PHOENIX — The Arizona Legislature passed on Thursday what Republicans are calling one of the biggest tax cuts in state history – to the tune of $1.1 billion over three years.
Senate Bill 1106 implements most of the tax cuts in President Donald Trump’s One Big Beautiful Bill in the state’s code. Legislative budget analysts estimate the bill will cost the state $441.3 million in fiscal year 2026, which begins July 1.
“What Arizona citizens need right now is affordability,” Senate President Warren Petersen said after the bill passed the House. “This is delivering tax relief to everybody in Arizona.”
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Such tax conformity – aligning the state’s tax code with the federal code – is normally a routine, bipartisan affair.
Not this year.
Gov. Katie Hobbs is expected to veto the measure. She has called for lawmakers to pass some Trump tax cuts, such as the tax deductions for tips and overtime, the increased standard deduction and a tax deduction for seniors, and then negotiate on the rest.
“Their proposal gives hundreds of millions of dollars in tax breaks to special interests, removes a tax cut for working seniors, and adds even more handouts to those who are already rich,” she said in a statement. “If Republicans want to give a billion-dollar tax break for the wealthy, they must show the people of Arizona how they will pay for it without slashing the vital services our constituents rely on.”
The Governor’s Office has proposed making the business deductions in Trump’s tax bill and the cuts for high earners part of the overall budget negotiations. With tax season right around the corner, Republicans say the tax code changes can't wait until a budget is negotiated later this spring.
“We have to decide this now,” state Sen. J.D. Mesnard said. “You can't make them wait and wonder what is going to be their tax burden.”
What happens if the bill is vetoed?
The Arizona Department of Revenue has already released tax forms and instructions that include tax conformity.
The department told ABC15 in a statement that it will implement all changes if the forms need to be updated because of legislative action.
“While we can expect challenges to arise, we are prepared to work in good faith to ensure full compliance,” ADOR spokesperson Rebecca Wilder said. “Taxpayers will be provided additional instructions if necessary.”
Filing for business tax returns began Tuesday. Taxpayers can start filing individual returns on Jan. 26.
“We're three months out from Tax Day, but many Arizonans don't want to wait for their refund,” Mesnard said. “They want to file now. They've got bills to pay.”
House Speaker Steve Montenegro and other Republican lawmakers say there will be “chaos” if Hobbs doesn’t sign the bill.
“If she vetoes it, this is ... a Hobbs-created chaos,” Montenegro said.
Republican lawmakers will regroup and decide on next steps if Hobbs vetoes the bill, Mesnard said, adding that taxpayers should delay filing.
“If the governor vetoes this bill, you cannot, you must not file your state taxes,” he said.
State Rep. Justin Olson said he hopes she will sign the legislation.
“I think it is the right thing to do,” he said. “If she doesn't, it will create chaos, and we need to have certainty for taxpayers, and we need to provide this tax relief for hard-working Arizona families.”
Democrats say Arizona can't afford bill
Senate Bill 1106 passed the Senate and House on party-line votes.
“We are in this mess, in this tax conformity mess, because Republicans in Congress pushed this mess onto us with their H.R. 1 changes that cut health care supports, cut SNAP supports and have left the states to deal with the difference,” Senate Minority Leader Priya Sundareshan said during the vote.
State Sen. Lauren Kuby said the state can’t afford to lose the revenue on top of the costs of the Empowerment Scholarship Accounts school voucher program and the flat income tax passed a few years ago.
“Any yet we have developmentally disabled communities suffering, we have Medicare recipients, Medicaid recipients suffering,” she said. “I don’t understand the mindset here.”
Democrats on Monday, the first day of the legislative session, vowed that Hobbs would veto the Republican bill.
What’s in the Arizona tax bill
SB 1106 has the tax cuts on tips and overtime, as well as a higher standard deduction.
“What she asked for is in this bill,” Montenegro said. “I’ll repeat that. What the governor asked for in the State of the State is in this bill.”
Three tax cuts from Trump’s bill were not included in the Arizona bill:
- A $6,000 deduction for seniors 65 and older.
- An increased state and local tax, or SALT, deduction from $10,000 to $40,000.
- A deduction for interest on new-car loans.
The legislation also has additional tax cuts that aren’t in the president’s tax bill, which he signed into law on July 4, 2025:
- A $6,000 deduction for pension or retirement account distributions for seniors 60 and older.
- A $6,000 deduction for contributions to Roth individual retirement accounts (IRAs).
- An increase to the current dependent tax credit from $100 to $125 for dependents younger than 17.
- A deduction for child and dependent care expenses not covered by the federal Child and Dependent Care Credit.
Is there a bill or topic you want to see me cover at the Arizona Capitol? Email me at manuelita.beck@abc15.com or message me on Instagram or TikTok.
