Assigned to FIN & APPROP FOR COMMITTEE
ARIZONA STATE SENATE
Fifty-Seventh Legislature, First Regular Session
FACT SHEET FOR H.B. 2918
tax rates; reductions
Purpose
Decreases the individual income tax rate, the estates and trusts income tax rate, the Arizona
small business income tax rate, the state transaction privilege tax (TPT) rate and the qualifying tax
rate (QTR).
Background
Individual income tax is levied on Arizona residents’ taxable income. The tax base begins
with Arizona gross income, which is equivalent to the taxpayer's federal adjusted gross income.
Statute authorizes various amounts to be added or subtracted when computing an individual's
Arizona adjusted gross income which is further reduced by standard or itemized deductions to
arrive at Arizona taxable income. Beginning TY 2023, the individual income tax rate is 2.5 percent
(A.R.S. § 43-1022).
TPT is a tax on vendors for the privilege of doing business in Arizona. All gross receipts
are subject to tax under 1 of the 16 classifications of TPT, unless specifically exempted or excluded
by statute. The state TPT rate for most classifications is 5 percent plus an additional 0.6 percent
for education (A.R.S. Title 42, Chapter 5, Articles 2 and 4).
The equalization base for a school district is first funded by local property tax revenues
collected from the QTR levy and then by the state General Fund. If the amount generated by the
QTR exceeds the school district's equalization base, the school district is not entitled to
equalization assistance and will be completely funded by QTR revenues. If the amount generated
by the QTR does not exceed the equalization base, the school district is eligible for equalization
assistance and receives monies in the form of Basic State Aid, which is funded through the state
General Fund. By February 15 each year, the Joint Legislative Budget Committee (JLBC) must
compute the truth-in-taxation rates which are then used to adjust the QTR annually. For FY 2026,
JLBC determined that the QTR is $3.1212 for unified school districts and $1.5606 for non-unified
school districts (A.R.S. §§ 15-971 and 41-1276; JLBC).
The JLBC fiscal note estimates that H.B. 2918 would have a total state General Fund cost
of $131.6 million in FY 2026, $206.2 million in FY 2027 and $215.3 million in FY 2028 (JLBC
fiscal note).
Provisions
1. Decreases, for taxable years beginning January 1, 2026, the individual income tax rate, the
estates and trusts income tax rate and the Arizona small business income tax rate from 2.5
percent to 2.47 percent. FACT SHEET
H.B. 2918
Page 2
2. Decreases the state TPT rate from 5 percent to 4.93 percent.
3. Sets the QTR for TY 2025 at:
a) $3.0837 for unified school districts; and
b) $1.54185 for non-unified school districts.
4. Makes technical changes.
5. Becomes effective on the general effective date.
House Action
WM 2/19/25 DPA 5-4-0-0
3
rd
Read 2/26/25 31-28-1
Prepared by Senate Research
March 19, 2025
MG/ci