PHOENIX — It’s tax season, but there’s a problem: Arizona’s state tax forms have provisions that aren’t in state law.
The tax forms include the tax cuts from President Donald Trump’s One Big Beautiful Bill Act and provisions Gov. Katie Hobbs instructed the Arizona Department of Revenue to include.
Without a legislative fix, one third of Arizona taxpayers could have to file amended state returns, the agency told state senators last week.
“Tax season has already begun,” state Rep. Justin Olson told ABC15. “Arizonans are filing their tax returns. They deserve certainty to know that the state's actually going to honor what was on those tax forms that they issued.”
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Olson, a Republican who represents Legislative District 10, is proposing a fix: House Bill 2785 would put everything from the current tax forms into the state tax code.
“It applies all of the Trump tax cuts to the Arizona tax code,” he said. “But in addition, it also conforms with the forms that the taxpayers are already filing.”
Hobbs calls for some Trump tax cuts
Such tax conformity – mirroring federal tax changes in state law – is normally a routine matter at the state Capitol. Not this time.
The governor and Democratic lawmakers have criticized the size of the tax breaks, saying the cuts need to be part of budget talks.
Hobbs issued an executive order in December instructing the Department of Revenue to publish tax forms that include some of the Trump tax cuts – a higher standard deduction, tax deductions for tips and overtime and a deduction for interest on some new-car loans – as well as an extra tax deduction for seniors.
The governor has called on lawmakers to pass just those provisions and negotiate on the rest.
“Taxpayers have certainty,” she told reporters Monday. “The confusion that's out there now is because the Republicans refuse to negotiate the Middle Class Tax Cut bill with me and just get that through.”
The Legislature, which has Republican majorities in both chambers, passed a tax-conformity bill in the first week of the legislative session. Hobbs vetoed the measure hours before releasing her executive budget proposal, which included just the breaks in her Middle Class Tax Cut proposal.
“We included in this tax package all of the tax reforms that the governor asked for and more, because we need to pass that tax relief on to Arizona taxpayers so we can grow our economy,” Olson said.
But Hobbs was cool to Olson’s bill on Monday, reiterating her call to pass only some of the tax cuts now.
“The entire tax conformity bill is a non-starter if we don't have a way of how we're going to pay for all those tax cuts in the budget, tax cuts for billionaires and special interests,” she said Monday. “We need to talk about those during budget negotiations.”
Hobbs’ budget director sent lawmakers a letter Tuesday, saying he is open to negotiations.
But Republican lawmakers have noted that the state budget will likely be finalized after Tax Day – and that hundreds of thousands of Arizonans will need to refile if the tax forms don’t align with state law by then.
“If she vetoes this bill, you can mark my words today, that months down the road, she will ultimately be adopting some sort of conformity for tax year 2025 because there is no scenario in which the Legislature is going to require hundreds of thousands of Arizonans to amend their tax filings and pay more to the state," Olson said.
HB 2785 cleared the House Ways & Means panel on a party-line vote Wednesday. The Senate version, Senate Bill 1638, will be heard in the Senate Finance Committee on Thursday morning.
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