2019 Legislative Update Flagstaff, Arizona By: Bill Ritz, Chief Legislative Liaison Arizona Department of Revenue
Mission and Vision OUR MISSION Serving Taxpayers! OUR VISION Funding Arizona’s future through excellence in innovation, customer service and continuous improvement PURSUANT TO ARIZONA REVISED STATUTES (A.R.S.) TITLES 42 AND 43 FY19 ANNUAL OPERATING BUDGET PURSUANT TO ARIZONA REVISED STATUTES (A.R.S.) TITLES 42 AND 43 FY19 ANNUAL OPERATING BUDGET $78.3 MILLION 514 Employees $78.3 MILLION 514 Employees
Revenue distributions primarily fund state operations, cities/towns and counties
ADOR 2019 Legislative Agenda SB 1180 – Allows ADOR to meet IRS Publication 1075 background check requirements. SIGNED BY GOV: April 2019 SB 1181 – Codifies TPT Distribution reporting practices per Auditor General Recommendation. SIGNED BY GOV: May 2019 SB 1182– Provides ADOR sufficient time to certify value of fire district properties for the state treasurer. SIGNED BY GOV: May 2019 HB 2367 – Allows ADOR to issue electronic assessments for all tax types and perform limited scope reviews of returns using withholding data. SIGNED BY GOV: May 2019 HB 2373 – Annual tax corrections act. SIGNED BY GOV: May 2019
2019 includes at least two major topics (HB 2757) Tax Year 2018 Income Tax Conformity Taxation of Online Transactions
v. • The U.S. Supreme Court ruled that out-of-state (remote) sellers with no physical presence in a state can be liable for payment of that state’s sales/use taxes for transactions occurring in that state. • The decision overturned a 25-year old ruling requiring physical presence to create a “substantial nexus." v.
v. • What did SCOTUS like about SD’s law? • Prospective in nature; • Did not place undue burdens upon nor discriminate against interstate commerce; • Provided dollar sales ($100,000) or transaction volume thresholds (200) to exempt small remote sellers from tax reporting obligations; and • South Dakota is a member of the Streamlined Sales and Use Tax Agreement • However, the Court declined to address the question of whether some other principle of the U.S. Commerce Clause was violated by the South Dakota law, creating the possibility of further legal challenges
Has Arizona’s approach to substantial nexus changed since the Wayfair decision? Yes. • HB 2757 was signed into law on May 31, 2019, Arizona will now require remote sellers and marketplace facilitators that have not been collecting transaction privilege tax (TPT) under current state law to begin filing and paying TPT starting October 1, 2019. • What does this mean for remote sellers? • Under the new Arizona law, a threshold has been established for remote sellers to pay TPT if their annual gross retail sales or income from online sales into Arizona is more than $200,000 in 2019, $150,000 in 2020 and $100,000 in 2020. • What does this mean for marketplace facilitators? • Starting October 1, 2019, marketplace facilitators will be required to collect and remit TPT on taxable sales in Arizona made through its platform on its behalf or for at least one remote marketplace seller if gross retail proceeds or income for that marketplace facilitator exceeds $100,000 annually.
Next steps for remote sellers and marketplace facilitators • The department is asking remote sellers and marketplace facilitators that fall under this new legislation to register for with the department beginning in September. • In preparation for the October 1 implementation, ADOR is in the process of modifying its TPT systems and will provide guidance to remote sellers and marketplace facilitators on when they should begin the TPT licensing process. • Resources are available on AZDOR.gov to find out more on TPT licensing, filing and paying.
Marketplace facilitator sales tax laws adopted by 36 states and Washington, D.C. Alabama, January 1, 2019 Maryland, October 1, 2019 Rhode Island, July 1, 2019 Arizona, October 1, 2019 Massachusetts, October 1, 2019 South Carolina, November 1, 2018 Arkansas, July, 1, 2019 Minnesota, October 1, 2018 South Dakota, March 1, 2019 California, October 1, 2019 Nebraska, April 1, 2019 Texas, October 1, 2019 Colorado, October 1, 2019 Nevada, October 1, 2019 Utah, October 1, 2019 Connecticut, December 1, 2018 New Jersey, November 1, 2018 Vermont, June 1, 2019 Hawaii, January 1, 2020 New Mexico, July 1, 2019 Virginia, July 1, 2019 Idaho, June 1, 2019 New York, June 1, 2019 Washington, January 1, 2018 Illinois, January 1, 2020 North Dakota, October 1, 2019 Washington, D.C., April 1, 2019 Indiana, July 1, 2019 Ohio, August 1, 2019 West Virginia, July 1, 2019 Iowa, January 1, 2019 Oklahoma, July 1, 2019 Wisconsin, October 1, 2019 Kentucky, July 1, 2019 Pennsylvania, March 1, 2018 Wyoming, July 1, 2019 Maine, October 1, 2019 Source: Avalara; as of 31 July 2019
Collection by marketplace facilitators eases compliance and administrative burden • Having the online marketplace facilitators collect and remit tax on behalf of third-party sellers: • Alleviates third-party sellers from having to individually license and remit. • Captures all third-party sales on the online marketplace, regardless of the size of the third-party seller. • Provides single point of collection, payment, reporting, and audit. • Arizona law already requires online lodging marketplaces to collect and remit on behalf of third-party operators.
Why is legislative clarity critical to taxpayers and ADOR? Clarity in the law enables more taxpayers to voluntarily comply with Arizona tax laws. Voluntary compliance frees up capacity at ADOR to better serve taxpayers. ADOR stands ready to draft, analyze, and implement technically sound and administratively feasible laws concerning remote transactions.
For income taxes, Arizona must annually conform to the Internal Revenue Code Source: The Tax Foundation
Preparing for income tax filing season is an extensive, complex, and interdependent undertaking
ADOR conforms to IRC for tax year 2018 Release of ADOR’s tax forms coincided with the beginning of IRS filing season and assumed full conformity to the Internal Revenue Code (IRC) except for items Arizona has not conformed to historically. No action is required of taxpayers who have already filed; for taxpayers who have filed an extension, returns are due on October 15, 2019.
Tax Year 2019 • Beginning in 2020, Arizona individual income tax returns for tax year 2019 will include the following changes: • Match the federal standard deduction amount ($12,200 single and married filing separate, $18,350 head of household, $24,400 married filing joint.) • Remove Arizona personal and dependent exemption amounts. • Provide $100 child tax credit per dependent under 17 years of age and $25 for dependents 17 and older. • The credit is phased out for federal adjusted gross income greater than $200,000 single, married filing separate and head of household, and $400,000 married filing joint. • Allow taxpayers to increase standard deduction by 25 percent of the charitable donations that would have been claimed as an itemized deduction.
Tax Year 2019 Four tax brackets from the previous five tax brackets were also established:
ADOR Legislative Summary Website azdor.gov/reports-statistics-and-legal-research/legislative-summary-reports