ARIZONA STATE SENATE
Phoenix, Arizona
internal revenue code
conformity
Purpose
Updates the definition of the United States Internal Revenue Code (IRC) for tax year 2002 to the IRC definition in effect on January 1, 2002 for Arizona tax purposes. Provides conformity with other internal revenue code provisions for taxpayers serving in combat zones or affected by a presidentially declared disaster, and provisions relating to the Economic Growth and Tax Relief Reconciliation Act of 2001.
Background
Since 1978, the provisions of the federal IRC have been adopted by the Legislature to conform the computation of Arizona income tax and other statutory references throughout the Arizona Revised Statutes with the IRC as amended. Each year, the Legislature adopts an updated statutory definition of the IRC to include any provisions that may have become effective in the previous year. This is because Arizona, like many states, stipulates that taxpayers use federal adjusted gross income as defined in the IRC.
In addition to the statutory definition update of “IRC,” the federal government passed two acts with provisions that have an impact on Arizona tax liability. On June 7, 2001, President Bush signed into law the Economic Growth and Tax Relief Reconciliation Act of 2001, which included significant changes to the estate and generation-skipping transfer tax. Arizona’s estate tax revenue is based on the State’s share of the maximum credit allowed by the federal estate tax laws. The federal provisions in this Act will phase-out and eventually repeal the federal state death tax credit beginning in tax year 2002.
The second Act is the Fallen Hero Survivor Benefit Fairness Act of 2001, signed into law on June 5, 2001. This act amends the Taxpayer Relief Act of 1997 to extend to survivors of public safety officers killed in the line of duty before December 31, 1996, the same tax benefits available to the survivors of officers killed after such date.
S.B. 1071 is the annual bill that conforms the Arizona statutory definition of the Internal Revenue Code to the 2001 IRC.
According to the Department of Revenue report, “Impact on State Revenues of Conformity,” the fiscal impact of S.B. 1071 is:
|
In millions |
FY2001-2002 |
FY2002-2003 |
FY2003-2004 |
FY2004-2005 |
|
Retroactive Provisions |
($0.00) |
($0.06) |
($0.12) |
($0.14) |
|
Provisions Effective January 1, 2002 |
($6.23) |
($33.16) |
($55.28) |
($78.87) |
|
Combined Impact |
($6.23) |
($33.22) |
($55.40) |
($79.01) |
However, it should be noted
that Joint Legislative Budget Committee staff have already accounted for the
phased down estate tax portion in its current revenue forecasts.
Provisions
1. Updates the definition of IRC for the 2002 tax year to the IRC effective as of January 1, 2002, which includes provisions for the Economic Growth and Tax Relief Reconciliation Act of 2001.
2. Includes provisions for relief for certain acts to be performed by taxpayers affected by a presidentially declared disaster and taxpayers serving in combat zones.
3. Includes provisions for relief for members of armed forces upon death while serving in a combat zone.
4. Includes provisions for the Economic Growth and Tax Relief Reconciliation Act of 2001 that are retroactively effective during taxable years beginning January 1, 2001 through December 31, 2001.
5. Makes technical and conforming changes.
6. Provides for a general effective date.
Amendments
Adopted by Committee
1. Adds conforming language dealing with short period returns and changes in accounting periods to align state statutes with IRC time frames.
2. Makes additional technical and clarifying changes.
Senate Action
FIN 2/11/02 DPA 6-0-2-0
Prepared by Senate Staff
February 11, 2002