SB1043 - 452R - House Bill Summary

House of Representatives

SB 1043

taxation; estates and trusts

Sponsor: Sen. Bundgaard

DPA	Committee on Ways and Means
DPA	Caucus and COW
DPA	Third Read
X	As Transmitted to the Governor

SB 1043 conforms Arizona estate and trust tax statute to the Internal Revenue Code (IRC).

History

Currently, Arizona statutes regulating income tax of trust, estates, and beneficiaries of trusts differ from current IRC. Arizona’s statute dealing with estate and trust income tax is primarily based on the 1939 IRC. The Revenue Act of 1954 and several other subsequent changes to IRC have created many differences between the federal and State treatment of estate and trust income tax. Provisions for determination of income distribution and distribution deductions, estate and trust income tax exemptions, and distribution of unused carryovers are currently not conformed to federal law.

SB 1043 makes changes to State law to conform to current federal law and current practice. The Department of Revenue does not anticipate a fiscal impact associated with this bill.

Provisions

· Entitles the estate and trust to a fiduciary adjustment relative to their own shares in the federal distributable net income of the estate or trust.

· Entitles beneficiaries to a fiduciary adjustment equal to their share in the estate or trust income required to be distributed that year.

· Requires any balance of the fiduciary adjustment to be credited to the estate or trust.

· Requires fiduciary adjustments to be based on income derived from in-state sources.

· Revokes the credit for taxes paid to another state based on Arizona derived income.

· Requires the taxpayer to notify DOR if taxes for which they have received a credit are refunded and repay the credit in the form of another tax.

· Requires “resident trusts” to meet the following criteria:

· Fiduciary must be a resident.

· In cases of multiple fiduciaries, at least one must be a resident.

· In cases of corporate fiduciaries and co-fiduciaries with non-residents, the trust must be administered in state.

· Exempts trusts taxable as partnerships or corporations and trusts established for unborn or contingent persons.

· Applies the same tax rates imposed on individuals to taxable income from estates and trusts.

· Moves the prohibition on adding interest income from obligations of a state, county, territory or U.S. possession to trusts established as medical savings accounts to the section of the bill addressing fiduciary adjustments.

· Repeals the statute outlining rules for deductions from taxable income and distribution in relation to trusts and estates.

· Requires the department to begin court proceedings within 18 months upon the written request of the person liable for the tax.

· Grants the duties, rights and privileges of a taxpayer to the fiduciary.

· Requires the fiduciary to notify the department when they are no longer acting as fiduciary.

· Defines gross income of a non-resident estate or trust as taxable income from source for the taxable year.

· Defines resident estate as the estate of a deceased Arizona resident.

· Defines non-resident estate as the estate of a deceased non-resident of Arizona.

· Limits the definition of Arizona gross income to apply to resident estates and trusts.

· Makes technical and conforming changes.

· Contains an effective date of from and after December 31, 2002.

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· 45th Legislature