Tax season is here, and the first legislative proposal regarding tax conformity was vetoed by Governor Doug Ducey (R-AZ) on Friday.
The crux of the debate is how to conform to the new federal tax changes that were passed in 2017, which are expected to bring additional dollars to the state.
In 2017, the federal government enacted the Tax Cuts and Jobs Act (TCJA), which included over 100 provisions and created the largest revision to the Internal Revenue Code (IRC) in more than 30 years.
If the state simply conforms to the new IRC, the Joint Legislative Budget Committee (JLBC) expects Arizona to receive $205.5 million in additional revenue resulting from Tax Year 2018. Some are advocating for saving those dollars for a rainy day, others are pushing legislation that will reduce income tax rates.
Senate Bill 1143, which was vetoed, would conform Arizona’s income tax code to federal changes, and modestly reduce income tax rates by 0.11 percent across all tax brackets, which would be repealed after tax year (TY) 2018 so the Legislature can further discuss long-term state tax revisions.
In a series of tweets explaining his veto, Ducey said that Arizona will simply conform to the federal tax code and put the money towards the state’s rainy day fund.
“Let’s conform [and] secure Arizona’s future by investing in our rainy day fund,” Ducey tweeted. “Why would we retroactively change a tax code, after a full calendar year has passed, based on wildly differing estimates for what the impact is on state revenues, and after Arizonans have already started filing their tax returns? This makes no sense and it’s irresponsible,” Ducey tweeted.
On tax conformity: Arizona WILL CONFORM. We WILL NOT raise taxes. We will add to our state’s Rainy Day Fund. And we will continue to be fiscally conservative with our budget and spending.
— Doug Ducey (@dougducey) February 1, 2019
“This legislation is the wrong policy, and any bill with a fiscal impact should be considered as part of budget discussions agreed to by the Legislature and Executive, just as every budget bill is considered, every session,” Ducey said in his veto letter.
Prior to the veto, Democratic members of the House Ways and Means committee released a statement saying they back Ducey’s plan to simply conform.
Representative Andres Cano (D-3) said he agrees that the state “should fully conform to the federal tax code with no stipulations, as we’ve done every year. This legislation ultimately harms our ability to fund our schools, healthcare, and crumbling infrastructure.”
Yet, some Republicans believe that any conformity proposal should be revenue neutral for tax year 2018.
“Taxpayers need answers on how to go about filing their taxes,” Rep. Ben Toma said (R-Peoria). “We need to act quickly in a way that keeps our tax code simple and avoids taking any more of the money that Arizonans have earned.”
Tax forms and instruction were released by the Department of Revenue on Jan. 28.
To read CBN’s earlier reporting on simple conformity, click here.