HB2785

THE CONTEXT: Current law conforms Arizona's income tax calculation to the IRC of 1986, as amended, in effect on January 1, 2025, including those

WHAT THE BILL DID: The final vetoed version would establish individual income tax subtractions from Arizona gross income and modifies income tax deductions. History Current law conforms Arizona's income tax calculation to the IRC of 1986, as amended, in effect on January 1, 2025, including those provisions that became effective during 2024 with the specific adoption of all retroactive effective dates, but excluding any changes to the code enacted after January 1,, ( A.R.S. 43-105 ) Generally, each year changes are made to the IRC that affect the Arizona income tax calculation. Tax conformity with the IRC is deemed necessary because the calculation of Arizona corporate income tax begins with federal taxable income and the federal adjusted gross income (FAGI) is the starting point for individual income tax. On July 4, 2025, major federal tax changes were enacted through H.R. 1 that impact federal taxable income and FAGI which the state would conform to by updating the statutory definition of the IRC. Provisions Conformity, and conforms the Arizona tax statutes to the IRC of 1986, as amended, and in effect as of January 1, 2026, including those provisions that became effective during 2025 with the specific adoption of all the retroactive effective dates, but excluding any changes to the IRC enacted after January 1,.

WHY IT MATTERED: The practical reason for this bill was to create an operative state process for conformity instead of leaving implementation undefined. It would establish individual income tax subtractions from Arizona gross income and modifies income tax deductions. History Current law conforms Arizona's income tax calculation to the IRC of 1986, as amended, in effect on January 1, 2025, including those provisions that became effective during 2024 with the specific adoption of all retroactive effective dates, but excluding any changes to the code enacted after January 1,, and would also ( A.R.S. 43-105 ) Generally, each year changes are made to the IRC that affect the Arizona income tax calculation. Tax conformity with the IRC is deemed necessary because the calculation of Arizona corporate income tax begins with federal taxable income and the federal adjusted gross income (FAGI) is the starting point for individual income tax. On July 4, 2025, major federal tax changes were enacted through H.R. 1 that impact federal taxable income and FAGI which the state would conform to by updating the statutory definition of the IRC. Provisions Conformity, rather than leave the current rule unchanged.