Arizona Government Will Keep Tax Windfall This Year

By Claire Caulfield
Howard Fischer, Capitol Media Services
Published: Friday, May 3, 2019 - 12:48pm

Arizonans who paid higher state income taxes this year due to the 2017 federal tax policy changes will not get relief this session.

Republicans in the state legislature agreed Thursday to end their fight with Gov. Doug Ducey about conforming state taxes to the federal tax code.

The 2017 change to federal tax policy eliminated or reduced the ability of individuals who itemize to take certain deductions, especially for state and local taxes and some mortgage expenses.

The change in federal law means Arizonans, unable to take those deductions, will pay an extra $190 million, and the state is expected to gain an additional $155 million in tax revenue.

Legislative Republicans wanted to offset those gains with tax cuts, but Gov. Doug Ducey wants to put that money in a rainy-day fund.

Although lawmakers are now agreeing to Ducey’s demand to have this money flow to the state, Senate President Karen Fann said she supports using the money to pay off state debt.   

“We will save $50 million in interest and then we will also save $24 million a year in debt service,” she said. “So that debt service money can go into things like education or infrastructure."

GOP lawmakers agreed to Ducey’s plan this year, mostly because the tax deadline has passed and they didn't want Arizonans to have to re-file, but they are pushing for tax cuts next year.

Proposals to offset include allowing people who take the state standard deduction to also get a partial separate itemized deduction for charitable donations or provide a new, dollar-for-dollar tax credit for dependents.

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