Summary of 2023 Arizona Tax Legislation

Important Information About This Summary

This document briefly summarizes recent substantive changes to Arizona's tax laws. The bills addressed herein were approved by Arizona's Legislature and signed by Governor Hobbs. Except as noted below, most of these bills will be effective on the general effective date for the legislative session, October 30, 2023.

To limit the size of this document, the descriptions of these bills are brief and not intended to be comprehensive. If you believe that one or more of the following bills may impact the amount of tax that you, your clients, or the company that you work for, you should carefully review the bill and/or contact a state and local tax professional for assistance.

Table of Contents

A. Income Tax Legislation ....................................................................................................2
B. Transaction Privilege ("Sales") and Use Tax Legislation .................................................2
C. Property Tax Legislation ..................................................................................................5
D. Other Tax and Tax-Related Legislation ...........................................................................6

A. Income Tax Legislation

SB 1171: Conformity; Internal Revenue Code. Laws 2023, Chapter 2.

Provides for retroactive conformity to provisions of the Internal Revenue Code in effect on January 1, 2023 for tax years beginning January 1, 2023. Further provides for retroactive conformity to the 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 of 2023 (P.L. 117-328) for tax year 2022. The Arizona Department of Revenue (“Department”) estimated that the fiscal impact of this bill on the state’s general fund will be $(3.47) million in FY 2023, $(10.24) million in FY 2024, and $(11.62) million in FY 2025.

SB 1190: Department of Revenue; Administration. Laws 2023, Chapter 7.

Defines “audit” as a review or examination of a taxpayer’s accounts, financial information, books and records, and any other document to ensure information is reported correctly on a return, and to verify the reported amount of tax is correct. (Also impacts Arizona sales tax laws and other tax laws as described below.)

SB 1242: Board of Tax Appeals; Continuation. Laws 2023, Chapter 66.

Continues the State Board of Tax Appeals for eight years, until June 30, 2031. Retroactive to July 1, 2023. (Also impacts Arizona sales tax laws and other tax laws as described below.)

SB 1260: Small Businesses; Income Tax; Rate. Laws 2023, Chapter 67.

Accelerates the reduction in the tax rate for businesses that make the annual election to pay as “small business taxpayers” to the same 2.5 percent rate that individuals pay in Arizona. Retroactive to January 1, 2023.

SB 1473: Tax Corrections Act of 2023. Laws 2023, Chapter 11.

Makes numerous technical corrections and some substantive changes to Arizona's tax laws. Substantive changes to Arizona’s income tax laws include clarifying that, for purposes of the individual income tax credit for contributions to qualifying foster care charitable organizations, expenditures by such entities for “events” and “shelter” are included in the definition of qualifying services. (Also impacts Arizona sales and property tax laws as described below.)

SB 1734: Taxation; 2023-2024. Laws 2023, Chapter 147.

Requires the Department to issue one time individual income tax rebates known as the Arizona Families Tax Rebates to Arizona taxpayers who filed a full-year resident tax return for tax year 2021, claimed a dependent tax credit on the return, and who satisfy at least one of the following criteria: (1) had a tax liability of at least $1 on such a return, (2) filed such a return for tax year 2020 under the identical filing status used for 2021 and had a tax liability of at least $1 for 2020, or (3) filed such a return for tax year 2019 under the identical filing status used for 2020 and 2021 and had a tax liability of at least $1 for 2019. Such rebates are to be issued for up to three dependents at the rate of $250 for each dependent claimed for 2021 who was under seventeen years of age at the end of 2021, and at the rate of $100 for dependents that were older than seventeen at that time. Specifies a new definition of taxable income for partnerships that elect to be taxed at the entity level for Arizona income tax purposes beginning January 1, 2023. Defines the amount that may be taken as a subtraction from income for adoption expenses for tax years 2023 through 2025.

B. Transaction Privilege ("Sales") and Use Tax Legislation

Important Information About This Section

Most of the changes summarized below are applicable to Arizona's sales and use tax laws, and to the county excise taxes that "piggyback" Arizona's sales taxes. Unless otherwise specified below, Arizona municipalities have not adopted these changes. However, Arizona municipalities often adopt changes to their municipal tax codes that parallel changes to the state's sales and use tax laws.

SB 1102: Transportation Excise Tax; Maricopa County. Laws 2023, Chapter 203.

Authorizes Maricopa County to ask their voters whether they want to extend the 0.5 percent county transportation excise tax that applies whenever Arizona’s sales tax applies.

SB 1131: Residential Leases; Municipal Tax Exemption. Laws 2023, Chapter 204.

Prohibits cities, towns, and other taxing jurisdictions from levying taxes on proceeds from leasing real property for residential purposes effective January 1, 2025. The prohibition does not apply to health care facilities, long-term care facilities, hotels, motels, or other transient lodging businesses. Prohibits landlords for properties that are rented for residential purposes from charging their tenants for such taxes, effective January 1, 2025. Requires the Department to notify landlords that lease real property for residential purposes that cities, towns, and other taxing jurisdictions will no longer levy taxes on their proceeds from renting real property for residential purposes, effective January 1, 2025.

SB 1190: Department of Revenue; Administration. Laws 2023, Chapter 7.

Defines “audit” as a review or examination of a taxpayer’s accounts, financial information, books and records, and any other document to ensure information is reported correctly on a return, and to verify the reported amount of tax is correct. (Also impacts Arizona income tax laws as described above and other tax laws as described below.)

SB 1230: Tax Exemptions; Affidavit. Laws 2023, Chapter 14.

Provides that exemption letters from the Department for qualifying community health centers, qualifying health care organizations, and qualifying hospitals are valid until the entity no longer qualifies for the exemption. Requires such entities to notify the Department in writing if they no longer qualify for the exemption. Specifies that such entities are liable for an amount equal to the tax, penalty, and interest that sellers would have been required to pay if the sellers had not been furnished with a letter that was no longer valid. Effective January 1, 2024. (Also impacts Arizona property tax laws as described below.)

SB 1242: Board of Tax Appeals; Continuation. Laws 2023, Chapter 66.

Continues the State Board of Tax Appeals for eight years, until June 30, 2031. Retroactive to July 1, 2023. (Also impacts Arizona income tax laws as described above and other tax laws as described below.)

SB 1274: Computer Data Centers; TPT; Refund. Laws 2023, Chapter 68.

Clarifies that sales and use tax refunds filed on or after January 1, 2022 for periods beginning on or after January 1, 2022 based on the 2021 retroactive amendments to the exemptions and deductions available to qualified data centers are not subject to limitations imposed by the 2021 legislation, including but not limited to the aggregate $10,000 statewide cap for such refunds. Retroactive to January 1, 2022. The Joint Legislative Budget Committee indicated that it does not expect this bill to impact the state’s General Fund.

SB 1473: Tax Corrections Act of 2023. Laws 2023, Chapter 11.

Makes numerous technical corrections and some substantive changes to Arizona's tax laws. Substantive changes to Arizona’s sales tax laws include that public consignment auction dealers are now just required to retain, rather than submit, certificates establishing that they are entitled to the retail sales tax exemption for proceeds from sales of motor vehicles at auction to nonresidents of this state for use outside this state. (Also impacts Arizona income tax laws as described above and Arizona property tax laws as described below.)

C. Property Tax Legislation

SB 1190: Department of Revenue; Administration. Laws 2023, Chapter 7.

Permits the Department’s Director to extend the annual March 1 deadline for county assessors to notify property owners of the values of their properties for tax purposes in the event of an official state of emergency. (Also impacts Arizona income tax laws and sales tax laws as described above.)

SB 1230: Tax Exemptions; Affidavit. Laws 2023, Chapter 14.

Requires persons who claim property tax exemptions (except exemptions for inventory and personal property) to notify the assessor in writing if all or part of the property is conveyed to a new owner, the property is no longer used for the exempt purpose, or there is any other event that otherwise disqualifies the person or the property from the exemption. Effective January 1, 2024. (Also impacts Arizona sales tax laws as described above.)

SB 1473: Tax Corrections Act of 2023. Laws 2023, Chapter 11.

Makes numerous technical corrections and some substantive changes to Arizona's tax laws. Substantive changes to Arizona’s property tax laws include that property owners are no longer required to serve a copy of their notices of appeal of property valuations and classifications on the Department. (Also impacts Arizona income and sales tax laws as described above.)

HB 2064: Property Tax Exemption; Disability; Qualifications. Laws 2023, Chapter 79.

Defines “competent medical authority” and “person with a total and permanent disability” for purposes of Arizona’s property tax exemption for persons with a total and permanent disability.

HB 2534: Mortgaged Property; Tax Statements; Email. Laws 2023, Chapter 100.

Permits county treasurers to email, rather than mail, copies of property tax statements to mortgagors (borrowers) when the mortgagor requests such statements via email rather than by mail.

D. Other Tax & Tax-Related Legislation

SB 1190: Department of Revenue; Administration. Laws 2023, Chapter 7.

Defines “audit” as a review or examination of a taxpayer’s accounts, financial information, books and records, and any other document to ensure information is reported correctly on a return, and to verify the reported amount of tax is correct. (Also impacts Arizona income tax laws and sales tax laws as described above.)

SB 1242: Board of Tax Appeals; Continuation. Laws 2023, Chapter 66.

Continues the State Board of Tax Appeals for eight years, until June 30, 2031. Retroactive to July 1, 2023. (Also impacts Arizona income tax and sales tax laws as described above.)

HB 2223: Liquor; Licensing; Processes; Procedures. Laws 2023, Chapter 25.

Provides that farm wineries, manufacturers, microbreweries, craft distilleries, and direct shipment licensees shall file luxury tax returns and pay luxury taxes annually instead of monthly. Effective January 1, 2024.