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Still no deal, state considers giving extension to June 15 for AZ tax returns

PHOENIX — With a stalemate at the Capitol over changes in income tax laws, the head of the Senate Finance Committee wants to give Arizonans more time to file their returns.

The proposal by Sen. J.D. Mesnard, R-Chandler would spell out that this year — and this year only — state tax returns for 2018 would need not be filed until June 15. That’s two months later than the deadline set in state law.

Mesnard said he doubts there will be a deal on what Arizonans will be able to deduct from their taxable income by the regular, April 15 deadline.

He said the ultimate outcome of the battle between legislative Republicans and Gov. Doug Ducey over those deductions — and whether tax rates should be lowered to offset the additional revenues — likely won’t be determined before a budget for the coming fiscal year is adopted. And Mesnard said that, at the current pace of talks, that will come after the current filing deadline.

It’s that timing that is creating what Mesnard said is the need for delay.

“People can still file earlier if they so choose,” he said, using the tax forms already distributed by the state Department of Revenue. Those are the only forms that will be available ahead of the current April 15 deadline unless there’s a deal over income tax deductions and rates before then.

But those forms presume that Ducey will get his way. That means fewer deductions, raising the amount taxpayers will owe the state.

And if that turns out not to be the final version of the tax law? Taxpayers who filed to meet the April 15 deadline could need to go through the effort and expense of having to file an amended return, this one conforming to the way the law actually reads.

What’s better, Mesnard said this week, is for taxpayers to be able to wait until the dispute is resolved and the political dust settles before filing their returns. That, he said, is more likely to happen by the middle of June.

More to the point, they would have to file just once.

The measure, SB 1481, is set for a hearing Wednesday, Feb. 13.

Ducey dismissed the idea of a delayed filing deadline out of hand.

He told Capitol Media Services that people can use the forms already available — the ones that presume he gets his way. And he would not consider any other questions about what happens if lawmakers just won’t go along.

But Mesnard said Ducey is deluding himself if he thinks that he can get his way by simply refusing to sign any plan but his own and rejecting other proposals. That’s exactly what the governor did earlier this month when he vetoed a plan approved by GOP lawmakers to delete the deductions, as Ducey wants, but also cut tax rates to keep the overall tax burden on Arizonans from rising.

“We propose laws,’’ Mesnard said.

“He can veto laws,’’ the senator continued. “But he cannot make laws through declaration.’’

Mesnard said he presumes the situation eventually will get worked out.

In fact, it has to be: If lawmakers don’t act, Arizonans are stuck with existing laws on what’s deductible. And those no longer match what can be subtracted from income on federal tax forms, a situation that would complicate tax season for individual filers who itemize.

That, said Mesnard, is precisely why the Arizona tax deadline should be pushed back until there is a deal.

All this surrounds the changes in federal tax law that took effect last year. Congress eliminated and curbed many deductions but offset that by doubling the standard deduction. The result is that many taxpayers who had itemized no longer need to.

Arizona normally conforms to changes in federal law. And if that happens this year, those same limits on deductions will apply on state tax returns.

But with no change in the state standard deduction, taxpayers who are losing those itemized deductions will pay more.

Overall legislative budget analysts put the additional bite to individuals at $190 million. But that is offset somewhat by changes to business taxes, also conforming to federal laws, that will save companies about $40 million.

Ducey proposes to put any additional dollars collected into the state’s “rainy-day’’ fund.

The bill the governor vetoed last week was designed to offset the additional state revenues -- what Mesnard has called a “windfall’’ -- with a 0.11 percentage point cut in tax rates across the board. Every Republican save Sen. Kate Brophy McGee of Phoenix voted for that plan; every Democrat voted against it.

With the offset legislation vetoed, Mesard and Rep. Ben Toma, R-Peoria, who chairs the House Ways and Means Committee, have a backup plan: partially conform Arizona tax laws to the new Internal Revenue Code.

That would still mean some additional calculations for Arizona taxpayers in preparing their state returns. But, like the now-vetoed plan, it is designed to keep the state from reaping more cash from residents simply because of changes in federal law.

SB 1166, to accomplish that, also is set for a Wednesday hearing.

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