year period regardless of whether the generator is sold to another taxpayer or goes out of production before the expiration of the ten-year period.

C. The credit authorized by this section is based on the electricity that is generated by a qualified energy generator during a calendar year. For a taxpayer that files on a fiscal year basis, the credit shall be claimed on the return for the taxable year in which the calendar year ends.

D. Subject to subsection G of this section, the amount of the credit is:

One cent per kilowatt-hour of the first two hundred thousand megawatt-hours of electricity produced by a qualified energy generator in the calendar year using a wind or biomass derived qualified energy resource.
The following amounts for electricity produced by a qualified energy generator using a solar light derived or solar heat derived qualified energy resource:

(a) Four cents per kilowatt-hour in the first calendar year in which the qualified energy generator produces electricity.

(b) Four cents per kilowatt-hour in the second calendar year in which the qualified energy generator produces electricity.

(c) Three and one-half cents per kilowatt-hour in the third calendar year in which the qualified energy generator produces electricity.

(d) Three and one-half cents per kilowatt-hour in the fourth calendar year in which the qualified energy generator produces electricity.

(e) Three cents per kilowatt-hour in the fifth calendar year in which the qualified energy generator produces electricity.

(f) Three cents per kilowatt-hour in the sixth calendar year in which the qualified energy generator produces electricity.

(g) Two cents per kilowatt-hour in the seventh calendar year in which the qualified energy generator produces electricity.

(h) Two cents per kilowatt-hour in the eighth calendar year in which the qualified energy generator produces electricity.

(i) One and one-half cents per kilowatt-hour in the ninth calendar year in which the qualified energy generator produces electricity.

(j) One cent per kilowatt-hour in the tenth calendar year in which the qualified energy generator produces electricity.

E. To qualify for the purposes of this section, an energy generator may be located within one mile of an existing qualified energy generator only if the owner of the energy generator or the owner's corporate affiliates are not the owner of or the corporate affiliate of the owner of the existing qualified energy generator.

F. To be eligible for the credit under this section, the taxpayer must apply to the department, on a form prescribed by the department, for certification of the credit. The department shall only accept applications beginning January 2 through January 31 of the year following the calendar year for which the credit is being requested. The application shall include:

The name, address and social security number or federal employer identification number of the applicant.
The location of the taxpayer's facility that produces electricity using renewable energy resources for which the credit is claimed.
The amount of the credit that is claimed.
The date the qualified energy generator began producing commercially marketable amounts of electricity.
Any additional information that the department requires.

G. The department shall review each application under subsection F of this section and certify to the taxpayer the amount of the credit that is authorized. The amount of the credit for any calendar year shall not exceed two million dollars per facility that produces electricity using renewable energy resources. Credits are allowed under this section and section 43-1164.03 on a first come, first served basis. The department shall not authorize tax credits under this section and section 43-1164.03 that exceed in the aggregate a total of twenty million dollars for any calendar year. The first time that a taxpayer submits a qualified application for a qualified energy generator under subsection F of this section, the department shall add the taxpayer's name to a credit authorization list that is maintained in the order in which qualified applications are first received by the department on behalf of the qualified energy generator. A taxpayer's position on the credit authorization list shall be determined in the first year the taxpayer submits an application under subsection F of this section for the qualified energy generator. The taxpayer's position on the credit authorization list for a particular qualified energy generator shall remain unchanged for the ten years that are specified in subsection B, paragraph 2 of this section or until a year in which the taxpayer fails to submit a timely application under subsection F of this section or otherwise fails to comply with this section. If a taxpayer is removed from the credit authorization list for a qualified energy generator, the taxpayer may establish a new position on the credit authorization list in a subsequent year by filing a timely application for a qualified energy generator that qualifies for the credit. If an application is received that, if authorized, would require the department to exceed the twenty million dollar limit, the department shall grant the applicant only the remaining credit amount that would not exceed the twenty million dollar limit. After the department authorizes twenty million dollars in tax credits, the department shall deny any subsequent applications that are received for that calendar year. The department shall not authorize any additional tax credits that exceed the twenty million dollar limit even if the amounts that have been certified to any taxpayer were not claimed or a taxpayer otherwise fails to meet the requirements to claim the additional credit.

H. Co-owners of a qualified energy generator, including partners in a partnership, members of a limited liability company and shareholders of an S corporation as defined in section 1361 of the internal revenue code, may each claim the pro rata share of the credit allowed under this section based on ownership interest. The total of the credits allowed all such owners of the qualified energy generator may not exceed the amount that would have been allowed for a sole owner of the generator.

I. If the allowable tax credit for a taxpayer exceeds the taxes otherwise due under this title on the claimant's income, or if there are no taxes due under this title, the amount of the claim not used to offset taxes under this title may be carried forward for not more than five consecutive taxable years as a credit against subsequent years' income tax liability.

J. The department shall adopt rules and publish and prescribe forms and procedures as necessary to effectuate the purposes of this section.

K. For the purposes of this section:

"Biomass" means organic material that is available on a renewable or recurring basis, including:

(a) Forest-related materials, including mill residues, logging residues, forest thinnings, slash, brush, low-commercial value materials or undesirable species, salt cedar and other phreatophyte or woody vegetation removed from river basins or watersheds and woody material harvested for the purpose of forest fire fuel reduction or forest health and watershed improvement.

(b) Agricultural-related materials, including orchard trees, vineyard, grain or crop residues, including straws and stover, aquatic plants and agricultural processed coproducts and waste products, including fats, oils, greases, whey and lactose.

(d) Solid woody waste materials, including landscape or right-of-way tree trimmings, rangeland maintenance residues, waste pallets, crates and manufacturing, construction and demolition wood wastes, excluding pressure-treated, chemically-treated or painted wood wastes and wood contaminated with plastic.

(e) Crops and trees planted for the purpose of being used to produce energy.

(f) Landfill gas, wastewater treatment gas and biosolids, including organic waste byproducts generated during the wastewater treatment process.

"Qualified energy generator" means a facility that has at least five megawatts generating capacity, that is located on land in this state owned or leased by the taxpayer, that produces electricity using a qualified energy resource and that sells that electricity to an unrelated entity, unless the electricity is sold to a public service corporation.
"Qualified energy resource" means a resource that generates electricity through the use of only the following energy sources:

(a) Solar light.

(b) Solar heat.

(d) Biomass.

§ 43-1083.03 Credit for qualified facilities

(Rpld. 1/1/32)

A. For taxable years beginning from and after December 31, 2012 through December 31, 2030, a credit is allowed against the taxes imposed by this title for qualifying investment and employment in expanding or locating a qualified facility in this state. To qualify for the credit, after June 30, 2012 the taxpayer must invest in a new qualified facility or expand an existing qualified facility in this state and produce new full-time employment positions where the job duties are associated with the location of the qualifying investment. The taxpayer must meet the employee compensation and employee health benefit requirements prescribed by section 41-1512.

B. The amount of the credit is computed as follows:

Ten percent of the lesser of:

(a) The total qualifying investment in the qualified facility.

(b) Either:

(i) If the total qualifying investment is less than $2,000,000,000, $200,000 for each net new full-time employment position that has duties associated with the qualified facility.

(ii) If the total qualifying investment is $2,000,000,000 or more, $300,000 for each net new full-time employment position that has duties associated with the qualified facility.

The amount of the credit shall not exceed the postapproval amount determined by the Arizona commerce authority under section 41-1512, subsection P.
Subject to subsections G and J of this section:

(a) The credit amount computed under paragraph 1 of this subsection is apportioned, and the taxpayer shall claim the credit in five equal annual installments in each of five consecutive taxable years.

(b) The taxpayer may claim all five annual installments of a credit that was preapproved before January 1, 2031 by the Arizona commerce authority notwithstanding any intervening repeal or other termination of the credit.

C. To claim the credit the taxpayer must:

Conduct a business that qualifies under section 41-1512.
Receive preapproval and postapproval from the Arizona commerce authority pursuant to section 41-1512.
Submit to the department a copy of a current and valid certification of qualification issued to the taxpayer by the Arizona commerce authority.

D. To be counted for the purposes of the credit, an employee must have been employed with job duties associated with the qualified facility for at least ninety days during the taxable year in a permanent full-time employment position of at least one thousand seven hundred fifty hours per year. An employee who is hired during the last ninety days of the taxable year shall be considered a new employee during the next taxable year. To be counted for the purposes of the credit during the first taxable year of employment, the employee must not have been previously employed by the taxpayer within twelve months before the current date of hire. The terms of employment must comply in all cases with the requirements of section 41-1512 and be certified by the Arizona commerce authority.

E. Co-owners of a business, including partners in a partnership, members of a limited liability company and shareholders of an S corporation, as defined in section 1361 of the internal revenue code, may each claim only the pro rata share of the credit allowed under this section based on the ownership interest. The total of the credits allowed all owners of the business may not exceed the amount that would have been allowed for a sole owner of the business.

G. Except as provided by subsection H of this section, if, within five taxable years after first receiving a credit pursuant to this section, the certification of qualification of a business is terminated or revoked under section 41-1512, other than for reasons beyond the control of the business as determined by the Arizona commerce authority, the taxpayer is disqualified from credits under this section in subsequent taxable years. On a determination that the taxpayer has committed fraud or relocated outside of this state within five taxable years after first receiving a credit pursuant to this section, the credits allowed the taxpayer in all taxable years pursuant to this section are subject to recapture pursuant to this subsection. This subsection applies only in the case of the termination or revocation of a certification of qualification under section 41-1512. This subsection does not apply if, in any taxable year, a taxpayer otherwise does not qualify for or fails to claim the credit under this section. The recapture of credits is computed by increasing the amount of taxes imposed in the year following the year of termination or revocation by the full amount of all credits previously allowed under this section.

H. A taxpayer who claims a credit under section 43-1074 may not claim a credit under this section with respect to the same full-time employment positions.

I. The department of revenue shall adopt rules and prescribe forms and procedures as necessary for the purposes of this section. The department of revenue and the Arizona commerce authority shall collaborate in adopting rules as necessary to avoid duplication and contradictory requirements while accomplishing the intent and purposes of this section.

J. Each taxable year after the postapproval of the credit under section 41-1512, subsection P, when the taxpayer files the taxpayer's income tax return, the taxpayer shall:

Notify the department, on a form prescribed by the department, of any full-time employment position for which a credit was claimed under this section and that was vacant for more than one hundred fifty days after the date the full-time employment position was originally filled to the end of that taxable year. The period that a full-time employment position was vacant may not include the period before the full-time employment position was filled for the first time.
Reduce the portion of the credit claimed for the taxable year pursuant to subsection B, paragraph 3 of this section by $4,000 for each full-time employment position reported pursuant to paragraph 1 of this subsection.

§ 43-1084 Credit for agricultural water conservation system

A. A credit is allowed against the taxes imposed by this title for expenses that the taxpayer incurred during the taxable year to purchase and install an agricultural water conservation system in this state. The amount of the credit is equal to seventy-five percent of the qualifying expenses.

B. To qualify for the credit under this section:

The agricultural water conservation system must be primarily designed to substantially conserve water on land that is used by the taxpayer or the taxpayer's tenant to:

(a) Produce crops, fruits or other agricultural products.

(b) Raise, harvest or grow trees.

The expense must be consistent with a conservation plan that the taxpayer has filed with the United States department of agriculture, natural resources conservation service, or a natural resource conservation district in this state established pursuant to title 41, chapter 58.

C. Co-owners of the land on which the water conservation system is installed, including partners in a partnership and shareholders of an S corporation, as defined in section 1361 of the internal revenue code, may each claim only the pro rata share of the credit allowed under this section based on the ownership interest. The total of the credits allowed all such owners may not exceed the amount that would have been allowed a sole owner.

D. If the allowable tax credit exceeds the taxes otherwise due under this title on the claimant's income, or if there are no taxes due under this title, the taxpayer may carry the amount of the claim not used to offset the taxes under this title forward for not more than five taxable years' income tax liability.

E. The credit allowed by this section is in lieu of any deduction for such expenses allowed by the internal revenue code and included under section 43-1042 in computing taxable income.

§ 43-1085 Credit for solar energy devices; commercial and industrial applications

A. For taxable years beginning from and after December 31, 2005 through December 31, 2018, a credit is allowed against the taxes imposed by this title for a taxpayer who is either:

Installing one or more solar energy devices, as defined in section 42-5001 and certified pursuant to section 41-1510.01, during the taxable year for commercial, industrial or any other nonresidential application in the taxpayer's facility located in this state.
The third party organization that financed, installed or manufactured the solar energy device that qualifies for the credit under paragraph 1 of this subsection if the taxpayer or an entity exempt from taxation under chapter 12 of this title who otherwise would qualify for this credit transfers the credit on a form prescribed by the department to the third party organization.

B. The amount of the credit is equal to ten per cent of the installed cost of the device.

C. The person who provides or installs the device shall furnish the taxpayer with an accounting of the cost to the taxpayer.

D. The taxpayer may not cumulate total tax credits under this section exceeding twenty-five thousand dollars with respect to the same building in the same year or fifty thousand dollars in total credits in any year.

E. If the allowable credit exceeds the taxes otherwise due under this title on the claimant's income, or if there are no taxes due under this title, the amount of the claim not used to offset taxes under this title may be carried forward for not more than five consecutive taxable years as a credit against subsequent years' income tax liability.

F. Co-owners of a business, including partners in a partnership and shareholders of an S corporation, as defined in section 1361 of the internal revenue code, may each claim only the pro rata share of the credit allowed under this section based on the ownership interest or financial investment in the system. The total of the credits allowed all such owners may not exceed the amount that would have been allowed a sole owner.

§ 43-1086 Credit for donation to the military family relief fund subaccounts

(Rpld. 1/1/27)

A. For taxable years beginning from and after December 31, 2007 through December 31, 2026, a credit is allowed against the taxes imposed by this title for cash contributions made by a taxpayer during the taxable year to the pre-9/11 veterans subaccount or post-9/11 veterans subaccount of the military family relief fund established by section 41-608.04. The amount of the credit is the lowest of the following amounts, as applicable:

The total amount of contributions to the pre-9/11 veterans subaccount or post-9/11 veterans subaccount, or both subaccounts, by the taxpayer during the taxable year.
Two hundred dollars of contributions during the taxable year by a taxpayer filing as a single individual or a head of household.
Four hundred dollars of contributions during the taxable year by a married couple filing a joint return.
The taxpayer's tax liability for the taxable year.

B. A husband and wife who file separate returns for a taxable year in which they could have filed a joint return may each claim only one-half of the tax credit that would have been allowed on a joint return.

§ 43-1088 Credit for contribution to qualifying charitable organizations and qualifying foster care charitable organizations; definitions

A. Except as provided in subsections B and C of this section, a credit is allowed against the taxes imposed by this title for voluntary cash contributions by the taxpayer or on the taxpayer's behalf pursuant to section 43-401, subsection G during the taxable year to a qualifying charitable organization, other than a qualifying foster care charitable organization, not to exceed:

$400 in any taxable year for a single individual or a head of household.
$800 in any taxable year for a married couple filing a joint return.

B. A separate credit is allowed for voluntary cash contributions during the taxable year to a qualifying foster care charitable organization. A contribution to a qualifying foster care charitable organization does not qualify for, and shall not be included in, any credit amount under subsection A of this section. If the voluntary cash contribution by the taxpayer or on the taxpayer's behalf pursuant to section 43-401, subsection G is to a qualifying foster care charitable organization, the credit shall not exceed:

$500 in any taxable year for a single individual or a head of household.
$1,000 in any taxable year for a married couple filing a joint return.

C. Subsections A and B of this section provide separate credits against taxes imposed by this title depending on the recipients of the contributions. A taxpayer, including a married couple filing a joint return, in the same taxable year, may either or both:

Contribute to a qualifying charitable organization, other than a qualifying foster care charitable organization, and claim a credit under subsection A of this section.
Contribute to a qualifying foster care charitable organization and claim a credit under subsection B of this section.

E. For the purposes of this section, a contribution for which a credit is claimed and that is made on or before the fifteenth day of the fourth month following the close of the taxable year may be applied to either the current or preceding taxable year and is considered to have been made on the last day of that taxable year.

F. If the allowable tax credit exceeds the taxes otherwise due under this title on the claimant's income, or if there are no taxes due under this title, the taxpayer may carry forward the amount of the claim not used to offset the taxes under this title for not more than five consecutive taxable years' income tax liability.

G. The credit allowed by this section is in lieu of a deduction pursuant to section 170 of the internal revenue code and taken for state tax purposes.

H. For taxable years beginning from and after December 31, 2022, the department shall adjust the dollar amounts prescribed in subsection A, paragraphs 1 and 2 of this section and subsection B, paragraphs 1 and 2 of this section according to the average annual change in the metropolitan Phoenix consumer price index published by the United States department of labor, bureau of labor statistics. The revised dollar amounts shall be raised to the nearest whole dollar. The dollar amounts may not be revised below the amounts prescribed in the prior taxable year.

I. Taxpayers taking a credit authorized by this section shall provide the name of the qualifying charitable organization and the amount of the contribution to the department on forms provided by the department.

J. A qualifying charitable organization shall provide the department with a written certification that it meets all criteria to be considered a qualifying charitable organization. The organization shall also notify the department of any changes that may affect the qualifications under this section.

K. The charitable organization's written certification must be signed by an officer of the organization under penalty of perjury. The written certification must include the following:

Verification of the organization's status under section 501(c)(3) of the internal revenue code or verification that the organization is a designated community action agency that receives community services block grant program monies pursuant to 42 United States Code section 9901.
Financial data indicating the organization's budget for the organization's prior operating year and the amount of that budget spent on services to residents of this state who either:

(a) Receive temporary assistance for needy families benefits.

(b) Are low-income residents.

A statement that the organization plans to continue directing or spending at least fifty percent of its budget on services to residents of this state who receive temporary assistance for needy families benefits, who are low-income residents or who are individuals who have a chronic illness or physical disability.
A statement that the organization does not provide, pay for or provide coverage of abortions and does not financially support any other entity that provides, pays for or provides coverage of abortions.

L. The department shall review each written certification and determine whether the organization meets all the criteria to be considered a qualifying charitable organization and notify the organization of its determination. The department may also periodically request recertification from the organization. The department shall compile and make available to the public a list of the qualifying charitable organizations.

M. For the purposes of this section:

"Direct" means providing monies or financial or in-kind assistance to a charitable organization that is exempt from federal income taxation under section 501(c)(3) of the internal revenue code and that directly provides services to residents of this state who receive temporary assistance for needy families benefits, to low-income residents of this state and their households or to individuals who have a chronic illness or physical disability and who are residents of this state.
"Individuals who have a chronic illness or physical disability" means individuals whose primary diagnosis is a severe physical condition that may require ongoing medical or surgical intervention.
"Low-income residents" means persons whose household income is less than one hundred fifty percent of the federal poverty level.
"Qualified individual" means any of the following:

(a) A foster child as defined in section 8-501.

(b) A person who is participating in an independent living program as prescribed in section 8-521.

(d) A person who is participating in an extended foster care program as prescribed in section 8-521.02.

(e) A person who is under twenty-seven years of age and whose reason for leaving foster care is any of the following:

(i) Reaching eighteen years of age.

(ii) Adoption or legal guardianship after reaching fifteen years of age.

(iii) Reunification after reaching fourteen years of age.

"Qualifying charitable organization" means a charitable organization that is exempt from federal income taxation under section 501(c)(3) of the internal revenue code or is a designated community action agency that receives community services block grant program monies pursuant to 42 United States Code section 9901. The organization must direct or spend at least fifty percent of its budget on services to residents of this state who receive temporary assistance for needy families benefits, to low-income residents of this state and their households or to individuals who have a chronic illness or physical disability and who are residents of this state. Taxpayers choosing to make donations through an umbrella charitable organization that collects donations on behalf of member charities shall designate that the donation be directed to a member charitable organization that would qualify under this section on a stand-alone basis. Qualifying charitable organization does not include any entity that provides, pays for or provides coverage of abortions or that financially supports any other entity that provides, pays for or provides coverage of abortions.
"Qualifying foster care charitable organization" means a qualifying charitable organization that is exempt from federal income taxation under section 501(c)(3) of the internal revenue code or is a designated community action agency that receives community services block grant program monies pursuant to 42 United States Code section 9901 and that each operating year provides services to at least two hundred qualified individuals in this state and spends at least fifty percent of its budget on services to qualified individuals in this state.
"Services" means:

(a) For a qualifying charitable organization, cash assistance, medical care, behavioral health services, child care, food, clothing, shelter, job placement and job training services, workforce readiness services, workforce development programs or any other assistance that is reasonably necessary to meet basic needs and that is provided and used in this state. For the purposes of this subdivision:

(i) "Behavioral health services" has the same meaning prescribed in section 36-401.

(ii) "Job placement and job training" includes work activities as defined in section 46-101 and any other preparation and training used toward obtaining a high school equivalency diploma.

(iii) "Workforce development program" means any program recognized by the workforce Arizona council pursuant to section 41-5401.

(b) For a qualifying foster care charitable organization, cash assistance, medical care, behavioral health services, child care, food, including snacks at the qualifying foster care charitable organization's foster youth events, clothing, shelter, job placement services, job training services, character education programs, workforce development programs, secondary education student retention programs, housing or financial literacy services or any other assistance that is reasonably necessary to meet basic needs or provide normalcy and that is provided and used in this state. For the purposes of this subdivision:

(i) "Behavioral health services" has the same meaning prescribed in section 36-401.

(ii) "Character education program" means any program described in section 15-719, subsection B that is offered by a qualifying foster care charitable organization.

(iii) "Job training services" has the same meaning as vocational and technical preparation as defined in section 15-781.

(iv) "Normalcy" means the condition of experiencing a typical childhood by participating in activities that are age or developmentally-appropriate, as defined in 42 United States Code section 675.

(v) "Workforce development program" means any program recognized by the workforce Arizona council pursuant to section 41-5401.

§ 43-1089 Credit for contributions to school tuition organization

A. A credit is allowed against the taxes imposed by this title for the amount of voluntary cash contributions by the taxpayer or on the taxpayer's behalf pursuant to section 43-401, subsection G during the taxable year to a school tuition organization that is certified pursuant to chapter 16 of this title at the time of donation. Except as provided by subsection C of this section, the amount of the credit shall not exceed:

Five hundred dollars in any taxable year for a single individual or a head of household.
One thousand dollars in any taxable year for a married couple filing a joint return.

C. For each taxable year beginning on or after January 1, the department shall adjust the dollar amounts prescribed by subsection A, paragraphs 1 and 2 of this section according to the average annual change in the metropolitan Phoenix consumer price index published by the United States bureau of labor statistics, except that the dollar amounts shall not be revised downward below the amounts allowed in the prior taxable year. The revised dollar amounts shall be raised to the nearest whole dollar.

E. The credit allowed by this section is in lieu of any deduction pursuant to section 170 of the internal revenue code and taken for state tax purposes.

F. The tax credit is not allowed if the taxpayer designates the taxpayer's contribution to the school tuition organization for the direct benefit of any dependent of the taxpayer or if the taxpayer designates a student beneficiary as a condition of the taxpayer's contribution to the school tuition organization. The tax credit is not allowed if the taxpayer, with the intent to benefit the taxpayer's dependent, agrees with one or more other taxpayers to designate each taxpayer's contribution to the school tuition organization for the direct benefit of the other taxpayer's dependent.

G. For the purposes of this section, a contribution, for which a credit is claimed, that is made on or before the fifteenth day of the fourth month following the close of the taxable year may be applied to either the current or preceding taxable year and is considered to have been made on the last day of that taxable year.

§ 43-1089.01 Tax credit; public school fees and contributions; definitions

A. A credit is allowed against the taxes imposed by this title for the amount of any fees paid or cash contributions made by a taxpayer or on the taxpayer's behalf pursuant to section 43-401, subsection G during the taxable year to a public school located in this state for the following public school purposes:

Standardized testing for college credit or readiness offered by a widely recognized and accepted educational testing organization.
The career and technical education industry certification assessment.
Preparation courses and materials for standardized testing.
Cardiopulmonary resuscitation training pursuant to section 15-718.01.
Extracurricular activities.
Character education programs.
From and after June 30, 2019 through June 30, 2029:

(a) Acquiring capital items, as defined in the uniform system of financial records, including those items listed in section 15-903, subsection C, paragraphs 2 through 8.

(b) Community school meal programs. An amount paid by an individual to receive a meal or a meal card does not qualify as a fee or donation for community school meal programs.

(d) Playground equipment and shade structures for playground equipment.

B. The amount of the credit shall not exceed:

$200 for a single individual or a head of household.
$400 for a married couple filing a joint return.

C. A husband and wife who file separate returns for a taxable year in which they could have filed a joint return may each claim only one-half of the tax credit that would have been allowed for a joint return.

D. The credit allowed by this section is in lieu of any deduction pursuant to section 170 of the internal revenue code and taken for state tax purposes.

E. If the allowable tax credit exceeds the taxes otherwise due under this title on the claimant's income, or if there are no taxes due under this title, the taxpayer may carry the amount of the claim not used to offset the taxes under this title forward for not more than five consecutive taxable years' income tax liability.

F. The site council of the public school that receives contributions that are not designated for a specific purpose shall determine how the contributions are used at the school site. If a charter school does not have a site council, the principal, director or chief administrator of the charter school shall determine how the contributions that are not designated for a specific purpose are used at the school site. If at the end of a fiscal year a public school has unspent contributions that were previously designated for a specific purpose or program and that purpose or program has been discontinued or has not been used for two consecutive fiscal years, these contributions shall be considered undesignated in the following fiscal year for the purposes of this subsection, and the site council may transfer these undesignated contributions to any school within the same school district.

G. A public school that receives fees or a cash contribution pursuant to subsection A of this section shall report to the department, in a form prescribed by the department, by February 28 of each year the following information:

The total number of fee and cash contribution payments received during the previous calendar year.
The total dollar amount of fees and contributions received during the previous calendar year.
The total dollar amount of fees and contributions spent by the school during the previous calendar year, categorized by specific standardized testing, preparation courses and materials for standardized testing, extracurricular activity or character education program.

H. For the purposes of this section, a contribution for which a credit is claimed and that is made on or before the fifteenth day of the fourth month following the close of the taxable year may be applied to either the current or preceding taxable year and is considered to have been made on the last day of that taxable year.

I. For the purposes of this section:

"Career and technical education industry certification assessment" means an assessment for career and technical preparation programs for pupils.
"Character education programs" means a program described in section 15-719.
"Community school meal program" means a school meal program that takes place before or after the regular school day on school property.
"Extracurricular activities" means school-sponsored activities that may require enrolled students to pay a fee in order to participate, including fees for:

(a) Band uniforms.

(b) Equipment or uniforms for varsity athletic activities.

(d) In-state or out-of-state trips that are solely for competitive events. Extracurricular activities do not include any senior trips or events that are recreational, amusement or tourist activities.

"Public school" means a school that is part of a school district, a career technical education district or a charter school.
"Standardized testing for college credit or readiness" includes the SAT, PSAT, ACT, advanced placement and international baccalaureate diploma tests and other similar tests.
"Student consumable health care supplies" includes tissues, hand wipes, bandages and other health care consumables that are generally used by children.
"Widely recognized and accepted educational testing organization" means the college board, the ACT, the international baccalaureate and other organizations that are widely recognized and accepted by colleges and universities in the United States and that offer college credit and readiness examinations.

§ 43-1089.02 Credit for donation of school site

A. A credit is allowed against the taxes imposed by this title in the amount of thirty percent of the value of real property and improvements donated by the taxpayer to a school district or a charter school for use as a school or as a site for the construction of a school.

B. To qualify for the credit:

The real property and improvements must be located in this state.
The real property and improvements must be conveyed unencumbered and in fee simple, except that:

(a) The conveyance must include as a deed restriction and protective covenant running with title to the land the requirement that as long as the donee holds title to the property the property shall be used only as a school or as a site for the construction of a school, subject to subsection I or J of this section.

(b) In the case of a donation to a charter school, the donor shall record a lien on the property as provided by subsection J, paragraph 3 of this section.

The conveyance shall not violate section 15-341, subsection D or section 15-183, subsection U.

C. For the purposes of this section, the value of the donated property is the property's fair market value as determined in an appraisal as defined in section 32-3601 that is conducted by an independent party and that is paid for by the donee.

D. If the property is donated by co-owners, including partners in a partnership and shareholders of an S corporation as defined in section 1361 of the internal revenue code, each donor may claim only the pro rata share of the allowable credit under this section based on the ownership interest. If the property is donated by a husband and wife who file separate returns for a taxable year in which they could have filed a joint return, they may determine between them the share of the credit each will claim. The total of the credits allowed all co-owner donors may not exceed the allowable credit.

F. The credit under this section is in lieu of any deduction pursuant to section 170 of the internal revenue code taken for state tax purposes.

G. On written request by the donee, the donor shall disclose in writing to the donee the amount of the credit allowed pursuant to this section with respect to the property received by the donee.

H. A school district or charter school may refuse the donation of any property for purposes of this section.

I. If the donee is a school district:

The district shall notify the division of school facilities within the department of administration and furnish the division with any information the division requests regarding the donation. A school district shall not accept a donation pursuant to this section unless the division has reviewed the proposed donation and has issued a written determination that the real property and improvements are suitable as a school site or as a school. The division shall issue a determination that the real property and improvements are not suitable as a school site or as a school if the expenses that would be necessary to make the property suitable as a school site or as a school exceed the value of the proposed donation.
The district may sell any donated property pursuant to section 15-342, but the proceeds from the sale shall be used only for capital projects. The school facilities oversight board shall direct the division of school facilities within the department of administration to withhold an amount that corresponds to the amount of the proceeds from any monies that would otherwise be due the school district from the board pursuant to section 41-5741.

J. If the donee is a charter school:

The charter school shall:

(a) Immediately notify the sponsor of the charter school by certified mail and shall furnish the sponsor with any information requested by the sponsor regarding the donation during the ten-year period after the conveyance is recorded.

(b) Notify the sponsor by certified mail, and the sponsor shall notify the state treasurer, in the event of the charter school's financial failure or if the charter school:

(i) Fails to establish a charter school on the property within forty-eight months after the conveyance is recorded.

(ii) Fails to provide instruction to pupils on the property within forty-eight months after the conveyance is recorded.

(iii) Establishes a charter school on the property but subsequently ceases to operate the charter school on the property for twenty-four consecutive months or fails to provide instruction to pupils on the property for twenty-four consecutive months.

The charter school, or a successor in interest, shall pay to the state treasurer the amount of the credit allowed under this section, or if that amount is unknown, the amount of the allowable credit under this section, if any of the circumstances listed in paragraph 1, subdivision (b) of this subsection occurs. If the amount is not paid within one year after the treasurer receives notice under paragraph 1, subdivision (b) of this subsection, a penalty and interest shall be added, determined pursuant to title 42, chapter 1, article 3.
A tax credit under this section constitutes a lien on the property, which the donor must record along with the title to the property to qualify for the credit. The amount of the lien is the amount of the allowable credit under this section, adjusted according to the average change in the GDP price deflator, as defined in section 41-563, for each calendar year since the donation, but not exceeding twelve and one-half percent more than the allowable credit. The lien is subordinate to any liens securing the financing of the school construction. The lien is extinguished on the earliest of the following:

(a) Ten years after the lien is recorded. After that date, the charter school, or a successor in interest, may request the state treasurer to release the lien.

(b) On payment to the state treasurer by the donee charter school, or by a successor in interest, of the amount of the allowable credit under this section, either voluntarily or as required by paragraph 2 of this subsection. After the required amount is paid, the charter school or successor in interest may request the state treasurer to release the lien.

(d) On enforcement and satisfaction of the lien pursuant to paragraph 4 of this subsection.

The state treasurer shall enforce the lien by foreclosure within one year after receiving notice of any of the circumstances described in paragraph 1, subdivision (b) of this subsection.
Subject to paragraphs 3 and 4 of this subsection, the charter school may sell any donated property.

§ 43-1089.03 Credit for contributions to certified school tuition organization

A. A credit is allowed against the taxes imposed by this title for the amount of voluntary cash contributions by the taxpayer or on the taxpayer's behalf pursuant to section 43-401, subsection I during the taxable year to a school tuition organization that is certified pursuant to chapter 16 of this title at the time of donation. Except as provided by subsection C of this section, the amount of the credit shall not exceed:

Five hundred dollars in any taxable year for a single individual or a head of household.
One thousand dollars in any taxable year for a married couple filing a joint return.

C. For each taxable year beginning on or after January 1, the department shall adjust the dollar amounts prescribed by subsection A, paragraphs 1 and 2 of this section according to the average annual change in the metropolitan phoenix consumer price index published by the United States bureau of labor statistics, except that the dollar amounts shall not be revised downward below the amounts allowed in the prior taxable year. The revised dollar amounts shall be raised to the nearest whole dollar.

E. The credit allowed by this section is in lieu of any deduction pursuant to section 170 of the internal revenue code and taken for state tax purposes.

H. A taxpayer may not claim a credit under this section and also under section 43-1089 with respect to the same contribution. If a taxpayer's contribution to a school tuition organization exceeds the amount of the credit allowed under section 43-1089, a taxpayer may claim a credit under this section and also under section 43-1089. If a taxpayer's contribution to a school tuition organization does not exceed the amount of the credit allowed by section 43-1089, the contribution is considered to have been made pursuant to section 43-1089.

§ 43-1089.04 Pro rata credit for business contributions by S corporation school tuition organizations; definition

A. A credit is allowed against the taxes imposed by this title for the pro rata amount of contributions made by an S corporation pursuant to section 43-1183, subsection F or section 43-1184, subsection F, or both. To qualify for the credit:

The aggregate contribution in the taxable year must be at least five thousand dollars.
All other requirements of section 43-1183 or 43-1184 and the applicable sections of chapter 15 of this title must be met.

B. Co-owners of the S corporation may each claim the pro rata share of the credit allowed under sections 43-1183 and 43-1184 based on the taxpayer's ownership interest. The total of the credits allowed all the owners of the corporation may not exceed the amount that would have been allowed a sole owner of the corporation.

C. If the allowable tax credit exceeds the taxes otherwise due under this title on the claimant's income, or if there are no taxes due under this title, the taxpayer may carry the amount of the claim not used to offset the taxes under this title forward for not more than five consecutive taxable years' income tax liability.

D. The credit allowed by this section is in lieu of any deduction pursuant to section 170 of the internal revenue code and taken for state tax purposes.

E. The tax credit is not allowed if the S corporation or a shareholder designates the contribution to the school tuition organization for the direct benefit of any dependent of a shareholder of the corporation claiming a credit under this section or if the corporation or a shareholder designates a student beneficiary as a condition of the contribution to the school tuition organization. The tax credit is not allowed if the corporation or a shareholder, with the intent to benefit a shareholder's dependent, agrees with one or more other taxpayers to designate reciprocal contributions to school tuition organizations for the direct benefit of the other taxpayer's dependent.

F. For the purposes of this section, "S corporation" or "corporation" means an S corporation as defined in section 1361 of the internal revenue code.

Article 6 Nonresidents

§ 43-1091 Gross income of a nonresident

A. In the case of nonresidents, Arizona gross income includes only that portion of federal adjusted gross income which represents income from sources within this state.

B. Income of a nonresident from the wages or salary received by the nonresident employee who is in this state on a temporary basis for the purpose of performing disaster recovery from a declared disaster during a disaster period as defined in section 42-1130 is not considered income from sources within this state.

§ 43-1092 Intangible income of a nonresident

A. Except as provided in subsection B of this section, income of nonresidents from stocks, bonds, notes or other intangible personal property is not income from sources within this state unless the property has acquired a business situs within this state, except that if a nonresident buys or sells such property in this state or places orders with brokers within this state to buy or sell such property so regularly, systematically and continuously as to constitute doing business in this state, the profit or gain derived from such activity is income from sources within this state irrespective of the situs of the property. However, in no case shall transactions extending over a period of less than six months be deemed to constitute doing business in this state.

B. Any income received by nonresidents which is derived from a small business corporation making an election pursuant to section 43-1126 shall be considered taxable income of this state.

§ 43-1093 Nonresident beneficiary of estate or trust income

Income of estates and trusts distributed or distributable to nonresident beneficiaries is income from sources within this state only if distributed or distributable out of income of the estate or trust derived from sources within this state.

§ 43-1094 Adjusted gross income of a nonresident

A. In computing Arizona adjusted gross income, a nonresident individual should make such adjustments as are included in sections 43-1021 and 43-1022 which apply to income included in his Arizona gross income except as provided in subsection B of this section.

B. For a nonresident individual the exemption allowed by section 43-1022, paragraph 1 shall be allowed in an amount equal to that percentage of the exemptions set forth in section 43-1023 which his Arizona gross income is of his federal adjusted gross income.

§ 43-1095 Apportionment of deductions

In computing Arizona taxable income a nonresident taxpayer, the standard deduction allowed in section 43-1041 and the itemized deductions allowed in section 43-1042 shall be allowed in the percentage that the taxpayer's Arizona gross income is of the federal adjusted gross income.

§ 43-1096 Credit for income taxes paid by nonresident; definitions

A. Subject to the following conditions, nonresidents shall be allowed a credit against taxes imposed by this title for net income taxes imposed by and paid to the state or country of residence on income taxable under this title:

The credit shall be allowed only if the state or country of residence either does not tax income of residents of this state derived from sources within that state or country or allows residents of this state a credit against taxes imposed by that state or country on the income for taxes paid or payable under this title.
The credit shall not be allowed for taxes paid to a state or country that allows its residents a credit against the taxes imposed by that state or country for income taxes paid or payable under this title irrespective of whether its residents are allowed a credit against the taxes imposed by this title for income taxes paid to that state or country.
The credit shall be allowed only for the proportion of the taxes paid to the state or country of residence as the income taxable under this title and also subject to tax in the state or country of residence bears to the entire income on which the taxes paid to the state or country of residence are imposed.
The credit shall not exceed the proportion of the tax payable under this title as the income taxable under this title and also subject to tax in the state or country of residence bears to the entire income taxable under this title.

B. The taxpayer may apply the allowable credit only against Arizona income tax for the same taxable year in which the income is subject to tax in the other state.

C. If the taxpayer claims the credit for taxes paid to a foreign country, the taxpayer shall use the conversion rate in effect on the date the taxpayer paid the taxes to the foreign country.

D. For the purposes of this section:

"Entire income on which the taxes paid to the state or country of residence are imposed" means the other state's or country's adjusted gross income computed under the equivalent of section 43-1001, but does not include any exemption allowable under the equivalent of section 43-1023.
"Entire income taxable under this title" means Arizona adjusted gross income computed under section 43-1094 but does not include any exemption allowed under section 43-1023.
"Income taxable under this title and also subject to tax in the state or country of residence" means the portion of income that is included in entire income taxable under this title that is also included in the entire income on which the taxes paid to the state or country of residence are imposed. The taxpayer shall increase or reduce the portion of income that is included in the entire income taxable under this title by any related additions under section 43-1021 and by any related subtractions under section 43-1022. The taxpayer shall increase or reduce the portion of income that is included in the entire income on which taxes paid to the state or country of residence are imposed by any related additions and subtractions under the other state's equivalent of sections 43-1021 and 43-1022, as applicable.
"Net income tax":

(a) Means:

(i) A tax that grants deductions or exemptions from gross income.

(ii) Any tax imposed by another country that qualifies for a credit under sections 901 and 903 of the internal revenue code and the regulations under those sections, even if withheld from income.

(b) Except as specifically included in subdivision (a) of this paragraph, does not include:

(i) A system of taxation that assesses taxes on gross income, gross receipts or gross dividends.

(ii) Taxes withheld from income.

"Tax payable under this title" means the income tax imposed by this state on the taxpayer's taxable income computed under section 43-1095 minus any tax credit amount claimed for the taxable year under article 5 of this chapter but not including the credit amount allowed under this section.

§ 43-1097 Change of residency status

A. During the tax year in which a taxpayer changes from a resident to a nonresident, Arizona taxable income shall include all of the following:

All income and deductions realized or recognized, or both, depending on the taxpayer's method of accounting, during the period the individual was a resident, and any income accrued by a cash basis taxpayer prior to the time the taxpayer became a nonresident of this state.
All income and deductions earned in Arizona or derived from Arizona sources after the time the taxpayer became a nonresident of this state.

B. During the tax year in which a taxpayer changes from a nonresident to a resident, Arizona taxable income shall include all of the following:

All income and deductions realized or recognized, or both, depending on the taxpayer's method of accounting, during the period the individual was a resident, except any income accrued by a cash basis taxpayer prior to the time the taxpayer became a resident of this state.
All income and deductions earned in Arizona or derived from Arizona sources prior to the time the taxpayer became a resident of this state.

C. Income received while a nonresident from the wages or salary received by an employee who is in this state on a temporary basis for the purpose of performing disaster recovery from a declared disaster during a disaster period as defined in section 42-1130 is not considered income derived from sources within this state.

§ 43-1098 Apportionment of exemptions

A. Any resident taxpayer, other than an active member of the armed forces of the United States or any other auxiliary branch, who commences or terminates residency in this state during any one taxable year shall prorate the exemptions provided in section 43-1023 for blind persons and for persons sixty-five years of age or older on the basis of the proportion that the taxpayer's total Arizona gross income bears to federal adjusted gross income.

B. The percentage of the exemption allowed is computed by dividing the taxpayer's Arizona gross income by the federal adjusted gross income.

§ 43-1099 Applicability of article

This article applies only to residents of states which do not have a current reciprocal income tax exemption agreement with this state pursuant to section 42-1005, subsection B.

Chapter 11 Corporations

Article 1 Definitions

§ 43-1101 Definitions

In this chapter, unless the context otherwise requires:

"Arizona gross income" of a corporation means its federal taxable income for the taxable year.
"Arizona taxable income" of a corporation means its Arizona gross income adjusted by the modifications specified in article 3 of this chapter.
"Domestic corporation" means a corporation created or organized in the United States or under the laws of the United States or of any state of the United States or the District of Columbia.
"Federal taxable income" means the taxable income of a corporation computed pursuant to the internal revenue code.
"Foreign corporation" means any of the following:

(a) A corporation which is not a domestic corporation.

(b) A domestic corporation with less than twenty per cent of its property, payroll and sales in the United States for the three year period ending with the close of the taxable year of the corporation preceding the current taxable year, or for such part of that period as the corporation has been in existence.

(c) A domestic corporation that has derived eighty per cent or more of its federal gross income for the three year period immediately preceding the close of the taxable year, or for such part of that period as the corporation has been in existence, from sources in the Commonwealth of Puerto Rico or any other possession of the United States except the Virgin Islands if sixty per cent, for taxable years beginning in calendar year 1984, or sixty-five per cent, for taxable years beginning after calendar year 1984, or more of the domestic corporation's federal gross income for that period, or part of that period as the corporation has been in existence, was derived from the active conduct of a trade or business in the Commonwealth of Puerto Rico or any other possession of the United States except the Virgin Islands.

"Net income" means Arizona taxable income.
"Person" and "taxpayer" means a corporation.

Article 2 Taxes and Rates

§ 43-1111 Tax rates for corporations

There shall be levied, collected and paid for each taxable year upon the entire Arizona taxable income of every corporation, unless exempt under section 43-1126 or 43-1201 or as otherwise provided in this title or by law, taxes in an amount of the greater of fifty dollars or:

For taxable years beginning through December 31, 2013, 6.968 per cent of net income.
For taxable years beginning from and after December 31, 2013 through December 31, 2014, 6.5 per cent of net income.
For taxable years beginning from and after December 31, 2014 through December 31, 2015, 6.0 per cent of net income.
For taxable years beginning from and after December 31, 2015 through December 31, 2016, 5.5 per cent of net income.
For taxable years beginning from and after December 31, 2016, 4.9 per cent of net income.

Article 3 Adjustments to Arizona Gross Income

§ 43-1121 Additions to Arizona gross income; corporations

In computing Arizona taxable income for a corporation, the following amounts shall be added to Arizona gross income:

The amount of interest income received on obligations of any state, territory or possession of the United States, or any political subdivision thereof, located outside this state, reduced, for taxable years beginning from and after December 31, 1996, by the amount of any interest on indebtedness and other related expenses that were incurred or continued to purchase or carry those obligations and that are not otherwise deducted or subtracted in arriving at Arizona gross income.
The excess of a partner's share of partnership taxable income required to be included under chapter 14, article 2 of this title over the income required to be reported under section 702(a)(8) of the internal revenue code.
The excess of a partner's share of partnership losses determined pursuant to section 702(a)(8) of the internal revenue code over the losses allowable under chapter 14, article 2 of this title.
The amount of any depreciation allowance allowed pursuant to section 167(a) of the internal revenue code to the extent not previously added.
The amount of dividend income received from corporations and allowed as a deduction pursuant to sections 243, 245, 245A and 250(a)(1)(B) of the internal revenue code.
Taxes that are based on income paid to states, local governments or foreign governments and that were deducted in computing federal taxable income.
Expenses and interest relating to tax-exempt income on indebtedness incurred or continued to purchase or carry obligations the interest on which is wholly exempt from the tax imposed by this title. Financial institutions, as defined in section 6-101, shall be governed by section 43-961, paragraph 2.
Commissions, rentals and other amounts paid or accrued to a domestic international sales corporation controlled by the payor corporation if the domestic international sales corporation is not required to report its taxable income to this state because its income is not derived from or attributable to sources within this state. If the domestic international sales corporation is subject to article 4 of this chapter, the department shall prescribe by rule the method of determining the portion of the commissions, rentals and other amounts that are paid or accrued to the controlled domestic international sales corporation and that shall be deducted by the payor. For the purposes of this paragraph, "control" means direct or indirect ownership or control of fifty percent or more of the voting stock of the domestic international sales corporation by the payor corporation.
The amount of net operating loss taken pursuant to section 172 of the internal revenue code.
The amount of exploration expenses determined pursuant to section 617 of the internal revenue code to the extent that they exceed $75,000 and to the extent that the election is made to defer those expenses not in excess of $75,000.
Amortization of costs incurred to install pollution control devices and deducted pursuant to the internal revenue code or the amount of deduction for depreciation taken pursuant to the internal revenue code on pollution control devices for which an election is made pursuant to section 43-1129.
The amount of depreciation or amortization of costs of child care facilities deducted pursuant to section 167 or 188 of the internal revenue code for which an election is made to amortize pursuant to section 43-1130.
The loss of an insurance company that is exempt under section 43-1201 to the extent that it is included in computing Arizona gross income on a consolidated return pursuant to section 43-947.
The amount by which the depreciation or amortization computed under the internal revenue code with respect to property for which a credit was taken under section 43-1170 exceeds the amount of depreciation or amortization computed pursuant to the internal revenue code on the Arizona adjusted basis of the property.
The amount by which the adjusted basis computed under the internal revenue code with respect to property for which a credit was claimed under section 43-1170 and that is sold or otherwise disposed of during the taxable year exceeds the adjusted basis of the property computed under section 43-1170.
The deduction referred to in section 1341(a)(4) of the internal revenue code for restoration of a substantial amount held under a claim of right.
The amount by which a capital loss carryover allowable pursuant to section 1341(b)(5) of the internal revenue code exceeds the capital loss carryover allowable pursuant to section 43-1130.01, subsection F.
Any wage expenses deducted pursuant to the internal revenue code for which a credit is claimed under section 43-1175 and representing net increases in qualified employment positions for employment of temporary assistance for needy families recipients.
Any amount of expenses that were deducted pursuant to the internal revenue code and for which a credit is claimed under section 43-1178.
Any amount deducted pursuant to section 170 of the internal revenue code representing contributions to a school tuition organization for which a credit is claimed under section 43-1183 or 43-1184.
If a subtraction is or has been taken by the taxpayer under section 43-1124, in the current or a prior taxable year for the full amount of eligible access expenditures paid or incurred to comply with the requirements of the Americans with disabilities act of 1990 (P.L. 101-336) or title 41, chapter 9, article 8, any amount of eligible access expenditures that is recognized under the internal revenue code, including any amount that is amortized according to federal amortization schedules, and that is included in computing Arizona taxable income for the current taxable year.
For taxable years beginning from and after December 31, 2017, the amount of any net capital loss included in Arizona gross income for the taxable year that is derived from the exchange of one kind of legal tender for another kind of legal tender. For the purposes of this paragraph:

(a) "Legal tender" means a medium of exchange, including specie, that is authorized by the United States Constitution or Congress to pay debts, public charges, taxes and dues.

(b) "Specie" means coins having precious metal content.

The amount of any deduction that is claimed in computing Arizona gross income and that represents a donation of a school site for which a credit is claimed under section 43-1181.
The amount of any motion picture production costs that was deducted pursuant to the internal revenue code for which a tax credit is claimed under section 43-1165.

§ 43-1122 Subtractions from Arizona gross income; corporations

In computing Arizona taxable income for a corporation, the following amounts shall be subtracted from Arizona gross income:

The excess of a partner's share of income required to be included under section 702(a)(8) of the internal revenue code over the income required to be included under chapter 14, article 2 of this title.
The excess of a partner's share of partnership losses determined pursuant to chapter 14, article 2 of this title over the losses allowable under section 702(a)(8) of the internal revenue code.
The amount allowed by section 43-1025 for contributions during the taxable year of agricultural crops to charitable organizations.
The portion of any wages or salaries paid or incurred by the taxpayer for the taxable year that is equal to the amount of the federal work opportunity credit, the empowerment zone employment credit, the credit for employer paid social security taxes on employee cash tips and the Indian employment credit that the taxpayer received under sections 45A, 45B, 51(a) and 1396 of the internal revenue code.
With respect to property that is sold or otherwise disposed of during the taxable year by a taxpayer that complied with section 43-1121, paragraph 4 with respect to that property, the amount of depreciation that has been allowed pursuant to section 167(a) of the internal revenue code to the extent that the amount has not already reduced Arizona taxable income in the current taxable year or prior taxable years.
With respect to a financial institution as defined in section 6-101, expenses and interest relating to tax-exempt income disallowed pursuant to section 265 of the internal revenue code.
Dividends received from another corporation owned or controlled directly or indirectly by a recipient corporation. For the purposes of this paragraph, "control" means direct or indirect ownership or control of fifty percent or more of the voting stock of the payor corporation by the recipient corporation. Dividends shall have the meaning provided in section 316 of the internal revenue code. This subtraction shall apply without regard to section 43-961, paragraph 2 and article 4 of this chapter.
Interest income received on obligations of the United States.
The amount of dividend income from foreign corporations. For the purposes of this paragraph, gross up income as described in section 78 of the internal revenue code, global intangible low-taxed income as defined in section 951A of the internal revenue code and subpart F income as defined in section 952 of the internal revenue code shall be considered foreign dividends.
The amount of net operating loss allowed by section 43-1123.
The amount of any state income tax refunds received that were included as income in computing federal taxable income.
The amount of expense recapture included in income pursuant to section 617 of the internal revenue code for mine exploration expenses.
The amount of deferred exploration expenses allowed by section 43-1127.
The amount of exploration expenses related to the exploration of oil, gas or geothermal resources, computed in the same manner and on the same basis as a deduction for mine exploration pursuant to section 617 of the internal revenue code. This computation is subject to the adjustments contained in section 43-1121, paragraph 10 and paragraphs 12 and 13 of this section relating to exploration expenses.
The amortization of pollution control devices allowed by section 43-1129.
The amount of amortization of the cost of child care facilities pursuant to section 43-1130.
The amount of income from a domestic international sales corporation required to be included in the income of its shareholders pursuant to section 995 of the internal revenue code.
The income of an insurance company that is exempt under section 43-1201 to the extent that it is included in computing Arizona gross income on a consolidated return pursuant to section 43-947.
The amount by which a capital loss carryover allowable pursuant to section 43-1130.01, subsection F exceeds the capital loss carryover allowable pursuant to section 1341(b)(5) of the internal revenue code.
An amount equal to the depreciation allowable pursuant to section 167(a) of the internal revenue code for the taxable year computed as if the election described in section 168(k)(7) of the internal revenue code had been made for each applicable class of property in the year the property was placed in service.
The amount of eligible access expenditures paid or incurred during the taxable year to comply with the requirements of the Americans with disabilities act of 1990 (P.L. 101-336) or title 41, chapter 9, article 8 as provided by section 43-1124.
For taxable years beginning from and after December 31, 2017, the amount of any net capital gain included in Arizona gross income for the taxable year that is derived from the exchange of one kind of legal tender for another kind of legal tender. For the purposes of this paragraph:

(a) "Legal tender" means a medium of exchange, including specie, that is authorized by the United States Constitution or Congress to pay debts, public charges, taxes and dues.

(b) "Specie" means coins having precious metal content.

With respect to a public service corporation operating a water system or sewage disposal facility, the amount of monies or property received as a contribution in aid of construction. For the purposes of this paragraph:

(a) "Contribution in aid of construction" means any amount of monies or other property contributed to a public service corporation that provides water or sewage disposal services to the extent that the purpose of the contribution is to provide for expanding, improving or replacing the public service corporation's water system or sewage disposal facilities, including any amount of monies or other property contributed to a public service corporation for a water system or sewage disposal facility subject to a contingent obligation to repay the amount, in whole or in part, to the contributor.

(b) "Public service corporation" means a public service corporation as defined in article XV, section 2, Constitution of Arizona, that is regulated by the corporation commission.

§ 43-1123 Net operating loss; definition

A. For the purposes of this section, "net operating loss" means:

In the case of a taxpayer who has a net operating loss for the taxable year within the meaning of section 172(c) of the internal revenue code, the amount of the net operating loss increased by the subtractions specified in section 43-1122, except the subtraction allowed in section 43-1122, paragraph 10, and reduced by the additions specified in section 43-1121.
In the case of a taxpayer not described in paragraph 1 of this subsection, any excess of the subtractions specified in section 43-1122, except the subtraction allowed in section 43-1122, paragraph 10, over the sum of the Arizona gross income plus the additions specified in section 43-1121.

B. If for any taxable year the taxpayer has a net operating loss:

Such net operating loss shall be a net operating loss carryover for:

(a) Each of the five succeeding taxable years for net operating losses arising in taxable periods through December 31, 2011.

(b) Each of the twenty succeeding taxable years for net operating losses arising in taxable periods beginning from and after December 31, 2011.

The carryover in the case of each such succeeding taxable year, other than the first succeeding taxable year, shall be the excess, if any, of the amount of such net operating loss over the sum of the taxable income for each of the intervening years computed by determining the net operating loss subtraction for each intervening taxable year, without regard to such net operating loss or to the net operating loss for any succeeding taxable year.

C. The amount of the net operating loss subtraction shall be the aggregate of the net operating loss carryovers to the taxable year.

§ 43-1124 Americans with disabilities act access expenditures

A. For taxable years beginning from and after December 31, 2017, in computing Arizona taxable income, a subtraction is allowed under section 43-1122, paragraph 21 for eligible business access expenditures paid or incurred by the taxpayer during the taxable year in order to comply with the requirements of the Americans with disabilities act of 1990 (P.L. 101-336) or title 41, chapter 9, article 8 by retrofitting developed real property that was originally placed in service at least ten years before the current taxable year.

B. For the purposes of this section, eligible business access expenditures include reasonable and necessary amounts paid or incurred to:

Remove any barriers that prevent a business from being accessible to or usable by individuals with disabilities.
Provide qualified interpreters or other methods of making audio materials available to hearing-impaired individuals.
Provide qualified readers, taped texts and other effective methods of making visually delivered materials available to individuals with visual impairments.
Acquire or modify equipment or devices for individuals with disabilities.
Provide other similar services, modifications, materials or equipment.

C. A taxpayer that has been cited for noncompliance with the Americans with disabilities act of 1990 or title 41, chapter 9, article 8 by either federal or state enforcement officials is ineligible for a subtraction under this section for any expenditure required to cure the cited violation.

§ 43-1125 Domestic international sales corporation

A domestic international sales corporation, commonly referred to as "disc", as defined in section 992 of the internal revenue code shall be taxed pursuant to the provisions of this chapter without regard to the provisions of sections 991 through 996 of the internal revenue code.

§ 43-1126 Small business corporation; election as to taxable status; return; termination

A. A small business corporation which makes an election for a taxable year pursuant to subtitle A, chapter 1, subchapter S of the internal revenue code is not subject to the taxes imposed by this chapter for such year but only to the extent such corporation is not subject to federal income taxes.

B. An electing small business corporation shall file with the department an annual return, in a form prescribed by the department, on or before the fifteenth day of the third month following the close of the taxable year. The return shall show the name and address of each stockholder of the corporation and their respective pro rata share of income or loss. The allocation and apportionment of income of a small business corporation which has nonresident stockholders shall be made pursuant to article 4 of this chapter.

C. An election under this section is effective for the taxable year for which it is made and for all succeeding taxable years unless the corporation terminates its election pursuant to section 1372 of the internal revenue code.

§ 43-1127 Deferred exploration expenses

The amount of exploration expenses added to Arizona gross income pursuant to section 43-1121, paragraph 10 may be subtracted on a ratable basis as the units of produced ores or minerals discovered or explored by reason of such expenditures are sold. An election made for any taxable year shall be binding for that year.

§ 43-1129 Amortization of expenses incurred in acquisition of pollution control devices; depreciation

A. Any taxpayer may elect to amortize the adjusted basis of any device, machinery or equipment for the collection and control at the source of atmospheric and water pollutants and contaminants based upon a period of sixty months. In computing Arizona taxable income, such amortization shall be allowed as a subtraction ratably over the period allowed under this subsection beginning with the month in which such device, machinery or equipment is completed or acquired and is placed in service by the taxpayer. This election shall be indicated by the taxpayer in an appropriate statement in the taxpayer's income tax return for the taxable year of the acquisition or completion and placement in service of such devices, machinery or equipment. An election to discontinue amortization with respect to the remainder of the amortization period is permitted and shall be indicated by an appropriate statement in the taxpayer's income tax return for the taxable year of discontinuance.

B. If the taxpayer does not elect to amortize pursuant to subsection A, there shall be allowed a deduction for normal exhaustion, wear and tear of property. The amount of such deduction shall be computed pursuant to the provisions of section 167 of the internal revenue code.

C. In determining the adjusted basis for the purposes of subsection A, such device, machinery or equipment upon certification by the department of environmental quality as a device, machinery or equipment for the collection and control at the source of atmospheric and water pollutants and contaminants shall include only an amount that is properly attributable to the construction, reconstruction, remodeling, installation or acquisition of such device, machinery or equipment as certified by the department of environmental quality.

§ 43-1130 Amortization of the cost of child care facilities

A. At the election of any corporate taxpayer operating a child care facility for the purpose of making profit, any expenditure made to purchase, construct, renovate or remodel child care facilities or equipment shall be allowable as a subtraction ratably over a period of sixty months, beginning with the month in which the property is placed in service.

B. At the election of a taxpayer operating a child care facility within this state primarily for the children of employees of the taxpayer, any expenditure made to acquire, construct, renovate or remodel the child care facility or equipment is allowable as a subtraction ratably over a period of twenty-four months beginning with the month in which the property is placed in service.

C. The subtraction provided by this section shall be in lieu of any allowance for the exhaustion, wear and tear of such property used in a trade or business or of property held for the production of income, including a reasonable allowance for obsolescence pursuant to section 167 or 188 of the internal revenue code.

D. In the case of a partnership, joint venture or other pooled investment or joint ownership of child care property each participating corporate owner may claim the pro rata share of the subtraction based on the corporate ownership interest in the property. The total of the subtractions allowed all such owners of the property shall not exceed the amount that would have been allowed for a sole owner of the property.

§ 43-1130.01 Restoration of a substantial amount held under claim of right; computation of tax

A. This section applies if:

An item of income was included in gross income for a prior taxable year or years because it appeared that the taxpayer had an unrestricted right to the item.
A deduction would be allowable under the internal revenue code or this title for the taxable year, without application of section 1341(b)(3) of the internal revenue code or section 43-1121, paragraph 16, because after the close of the prior taxable year or years it was established that the taxpayer did not have an unrestricted right to all or part of the item.
The amount of the deduction exceeds $3,000.

Required to be made by the government, political subdivision, agency or instrumentality referred to in that section.
Required to be made by an order of a court.
Made in settlement of litigation or under threat or imminence of litigation.

E. If the exclusion under subsection B of this section results in:

A net operating loss for the prior taxable year or years for purposes of computing the decrease in tax for the prior year or years under subsection B of this section:

(a) The loss shall be carried over under this chapter to the same extent and in the same manner as provided under section 43-1123, and under prior law.

(b) A carryover beyond the taxable year may not be taken into account.

A capital loss for the prior taxable year or years, for purposes of computing the decrease in tax for the prior taxable year or years under subsection B of this section:

(a) The loss shall be:

(i) Carried over under this chapter to the same extent and in the same manner as was provided under prior law for taxable years beginning on or before December 31, 1987.

(ii) Carried back and carried over to the same extent and in the same manner as provided under section 1212 of the internal revenue code for taxable years beginning from and after December 31, 1987.

(b) A carryover beyond the taxable year may not be taken into account.

Article 4 Uniform Division of Income for Tax Purposes Act

§ 43-1131 Definitions

As used in this article, unless the context otherwise requires:

"Business income" means income arising from transactions and activity in the regular course of the taxpayer's trade or business and includes income from tangible and intangible property if the acquisition, management and disposition of the property constitute integral parts of the taxpayer's regular trade or business operations.
"Commercial domicile" means the principal place from which the trade or business of the taxpayer is directed or managed.
"Compensation" means wages, salaries, commissions and any other form of remuneration paid to employees for personal services.
"Nonbusiness income" means all income other than business income.
"Sales" means all gross receipts of the taxpayer not allocated under this article.
"State" means any state of the United States, the District of Columbia, the Commonwealth of Puerto Rico, any territory or possession of the United States and any foreign country or political subdivision thereof.
"Taxpayer" means any person subject to the tax imposed by this title.

§ 43-1132 Taxpayers liable; exceptions to allocation and apportionment; examination of evidence of income and expenses

A. Any taxpayer having income from business activity which is taxable both within and without this state shall allocate and apportion net income as provided in this article, but net income of a foreign corporation which is not itself subject to the tax imposed by this title shall not be allocated or apportioned to this state.

B. For the purposes of computing Arizona taxable income under this title, expenses which are attributable to income of a foreign corporation which is not itself subject to the tax imposed by this title shall not be allocated or apportioned to this state.

C. In the case of an audit performed on a taxpayer by the department, the department may examine any books, papers, records or memoranda of the taxpayer relating to income and expenses of the taxpayer both within and without the United States. The information provided by the taxpayer is subject to title 42, chapter 2, article 1.

D. Subsections A and B of this section do not apply to a taxpayer that has elected to file a consolidated return pursuant to section 43-947. An Arizona affiliated group, as defined in section 43-947, that has income from business activity that is taxable both in and outside this state shall allocate and apportion its net income as provided by this article.

E. The net income of a taxpayer that would otherwise meet the requirements of 15 United States Code sections 381 through 384 but that is subject to the tax imposed by this title solely because of the presence of consignment inventory in this state shall not be allocated or apportioned to this state if all of the following conditions are met:

The presence of the consignment inventory is a requirement of the taxpayer's contract with its customer.
The consignment inventory is located on the customer's property.

§ 43-1133 Taxability in other state

For purposes of allocation and apportionment of income under this article, a taxpayer is taxable in another state if either of the following applies:

In that state he is subject to a net income tax, a franchise tax measured by net income, a franchise tax for the privilege of doing business or a corporate stock tax.
That state has jurisdiction to subject the taxpayer to a net income tax regardless of whether, in fact, the state does or does not.

§ 43-1134 Allocation of nonbusiness income

Rents and royalties from real or tangible personal property, capital gains, interest, dividends or patent or copyright royalties, to the extent that they constitute nonbusiness income, shall be allocated as provided in sections 43-1135 through 43-1138.

§ 43-1135 Net rents and royalties

A. Net rents and royalties from real property located in this state are allocable to this state.

B. Net rents and royalties from tangible personal property are allocable to this state either:

If and to the extent that the property is utilized in this state.
In their entirety if the taxpayer's commercial domicile is in this state and the taxpayer is not organized under the laws of or taxable in the state in which the property is utilized.

C. The extent of utilization of tangible personal property in a state is determined by multiplying the rents and royalties by a fraction, the numerator of which is the number of days of physical location of the property in the state during the rental or royalty period in the taxable year and the denominator of which is the number of days of physical location of the property everywhere during all rental or royalty periods in the taxable year. If the physical location of the property during the rental or royalty period is unknown or unascertainable by the taxpayer, tangible personal property is utilized in the state in which the property was located at the time the rental or royalty payer obtained possession.

§ 43-1136 Capital gains and losses

A. Capital gains and losses from sales of real property located in this state are allocable to this state.

B. Capital gains and losses from the sales of tangible personal property are allocable to this state if either:

The property had a situs in this state at the time of the sale.
The taxpayer's commercial domicile is in this state and the taxpayer is not taxable in the state in which the property had a situs.

C. Capital gains and losses from sales of intangible personal property are allocable to this state if the taxpayer's commercial domicile is in this state.

§ 43-1137 Interest and dividends

Interest and dividends are allocable to this state if the taxpayer's commercial domicile is in this state unless the interest or dividend constitutes business income.

§ 43-1138 Patent and copyright royalties

A. Patent and copyright royalties are allocable to this state either:

If and to the extent that the patent or copyright is utilized by the payer in this state.
If and to the extent that the patent or copyright is utilized by the payer in a state in which the taxpayer is not taxable and the taxpayer's commercial domicile is in this state.

B. A patent is utilized in a state to the extent that it is employed in production, fabrication, manufacturing or other processing in the state or to the extent that a patented product is produced in the state. If the basis of receipts from patent royalties does not permit allocation to states or if the accounting procedures do not reflect states of utilization, the patent is utilized in the state in which the taxpayer's commercial domicile is located.

C. A copyright is utilized in a state to the extent that printing or other publication originates in the state. If the basis of receipts from copyright royalties does not permit allocation to states or if the accounting procedures do not reflect states of utilization, the copyright is utilized in the state in which the taxpayer's commercial domicile is located.

§ 43-1139 Allocation of business income

A. Except as provided in subsection B of this section, the taxpayer shall elect to apportion all business income to this state for taxable years beginning from and after:

December 31, 2006 through December 31, 2007 by either:

(a) Multiplying the income by a fraction, the numerator of which is the property factor plus the payroll factor plus two times the sales factor, and the denominator of which is four.

(b) Multiplying the income by a fraction, the numerator of which is two times the property factor plus two times the payroll factor plus six times the sales factor, and the denominator of which is ten.

December 31, 2007 through December 31, 2008 by either:

(a) Multiplying the income by a fraction, the numerator of which is the property factor plus the payroll factor plus two times the sales factor, and the denominator of which is four.

(b) Multiplying the income by a fraction, the numerator of which is one and one-half times the property factor plus one and one-half times the payroll factor plus seven times the sales factor, and the denominator of which is ten.

December 31, 2008 through December 31, 2013 by either:

(a) Multiplying the income by a fraction, the numerator of which is the property factor plus the payroll factor plus two times the sales factor, and the denominator of which is four.

(b) Multiplying the income by a fraction, the numerator of which is the property factor plus the payroll factor plus eight times the sales factor, and the denominator of which is ten.

December 31, 2013 through December 31, 2014 by either:

(a) Multiplying the income by a fraction, the numerator of which is the property factor plus the payroll factor plus two times the sales factor, and the denominator of which is four.

(b) Multiplying the income by a fraction, the numerator of which is seven and one-half times the property factor plus seven and one-half times the payroll factor plus eighty-five times the sales factor, and the denominator of which is one hundred.

December 31, 2014 through December 31, 2015 by either:

(a) Multiplying the income by a fraction, the numerator of which is the property factor plus the payroll factor plus two times the sales factor, and the denominator of which is four.

(b) Multiplying the income by a fraction, the numerator of which is five times the property factor plus five times the payroll factor plus ninety times the sales factor, and the denominator of which is one hundred.

December 31, 2015 through December 31, 2016 by either:

(a) Multiplying the income by a fraction, the numerator of which is the property factor plus the payroll factor plus two times the sales factor, and the denominator of which is four.

(b) Multiplying the income by a fraction, the numerator of which is two and one-half times the property factor plus two and one-half times the payroll factor plus ninety-five times the sales factor, and the denominator of which is one hundred.

December 31, 2016 by either:

(a) Multiplying the income by a fraction, the numerator of which is the property factor plus the payroll factor plus two times the sales factor, and the denominator of which is four.

(b) Multiplying the income by the sales factor.

B. All business income of a taxpayer engaged in air commerce shall be apportioned to this state by multiplying the income by a fraction, the numerator of which is the revenue aircraft miles flown within this state for flights beginning or ending in this state and the denominator of which is the total revenue aircraft miles flown by the taxpayer's aircraft everywhere. This subsection applies to each taxpayer, including a combined group filing a combined return or an affiliated group electing to file a consolidated return under section 43-947, if fifty per cent or more of that taxpayer's gross income is derived from air commerce. For the purposes of this subsection:

"Air commerce" means transporting persons or property for hire by aircraft in interstate, intrastate or international transportation.
"Revenue aircraft miles flown" has the same meaning prescribed by the United States department of transportation uniform system of accounts and reports for large certificated air carriers (14 Code of Federal Regulations part 241).

§ 43-1140 Property factor

The property factor is a fraction, the numerator of which is the average value of the taxpayer's real and tangible personal property owned or rented and used in this state during the tax period and the denominator of which is the average value of all the taxpayer's real and tangible personal property owned or rented and used during the tax period other than real and tangible personal property used by either:

A foreign corporation which is not itself subject to the tax imposed by this title, unless the corporation is subject to the tax as a member of an Arizona affiliated group, as defined in section 43-947.
An insurance company that is exempt from tax under section 43-1201.

§ 43-1141 Valuation of property

Property owned by the taxpayer is valued at its original cost. Property rented by the taxpayer is valued at eight times the net annual rental rate. Net annual rental rate is the annual rental rate paid by the taxpayer less any annual rental rate received by the taxpayer from subrentals.

§ 43-1142 Average value of property

The average value of property shall be determined by averaging the values at the beginning and ending of the tax period, but the department may require the averaging of monthly values during the tax period if reasonably required to reflect properly the average value of the taxpayer's property.

§ 43-1143 Payroll factor

The payroll factor is a fraction, the numerator of which is the total amount paid in this state during the tax period by the taxpayer for compensation, and the denominator of which is the total compensation paid everywhere during the tax period other than compensation paid by either:

A foreign corporation which is not itself subject to the tax imposed by this title, unless the corporation is subject to the tax as a member of an Arizona affiliated group, as defined in section 43-947.
An insurance company that is exempt from tax under section 43-1201.

§ 43-1144 Compensation paid in state

Compensation is paid in this state if any of the following apply:

The individual's service is performed entirely within this state.
The individual's service is performed both within and without the state, but the service performed without the state is incidental to the individual's service within the state.
Some of the service is performed in the state and the base of operations or, if there is no base of operations, the place from which the service is directed or controlled is in the state, or the base of operations or the place from which the service is directed or controlled is not in any state in which some part of the service is performed, but the individual's residence is in this state.

§ 43-1145 Sales factor

The sales factor is a fraction, the numerator of which is the total sales of the taxpayer in this state during the tax period, and the denominator of which is the total sales of the taxpayer everywhere during the tax period other than sales of either:

A foreign corporation which is not itself subject to the tax imposed by this title, unless the corporation is subject to the tax as a member of an Arizona affiliated group, as defined in section 43-947.
An insurance company that is exempt from tax under section 43-1201.

§ 43-1146 Situs of sales of tangible personal property

Sales of tangible personal property are considered to be in this state if the property is delivered or shipped to a purchaser, other than the United States government, within this state regardless of the F.O.B. point or other conditions of the sale.

§ 43-1147 Situs of sales of other than tangible personal property; definitions

A. Except as provided by subsection B of this section, sales, other than sales of tangible personal property, are in this state if either of the following applies:

The income-producing activity is performed in this state.
The income-producing activity is performed both in and outside this state and a greater proportion of the income-producing activity is performed in this state than in any other state, based on costs of performance.

B. For taxable years beginning from and after December 31, 2013, a multistate service provider may elect to treat sales from services as being in this state based on a combination of income-producing activity sales and market sales. If the election under this subsection is made pursuant to subsection C of this section, the sales of services that are in this state shall be determined for taxable years beginning from and after:

December 31, 2013 through December 31, 2014, by the sum of the following:

(a) Eighty-five percent of the market sales.

(b) Fifteen percent of the income-producing activity sales.

December 31, 2014 through December 31, 2015, by the sum of the following:

(a) Ninety percent of the market sales.

(b) Ten percent of the income-producing activity sales.

December 31, 2015 through December 31, 2016, by the sum of the following:

(a) Ninety-five percent of the market sales.

(b) Five percent of the income-producing activity sales.

December 31, 2016, by one hundred percent of the market sales.

C. A multistate service provider may elect to treat sales from services as being in this state under subsection B of this section as follows:

The election must be made on the taxpayer's timely filed original income tax return. The election is:

(a) Effective retroactively for the full taxable year of the income tax return on which the election is made.

(b) Binding on the taxpayer for at least five consecutive taxable years, regardless of whether the taxpayer no longer meets the percentage threshold of a multistate service provider during that time period, except as provided by paragraph 2 of this subsection. To continue with the election after five consecutive taxable years, the taxpayer must meet the qualifications to be considered a multistate service provider and renew the election for another five consecutive taxable years.

During the election period, the election may be terminated as follows:

(a) Without the permission of the department on the acquisition or merger of the taxpayer.

(b) With the permission of the department before the expiration of five consecutive taxable years.

D. For a multistate service provider under subsection E, paragraph 3, subdivision (b) of this section, an election under subsection B of this section is limited to the treatment of sales for educational services. For a multistate service provider under subsection E, paragraph 3, subdivision (c) of this section, an election under subsection B of this section is limited to the treatment of sales for support services, the payment for which is a percentage of the sales for educational services generated by a regionally accredited institution of higher education.

E. For the purposes of this section:

"Income-producing activity sales" means the total sales from services that are sales in this state under subsection A of this section.
"Market sales" means the total sales from services and sales of intangibles, as defined in paragraph 3, subdivision (a) of this subsection, for which the purchaser received the benefit of the service or intangibles in this state.
"Multistate service provider" means any of the following:

(a) A taxpayer that derives more than eighty-five percent of its sales from services or sales from intangibles provided to purchasers who receive the benefit of the service or intangibles outside this state in the taxable year of election, and includes all taxpayers required to file a combined report pursuant to section 43-942 and all members of an affiliated group included in a consolidated return pursuant to section 43-947. In calculating the eighty-five percent, sales to students receiving educational services at campuses physically located in this state shall be excluded from the calculation. For the purposes of this subdivision, "sales from intangibles" means sales derived from credit and charge card receivables, including fees, merchant discounts, interchanges, interest and related revenue.

(b) A taxpayer that is a regionally accredited institution of higher education with at least one university campus in this state that has more than two thousand students residing on the campus, and includes all taxpayers required to file a combined report pursuant to section 43-942 and all members of an affiliated group included in a consolidated return pursuant to section 43-947.

(c) A taxpayer that has more than two thousand employees in this state and that derives more than eighty-five percent of its sales from support services provided to a regionally accredited institution of higher education, and includes all taxpayers required to file a combined report pursuant to section 43-942 and all members of an affiliated group included in a consolidated return pursuant to section 43-947.

"Received the benefit of the service in this state" means the services are received by the purchaser in this state. If the state where the services are received cannot be readily determined, the services are considered to be received at the home of the customer or, in the case of a business, the office of the customer from which the services were ordered in the regular course of the customer's trade or business. If the ordering location cannot be determined, the services are considered to be received at the home or office of the customer to which the services were billed. In the case of a multistate service provider under paragraph 3, subdivision (c) of this subsection, the benefit of support services shall be deemed received at the billing address of the student to which the services relate.
"Sales for educational services" means tuition and fees required for enrollment and fees required for courses of instruction, transcripts and graduation.

§ 43-1148 Apportionment by department

A. If the allocation and apportionment provisions of this article do not fairly represent the extent of the taxpayer's business activity in this state, the taxpayer may petition for or the department may require, in respect to all or any part of the taxpayer's business activity, if reasonable, any of the following:

Separate accounting, except with respect to an Arizona affiliated group, as defined in section 43-947.
The exclusion of any one or more of the factors.
The inclusion of one or more additional factors which will fairly represent the taxpayer's business activity in this state.
The employment of any other method to effectuate an equitable allocation and apportionment of the taxpayer's income, other than disallowing a properly elected consolidated return.

B. If the department, in the exercise of its discretion, determines that an adjustment is necessary pursuant to subsection A of this section, it may, in its discretion, authorize such an adjustment for a period of not less than one taxable year.

§ 43-1149 Interpretation

This article shall be so construed as to effectuate its general purpose to make uniform the law of those states which enact it.

§ 43-1150 Short title

This article may be cited as the uniform division of income for tax purposes act.

Article 5 Cessation of Corporate Activities

§ 43-1151 Tax clearance upon cessation of corporate activities

A. No decree of involuntary dissolution shall be made, entered or filed by any court or court clerk nor shall the corporation commission file any such decree or any document by which the term of existence of any corporation shall be voluntarily reduced or terminated or any certificate of the surrender by a foreign corporation as defined in section 10-140 of its right to do business in this state unless the taxpayer obtains from the department and files with the court, clerk or corporation commission a certificate to the effect that the department is satisfied from the available evidence that all taxes imposed by this title have been paid or are secured by bond, deposit or otherwise.

B. Within thirty days after receiving a request for a certificate, the department shall either issue the certificate or notify the person requesting the certificate of the amount of tax that must be paid or the amount of bond, deposit or other security that must be furnished as a condition of issuing the certificate.

C. The issuance of the certificate shall not relieve the corporation or any individual from liability for any taxes, penalties or interest imposed by this title.

§ 43-1152 Powers of corporation suspended for nonpayment of tax

Except for the purpose of amending the articles of incorporation to set forth a new name, the corporate powers, rights and privileges of a domestic corporation as defined in section 10-140 shall be suspended, and the exercise of the corporate powers, rights and privileges of a foreign corporation as defined in section 10-140 in this state shall be forfeited, if any of the following conditions occurs:

If any tax, penalty or interest, or any portion thereof, which is due and payable either at the time the return is required to be filed, or on or before the fifteenth day of the ninth month following the close of the income year, is not paid on or before 5:00 p.m. on the last day of the twelfth month after the close of the income year.
If any tax, penalty or interest, or any portion thereof, other than jeopardy or fraud assessments, due and payable upon notice and demand from the department, is not paid on or before 5:00 p.m. on the last day of the eleventh month following the due date of such tax.
If any jeopardy or fraud assessment, or any interest or penalty thereon, is not paid within forty days from the date of such tax, penalty and interest are due and payable upon notice and demand from the department, unless the bond permitted by section 42-1111, subsection B is filed to stay the collection of the tax, interest or penalty, and such tax, interest or penalty is paid within sixty days after notice by the department on the taxpayer's petition for reassessment.

§ 43-1153 Certificate of suspension of a corporation

The department shall transmit the name of any corporation delinquent pursuant to section 43-1152 to the corporation commission, and the prescribed suspension or forfeiture shall become effective immediately and the certificate of the corporation commission shall be prima facie evidence of such suspension or forfeiture.

§ 43-1154 Penalty for exercising powers after suspension

Any person who attempts or purports to exercise any of the rights, privileges or powers of any corporation suspended pursuant to section 43-1152 except as permitted by this article, or who transacts any intrastate business in the state in behalf of any such foreign corporation, shall be guilty of a class 1 misdemeanor. The jurisdiction of such offense shall be held to be in any county in which such transaction of business occurred and the county attorney of the county shall prosecute such offense. In addition to the penal provisions in this section, any taxpayer which transacts business during the period of suspension or forfeiture shall be subject to tax under the provisions of this title.

§ 43-1155 Voidable contracts by corporations

Every contract made in violation of this article is voidable at the instance of any party other than the taxpayer.

§ 43-1156 Application for revival of corporate powers

A. Any taxpayer which has suffered the suspension or forfeiture provided for in section 43-1152 may be relieved therefrom upon making application in writing to the department and upon payment of the tax and the interest and penalties for nonpayment of which the suspension or forfeiture occurred, together with all other taxes, deficiencies, interest and penalties due under this title.

B. Application for such certificate on behalf of any domestic corporation as defined in section 10-140 which has suffered such suspension may be made by any stockholder or creditor or by a majority of the surviving trustees or directors thereof.

C. Application for such certificate may be made by any foreign corporation as defined in section 10-140 which has suffered such forfeiture or by any stockholder or creditor thereof.

§ 43-1157 Clearance of revivor by corporation commission

A. Before any certificate of revivor is issued by the department it shall obtain from the corporation commission an endorsement upon such application of the fact that such corporation then qualifies for revival of corporate powers, rights and privileges.

B. Upon the issuance of such certificate by the department, the taxpayer therein named shall become reinstated. Such reinstatement shall be without prejudice to any action, defense or right which has accrued by reason of the original suspension or forfeiture.

C. The certificate of revivor shall be prima facie evidence of such reinstatement and such certificate may be recorded in the office of the county recorder of any county of this state.

D. A copy of such certificate shall be forwarded to the corporation commission for its files.

§ 43-1158 Treatment of installment obligations on cessation of corporate activities

If a corporation has elected to report income from the sale or other disposition of property on the installment method, and the entire income from the sale has not been reported before the year the corporation ceases to be subject to the tax imposed by this title, the corporation shall report the unreported income in the last year in which the corporation is subject to the tax. This section does not apply if the installment obligation is transferred pursuant to a reorganization to another taxpayer subject to tax under this title as the transferee, but capital losses of the transferee may not be used to offset income from the installment obligation transferred from a corporation which has ceased to be subject to the tax.

Article 6 Credits

§ 43-1161 Credit for new employment

B. Subject to subsection F of this section, the amount of the credit is equal to:

Three thousand dollars for each full-time employee hired in a qualified employment position in the first year or partial year of employment. Employees hired in the last ninety days of the taxable year are excluded for that taxable year and are considered to be new employees in the following taxable year.
Three thousand dollars for each full-time employee in a qualified employment position for the full taxable year in the second year of continuous employment.
Three thousand dollars for each full-time employee in a qualified employment position for the full taxable year in the third year of continuous employment.

The employee is hired after the start of the required investment at the designated location.
The employee is hired to work at the designated location after it is completed.
The payroll for the employees destined for the designated location is segregated from other employees.
The employee is moved to the designated location within thirty days after its completion.

D. To qualify for a credit under this section, the taxpayer and the employment positions must meet the requirements prescribed by section 41-1525.

E. A credit is allowed for employment in the second and third year only for qualified employment positions for which a credit was claimed and allowed in the first year.

H. Co-owners of a business, including corporate partners in a partnership, may each claim only the pro rata share of the credit allowed under this section based on the ownership interest. The total of the credits allowed all such owners of the business may not exceed the amount that would have been allowed for a sole owner of the business.

K. A tax credit under this section is subject to recovery for a violation described in section 41-1525, subsection H.

The total time the position was vacant from the date the employment position was originally filled to the end of the current tax year totals ninety days or less.
The new employee meets all of the same requirements as the original employee was required to meet.

§ 43-1162 Healthy forest production tax credit; definitions

A. For taxable years beginning from and after December 31, 2020, a credit is allowed against the taxes imposed by this title for processing qualifying forest products.

B. The taxpayer is eligible for the credit if all of the following apply:

The taxpayer has a current healthy forest enterprise incentive certification and memorandum of understanding with the Arizona commerce authority pursuant to section 41-1516.
The taxpayer processes qualifying forest products from a qualifying project from and after December 31, 2020 and before January 1, 2031.
The facility that processes qualifying forest products is located within this state.

C. The taxpayer is eligible for the credit for the calendar year in which the qualifying project processes qualifying forest products pursuant to subsection B of this section.

E. The credit authorized by this section is based on the number of tons of qualifying forest products that a taxpayer processes during a calendar year. For a taxpayer that files on a fiscal year basis, the credit shall be claimed on the return for the taxable year in which the calendar year ends.

The taxpayer's name, address and social security number or federal employer identification number.
The location of the taxpayer's facility that processes qualifying forest products for which the credit is claimed.
The amount of the credit that is claimed.
The date the taxpayer began processing commercially marketable amounts of qualifying forest products.
Any additional information that the department requires.

H. The department shall review each application under subsection G of this section and certify to the taxpayer the amount of the credit authorized. The amount of the credit for any calendar year may not exceed $500,000 per taxpayer that processes qualifying forest products. Credits are allowed under this section and section 43-1076.01 on a first-come, first-served basis. The department may not authorize tax credits under this section and section 43-1076.01 that exceed in the aggregate a total of $2,000,000 for any calendar year.

K. Co-owners of a facility that processes qualifying forest products, including corporate partners in a partnership, may each claim the pro rata share of the credit allowed under this section based on ownership interest. The total of the credits allowed all such owners that process qualifying forest products may not exceed the amount that would have been allowed for a sole owner.

L. The department shall adopt rules and publish and prescribe forms and procedures as necessary to effectuate the purposes of this section.

M. For the purposes of this section:

"Processed" or "processing" means any change in the physical structure of qualifying forest products removed from a qualifying project into a marketable commercial product or component of a product that has commercial value to a consumer or purchaser and that is ready to be used with or without further altering its form.
"Qualifying forest products" means qualifying forest products as defined in section 41-1516 that are sourced within this state.
"Qualifying project" has the same meaning prescribed in section 41-1516.

§ 43-1164 Credit for solar energy devices; commercial and industrial applications

A. For taxable years beginning from and after December 31, 2005 through December 31, 2018, a credit is allowed against the taxes imposed by this title for a taxpayer that is either:

Installing one or more solar energy devices, as defined in section 42-5001 and certified pursuant to section 41-1510.01, during the taxable year for commercial, industrial or any other nonresidential application in the taxpayer's facility located in this state.
The third party organization that financed, installed or manufactured the solar energy device that qualifies for the credit under paragraph 1 of this subsection if the taxpayer or an entity exempt from taxation under chapter 12 of this title who otherwise would qualify for this credit transfers the credit on a form prescribed by the department to the third party organization.

B. The amount of the credit is equal to ten per cent of the installed cost of the device.

C. The person who provides or installs the device shall furnish the taxpayer with an accounting of the cost to the taxpayer.

F. Co-owners of a business, including corporate partners in a partnership, may each claim only the pro rata share of the credit allowed under this section based on the ownership interest or financial investment in the system. The total of the credits allowed all such owners may not exceed the amount that would have been allowed a sole owner.

§ 43-1164.03 Renewable energy production tax credit; definitions

A. A credit is allowed against the taxes imposed by this title for the production of electricity using renewable energy resources.

B. The taxpayer is eligible for the credit:

If the taxpayer holds title to a qualified energy generator that first produces electricity from and after December 31, 2010 and before January 1, 2021.
For ten consecutive calendar years beginning with the calendar year in which the qualified energy generator begins producing electricity that is transmitted through a transmission facility to a grid connection with a public or private electric transmission or distribution utility system. That same date applies with respect to that generator until the expiration of the ten-year period regardless of whether the generator is sold to another taxpayer or goes out of production before the expiration of the ten-year period.

D. Subject to subsection G of this section, the amount of the credit is:

One cent per kilowatt-hour of the first two hundred thousand megawatt-hours of electricity produced by a qualified energy generator in the calendar year using a wind or biomass derived qualified energy resource.
The following amounts for electricity produced by a qualified energy generator using a solar light derived or solar heat derived qualified energy resource: