Arizona caucus debates HB 2,153 tax conformity amid warnings of filing confusion
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Summary
Members discussed House Bill 2,153 to align Arizona law with recent federal tax changes, debated exclusions and new childcare and dependent tax provisions, and voiced concern that Department of Revenue forms assuming full conformity are creating taxpayer confusion; no vote was taken in caucus.
Vince Perez, Ways and Means research analyst, summarized House Bill 2,153 as a measure “to conform state statute to the Internal Revenue Code as of 01/01/2026,” including provisions retroactive to tax year 2025 and a fiscal note projecting a Year 1 impact of negative $441,300,000.
Republican leadership urged quick passage to provide certainty to taxpayers after the Department of Revenue posted tentative forms that assume full federal conformity. Chairman Livingston told members he was advising some constituents and small-business contacts not to file returns until the Legislature resolves conformity, saying filers using the current forms “will have to amend their returns at some point or pay a lot more tax.”
Members and staff spelled out which federal provisions the bill would exclude and which it would adopt. Excluded items named during the caucus were an additional $6,000 senior deduction for taxpayers 65 and older, an increase in the state and local tax (SALT) deduction to $40,000, and deduction of interest on new car loans. The bill adds four state provisions, including a $6,000 deduction for certain retirement distributions for taxpayers 65 and older, a $6,000 deduction for Roth IRA contributions, an increase in the dependent tax credit from $100 to $125 per child, and a state child- and dependent-care deduction that mirrors the federal program.
Sean McCarthy, majority policy staff, explained the technical difference that underlies the dispute: the Department of Revenue “always assumes simple conformity” (above-the-line federal adjustments), while the governor's direction requested that the department also include below-the-line federal items. McCarthy said the inclusion of those below-the-line deductions — what the caucus labeled "full conformity" — is the driver of the roughly $440 million fiscal effect cited by JLBC.
Committee members raised practical concerns for small businesses and tax preparers. Members recounted testimony that Arizona has roughly 700,000 small businesses, about 600,000 with fewer than 20 employees, and that without state conformity some firms and individual taxpayers could face two sets of filing rules or have to amend returns if state law differs from the federal forms they used. Leadership said the Department of Revenue had published worksheets to reflect the governor's preferred items, but members called the mix of forms and worksheets confusing and legally uncertain.
Lawmakers emphasized that the caucus discussion did not produce a formal vote on HB 2,153. The chair closed the meeting, reminded members the floor session would begin at 10 a.m., and adjourned the caucus. The bill remains on the agenda for further consideration.
