Fiscal Note
BILL # HB 2383 TITLE: conformity; internal revenue code.
SPONSOR: Carter STATUS: House Engrossed
PREPARED BY: Benjamin Newcomb
Description
HB 2383 would conform Arizona tax statute to the Internal Revenue Code as of January 1, 2023, to reflect changes from
the Inflation Reduction Act (IRA) of 2022, Creating Helpful Incentives to Produce Semiconductors (CHIPS) and Science Act
of 2022, and the Consolidated Appropriations Act, 2023 (CAA) adopted by the U.S. Congress.
Estimated Impact
We estimate that conforming state tax statutes to the federal provisions contained in HB 2383 would reduce General
Fund income tax collections by $(1.5) million in FY 2023 and increase revenues by $12.2 million and $10.7 million in FY
2024 and FY 2025, respectively. Our conformity estimates by federal tax provision are displayed in Table 1 on the
following page.
The Department of Revenue (DOR) estimates that conformity to HB 2383 would increase General Fund revenues by $3.47
million in FY 2023, $10.24 million in FY 2024, and $11.62 million in FY 2025.
Analysis
Table 1 summarizes the state revenue impact of conformity to IRA and CAA provisions. We derived our estimates through
FY 2025 by prorating the nationwide Joint Committee on Taxation (JCT) information. We estimate that conforming to IRA
would cost $(0.14) million in FY 2023, $(0.11) million in FY 2024 and $(0.10) million in FY 2025. Conforming to CAA would
decrease General Fund revenue by $(1.4) million in FY 2023 and increase revenue by $12.3 million in FY 2024 and $10.8
million in FY 2025. The CHIPS Act of 2022 does not have a conformity impact.
Local Government Impact
Beginning in FY 2024, incorporated cities and towns will receive 18% of individual and corporate income tax collections
from 2 years prior from the Urban Revenue Sharing Fund (URSF) established by A.R.S. ยง 43-206. Therefore, the bill would
decrease overall URSF distributions to cities and towns by $(0.3) million in FY 2025. URSF distributions would increase by
$2.2 million in FY 2026 and $1.9 million in FY 2027.
(Continued) - 2 -
2/17/23
Table 1
State Revenue Impact Under Conformity (HB 2383)
($ in Millions)
Inflation Reduction Act (IRA) 2022 Provisions Tax Type
1/
FY 2023 FY 2024 FY 2025
Energy efficient commercial building deductions IIT/CIT (0.14) (0.11) (0.10)
Total IRA Conformity Impact (0.14) (0.11) (0.10)
Consolidated Appropriations Act (CAA) 2023 Provisions
Expand automatic enrollment in deferred compensation plans IIT 0.00 0.00 (0.96)
Increase age for required mandatory distributions from deferred compensation
plans from 72 to 73
IIT (1.46) (1.74) (1.65)
Index IRA catch-up limit for inflation IIT 0.00 (0.03) (0.04)
Higher indexed IRA catch-up limit to apply at age 60, 61, 62, 63 IIT 0.00 0.00 (0.03)
Treatment of student loan payments as elective deferrals for purposes of
matching contributions
IIT 0.00
(0.30)
(0.43)
Exempt the first $1,000 of early withdrawal from penalty for emergency
expenses
IIT 0.00 8.98 5.95
Allow additional nonelective contributions to SIMPLE plans IIT 0.00 (0.12) (0.17)
Increase contribution limit for SIMPLE plans IIT 0.00 (0.14) (0.20)
Change in tax treatment of certain nontrade or business SEP contributions IIT (0.02) (0.02) (0.02)
Make enrollment in company retirement plans easier for part-time workers IIT (0.02) (0.04) (0.04)
Provide special rules for certain distributions from long-term qualified tuition
programs to Roth IRAs
IIT (0.01)
(0.20)
(0.40)
Provide emergency savings accounts linked to individual account plans IIT 0.00 0.86 1.50
Remove required minimum distribution barriers for life annuities IIT (0.14) (0.28) (0.38)
Change in qualifying longevity annuity contracts IIT (0.12) (0.14) (0.14)
Reduce required minimum distribution amounts on partial annuities IIT 0.02 0.05 0.08
Recovery of retirement plan overpayments IIT 0.31 0.24 0.10
Reduction in excise tax on certain accumulations in qualified retirement plans IIT (0.02) (0.02) (0.02)
One-time election for qualified charitable distribution to split-interest entity;
increase in qualified charitable distribution limitation
IIT (0.55)
(2.14) (1.49)
Application of top-heavy rules to defined contribution plans covering
excludable employees
IIT 0.00
0.05
0.08
Provide that employer may rely on employee for certifying that deemed
hardship distribution conditions are met
IIT 0.06
0.09
0.10
Provide penalty-free withdrawal from retirement plans for individual in case of
domestic abuse
IIT 0.00
(0.02)
(0.02)
Reform of family attribution rule IIT 0.00 (0.10) (0.18)
Surviving spouse election to be treated as employee IIT 0.00 (0.06) (0.10)
Repeal of direct payment requirement on exclusion from gross income of
distributions from governmental plans for health and long-term care
insurance
IIT (0.05)
(0.05)
(0.06)
Provide special rules for use of retirement funds in connection with qualified
federally declared disasters
IIT (1.60)
(1.75)
(0.79)
SIMPLE and SEP contributions eligible to be treated as Roth IRAs IIT 0.06 0.09 0.12
Change in hardship withdrawal rules for 403(b) plans IIT 0.02 0.06 0.09
Certain catch-up contributions required to be made on a Roth IRA basis IIT 0.00 4.23 5.40
Employer matching or nonelective contributions may be made on a Roth IRA
basis
IIT 1.48 1.99 2.42
Limitation on deduction for qualified conservation contributions IIT 0.79 2.91 2.15
Total CAA Conformity Impact (1.39) 12.27 10.79
Total Combined IRA and CAA State Revenue Conformity Impact (1.5) 12.2 10.7
____________
1/ IIT means individual income tax. CIT means corporate income tax.