--------------------------------------- ¦ REFERENCE TITLE: income tax; flat tax ¦ --------------------------------------- ¦ ¦ ¦ ¦ ¦ ¦ ¦ State of Arizona ¦ ¦ Senate ¦ ¦ Forty-fifth Legislature ¦ ¦ First Regular Session ¦ ¦ 2001 ¦ ¦ ¦ --------------------------------------- ¦ SB 1256 ¦ --------------------------------------- ¦ Introduced by ¦ ¦ Senator Cirillo ¦ ---------------------------------------
AN ACT
AMENDING SECTIONS 43-1011, 43-1021, 43-1022, 43-1024, 43-1025, 43-1027, 43-1028, 43-1030, 43-1031, 43-1041 AND 43-1042, ARIZONA REVISED STATUTES; RELATING TO INDIVIDUAL INCOME TAX RATES.
(TEXT OF BILL BEGINS ON NEXT PAGE)
Be it enacted by the Legislature of the State of Arizona:
Section 1. Section 43-1011, Arizona Revised Statutes, is amended to read:
43-1011. Taxes and tax rates
There shall be levied, collected and paid for each taxable year upon the entire taxable income of every resident of this state and upon the entire taxable income of every nonresident which is derived from sources within this state taxes determined in the following manner:
1. For taxable years beginning from and after December 31, 1996 through December 31, 1997:
(a) In the case of a single person or a married person filing separately:
If taxable income is: The tax is:
$0 - $10,000 2.90% of taxable income
$10,001 - $25,000 $290, plus 3.30% of the excess over $10,000
$25,001 - $50,000 $785, plus 3.90% of the excess over $25,000
$50,001 - $150,000 $1,760, plus 4.80% of the excess over $50,000
$150,001 and over $6,560, plus 5.17% of the excess over $150,000
(b) In the case of a married couple filing a joint return or a single person who is a head of a household:
If taxable income is: The tax is:
$0 - $20,000 2.90% of taxable income
$20,001 - $50,000 $580, plus 3.30% of the excess over $20,000
$50,001 - $100,000 $1,570, plus 3.90% of the excess over $50,000
$100,001 - $300,000 $3,520, plus 4.80% of the excess over $100,000
$300,001 and over $13,120, plus 5.17% of the excess over $300,000
2. For taxable years beginning from and after December 31, 1997 through December 31, 1998:
(a) In the case of a single person or a married person filing separately:
If taxable income is: The tax is:
$0 - $10,000 2.88% of taxable income
$10,001 - $25,000 $288, plus 3.24% of the excess over $10,000
$25,001 - $50,000 $774, plus 3.82% of the excess over $25,000
$50,001 - $150,000 $1,729, plus 4.74% of the excess over $50,000
$150,001 and over $6,469, plus 5.10% of the excess over $150,000
(b) In the case of a married couple filing a joint return or a single person who is a head of a household:
If taxable income is: The tax is:
$0 - $20,000 2.88% of taxable income
$20,001 - $50,000 $576, plus 3.24% of the excess over $20,000
$50,001 - $100,000 $1,548, plus 3.82% of the excess over $50,000
$100,001 - $300,000 $3,458, plus 4.74% of the excess over $100,000
$300,001 and over $12,938, plus 5.10% of the excess over $300,000
3. For taxable years beginning from and after December 31, 1998 THROUGH DECEMBER 31, 2002:
(a) In the case of a single person or a married person filing separately:
If taxable income is: The tax is:
$0 - $10,000 2.87% of taxable income
$10,001 - $25,000 $287, plus 3.20% of the excess over $10,000
$25,001 - $50,000 $767, plus 3.74% of the excess over $25,000
$50,001 - $150,000 $1,702, plus 4.72% of the excess over $50,000
$150,001 and over $6,422, plus 5.04% of the excess over $150,000
(b) In the case of a married couple filing a joint return or a single person who is a head of a household:
If taxable income is: The tax is:
$0 - $20,000 2.87% of taxable income
$20,001 - $50,000 $574, plus 3.20% of the excess over $20,000
$50,001 - $100,000 $1,534, plus 3.74% of the excess over $50,000
$100,001 - $300,000 $3,404, plus 4.72% of the excess over $100,000
$300,001 and over $12,844, plus 5.04% of the excess over $300,000
4. FOR TAXABLE YEARS BEGINNING FROM AND AFTER DECEMBER 31, 2002:
(a) IN THE CASE OF A SINGLE PERSON OR A MARRIED PERSON FILING SEPARATELY:
IF TAXABLE INCOME IS: THE TAX IS:
$0 - $10,000 -0-
$10,001 - $50,000 ____% OF THE EXCESS OVER $10,000
$50,001 AND OVER $____ PLUS ____% OF THE EXCESS OVER $50,000
(b) IN THE CASE OF A MARRIED COUPLE FILING A JOINT RETURN OR A SINGLE PERSON WHO IS A HEAD OF A HOUSEHOLD:
IF TAXABLE INCOME IS: THE TAX IS:
$0 - $20,000 -0-
$20,001 - $100,000 ____% OF THE EXCESS OVER $20,000
$100,001 AND OVER $____ PLUS ____% OF THE EXCESS OVER $100,000
Sec. 2. Section 43-1021, Arizona Revised Statutes, is amended to read:
43-1021. Additions to Arizona gross income
In computing Arizona adjusted gross income FOR TAXABLE YEARS ENDING BEFORE JANUARY 1, 2003, the following amounts shall be added to Arizona gross income:
1. A beneficiary's share of trust or estate income includible under section 43- 1344.
2. A beneficiary's share of trust or estate deductions allowable under the internal revenue code.
3. An amount equal to the "ordinary income portion" of a lump sum distribution that was excluded from federal adjusted gross income pursuant to section 402(d) of the internal revenue code.
4. The amount of interest income received on obligations of any state, territory
or possession of the United States, or any political subdivision thereof, located outside
the state of Arizona, reduced, for tax years beginning from and after December 31, 1996,
by the amount of any interest on indebtedness and other related expenses that were
incurred or continued to purchase or carry those obligations and that are not otherwise
deducted or subtracted in arriving at Arizona gross income.
5. 4. Annuity income received during the taxable year to the extent
that the sum of the proceeds received from such annuity in all taxable years prior to and
including the current taxable year exceeds the total consideration and premiums paid by
the taxpayer. This paragraph applies only to those annuities with respect to which the
first payment was received prior to December 31, 1978.
6. 5. The excess of a partner's share of partnership taxable income
required to be included under chapter 14, article 2 of this title over the income
required to be reported under section 702(a)(8) of the internal revenue code.
7. 6. The excess of a partner's share of partnership losses determined
pursuant to section 702(a)(8) of the internal revenue code over the losses allowable
under chapter 14, article 2 of this title.
8. 7. The amount by which the adjusted basis of property described in
this paragraph and computed pursuant to the internal revenue code exceeds the adjusted
basis of such property computed pursuant to this title and the income tax act of 1954, as
amended. This paragraph shall apply to all property which is held for the production of
income and which is sold or otherwise disposed of during the taxable year, except
depreciable property used in a trade or business.
9. The amount of depreciation or amortization of costs of any capital investment
that is deducted pursuant to section 167 or 179 of the internal revenue code by a
qualified defense contractor with respect to which an election is made to amortize
pursuant to section 43-1024.
10. The amount of gain from the sale or other disposition of a capital
investment which a qualified defense contractor has elected to amortize pursuant to
section 43-1024.
11. The amount of depreciation or amortization of costs of child care facilities
deducted pursuant to section 167 or 188 of the internal revenue code for which a credit
is taken under section 43-1075, subsection A, paragraph 1.
12. 8. Amounts withdrawn from the Arizona state retirement system, the
corrections officer retirement plan, the public safety personnel retirement system, the
elected officials' retirement plan or a county or city retirement plan by an employee
upon termination of employment before retirement to the extent they were deducted in
arriving at Arizona taxable income in any year.
13. 9. That portion of the net operating loss included in federal
adjusted gross income which has already been taken as a net operating loss for Arizona
purposes or which is separately taken as a subtraction under the special net operating
loss transition rule.
14. Any nonitemized amount deducted pursuant to section 170 of the internal
revenue code representing contributions to an educational institution which denies
admission, enrollment or board and room accommodations on the basis of race, color or
ethnic background except those institutions primarily established for the education of
American Indians.
15. The amount of depreciation or amortization of costs of recycling equipment
deducted pursuant to the internal revenue code for which an election is made pursuant to
section 43-1076.
16. The amount paid as taxes on property in this state with respect to which a
credit is claimed under section 43-1078.
17. Amounts withdrawn from a medical savings account by the individual during
the taxable year computed pursuant to section 220(f) of the internal revenue code and not
included in federal adjusted gross income.
18. Any amount of agricultural water conservation expenses that were deducted
pursuant to the internal revenue code for which a credit is claimed under section 43-
1084.
19. The amount by which the depreciation or amortization computed under the
internal revenue code with respect to property for which a credit was taken under section
43-1080 exceeds the amount of depreciation or amortization computed pursuant to the
internal revenue code on the Arizona adjusted basis of the property.
20. The amount by which the adjusted basis computed under the internal revenue
code with respect to property for which a credit was claimed under section 43-1080 and
which is sold or otherwise disposed of during the taxable year exceeds the adjusted basis
of the property computed under section 43-1080.
21. The amount by which the depreciation or amortization computed under the
internal revenue code with respect to property for which a credit was taken under either
section 43-1081 or 43-1081.01 exceeds the amount of depreciation or amortization computed
pursuant to the internal revenue code on the Arizona adjusted basis of the property.
22. The amount by which the adjusted basis computed under the internal revenue
code with respect to property for which a credit was claimed under either section 43-1081
or 43-1081.01 and which is sold or otherwise disposed of during the taxable year exceeds
the adjusted basis of the property computed under section 43-1081 or 43-1081.01, as
applicable.
23. 10. The deduction referred to in section 1341(a)(4) of the internal
revenue code for restoration of a substantial amount held under a claim of right.
24. 11. The amount by which a net operating loss carryover or capital loss
carryover allowable pursuant to section 1341(b)(5) of the internal revenue code exceeds
the net operating loss carryover or capital loss carryover allowable pursuant to section
43-1029, subsection F.
25. Any amount deducted pursuant to section 170 of the internal revenue code
representing contributions to a school tuition organization or a public school for which
a credit is claimed under section 43-1089 or 43-1089.01.
26. Any amount deducted in computing Arizona gross income as expenses for
installing solar stub outs or electric vehicle recharge outlets in this state with
respect to which a credit is claimed pursuant to section 43-1090.
27. Any wage expenses deducted pursuant to the internal revenue code for which a
credit is claimed under section 43-1087 and representing net increases in qualified
employment positions for employment of temporary assistance for needy families
recipients.
28. Any amount deducted pursuant to section 170 of the internal revenue code
representing the contribution of a motor vehicle for which a credit is claimed pursuant
to section 43-1090.01.
29. Any amount deducted for conveying ownership or development rights of
property to an agricultural preservation district under section 48-5702 for which a
credit is claimed under section 43-1081.02.
Sec. 3. Section 43-1022, Arizona Revised Statutes, is amended to read:
43-1022. Subtractions from Arizona gross income
In computing Arizona adjusted gross income FOR TAXABLE YEARS ENDING BEFORE JANUARY 1, 2003, the following amounts shall be subtracted from Arizona gross income:
1. The amount of exemptions allowed by section 43-1023.
2. Benefits, annuities and pensions in an amount totaling not more than two thousand five hundred dollars received from one or more of the following:
(a) The United States government service retirement and disability fund, retired or retainer pay of the uniformed services of the United States, the United States foreign service retirement and disability system and any other retirement system or plan established by federal law.
(b) The state retirement system, the state retirement plan, the corrections officer retirement plan, the public safety personnel retirement system, the elected officials' retirement plan, an optional retirement program established by the Arizona board of regents under section 15-1628, an optional retirement program established by a community college district board under section 15-1451, or a retirement plan established for employees of a county, city or town in this state.
3. A beneficiary's share of trust or estate income recognized pursuant to the internal revenue code.
4. The amount of any distributions from an individual retirement account as provided for in section 408 of the internal revenue code or from a qualified retirement plan of a self-employed individual as provided for in section 401 of the internal revenue code to the extent that total adjustments made pursuant to this paragraph in all tax years do not exceed the total of all contributions made by the taxpayer to such plans prior to December 31, 1975, which were included in computing Arizona taxable income.
5. The amount of income on an installment receivable which is recognized pursuant to the internal revenue code and which has already been recognized on the death of the taxpayer for purposes of this title for tax years ending before January 1, 1990.
6. Interest income received on obligations of the United States, less any interest on indebtedness, or other related expenses, and deducted in arriving at Arizona gross income, which were incurred or continued to purchase or carry such obligations.
7. The amount of any income tax refunds which were received from states other
than Arizona and which were included as income in computing federal adjusted gross
income.
8. 7. Annuity income included in federal adjusted gross income
pursuant to section 72 of the internal revenue code if the first payment with respect to
such annuity was received prior to December 31, 1978.
9. 8. The excess of a partner's share of income required to be included
under section 702(a)(8) of the internal revenue code over the income required to be
included under chapter 14, article 2 of this title.
10. 9. The excess of a partner's share of partnership losses determined
pursuant to chapter 14, article 2 of this title over the losses allowable under section
702(a)(8) of the internal revenue code.
11. 10. The amount by which the adjusted basis of property described in
this paragraph and computed pursuant to this title and the income tax act of 1954, as
amended, exceeds the adjusted basis of such property computed pursuant to the internal
revenue code. This paragraph shall apply to all property which is held for the
production of income and which is sold or otherwise disposed of during the taxable year
other than depreciable property used in a trade or business.
12. The amount allowed by section 43-1024 for amortization, by a qualified defense
contractor certified by the department of commerce under section 41-1508, of a capital
investment for private commercial activities.
13. The amount of gain included in federal adjusted gross income on the sale or
other disposition of a capital investment that a qualified defense contractor has elected
to amortize pursuant to section 43-1024.
14. The amount allowed by section 43-1025 for contributions during the taxable
year of agricultural crops to charitable organizations.
15. The portion of any wages or salaries paid or incurred by the taxpayer for
the taxable year that is equal to the amount of the federal work opportunity credit, the
empowerment zone employment credit, the credit for employer paid social security taxes on
employee cash tips and the Indian employment credit that the taxpayer received under
sections 45A, 45B, 51(a) and 1396 of the internal revenue code.
16. 11. The amount of prizes or winnings THAT ARE WON BEFORE JANUARY
1, 2002, INCLUDING ANY PERIODIC DISTRIBUTIONS FROM THE WINNINGS, AND THAT ARE less
than five thousand dollars in a single taxable year from any of the state lotteries
established and operated pursuant to title 5, chapter 5, article 1, except that all such
winnings before March 22, 1983, including periodic distributions from such winnings made
after March 22, 1983, may be subtracted.
17. 12. The amount of exploration expenses that is determined pursuant to
section 617 of the internal revenue code, that has been deferred in a taxable year ending
before January 1, 1990 and for which a subtraction has not previously been made. The
subtraction shall be made on a ratable basis as the units of produced ores or minerals
discovered or explored as a result of this exploration are sold.
18. 13. The amount included in federal adjusted gross income pursuant to
section 86 of the internal revenue code, relating to taxation of social security and
railroad retirement benefits.
19. To the extent not already excluded from Arizona gross income under section 112
of the internal revenue code, compensation received for active service as a member of the
armed forces of the United States for any month during any part of which the member
served in a combat zone as determined under section 112 of the internal revenue code or
in an area given the same treatment as a combat zone for purposes of section 112 of the
internal revenue code.
20. The amount of unreimbursed medical and hospital costs, adoption counseling,
legal and agency fees and other nonrecurring costs of adoption not to exceed three
thousand dollars. In the case of a husband and wife who file separate returns, the
subtraction may be taken by either taxpayer or may be divided between them, but the total
subtractions allowed both husband and wife shall not exceed three thousand dollars. The
subtraction under this paragraph may be taken for the costs that are described in this
paragraph and that are incurred in prior years, but the subtraction may be taken only in
the year during which the final adoption order is granted.
21. The amount authorized by section 43-1027 for the taxable year relating to
qualified wood stoves, wood fireplaces or gas fired fireplaces.
22. With respect to a medical savings account established pursuant to section
43-1028:
(a) An eligible individual may subtract:
(i) The amount of contributions made by the individual's employer during the
taxable year to the individual's medical savings account pursuant to section 43-1028 to
the extent that the employer contributions are included in the individual's federal
adjusted gross income.
(ii) The amount deposited by the individual in the account during the taxable
year to the extent that the individual's contributions are included in the individual's
federal adjusted gross income.
(b) The individual's employer may subtract the amount of contributions made by
the employer to a medical savings account established on the individual's behalf to the
extent that the contributions are not deductible under the internal revenue code.
23. 14. The amount by which a net operating loss carryover or capital
loss carryover allowable pursuant to section 43-1029, subsection F exceeds the net
operating loss carryover or capital loss carryover allowable pursuant to section
1341(b)(5) of the internal revenue code.
24. 15. Any amount of qualified educational expenses that is distributed
from a qualified state tuition program determined pursuant to section 529 of the internal
revenue code and that is included in income in computing federal adjusted gross income.
25. 16. Any item of income resulting from an installment sale that has
been properly subjected to tax in another state in a previous taxable year and that is
included in Arizona gross income in the current taxable year.
26. 17. Any item of income resulting from an installment sale that has
been properly subjected to income tax in another state in a previous year and that is
included in Arizona gross income in the current taxable year.
27. The amount authorized by section 43-1030 relating to holocaust survivors.
28. The amount authorized by section 43-1031 for constructing an energy
efficient residence.
Sec. 4. Section 43-1024, Arizona Revised Statutes, is amended to read:
43-1024. Amortization of private commercial capital investment by qualified defense contractor
A. FOR TAXABLE YEARS ENDING BEFORE JANUARY 1, 2003, a qualified defense contractor that is certified by the department of commerce under section 41-1508 may elect pursuant to this section to amortize the cost of any new device, machinery, equipment or other capital investment that is used exclusively for private commercial activities in this state. The period of amortization allowed by this section is equal to one-half of the time period allowed pursuant to the internal revenue code for the same class of property. In computing Arizona taxable income, the amortization is allowed as a subtraction ratably over the period allowed by this section beginning with the month in which the device, machinery, equipment or other capital investment is placed in exclusively private commercial service in this state.
B. The taxpayer shall make the election under this section by an appropriate statement in the income tax return for the initial taxable year. The taxpayer may also elect to discontinue amortization with respect to the remainder of the amortization period by an appropriate statement in the income tax return for the taxable year in which the election to discontinue is made.
C. In determining the adjusted basis for the purposes of subsection A of this section, the device, machinery, equipment or other capital investment shall include only an amount that is properly attributable to constructing, installing or acquiring the device, machinery, equipment or other investment as certified by the department of commerce. The taxpayer shall use the adjusted basis determined pursuant to this section in determining the gain on the sale or other disposition of a capital investment that is amortized under this section.
D. The subtraction provided by this section is in lieu of any allowance for
exhaustion, AND wear and tear of the property allowed by section 167 or 179 of
the internal revenue code.
Sec. 5. Section 43-1025, Arizona Revised Statutes, is amended to read:
43-1025. Agricultural crops contributed to charitable organizations; definitions
A. FOR TAXABLE YEARS ENDING BEFORE JANUARY 1, 2003, in computing Arizona taxable income a subtraction is allowed for qualified crop contributions during the taxable year to one or more charitable organizations. It is not considered to be a double deduction to include both costs of producing the crop and the subtraction in computing Arizona taxable income.
B. The amount of the subtraction shall not exceed eighty per cent of the wholesale market price or eighty per cent of the most recent sale price for the contributed crop, whichever is greater.
C. The contribution qualifies for a subtraction under this section only if all of the following apply:
1. The crop is harvested by or on behalf of the donee charitable organization.
2. The use of the crop by the donee charitable organization is related to the purpose or function constituting the basis of the organization's tax-exempt status.
3. The crop is not transferred by the donee charitable organization in exchange for money, other property or services or for use outside Arizona.
4. The donee charitable organization provides a written statement to the taxpayer that its use and disposition of the crop will comply with the requirements of this section.
5. Harvesting or processing the crop in the normal course of the taxpayer's trade or business would not be economically feasible.
6. The crop would go to waste if it was not contributed to the donee charitable organization.
D. For purposes of this section:
1. "Most recent sale price" means an amount equal to the price that the taxpayer would have received for the contributed crop, determined as if the crop had been sold by that taxpayer on the date of the most recent sale of such a crop and at the same price per unit as the crop that was sold on that date or at the price determined by an agricultural market service on the date the crop is contributed.
2. "Qualified crop contribution" means any contribution of a crop or portion of a crop grown in Arizona by a taxpayer engaged in the trade or business of farming or processing agriculture crops to a charitable organization located in Arizona that is exempt from tax under section 43-1201.
3. "Wholesale market price" means the average wholesale market price for the contributed crop in the nearest regional market during the month in which the contribution is made, determined without consideration of grade or quality of the crop and as if the quantity of the contributed crop was marketable.
Sec. 6. Section 43-1027, Arizona Revised Statutes, is amended to read:
43-1027. Subtraction for wood stoves, wood fireplace or gas fired fireplaces; definitions
A. For taxable years beginning from and after December 31, 1993 AND ENDING BEFORE JANUARY 1, 2003, in computing Arizona adjusted gross income, a taxpayer may subtract from Arizona gross income an amount equal to the cost, exclusive of taxes, interest and other finance charges, but not more than five hundred dollars, for the conversion of an existing wood fireplace to a qualified wood stove, wood fireplace or gas fired fireplace and nonoptional equipment directly related to its operation on property that is located in this state.
B. For the purposes of this section:
1. "Permanently installed" means that the burner pan and associated equipment are affixed to the masonry or metal base of the fireplace.
2. "Qualified gas fired fireplace" means any of the following:
(a) Any device that burns natural or liquefied petroleum gas as its fuel through a burner system that is permanently installed in the fireplace.
(b) The conversion of an existing wood burning fireplace to noncombustible gas logs that are permanently installed in the fireplace.
3. "Qualified wood stove or wood fireplace" means any of the following:
(a) A residential wood heater that meets the standards of performance for new residential wood heaters manufactured on or after July 1, 1990 or sold at retail on or after July 1, 1992 pursuant to 40 Code of Federal Regulations part 60, subpart AAA.
(b) The conversion of an existing wood burning fireplace to a unit defined in subdivision (a) of this paragraph.
Sec. 7. Section 43-1028, Arizona Revised Statutes, is amended to read:
43-1028. Medical savings accounts; reports
A. For taxable years beginning from and after December 31, 1996 AND ENDING BEFORE JANUARY 1, 2003, in computing Arizona adjusted gross income:
1. An individual may subtract amounts contributed to a medical savings account as provided by this section to the extent that the contributions are included in the individual's federal adjusted gross income.
2. The individual's employer may subtract the amount of contributions made by the employer to a medical savings account established on the individual's behalf to the extent that the contributions are not deductible under the internal revenue code.
B. For purposes of this section, the medical savings account shall be established and maintained as provided by section 220 of the internal revenue code, except that:
1. The limitations relating to the size of the employer under section 220(c)(1)(A)(iii) and 220(c)(4) do not apply.
2. The limitation relating to the number of taxpayers having medical savings accounts under section 220(i) does not apply.
3. On the last business day of a calendar year an individual may withdraw money from the individual's medical savings account for purposes other than paying qualified medical expenses without incurring a withdrawal penalty. If an individual makes any other withdrawal from a medical savings account for purposes other than paying qualified medical expenses, as defined in section 220(d)(2) of the internal revenue code, and is not subject to a federal penalty for the withdrawal, the individual shall pay a penalty, equal to ten per cent of the amount of the withdrawal, to the department at the same time as the individual files the income tax return under this title for the taxable year. The penalty does not apply after the account holder reaches the age of fifty-nine and one- half years. Money withdrawn pursuant to this paragraph is considered income for the purposes of computing Arizona adjusted gross income. The department shall credit penalty monies to the state general fund.
C. The trustee of a medical savings account shall make reports regarding the account to the department and the individual with respect to contributions, income earned during the taxable year, distributions and other matters as the department may require by rule. The report shall be filed with the department at the time and in the manner prescribed by the department and furnished to the individual in the manner prescribed by the department on or before January 31 of the calendar year following the calendar year to which the report relates.
Sec. 8. Section 43-1030, Arizona Revised Statutes, is amended to read:
43-1030. Subtraction for World War II victims
A. FOR TAXABLE YEARS ENDING BEFORE JANUARY 1, 2003, in computing Arizona adjusted gross income a taxpayer may subtract the following amounts:
1. To the extent included in federal adjusted gross income, distributions made to the taxpayer for the taxpayer's persecution or for the persecution of the taxpayer's ancestors by Nazi Germany or any other Axis regime for racial, religious or political reasons.
2. To the extent included in federal adjusted gross income, items of income that are attributable to, derived from or related to assets that were stolen or hidden from or lost to a taxpayer who was persecuted by Nazi Germany or any other Axis regime for racial, religious or political reasons before, during or immediately after World War II.
B. This section applies only to a taxpayer who is the first recipient of any distribution or recovered asset in subsection A.
C. Any income received by a taxpayer for the taxpayer's persecution or for the persecution of the taxpayer's ancestors by Nazi Germany or any other Axis regime for racial, religious or political reasons shall not be included for the purposes of any state program that uses income as an eligibility requirement.
Sec. 9. Section 43-1031, Arizona Revised Statutes, is amended to read:
43-1031. Subtraction for constructing an energy efficient residence
A. For taxable years beginning from and after December 31, 2001 through December
31, 2010 2002, in computing Arizona adjusted gross income a taxpayer may
subtract five per cent of the sales price, excluding commissions, taxes, interest, points
and other brokerage, finance and escrow charges, of one or more new single family
residences, condominiums or town houses that are sold by the taxpayer and that
exceeds EXCEED the 1995 model energy code by fifty per cent or more as
determined by an approved rating program. Rating programs shall meet the United States
department of energy's home energy rating system guidelines or other guidelines approved
by the department of commerce energy office. The amount of the subtraction shall not
exceed five thousand dollars with respect to each new single family residence,
condominium or town house.
B. The department of commerce energy office shall:
1. Annually review the threshold rating used to determine eligibility for the subtraction.
2. If the number of homes receiving a subtraction in a single year exceeds five per cent of the new homes built in this state as estimated by the department of commerce, increase the qualifying rating by five per cent for the next taxable year.
3. Provide an annual list to the department of revenue of the criteria used to determine an energy efficiency rating that qualifies for a subtraction pursuant to this section.
C. The taxpayer may elect to transfer a credit SUBTRACTION under this
section to the purchaser of the residence or to the financial institution that secures a
mortgage or deed of trust on the residence. If the taxpayer transfers the credit
SUBTRACTION, the taxpayer shall deliver to the purchaser or financial institution a
written statement that the taxpayer has elected not to claim the credit
SUBTRACTION and that the purchaser or financial institution may claim the
credit SUBTRACTION, subject to the conditions and limitations prescribed by
this section.
Sec. 10. Section 43-1041, Arizona Revised Statutes, is amended to read:
43-1041. Optional standard deduction
A. FOR TAXABLE YEARS ENDING BEFORE JANUARY 1, 2003, a taxpayer, at his election, may take a standard deduction as follows:
1. In the case of a single person or a married person filing separately, the standard deduction shall be three thousand six hundred dollars.
2. In the case of a married couple filing a joint return or a single person who is a head of a household, the standard deduction shall be seven thousand two hundred dollars.
B. The standard deduction provided for in subsection A of this section shall be in lieu of all itemized deductions allowed by section 43-1042 which are to be subtracted from Arizona adjusted gross income in computing taxable income, but not in lieu of the personal exemption allowed by section 43-1043.
C. The standard deduction shall be allowed if the taxpayer so elects in his return, and the department shall by rule prescribe the manner of signifying such election in the return.
D. In the case of a husband and wife, the standard deduction provided for in subsection A of this section shall not be allowed to either if the taxable income of one of the spouses is determined without regard to the standard deduction.
E. The standard deduction provided for by subsection A of this section shall not be allowed in the case of a taxable year of less than twelve months on account of a change in the accounting period.
F. Under rules adopted by the department, a change of an election to take, or not to take, the standard deduction for any taxable year may be made after the filing of the return for such year. If the spouse of the taxpayer filed a separate return for any taxable year corresponding, for the purposes of subsection D of this section, to the taxable year of the taxpayer, the change shall not be allowed unless, in accordance with such rules, both paragraphs 1 and 2 of this subsection apply:
1. The spouse makes a change of election with respect to the standard deduction for the taxable year covered in such separate return consistent with the change of election sought by the taxpayer.
2. The taxpayer and his spouse consent in writing to the assessment, within such period as may be agreed upon with the department, of any deficiency, to the extent attributable to such change of election, even though at the time of the filing of such consent the assessment of such deficiency would otherwise be prevented by the operation of any law or rule of law.
Sec. 11. Section 43-1042, Arizona Revised Statutes, is amended to read:
43-1042. Itemized deductions
A. FOR TAXABLE YEARS ENDING BEFORE JANUARY 1, 2003, except as provided by subsections B, D and E of this section, at the election of the taxpayer, and in lieu of the standard deduction allowed by section 43-1041, in computing taxable income the taxpayer may take the amount of itemized deductions allowable for the taxable year pursuant to subtitle A, chapter 1, subchapter B, parts VI and VII, but subject to the limitations prescribed by sections 67, 68 and 274, of the internal revenue code.
B. In lieu of the amount of the federal itemized deduction for expenses paid for medical care allowed under section 213 of the internal revenue code, the taxpayer may deduct:
1. For the 1992 taxable year, the amount of such expenses that exceed six per cent of the taxpayer's federal adjusted gross income.
2. For the 1993 taxable year, the amount of such expenses that exceed four per cent of the taxpayer's federal adjusted gross income.
3. For the 1994 taxable year, the amount of such expenses that exceed two per cent of the taxpayer's federal adjusted gross income.
4. For the 1995 taxable year and each taxable year thereafter, the full amount of such expenses.
C. Notwithstanding subsection B of this section, expenses for medical care that are paid or reimbursed from the taxpayer's medical savings account pursuant to section 43- 1028 shall not be deducted pursuant to this section.
D. A qualified defense contractor that is identified and certified by the department of commerce pursuant to section 41-1508 shall not claim both a deduction as provided by this section and a credit under section 43-1078 with respect to the same property taxes paid.
E. A taxpayer shall not claim both a deduction provided by this section and a credit allowed by this title with respect to the same charitable contributions.
F. The taxpayer may add any interest expense paid by the taxpayer for the taxable
year that is equal to the amount of federal credit for interest on certain home mortgages
allowed by internal revenue code section 25 OF THE INTERNAL REVENUE CODE.