SB 1274
Initials VP/DD Page 1 Caucus & COW
ARIZONA HOUSE OF REPRESENTATIVES
Fifty-seventh Legislature
First Regular Session
Senate: FIN DP 6-0-1-0 | 3rd Read 29-0-1-0-0
House: WM DP 7-0-0-2
SB 1274: tax corrections act of 2025
Sponsor: Senator Mesnard, LD 13
Caucus & COW
Overview
Makes technical and clarifying changes, corrects errors and removes obsolete language to the
tax statutes administered by the Department of Revenue (DOR).
History
Currently employees of DOR shall not for compensation prepare or assist in preparing any
tax return required to be filed with the federal, state or a local government. If an employee
is found in violation, they are subject to immediate discharge (A.R.S. § 42-1008).
A qualifying health care center, for the purposes of transaction privilege and affiliated excise
taxes, is defined as an entity recognized as a nonprofit under section 501(c) of the United
States internal revenue code and uses, saves or invests at least 80% of all monies it receives
from all sources each year for health and medical related educational and charitable services.
This is documented by annual financial audits prepared by an independent certified public
accountant, performed according to generally accepted auditing standards and filed annually
with DOR. Monies that are used, saved or invested to lease, purchase or construct a facility
for health and medical related education and charitable services are included in the 80%
requirement (A.R.S. § 42-5001).
Nonresident employees are allowed to elect to have Arizona income tax withholding deducted
if they are: 1) an employee of an individual, fiduciary, partnership, corporation or limited
liability company having property, payroll and sales in Arizona or of a related entity having
more than 50% direct or indirect common ownership; and 2) physically present in Arizona for
less than 60 days in a calendar year for the purpose of performing a service that will benefit
the employer or the related entity with the days spent in transit, engaging in personal
activities and participating in training or professional development activities or attending
meetings that are not directly connected to the Arizona operations of the employer or related
entity not counted (A.R.S. § 43-403).
The Arizona State Lottery Commission, permittees conducting horse or dog races, fantasy
sports contest operators and event wagering operators are required to deduct and withhold
from each payment of prize winnings made to an individual an amount equal to 20% of the
amount withheld pursuant to section 1441 or section 3402(q) of the internal revenue code
and pay that amount to DOR (A.R.S. § 43-405).
For taxable years from and after December 31, 2021 partners and shareholders of businesses
that are treated as a partnership or S corporation for federal income tax purposes can consent
☐ Prop 105 (45 votes) ☐ Prop 108 (40 votes) ☐ Emergency (40 votes) ☐ Fiscal Note
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to be taxed at the entity level at the highest tax rate prescribed in statute applicable to the
entire portion of its taxable income attributable to its resident partners or shareholders and
the portion of taxable income derived from within Arizona attributable to its nonresident
partners or shareholders for that tax year. The election must be made on or before the due
date or extended due date of the business's tax return (A.R.S. § 43-1014).
Currently a partnership that is audited by the Internal Revenue Service and that is assessed
an imputed underpayment under section 6227 of the Internal Revenue Code (IRC) or a
partnership that makes an election under section 6227 of the IRC are required to file a return
for the reviewed year on a form prescribed by DOR. The form shows the adjustments to
income or the gain, loss or deduction on which the federal imputed underpayment was based
as well as any of the correlative adjustments to the additions or subtractions to Arizona gross
income (A.R.S. § 43-1414).
The Arizona families tax rebate is a onetime individual income tax general rebate issued by
DOR to an Arizona taxpayer who filed a full-year resident tax return for taxable year 2021,
who claimed a dependent tax credit on return and who meets one of the outlined
qualifications. The rebate is $250 for each dependent tax credit claimed who was under 17
years of age at the end of tax year 2021 and $100 for each dependent who was at least 17
years of age at the end of tax year 2021. The rebate is issued by DOR up to a maximum of
three dependents for a qualified taxpayer. DOR is required to pay all rebates issued on or
before November 15, 2023, but not earlier than October 15, 2023 (Laws 2023, Chapter 147 §
3).
Provisions
1. Asserts individuals acting as an agent or contractor of DOR or any manager or supervisor
on an individual acting as an agent or contractor of DOR are prohibited from preparing
or assisting in preparing a tax return for compensation. (Sec. 1)
2. Alters the punishment for violating the restriction prohibition against preparing or
assisting in preparing a tax return for compensation from discharge to dismissal or
removal from duties performed as an agent or contractor of DOR. (Sec. 1)
3. Removes the requirement for annual financial audits to be filed with DOR annually from
the qualifying health care organization definition. (Sec. 2)
4. Allows part-time or seasonal employees whose work solely consists of labor related to
planting, cultivating, harvesting or field packing of seasonal agricultural crops to elect to
have their income tax withheld. (Sec. 4)
5. Changes the amount deducted and withheld from prize payments by:
a) the Arizona State Lottery Commission;
b) permittees conducting horse or dog races;
c) fantasy sports contest operators; and
d) event wagering operators; from 20% of the amount prescribed under federal law to the
highest Arizona individual income tax rate. (Sec. 5)
6. Revises the election to be taxed at the entity level to being made by filing the partnerships
or S corporations business tax return, retroactive to January 1, 2022. (Sec. 6)
7. Adds, a partnership that amends its return to reflect federal administrative adjustments,
to the partnerships required to file a return for the year where adjustments to income or
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the gain, loss or deduction on which the federal imputed underpayment was based. (Sec.
7)
8. Outlines that interest does not accrue and is not payable on the 2023 Arizona Families
Tax Rebate, retroactive to October 30, 2023. (Sec. 8)
9. Makes technical and conforming changes. (Sec. 3, 4, 7 and 9)