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Arizona Considers Extending Return Filing Deadline Due to Lack of Conformity

The state of Arizona is poised to pass legislation extending the filing deadline for state income tax returns from April 15, 2019, to June 15, 2019.  The bill is S.B. 1481, which passed the state Senate on March 7, 2019 and is awaiting approval of the state House of Representatives.  The governor is expected to sign it.

The legislation is necessitated by political infighting that has delayed Arizona legislation to advance its conformity date with the federal tax code to incorporate changes made by the Tax Cuts and Jobs Act (TCJA).  Full conformity would generate additional revenue for the state, and there has been disagreement on whether to offset that with a lower state income tax rate. In early February, the governor vetoed a bill that would have fully conformed Arizona law but reduced state tax rates, and subsequent negotiations have not produced an acceptable substitute.

In the meantime, the Arizona Department of Revenue has produced 2018 tax return forms assuming full conformity, but with no change in tax rates, which means that taxpayers who have filed already may have to file amended returns to seek refunds if tax rates change.  Generally, tax practitioners have been advising taxpayers to wait, or to seek extensions.  The new bill would eliminate the need for extensions, assuming the conformity impasse is resolved before June.

Other bills are pending that would conform without changing tax rates, but would decouple the state from some TCJA changes such as eliminating or curtailing some deductions.  Unfortunately, the moving expense deduction/exclusion is not among those which would be preserved.

The result is continuing uncertainty as to whether Arizona will adopt federal changes of importance to the mobility industry.  Currently, moving expense reimbursements/payments remain excludable from Arizona state income, but none of the pending legislation would preserve that treatment.  Consequently, companies that excluded such payments from Arizona income and did not gross up for them may be faced with requests to revisit their gross-up calculations once conformity legislation is enacted.

Worldwide ERC®  members who treated reimbursements or payments of moving expenses as excludable for Arizona state tax purposes may need to recalculate gross-ups if currently pending conformity legislation is enacted.

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Saturday, 24 February 2024