Arizona Income Tax Conformity?

Does the state of Arizona conform with Federal tax law for 2018?

The year 2018 will be marked as a year of major changes in the tax world.  The Federal tax law named Tax Cuts and Jobs Act (TCJA) was passed in late 2017 with major changes that affect itemized deductions, adjustments to income and several other items.  The state of Arizona has to adopt conformity to Federal tax law changes each year, this is usually done early after the end of the year, in this case in 2019 for 2018.  But with all of the changes, the state of Arizona is left to decide if total conformity will be adopted or if there are modifications that will be made.

Currently the AZ tax laws are conforming to laws in place before 2018.  The state of AZ, for individual tax returns, starts with Federal Adjusted Gross Income (AGI).  The challenge is which Federal AGI will be complied with by AZ, either the pre-TCJA or post-TCJA, and also what other changes will be adopted or not adopted.  Those answers are needed from AZ legislators and bills are being discussed at the state capitol on these issues.  There are bills currently discussing full conformity to the TCJA mixed with a small reduction in tax rates.

In the meantime, earlier this month on January 9, 2019, the Arizona Department of Revenue released a letter via their website (AZ D.O.R. releases important 2019 taxpayer guidance) explaining the steps being taken and assumptions that are being made to comply with laws.  If there is a need to amend an AZ tax return, that can be done but most practitioners (including this office) don't want to unnecessarily create additional billable work for clients, so there may be a reasonable basis to wait a little while to see what movement AZ legislators are taking.  I encourage you to contact your state representatives to ask that they quickly take action on any tax conformity bills that are brought before them to remove confusion and possible need to file amended tax returns.