Forty-Eighth Legislature

1st Regular Session 2007- The general effective date for legilslation is September 19, 2007.

SB 1553

County Assessors; Procedures- The bill allows a property owner to appeal the assessor’s decision regarding the approval or disapproval of an agricultural classification directly to court.  The bill requires the assessor to notify a property owner of the disapproval of an agricultural classification within 120 days of the application.  The bill specifies that the limited property value of a parcel that is split, subdivided or consolidated as the result of the actions of a government entity shall not change for the valuation year if the change will result in an increase in value.  SB 1553 was signed by Governor Janet Napolitano on April 18, 2007.

SB 1291

SB 1233

Re-computation of Income Tax; Final IRS Determinations- Under current statute, if a taxpayer’s taxable income is adjusted under audit by the Internal Revenue Service (IRS) or changed as the result of a renegotiation of a contract with the federal government, the taxpayer is required, within 90 days, file either a copy of the final determination which the Department of Revenue (DOR) will use to re-compute the tax owed or an amended return.  This bill defines " final determination" as the point when both parties have exhausted their appeal rights relative to the tax year in question.  The bill clarifies that a partial agreement, closing agreement, jeopardy or advance payment assessment is part of the final determination and must be submitted to DOR.  The bill specifies that partial, closing or other IRS agreements that would be final except for flow through adjustments are considered as a final determination when the taxpayer signs the agreement.  The bill has a retroactive effective date beginning from and after December 31, 2006.  SB 1233 was signed by Governor Janet Napolitano on May 1, 2007.

SB 1195

Changes to the Requirements and Process for the Sale of Land Held by the State Under a Tax Lien- The bill decreases the time period, from four weeks to at least two but not more than three weeks, for which a county board of supervisors must publish a list and notice of sale of state-deeded property for sale.  The bill removes the requirement to post the list and notice of sale in a public place within three miles of each parcel for sale.  The bill eliminates the requirement to continuously post a current list and notice of sale at the county sheriff’s office and at the county courthouse.  The bill requires the newspaper that prints the list and notice of sale to also publish that list on a website that posts the legal notices of at least ten Arizona newspapers.  The bill permits the sale to take place over the Internet with on-line bidding in a real-time live auction.  SB 1195 was signed by Governor Janet Napolitano on May 8, 2007.

SB 1157

Income Tax Deadlines and IRC Conformity- The bill stipulates the filing or payment of income tax is considered timely filed on the next business day after a Saturday, Sunday or legal holiday if the original deadline falls on one of those days.  The bill defines legal holiday to include legal holidays in the State of Arizona or as determined by the United States Secretary of the Treasury relating to due dates established by the IRC.  The bill updates the definition of internal revenue code as follows: (1) Tax year 2007 includes all IRC provisions that were in effect as of January 1, 2007; (2) Tax year 2006 includes all IRC provisions passed with retroactive federal effective dates between December 31, 2005 and December 31, 2006; and (3) Removes the definition of internal revenue code for tax year 1996.  The bill provides a retroactive effective date from and after December 31, 2006 regarding income tax filing and payment deadlines.  SB 1157 contains an emergency measure and was effective on the date of the Governor's signature on April 4, 2007.

SB 1036

Extension of Tax Due Dates and Waiver/Suspension of Interest for Taxpayers Affected by Certain Federal or State Disasters- The bill requires DOR to extend any due date and suspend the associated penalties and interest, for up to one year, for a taxpayer affected by a Presidentially declared disaster, military or terrorist action or state of emergency as declared by the Governor.  The bill prohibits interest from accruing, for up to one year, on any unpaid tax for any affected taxpayer.  The bill provides a definition for “affected taxpayer” that includes an individual or business located in a covered area, a government sanctioned relief worker who is assisting in a covered area, an individual or business whose necessary records are maintained in a covered area and any other person as determined by the director of DOR.  The bill defines “covered area” to mean a geographical area for which a federal or state disaster has been declared.  SB 1036 was signed by Governor Janet Napolitano on April 24, 2007.

HB 2784

HB 2657

Property Tax Method for Valuing the Land Used by an Electric Generation Facility-   The bill stipulates the value of land used by an electric generation facility is the cost to the current owner.  The bill defines “electric generation facility” to include all land, buildings and personal property that is used for the generation of electric power.  The bill applies retroactively to taxable years from and after December 31, 2006.  HB 2657 was signed by Governor Janet Napolitano on May 11, 2007.

HB 2627

HB 2515

Municipal Sales Tax Incentive Prohibition- Effective on January 1, 2008, this bill prohibits a municipality, located entirely within a metropolitan statistical area with more than two million persons, from offering tax incentives to retail business facilities as an inducement or in exchange for locating or relocating to their city or town.  The bill requires the municipality to report to the DOR the value of any tax incentive, whether actual, realized or contingent, offered to a retail business facility.  The bill establishes a penalty, in the amount of the tax incentive offered, to any municipality that violates this law.  The bill stipulates that this act does not apply to any municipal retail tax incentives approved by the municipality before July 1, 2007.  The bill defines tax incentive to include any waiver, exemption, deduction, credit, rebate, discount, deferral or other abatement or reduction of the normal municipal tax liability of an individual taxpayer.  The bill exempts, from the prohibition and penalty, the following municipal tax incentives: (1) Services and benefits generally afforded to all new businesses and that do not affect municipal tax levies; (2) Incentives already afforded to retail businesses currently located in the city or town; (3) Incentives given to retail businesses locating in redevelopment areas where the residents earn less than the average household income in the city as determined by the U.S. Census Bureau; (4) Incentives for public infrastructure features that are controlled and owned by a city, town, county or state or a private utility where no other political subdivision provides the utility; (5) Incentives offered for preserving historical buildings and other structures; (6) Incentives offered for the cleanup or other remediation activities at a brownfield site; and (7) Incentives that are referred to a vote before July 1, 2007.  Specifies that the exempt tax incentives must be offered in exchange for expenses incurred by the business in the form of a reimbursement not exceeding the actual cost incurred by the business.  HB 2515 was signed by Governor Janet Napolitano on July 2, 2007.

HB 2491

Expansion of the Solar Energy Income Tax Credit- The bill extends the solar energy income tax credit to third party organizations that have installed or manufactured a solar energy device.  The bill requires the credit to be transferred from the qualifying taxpayer to the qualifying third party on a form prescribed by the Department of Revenue.   The bill includes any nonresidential applications of one or more solar energy devices installed in the taxpayer’s facility as eligible to receive the income tax credit.   The bill contains a retroactive effective date of January 1, 2006.  HB 2491 was signed by Governor Janet Napolitano on May 4, 2007.

HB 2476

Taxation of Improvements on Agricultural District Land- This bill provides that the repeal of A.R.S. § 42-11102(D) last legislative session by HB 2717 is retroactivilely effective back to the date that the subsection was initially added to A.R.S. § 42-11102 in 2003 by SB 1168.  The initial repeal by HB 2717 was followed by the Tax Court ruling in Orthologic v. Arizona Dept of Revenue, TX 2004-000657 (Ariz. T.C. 2006) that the former A.R.S. § 42-11102(D) was unconstitutional because property tax could not be imposed on the lessees of property while the property was constitutionally exempt as to the lessors.  The lessees of such property may, however, be subject to the Government Property Lease Excise Tax of A.R.S. §§ 42-6203 et al.   HB 2476 contains an emergency measure and was effective on the date of the Governor's signature on April 20, 2007.

HB 2322

Motion Picture Production Income Tax Credits- The bill modifies the motion picture production tax incentive program by providing that 5% of the income tax credits be used for commercials and music videos.  The bill establishes a new managed audit program within Department of Revenue (DOR) for ease of transferability of these credits.  The bill restructures the amount of income tax credits a motion picture production can receive.  The bill allows the Department of Commerce (DOC) to use $180,000 of credit amount for 2 FTEs to administer the program.  The bill modifies the current definition of "motion picture" to exclude any locally broadcast television productions, including news, weather, sports, games shows, etc.  The bill adds new motion picture infrastructure income tax credits for motion picture infrastructure projects for soundstages and support/augmentation facilities.  Similar to the income tax credit program, DOC is required to certify motion picture infrastructure projects for income tax credit purposes.  The maximum credit amount is 15% of the total base investment.  The bill caps the maximum credit for each support and augmentation facility to $3 million.  HB 2322 was signed by Governor Janet Napolitano on May 24, 2007.

HB 2207

Allocation of Property Taxes on Property Split or Consolidated After Tax Roll Submitted to County Treasurer- The bill permits the county treasurer to proportionally allocate the taxes due on a property that has been split or consolidated after the tax roll has been delivered.  The bill stipulates that the total classification, valuation and taxes associated with the new parcel or parcels must be equal to those associated with the original parcel or parcels.  The bill eliminates the ability of a mobile homeowner to extend the due date of delinquent taxes acquired by a previous owner for a second year with no interest and penalty.  The bill clarifies that the due date extension for delinquent taxes does not apply to permanently affixed mobile homes.    The bill allows the delinquent taxes for a mobile home to be identified by either the tax roll identification number or the taxpayer identification number.  HB 2207 was signed by Governor Janet Napolitano on April 24, 2007.

HB 2084

Individual Income Tax Credits for Taxes Paid To Another State- The bill provides an individual income tax credit for Arizona residents who are also considered residents of another state for taxes paid to the other state.  The bill stipulates the credit may only be claimed for the amount of taxes paid on 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.   The bill requires that refund claims be filed accordance with the statute of limitations.  The bill applies retroactively to January 1, 2002.  HB 2084 was signed by Governor Janet Napolitano on April 24, 2007.

Forty-Seventh Legislature

2nd Regular Session 2006- The general effective date for legislation is September 21, 2006.

SB 1499

Corporate Tuition Income Tax Credit- SB 1499 establishes a corporate income tax credit, starting tax year 2007, for the amount of voluntary cash contributed by a corporation in each taxable year to an Student Tuition Organization (STO).   The amount of the tax credit is the amount of the contribution and must be pre-approved by DOR.  The credit is capped at the annual aggregate amount of $5 million in any fiscal year.  A taxpayer may carry the unused credit forward for five years.   The credit prohibits a taxpayer’s eligibility for the tax credit if the taxpayer designates the contribution to an STO is for the benefit of any specific student.   The credit requires an STO to use 90 percent of the corporate contributions (that qualify for the tax credit) to provide an educational scholarship or tuition grant only to a child whose family income does not exceed 185 percent of the income limit to qualify for a free or reduced price lunch and either: (1) Attended a public school as a full-time student for the first 100 days of the prior fiscal year and transferred to a qualified school; (2) Enrolls in a qualified school in a kindergarten program; or (3) Received a scholarship or tuition grant from the STO, if the child continues to attend a qualified school in a subsequent year.  The credit prohibits an STO from issuing a scholarship or tuition grant in an amount greater than $4,200 for grades K-8 and $5,500 for grades 9-12 in 2006 and increases the limitation by $100 each year thereafter.

SB 1461

SB 1411

State Prime Contracting Transaction Privilege Tax Waste Disposal Exemption- SB 1411 provides a prime contracting transaction privilege tax exemption for that the portion of gross proceeds of sales or gross income attributable to operating a landfill or a solid waste disposal facility, including filling, compacting and creating vehicle access to cell sites within the landfill.  The bill contains an intent clause that excludes the state TPT exemption from affecting the interpretation of the Model City Tax Code.

SB 1404

Corporate Tuition Income Tax Credit Modification- SB 1499 (see above) set a maximum allowable aggregate credit amount of $5 million in any fiscal year.  SB 1404 raises the annual limit to $10 million and provides for a twenty percent (20%) increase per year.

SB1367

Motion Picture Production Incentives- Senate Bill 1367 provides, retroactively to January 1, 2006, that the Arizona motion picture production incentives are modified as follows:

1. Current interpretation of the law allows aggregation of multiple productions into one application.  The bill codifies this interpretation by inserting the phrase “in producing one or more motion pictures.”  See A.R.S. § 41-1517 (A)(1).  Conforming amendments were also made in the Arizona Department of Revenue’s statutes A.R.S. §§ 43-1075 and 43-1163;

2. The bill requires the production company “or its authorized payroll service company” to employ Arizona residents on production activities.  The bill includes in the calculation of Arizona residency requirements the individuals who are employed by the authorized payroll service company on behalf of the production company.  See A.R.S. § 41-1517 (A)(3);

3. The bill introduced a four-month deadline to begin production.  See A.R.S. § 41-1517(D).  If the production doesn’t timely begin, the pre-approved credit amounts are cancelled and returned to the calendar year’s maximum amount from which they came.  To document that a production has begun, the production company must submit notice to Commerce and provide at least one of the following: (A) A copy of a contract, loan out agreement or deal memo with a cameraman and crew; (B) A dated copy of the crew call sheet for the first day of production; (C) Evidence that residents of this state have been paid a total of at least five thousand dollars for work on the pre-approved motion picture; or (D) A copy of a contract or agreement directly attributable to the pre-approved motion picture;

4. Current interpretation of the law allows Commerce to pre-approve no more than $5 million in tax credits for a single application; the bill codifies this interpretation by inserting the word “application.”  See A.R.S. § 41-1517(E)(6);

5. The existing law establishes a maximum calendar year tax credit amount that can be pre-approved by Commerce.  Under current interpretation, if a calendar year’s maximum amount has been pre-approved, companies must wait until the next calendar year to apply for and receive a pre-approval of tax credits.  The new language allows a company to apply on or after November 1 st for the next year’s maximum amount if the current year’s maximum amount has been fully pre-approved by October 31 st .  The language also authorizes Commerce to allocate tax credits from the next year’s maximum amount.  However, the pre-approval letter issued to the company will not be effective until the first business day of the next calendar year.  See A.R.S. § 41-1517(F);

6. The new language authorizes Commerce to reallocate (reissue) tax credit amounts that are returned to a calendar year’s maximum amount only if the credits are returned during the calendar year in which originally allocated.  See A.R.S. § 41-1517(J); and

7. The bill language adds an exemption from transaction privilege tax on the job printing classification, which was previously not allowed.  See A.R.S. § 42-5066(B)(4).

SB 1346

Property Taxation of Biodiesel Production Facilities and Fleet Requirements- SB 1346 allows federal, state, municipal or school district vehicle fleets in Arizona to earn credits toward the state mandate of alternative and clean burning fuel vehicle use by purchasing biodiesel, diesel substitute or an ethanol or methanol blend.  Effective January 1, 2007 to December 31, 2016, the bill classifies real and personal property and improvements used specifically and solely to produce biodiesel fuel as class 6 property for property tax purposes (subject to only a 5% assessment ratio).  Applies the class 6 property valuation for biodiesel production facilities only to the portion of the property used specifically for the production of 100 percent biodiesel fuel, its by-products or on-site storage facilities that are intrinsically associated with the manufacturing process.

SB 1209

SB 1162

SB 1094

SB 1074

Enterprise Zone Program Reauthorization- SB 1074 extends the Enterprise Zone (EZ) Program for five years, until June 30, 2011.  The bill terminates an EZ Program certification of a certified manufacturing business or a small commercial printing business whose ownership interest changes by more than 20 percent.  The bill raises, from 10,000 to 15,000, the minimum population threshold of cities and towns to determine the minimum investment requirement.  The bill expands the eligibility for the EZ Program property tax incentives to allow closely-held manufacturing and family-owned businesses and small commercial printers to qualify.

SB 1069

2006 Tax Corrections Act- SB 1069 clarifies that out-of-state residents who purchase motor vehicles and whose home state does not impose an excise tax are exempt from Arizona transaction privilege tax.  The bill rectifies conflicting enactments relating to the Joint Legislative Income Tax Credit Review Committee schedule and conflicting enactments relating to changes to the individual and the corporate income tax credit for the installation of water conservation systems and plumbing stub out.  The bill corrects a reference to the Internal Revenue Code (IRC), deletes an obsolete reference to the IRC, and makes other technical, conforming and clarifying changes.

SB 1068

Development Fee Exemption From Contracting TPT- SB 1068 exempts state and local development and impact fees from the prime contracting classification of the TPT.  The bill prohibits a city, town or special taxing district from levying a transaction privilege, sales, use or similar tax on state or local development or impact fees.   The bill becomes effective on September 1, 2006, but stipulates that this legislation is not intended to affect and may not be considered in statutory or model city tax code interpretation for taxable periods prior to September 1, 2006.

HCR 2056

Local Government Property Tax Levy Limits- Requires the Secretary of State to submit a proposition to voters at the next general election that would provide that beginning in 2007, counties, cities, towns and community college districts would be required to determine their primary property tax levy limit based on the actual tax levy in 2005.  According to JLBC, rebasing the levy limits will eliminate approximately $181 million statewide in potential tax authority.

HB 2876

HB 2821

Property Tax Assessment, Valuation and Appeals- HB 2821 provides new definitions and clarifications of commonly used terms for property valuation: (1) Modifies the definition of full cash value to state that the full cash value will not exceed market value regardless of the valuation method; (2) Adds a definition of due date to mean the next business day if the due date of any report, claim, return or other document falls on a weekend or legal holiday; (3) Adds a definition of net assessed value to mean the assessed value minus any exempt property; (4) Clarifies several property valuation or classification appeal deadlines so that the number of days to file an appeal starts from the date of the mailing of the decision, instead of the date of the decision; and (5) Allows appeals from a county board of equalization to be made by December 15 or within sixty days after the mailing of the decision, whichever is later.  The bill also clarifies that county assessors cannot change their final tax roll reported to the Property Tax Oversight Commission (PTOC) on February 10 each year.  Additionally the bill establishes an Elderly Assistance Fund in Maricopa County.  The purpose of the fund is to proportionately reduce the primary property taxes of all taxpayers who live in an organized school district and who are approved for the senior property valuation freeze.  Currently, when a taxpayer redeems a tax lien they pay the interest at which the lien was bought.  The statutory rate for delinquent taxes is 16% while the interest rate purchased on a tax lien is usually much lower.  This bill will allow the county treasurer to collect the full 16% when a taxpayer redeems their tax lien.  The county treasurer will deposit the difference between the 16% and the rate at which the lien was bought into the Elderly Assistance Fund.

HB 2717

Taxation of Improvements on Agricultural District Land- This bill repeals Subsection(D) of A.R.S. § 42-11102, added in 2003 by SB 1168,  that allowed the county assessor to assess non tax-exempt permanent improvements in the name of the lessee or sublessee on land owned by and leased from an agricultural improvement district in the same manner as other property used for similar purposes.  This repeal was followed by the Tax Court ruling in Orthologic v. Arizona Dept of Revenue, TX 2004-000657 (Ariz. T.C. 2006) that the former A.R.S. § 42-11102(D) was unconstitutional because property tax could not be imposed on the lessees of property while the property was constitutionally exempt as to the lessors.  The lessees of such property may, however, be subject to the Government Property Lease Excise Tax of A.R.S. §§ 42-6203 et al.

HB 2712

Distribution of Tax Decisions- HB 2712 requires the following agencies to provide tax decisions to the law libraries, state university Colleges of Law, the State Law Library, the Arizona State Library and any person who requests them, and to publish tax decisions on their official website: (1) The Arizona Department of Revenue (ADOR); (2) The Office of Administrative Hearings (OAH); (3) Each city or town tax hearing office or the municipal tax hearing officer; (4) The Department of Economic Security (DES); (5) The Department of Transportation (DOT); and (6) The State Board of Tax Appeals (BOTA).  The bill adopts the rules of the Arizona Courts in defining memorandum decisions.  The bill defines redacted tax decision as a decision with the name of the taxpayer, the amount of penalty and interest in dispute, the amount of tax in dispute and any other information that might identify the taxpayer as being deleted from the text of the decision.  The bill defines tax decision for each of the agencies listed above and excludes published opinions issued by the Tax Court, Court of Appeals, or Supreme Court.  The bill requires the agencies and courts to establish and maintain an official website by January 1, 2008 if they do not currently have one. 

HB 2496

HB 2432

County Long-Term Obligations- HB 2432 requires the board of supervisors (Board) in a county with a population of less than 500,000 that approves incurring any long-term obligation, with the exception of GO bonds, to hold a public hearing at least 15 days before adopting a resolution for incurring the long-term obligations.  The bill requires the Board to present an analysis of the need for the project, the need to use long-term financing and any other available options to accomplish the project.  The bill specifies that the public must be allowed to speak at the hearing.  The bill requires the Board to hold a public meeting to adopt findings following public comment and by roll call vote either:  (1) Adopt and enter a resolution of intention to incur long-term obligations to finance the project, stating the public need for the project, the estimated cost and the amount of the long-term obligations to be incurred; or (2) Reject long-term financing of the project and abandon further proceedings.

HB 2377

State Board Of Equalization- HB 2377 makes numerous changes to the SBOE, including: (1) Increases the membership of the SBOE from 17 to 33 members; (2) Decreases the years of experience needed in property valuation, from four years to three years, for an individual to qualify for appointment to the SBOE; (3) Prohibits a member of the SBOE, other than the chairperson, from having been employed by a county assessor, county attorney, DOR or Department of Law within the last two years; (4) Prohibits, when possible, and at the chairperson’s discretion, more than one member on a three-member panel and more then two members on a five-member panel to have been employed by a county assessor, county attorney, DOR or Department of Law within the last four years; (5) Increases the compensation for members of the SBOE from $150 to $300 per day; (6) Allows current SBOE members to continue to serve their term without consideration of the new qualification requirements.; and (6) Appropriates $30,000 to the SBOE for the provisions of this act.

HB 2350

County Treasurer- HB 2350 specifies that the interest paid on tax correction refunds will be the interest set by the Arizona Department of Revenue (DOR) on the day the payment is rendered.  The bill allows the county treasurer to require owners of one hundred or more parcels to submit personal property payments and documentation electronically.  The bill extends property tax abatement processes to include personal property.  The bill eliminates DOR approval for the abatement of property taxes by the county.

HB 2349

County Assessors Property Fund- HB 2349 extends the repeal date of the County Assessors Property Information Storage and Retrieval Conversion and Maintenance Fund (established to pay for the use of Geographic Information Systems) until December 31, 2011.  For purposes of the fund, the bill defines training as the cost of seminars or classes that are directly related to the purpose of the fund and does not include costs related to travel or employee salaries.

HB 2236

Community Facilities Districts- HB 2236 removes the requirement that a Community Facilities District (CFD) be formed for the sole purpose of financing school sites and facilities.  The bill allows a CFD to collect an ad valorem tax and issue general obligation bonds.  The bill permits a CFD to call a general obligation bond election to issue general obligation bonds.  The bill specifies that a petition for the formation of a CDF must be signed by the owners of all of the land in the District that is described in the petition.  The bill allows requirements relating to posting, publication, mailing, notice, hearing and landowner election to be waived if one hundred percent of the residential electors in the District give their approval.

HB 2145

HB 2089

Job Printing Transaction Privilege Tax Postage Deduction- HB 2089 provides a deduction for the sales of postage and freight from the tax base for the job printing classification.  The bill specifies that the amount deducted is not to exceed actual postage or freight cost.  The bill requires postage expense to be separately itemized on the customer invoice and in the taxpayer’s records.

HB 2088

Confidentiality- HB 2088 affects confidentiality provisions for the following entities:

Office of Administrative Hearings (OAH)- Clarification of statutes is needed to allow the Arizona Department of Revenue (DOR) to release confidential income tax information that will impact TPT cases.  The taxpayer must agree to the disclosure and waive confidentiality.  

Liquor Department- Current law requires DOR to share TPT and luxury tax information with the Department of Liquor Licenses and Control (DLLC) to ensure that taxes are being paid properly.  There are conflicting definitions of what constitutes spirituous liquor.  The bill clarifies that DOR will use the definitions that are used by the Liquor Department.  

U.S. Treasury Department- Due to reorganization of some federal programs, the state income tax levy program and electronic federal tax payment system is now under the U.S. Treasury Department instead of exclusively with the IRS.  The bill allows DOR to continue these programs with the U.S. Treasury.  

Cigarette (tobacco) Distributors- Legislation was passed in the 2004 session regarding the delivery of sales of cigarettes.  As a result of that legislation, DOR receives public records requests from shippers of tobacco products for copies of all current distributor licenses.  Current disclosure statutes prohibit making these lists public unless authorized from the distributors.  This bill will allow DOR to disclose the list of distributor license holders to those making the information requests or to place the list on their website.  

Other states/organizations- Current law provides that DOR can disclose information to other states or an organization of states.  This has precluded DOR from entering into exchange agreements with the District of Columbia, other cities that grant similar privileges and organizations that exchange information with tax administrators (Federation of Tax Administrators and the Multi-State Tax Commission).  This affects DOR’s ability to audit corporations or individuals engaged in tax compliance issues in multiple states and cities, including cases involving abusive tax shelters. 

Tax Proceedings- Modifies current statute regarding what confidential information may be disclosed in judicial or administrative tax proceedings.  Disclosure would be permitted if the proceedings are connected to a taxpayer’s civil or criminal tax liability, if the return is an issue in the proceeding or the tax return information directly relates to a person who is a party to a proceeding and there is a transactional relationship with the taxpayer.

HB 2086

Tax Payments, Filings, and Extensions- Current law allows the Arizona Department of Revenue (DOR) to charge a $25 non-sufficient funds (NSF) fee to taxpayers who make Transaction Privilege Tax (TPT) payments with dishonored traditional checks.  But, the law does not currently allow the NSF fee to be applied to dishonored electronic transactions.  This bill subjects all dishonored payments to penalties regardless of the media used for the filing or payment of taxes.  Additionally, payments are considered delinquent on different dates depending on how they are filed.  This bill standardizes the delinquent date for all payments by specifying that TPT payments are delinquent if they are not received by the DOR on or before the second to last business day of the month or, if filing by mail, they are not postmarked before the twenty-fifth day of the month.  The Internal Revenue Code (IRC) allows a filing extension for timely withholding payments.  This bill brings Arizona statutes into conformity with this provision.

Forty-Seventh Legislature

The bill is retroactive for pending refund and credit claims to September 30, 2005.  The retroactivity also applies to any deficiency assessments that have not been finally adjudicated by September 30, 2005. (HB 2055 was signed by Governor Janet Napolitano on April 18, 2005).

Forty-Sixth Legislature

SB 1389

IRC Conformity- SB 1389 is the annual bill to make conforming changes to the state income tax code to correspond with the federal changes to the Internal Revenue Code. The bill:

(1) Conforms to the internal revenue code including retroactive conformity to the effective dates of all provisions of the Jobs and Growth Tax Relief Reconciliation Act of 2003, the Military Family Tax Relief Act of 2003, and the Medicare Prescription Drug Improvement, and Modernization Act of 2003;

(2) Suspends the statute of limitations to allow taxpayers to claim refunds resulting from retroactive conformity to the provisions of the Military Family Tax Relief Act of 2003. For federal income tax purposes, P.L. 108-121 amended I.R.C. § 121 to allow an election for military and Foreign Service personnel to ignore the time spent on extended duty (up to 10 years) in order to meet the two-out-of-five year requirement needed to exclude gain on the sale of personal residences. The federal provision is effective for sales or exchanges after May 6, 1997 and provides a one-year period (beginning on the date of enactment) for taxpayers to claim refunds as a result of this provision that are otherwise barred by the statute of limitations.  Under the Arizona conformity bill, taxpayers may also file an amended Arizona return at any time before the close of the one-year period beginning on November 11, 2003;

(3) Requires an add-back of the federal section 179 expenses deducted in excess of twenty-five thousand dollars but allows it to be subtracted ratably over a five-year period.  Therefore, all taxpayers that deducted I.R.C. § 179 expenses in excess of $25,000 will have to file an amended Arizona income tax return to add the amount in excess of $25,000 to Arizona gross income and to take a subtraction for 1/5 of the amount in excess of $25,000;

(4) Requires all taxpayers to add the amount of depreciation allowed under I.R.C. § 167(a). The bill also requires taxpayers to compute depreciation for Arizona purposes as if bonus depreciation had not been elected for federal purposes. Therefore, all taxpayers that claim depreciation on the federal return must add that depreciation to Arizona gross income on the Arizona return and then take a subtraction for the allowable amount. This provision is retroactive and applies retroactively to taxable years beginning from and after December 31, 1999.  The 2004 income tax returns will be modified to accommodate this adjustment.  However, for taxable years prior to 2004, this provision will really affect taxpayers that depreciated luxury autos. This amendment will allow taxpayers to depreciate luxury autos for which the taxpayer has claimed federal bonus depreciation using the same depreciation rate that would have been allowed if the taxpayer had not claimed bonus depreciation. These taxpayers will be able to amend a prior year return to make this adjustment, or as an alternative, the taxpayer may elect to recognize the entire cumulative effect of the retroactive change on the tax return for the first taxable year ending on or after December 31, 2003 instead of recognizing the changes on those prior year returns;

(5) Allows taxpayers to claim a subtraction to reflect the difference in federal and state basis of bonus depreciation property when that property is sold. This provision is retroactive and applies retroactively to taxable years beginning from and after December 31, 1999.  A taxpayer may file an amended return to make this adjustment for a prior year, or as an alternative, the taxpayer may elect to recognize the entire cumulative effect of the retroactive change on the tax return for the first taxable year ending on or after December 31, 2003 instead of recognizing the changes on those prior year returns.  This act is an emergency measure that is necessary to preserve the public peace, health or safety and is operative immediately as provided by law. 

Signed by the Governor on May 5, 2004.

SB 1361

Burden of Proof- SB 1361 creates a new section 42-1255 stating that DOR has the burden of proof in any administrative as well as judicial proceeding regarding any factual issue that is relevant to ascertaining the tax liability of a taxpayer, provided the taxpayer has cooperated and kept proper records. The new section 42-1255 replaces a subsection under which DOR had the burden of proof only in court proceedings.

SB 1293

Architectural and Engineering Costs- SB 1293 provides for an exclusion of actual direct costs of providing architectural or engineering services that are incorporated into a contract. The bill has a definition for the term “direct costs” and contains a retroactivity clause that provides that any refunds are limited to a total of $100,000. Claims for refunds must be submitted to DOR by December 31, 2004 and: (1) The burden of proof is on the taxpayer to establish evidence to qualify for the refund; (2) DOR will notify taxpayers of their determination and amount of refund; and (3) Contains a clause stating the no severability of refund provisions.

SB 1288

Bundled Telecommunication Services- Arizona Revised Statutes § 42-5064 imposes transaction privilege tax on the business of providing intrastate telecommunications services.  As such, telecommunications businesses must separately show gross income derived from nontaxable interstate calls and other income excluded or exempted from tax in books and records kept in the ordinary course of business.  S.B. 1288: (1) Adds a new methodology for how such businesses can reasonably identify nontaxable charges on bundled transactions, which are sales of both taxable and nontaxable services where the business charges a customer a flat “bundled” rate for all the services; (2) Allows a business to elect to use allocation percentages derived from its entire service area instead of itemizing for individual calls; (3) Allows DOR to request the allocation information and an audit may be performed; (4) The telecommunications service provider must waive all rights to a refund on taxes if the taxes were based on the allocation percentage deemed reasonable at the beginning of the tax year at issue.

SB 1274

Tax Amnesty and Audit Right- SB 1274 makes modifications to the taxpayer bill of rights and clarifies the right of appeal for the tax amnesty program.  With certain prescribed exceptions, DOR has two years from date of initial audit contact to issue a final audit (notice of proposed assessment or proposed overpayment). A final audit (notice of proposed assessment or denial of refund claim) must include the statutory, regulatory and judicial bases for any adjustments made.  These provisions apply retroactively to audits beginning on or after January 1, 2004.

Applications for the tax amnesty program that expired Oct. 31, 2003, are an express waiver of the right to appeal the matters under the amnesty application for the period for which the application was made; taxpayers retain appeal rights on additional tax assessed via a subsequent audit of the period for which the application was made.  This provision is effective retroactively to September 18, 2003.

SB 1141

Tax Rate Increase Effective Dates- SB 1141 provides that when a state transaction privilege tax rate increase takes effect for written business contracts, other than prime contracts, that the new tax rate increase will not apply until 120 days after the effective date of the rate increase, unless taxpayer has entered into a contract that contains a provision that entitles the taxpayer to recover the increased tax amount from the purchaser.

SB 1091

Notice of Property Tax Errors- SB 1091 allows county assessors to send notices of valuation error to property owners at any time in the tax year (defined for all property tax purposes as the "calendar year").  A notice of error in property valuation or a notice of claim is effective only during the current year and the 3 immediately preceding years.  Even if the taxpayer consents to the correction but disputes the valuation, the tax roll will be corrected and the corrected value will be effective for the current and subsequent years unless a court determines otherwise.  It defines the term "Tax Year" and specifies which tax years are covered in a "Notice of Error" used by the assessors and a "Notice of Claim" used by a taxpayer to request correction of real and personal property tax roll errors.

SB 1004

Residential Property Tax Exemption Increase- SB 1004 increases the value of a home eligible for a $3,000 property tax exemption for widows, widowers and disabled persons. Specifically, the bill provides: (1) An increase in the value of a residence from $100,000 or less to $200,000 or less for widows, widowers, or disabled persons to qualify for a $3,000 property tax exemption; and (2) On or before December 31 each year, DOR is required to increase this residence assessment limit of $200,000 based on annual inflation as determined by the GDP price deflator.

SB 1003

Stillbirth Income Tax Exemption- SB 1003 provides that a taxpayer is allowed an income tax exemption of $2,300 for each birth for which a certificate of birth resulting in stillbirth has been issued from the Arizona Department of Health Services if the child otherwise would have been a member of the taxpayer’s household. The taxpayer may claim the exemption in the year in which the stillbirth occurred. This act applies retroactively to taxable years beginning from and after December 31, 2003.

SB 1001

Transportation TPT Exemption- SB 1001 provides an exemption from tax under the transaction privilege tax for the income received by a railroad for the transportation of fertilizer from one point in Arizona to another point in Arizona.  This provision is effective from and after September 30, 2004.

HB 2549

Health Forest Enterprise Program- An emergency measure that allows a Healthy Forest Enterprise Assistance Program to be established and provides transaction privilege (TPT), use and income tax incentives for qualified businesses until 2014.  Allows the state to contract for electrical energy produced from biomass resources.  The bill also authorizes cities, towns and counties to adopt and periodically revise an urban-wildland interface code, makes the State Forester a position separate from the State Land Commissioner, establishes the State Urban-Wildland Fire Safety Committee and requires that the State Forester identify pilot programs to promote forest health.  This act is an emergency measure that is necessary to preserve the public peace, health or safety and is operative immediately as provided by law.  Signed by the Governor on June 3, 2004.

HB 2460

30-Day Nonresident Registration Permit- This legislation expands the MVD’s 30-Day Nonresident Registration Permit certificates to require a nonresident motor vehicle purchaser to affirm that the vehicle is to be registered in another state within 30 days. If the purchaser registers the vehicle in Arizona within 365 days, the purchaser will be liable for any state transaction privilege tax, county excise tax, penalties and interest that the motor vehicle dealer would have been required to pay. (Any full or partial exemptions from the transaction privilege tax will be negated in this event.) An amendment to the Retail Classification in the transaction privilege tax statutes allows a resident from a state which provides “reciprocity” with Arizona to purchase a motor vehicle and have the transaction privilege tax imposed on the sale equivalent to the tax rate of the purchaser’s state.  The bill does not affect the transaction privilege tax exemption for motor vehicles sold to nonresidents and delivered out-of-state, but these nonresident purchasers are subject to the penalty provision above if the vehicle is registered in Arizona within 365 days.

HB 2459

Personal Property Rental MV Exemption- HB 2459 adds a deduction under the personal property rental classification for income received by a motor vehicle dealer for the first month’s payment on the lease of the motor vehicle if the lease and payment is assigned to a third party leasing company.

HB 2258

Property Tax Appeals and Assessments- HB 2258 makes changes regarding the county assessor’s procedures for tax assessments and appeals.  The provisions of the bill include: (1) Allows property tax agents to act on behalf of the taxpayer to discuss tax matters with the county assessors, DOR or the County or State Board of Equalization; (2) Requires the county assessor to make any necessary changes in the tax roll and records from reviews or corrections of errors and omissions, in addition to any changes from judicial and administrative appeals; (3) Removes the requirement for the court to hear property appeals within 270 days; (4)  Includes in the property tax exemption for institutions for the relief of indigent or afflicted any administrative buildings or property; and (5) Establishes a new property tax exemption for any non-profit organizations that provide financial support for public libraries.

HB 2086

Motor Vehicle Manufacturer Refund- HB 2086 allows motor vehicle manufacturers who repurchase vehicles from consumers due to warranty provisions under Arizona’s lemon laws to apply to DOR for a refund of sales tax if certain conditions are met.  Any refund paid to the manufacturer from these provisions is in lieu of a refund on the vehicle that the dealer would otherwise be entitled to receive.

HB 2045

Income Tax Credit Review Schedule- HB 2045 is the annual bill to update the income tax credit review schedule based on the recommendations of the Joint Legislative Income Tax Credit Review Committee.  The bill removes the income tax credits that were reviewed in 2003 and adds these credits to the review schedule in 2008.  The bill repeals the individual and the corporate income tax credit for corrective action costs for underground storage tanks and makes conforming changes.  It amends A.R.S. § 41-1525 and amends A.R.S. §§ 43-1074 and 43-1161 to allow enterprise zone credits at a zone location unless more than ten percent of the business at the zone location consists of retail sales of tangible personal property.  It amends A.R.S. § 41-1525 and amends A.R.S. §§ 43-1074 and 43-1161 to provide that taxpayers may claim second and third year credits for taxable year 2002 and third year credits for taxable year 2003 when the first year credit was claimed on an amended return if the qualified employment positions were created prior to January 1, 2002 and certified to the Department of Commerce. Arizona Revised Statutes sections 41-1525, 43-1074 and 43-1161 as amended by this act apply retroactively to taxable years beginning from and after December 31, 2003.

HB 2040

2004 Tax Corrections Act- HB 2040 makes technical, conforming and clarifying changes to Arizona tax statutes. Transaction Privilege Tax: (1) Nonprofit health care organizations are exempt from TPT for construction of their facilities if they meet certain conditions.  If conditions are not met within a “reasonable time,” then the tax is due. “Reasonable time” is defined as a time limitation that DOR determines and that does not exceed the statute of limitation of the original transaction; and (2) Clarifies the TPT exemption regarding the sale of tangible personal property for programs that are exclusively for mentally or physically handicapped persons.  These programs are for training, job placement, rehabilitation or testing.  Property Tax: (1) Requires DOR to determine the location (or apportionment) of pipeline property by November 30 instead of August 31. Also, clarifies that this is done yearly; (2) Clarifies that full cash values of airline and private car companies’ properties are public record; and (3) Eliminates reporting the apportionment of telecommunication companies’ valuation from DOR to all local jurisdictions and instead requires DOR to report the necessary information only to county assessors.  Income Tax: (1) Clarifies thresholds for requiring individuals to file personal income tax returns; and (2) The income tax credit for dependent day care services had to be claimed by January 1, 1995.  Repeals this obsolete credit and removes the reference to this credit under additions to Arizona gross income.

Tax Penalties- Specifies that the civil penalty, imposed on a tax preparer for understating a taxpayer’s liability, can be imposed only if: (1) There was not a realistic possibility that the preparer’s position would be sustained; and (2) The preparer’s position was undisclosed to the department.  The bill clarifies that a tax preparer is required to pay 85 percent of a penalty if the payment is made within 30 days from the receipt of notification and that the 30 day time period currently allowed to appeal a department penalty starts with the date of the receipt of notification.  It expands the initial date used regarding statutory requirements for the amount of time to keep tax documents filed electronically (or otherwise) to include the date the tax documents were presented to the taxpayer for signature.  (SB 1348 was signed by Governor Janet Napolitano on April 8, 2003).

County Hospital District TPT- Adds new subsection is added to A.R.S. § 48-1910 providing that the board of directors of a county-wide hospital district may request the county’s board of supervisors to place on a county election ballot the question of imposing county transaction privilege tax (TPT) to support the hospital district.  This could occur in counties that meet certain population and property valuation levels.  The tax could be in effect for up to five years, and could be renewed.  The department will collect the approved TPT and remit revenues there from to the county treasurer for dispersal to the hospital district.  (SB 1231 was signed by Governor Janet Napolitano on May 14, 2003).

SB 1168

Property Taxations and Valuation- Add subsection (D) to A.R.S. § 42-11102 to allow the county assessor to assess non tax-exempt permanent improvements in the name of the lessee or sublessee on land owned by and leased from an agricultural improvement district in the same manner as other property used for similar purposes.  The amendments also: (1) require the county assessor and the Department of Revenue to be notified regarding building permit number, parcel number, issue date and completion date, on issuance of the certificate of occupancy or certificate of completion or on the expiration or cancellation of the permit rather than upon final inspection; (2) allow the notice to be provided in an electronic format; and (3) allow the county assessor the option to send notice of valuation electronically. 

Streamlined Sales Tax Act Participation- Provides for Arizona to send delegates to multi-state discussions for streamlined sales and use taxes, requires the Joint Legislative Budget Committee (JLBC) to analyze the state's tax structure, business and individual tax burdens and tax incentives for existing and prospective businesses, and requires that the Tax Reform for Arizona Citizens Committee (TRACC) develop a report and recommendations for appropriate tax structures for state and local jurisdictions. (HB 2178 was signed by Governor Jane Dee Hull on May 22, 2002).

Corporate Income Tax Deduction for Dividends- Eliminates the corporate income tax subtraction for dividends received from Arizona corporations; allows DOR to disclose the corporations that would have qualified for the tax subtraction being eliminated; clarifies that the Attorney General may receive confidential information from DOR for the purposes of enforcing the Tobacco Master Settlement Agreement; and makes conforming changes. (HB 2088 was signed by Governor Jane Dee Hull on April 20, 2002).