A.R.S. tit. 43 ch. 10 — Arizona Revised Statutes Title 43 Chapter 10 — Individuals

43-1001. Definitions In this chapter, unless the context otherwise requires: 1. "Arizona adjusted gross income" of a resident individual means the individual's Arizona gross income subject to modifications specified in sections 43-1021 and 43-1022. 2. "Arizona gross income" of a resident individual means the individual's federal adjusted gross income for the taxable year, computed pursuant to the internal revenue code. 3. "Dependent" has the same meaning prescribed by section 152 of the internal revenue code. 4. "Federal adjusted gross income" of a resident individual means the individual's adjusted gross income computed pursuant to the internal revenue code. 5. "Head of household" has the same meaning prescribed by sections 2(b) and 2(c) of the internal revenue code. Head of household includes an individual who meets the qualifications of a surviving spouse under section 2(a) of the internal revenue code. 6. "Married person" means a married person on the last day of the taxable year subject to the rules in section 43-1002. 7. "Net income" means taxable income. 8. "Person" means an individual. 9. "Single person" means any person who is not married or who was legally separated on the last day of the person's taxable year. 10. "Spouse" means the wife or husband of the taxpayer. 11. "Taxable income" of a resident individual means Arizona adjusted gross income less the deductions allowed in article 4 of this chapter. 12. "Taxpayer" means any person who is subject to a tax imposed by this chapter. 43-1002. Married person; application of definition The following rules shall apply to the definition of "married person" in section 43-1001: 1. An individual who is legally separated from his or her spouse under a decree of dissolution of marriage or of separate maintenance shall not be considered as married. 2. A taxpayer shall be considered as married at the close of the taxable year if his or her spouse died during the taxable year and the taxpayer would have been considered married at the date of the death of such spouse. 43-1011. Taxes and tax rates (L21, Ch. 411, sec. 4) A. There shall be levied, collected and paid for each taxable year on the entire taxable income of every resident of this state and on the entire taxable income of every nonresident that 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, 2005: (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, 2005 through December 31, 2006: (a) In the case of a single person or a married person filing separately: If taxable income is: The tax is: $0 — $10,000 2.73% of taxable income $10,001 — $25,000 $273, plus 3.04% of the excess over $10,000 $25,001 — $50,000 $729, plus 3.55% of the excess over $25,000 $50,001 — $150,000 $1,617, plus 4.48% of the excess over $50,000 $150,001 and over $6,097, plus 4.79% 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 2.73% of taxable income $20,001 — $50,000 $546, plus 3.04% of the excess over $20,000 $50,001 — $100,000 $1,458, plus 3.55% of the excess over $50,000 $100,001 — $300,000 $3,233, plus 4.48% of the excess over $100,000 $300,001 and over $12,193, plus 4.79% of the excess over $300,000 5. Subject to subsections B and C of this section, for taxable years beginning from and after December 31, 2006 through December 31, 2018: (a) In the case of a single person or a married person filing separately: If taxable income is: The tax is: $0 — $10,000 2.59% of taxable income $10,001 — $25,000 $259, plus 2.88% of the excess over $10,000 $25,001 — $50,000 $691, plus 3.36% of the excess over $25,000 $50,001 — $150,000 $1,531, plus 4.24% of the excess over $50,000 $150,001 and over $5,771, plus 4.54% 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 2.59% of taxable income $20,001 — $50,000 $518, plus 2.88% of the excess over $20,000 $50,001 — $100,000 $1,382, plus 3.36% of the excess over $50,000 $100,001 — $300,000 $3,062, plus 4.24% of the excess over $100,000 $300,001 and over $11,542, plus 4.54% of the excess over $300,000 6. Subject to subsections D and E of this section, for taxable years beginning from and after December 31, 2018: (a) In the case of a single person or a married person filing separately: If taxable income is: The tax is: $0 — $26,500 2.59% of taxable income $26,501 — $53,000 $686, plus 3.34% of the amount over $26,500 $53,001 — $159,000 $1,571, plus 4.17% of the amount over $53,000 $159,001 and over $5,991, plus 4.50% of the amount over $159,000 (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 — $53,000 2.59% of taxable income $53,001 — $106,000 $1,373, plus 3.34% of the amount over $53,000 $106,001 — $318,000 $3,143, plus 4.17% of the amount over $106,000 $318,001 and over $11,983, plus 4.50% of the amount over $318,000 B. For the taxable year beginning from and after December 31, 2014 through December 31, 2015, the department shall adjust the income dollar amounts for each rate bracket prescribed by subsection A, paragraph 5 of this section according to the average annual change in the metropolitan Phoenix consumer price index published by the United States department of labor, bureau of labor statistics. The revised dollar amounts shall be raised to the nearest whole dollar. The income dollar amounts for each rate bracket may not be revised below the amounts prescribed in the prior taxable year. C. For each taxable year beginning from and after December 31, 2015 through December 31, 2018, the department shall adjust the income dollar amounts for each rate bracket prescribed by subsection A, paragraph 5 of this section according to the average annual change in the metropolitan Phoenix consumer price index published by the United States department of labor, bureau of labor statistics. The revised dollar amounts shall be raised to the nearest whole dollar. The income dollar amounts for each rate bracket may not be revised below the amounts prescribed in the prior taxable year. D. For each taxable year beginning from and after December 31, 2019, the department shall adjust the income dollar amount for each rate bracket prescribed by subsection A, paragraph 6 of this section according to the average annual change in the metropolitan Phoenix consumer price index published by the United States department of labor, bureau of labor statistics. The revised dollar amounts shall be raised to the nearest whole dollar. The income dollar amounts for each rate bracket may not be revised below the amounts prescribed in the prior taxable year. E. For each taxable year beginning from and after December 31, 2020, for taxable income that is subject to the income tax surcharge imposed by section 43-1013, the combined tax rate of the income tax surcharge imposed by section 43-1013 and the highest tax rate imposed by subsection A, paragraph 6, 7, 8 or 9 of this section may not exceed four and one-half percent. If the combined tax rate exceeds four and one-half percent, the highest tax rate imposed by subsection A, paragraph 6, 7, 8 or 9 of this section shall be reduced so that the combined tax rate is four and one-half percent. The department may adopt rules pursuant to title 41, chapter 6 to carry out this subsection. 43-1011. Taxes and tax rates (L21, Ch. 412, sec. 15.) A. There shall be levied, collected and paid for each taxable year on the entire taxable income of every resident of this state and on the entire taxable income of every nonresident that 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, 2005: (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, 2005 through December 31, 2006: (a) In the case of a single person or a married person filing separately: If taxable income is: The tax is: $0 — $10,000 2.73% of taxable income $10,001 — $25,000 $273, plus 3.04% of the excess over $10,000 $25,001 — $50,000 $729, plus 3.55% of the excess over $25,000 $50,001 — $150,000 $1,617, plus 4.48% of the excess over $50,000 $150,001 and over $6,097, plus 4.79% 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 2.73% of taxable income $20,001 — $50,000 $546, plus 3.04% of the excess over $20,000 $50,001 — $100,000 $1,458, plus 3.55% of the excess over $50,000 $100,001 — $300,000 $3,233, plus 4.48% of the excess over $100,000 $300,001 and over $12,193, plus 4.79% of the excess over $300,000 5. Subject to subsections B and C of this section, for taxable years beginning from and after December 31, 2006 through December 31, 2018: (a) In the case of a single person or a married person filing separately: If taxable income is: The tax is: $0 — $10,000 2.59% of taxable income $10,001 — $25,000 $259, plus 2.88% of the excess over $10,000 $25,001 — $50,000 $691, plus 3.36% of the excess over $25,000 $50,001 — $150,000 $1,531, plus 4.24% of the excess over $50,000 $150,001 and over $5,771, plus 4.54% 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 2.59% of taxable income $20,001 — $50,000 $518, plus 2.88% of the excess over $20,000 $50,001 — $100,000 $1,382, plus 3.36% of the excess over $50,000 $100,001 — $300,000 $3,062, plus 4.24% of the excess over $100,000 $300,001 and over $11,542, plus 4.54% of the excess over $300,000 6. Subject to subsections D and E of this section, for taxable years beginning from and after December 31, 2018 through December 31, 2021: (a) In the case of a single person or a married person filing separately: If taxable income is: The tax is: $0 — $26,500 2.59% of taxable income $26,501 — $53,000 $686, plus 3.34% of the amount over $26,500 $53,001 — $159,000 $1,571, plus 4.17% of the amount over $53,000 $159,001 and over $5,991, plus 4.50% of the amount over $159,000 (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 — $53,000 2.59% of taxable income $53,001 — $106,000 $1,373, plus 3.34% of the amount over $53,000 $106,001 — $318,000 $3,143, plus 4.17% of the amount over $106,000 $318,001 and over $11,983, plus 4.50% of the amount over $318,000 7. Subject to subsections E and F of this section, for taxable years beginning from and after December 31, 2021 through December 31 of the year in which notice is provided to the department pursuant to section 43-243, subsection A or subsection B, paragraph 1: (a) In the case of a single person or a married person filing separately: If taxable income is: The tax is: $0 — $27,272 2.55% of taxable income $27,273 and over $695, plus 2.98% of the amount over $27,272 (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 — $54,544 2.55% of taxable income $54,545 and over $1,391, plus 2.98% of the amount over $54,544 8. Subject to subsections E and F of this section, for taxable years beginning from and after December 31 of the year in which notice is provided to the department pursuant to section 43-243, subsection A or subsection B, paragraph 1 through December 31 of the year in which notice is provided to the department pursuant to section 43-243, subsection B, paragraph 2: (a) In the case of a single person or a married person filing separately: If taxable income is: The tax is: $0 — $27,272 2.53% of taxable income $27,273 and over $690, plus 2.75% of the amount over $27,272 (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 — $54,544 2.53% of taxable income $54,545 and over $1,380, plus 2.75% of the amount over $54,544 9. Subject to subsection F of this section, for taxable years beginning from and after December 31 of the year in which notice is provided to the department pursuant to section 43-243, subsection B, paragraph 2, the tax is 2.5% of taxable income. B. For the taxable year beginning from and after December 31, 2014 through December 31, 2015, the department shall adjust the income dollar amounts for each rate bracket prescribed by subsection A, paragraph 5 of this section according to the average annual change in the metropolitan Phoenix consumer price index published by the United States department of labor, bureau of labor statistics. The revised dollar amounts shall be raised to the nearest whole dollar. The income dollar amounts for each rate bracket may not be revised below the amounts prescribed in the prior taxable year. C. For each taxable year beginning from and after December 31, 2015 through December 31, 2018, the department shall adjust the income dollar amounts for each rate bracket prescribed by subsection A, paragraph 5 of this section according to the average annual change in the metropolitan Phoenix consumer price index published by the United States department of labor, bureau of labor statistics. The revised dollar amounts shall be raised to the nearest whole dollar. The income dollar amounts for each rate bracket may not be revised below the amounts prescribed in the prior taxable year. D. For each taxable year beginning from and after December 31, 2019 through December 31, 2021, the department shall adjust the income dollar amount for each rate bracket prescribed by subsection A, paragraph 6 of this section according to the average annual change in the metropolitan Phoenix consumer price index published by the United States department of labor, bureau of labor statistics. The revised dollar amounts shall be raised to the nearest whole dollar. The income dollar amounts for each rate bracket may not be revised below the amounts prescribed in the prior taxable year. E. For each taxable year beginning from and after December 31, 2021, the department shall adjust the income dollar amount for each rate bracket prescribed by subsection A, paragraphs 7 and 8 of this section, as applicable, according to the average annual change in the metropolitan Phoenix consumer price index published by the United States department of labor, bureau of labor statistics. The revised dollar amounts shall be raised to the nearest whole dollar. The income dollar amounts for each rate bracket may not be revised below the amounts prescribed in the prior taxable year. 43-1012. Optional tax table A. In lieu of the tax imposed under section 43-1011, there shall be levied, collected and paid for each taxable year upon the taxable income of each individual who has been a resident of this state for the entire taxable year and whose taxable income for such year is less than fifty thousand dollars, regardless of filing status, a tax based on the rates prescribed by section 43-1011 as shown in optional tax tables developed by the department. The tables shall prescribe tax liability amounts, based on filing status, in fifty dollar increments of taxable income. B. This section shall not apply to an individual filing a return for a period of less than twelve months on account of a change in the accounting period or to a married individual whose spouse files a return and computes the tax without regard to this section or section 43-1041, subsection A. C. An individual, who is not a head of a household or a married person, shall be treated as a single person. 43-1013. Income tax surcharge for public education (Caution: 1998 Prop. 105 applies) A. In addition to any other tax imposed by this chapter, for taxable years beginning from and after December 31, 2020, there shall be levied, collected and paid an income tax surcharge to advance public education in this state as follows: 1. In the case of a single person or a married person filing separately, a surcharge at the rate of three and one-half percent of taxable income in excess of $250,000. 2. In the case of a married couple filing a joint return or a single person who is a head of household, a surcharge at the rate of three and one-half percent of taxable income in excess of $500,000. B. Notwithstanding sections 42-1116 and 43-206, the department shall separately account for revenues collected pursuant to the income tax surcharge imposed by this section, and shall deposit those revenues in the student support and safety fund established by section 15-1281. C. The income tax surcharge levied by this section must be collected regardless of whether the income tax rate brackets in this chapter are changed, replaced or eliminated by an act of the legislature. 43-1014. Entity-level tax election; partnerships; S corporations; rules A. For taxable years beginning from and after December 31, 2021, the partners or shareholders of a business that is treated as a partnership or S corporation for federal income tax purposes may consent to be taxed at the entity level at a tax rate that is the same as the highest tax rate prescribed by section 43-1011 applicable to the entire portion of its taxable income that is attributable to its resident partners or shareholders and the portion of its taxable income derived from sources within this state that is attributable to its nonresident partners or shareholders for that taxable year. The election under this subsection is made by filing the business's return under this title. B. If the election is made under subsection A of this section, all of the following apply: 1. The taxable income of the partnership or S corporation is as follows: (a) For a partnership: (i) For taxable years through December 31, 2022, the Arizona taxable income determined under chapter 14 of this title. (ii) For taxable years beginning from and after December 31, 2022, the Arizona taxable income determined under chapter 14 of this title, including the items that require separate computation under section 43-1412, paragraphs 1 through 16. (b) For an S corporation, the total of all distributive income passed through to the shareholders under section 43-1126, subsection B. 2. If the partnership or S corporation does not pay the amount owed to the department as a result of the election under this section, the department may collect the amount from the partners or shareholders based on the proportionate share of income that is attributable to each partner or shareholder for Arizona tax purposes. 3. The partnership or S corporation shall pay estimated tax pursuant to section 43-581 as necessary. C. The election under subsection A of this section does not apply to the following: 1. Partners or shareholders that are not individuals, estates or trusts. The portion of the taxable income attributable to a partner or shareholder that is not an individual, estate or trust is not included in the entity-level tax under subsection A of this section. 2. Partners or shareholders who are individuals, estates or trusts and who opt out of the election pursuant to subsection D of this section. The portion of the taxable income attributable to a partner or shareholder who is an individual, estate or trust and who opts out of the election pursuant to subsection D of this section is not included in the entity-level tax under subsection A of this section. D. A partnership or S corporation that intends to make the election under subsection A of this section shall notify all partners or shareholders who are individuals, estates or trusts of the intent to make the election and that each partner or shareholder who is an individual, estate or trust has the right to opt out of the election. The notice shall allow each partner or shareholder who is an individual, estate or trust at least sixty days after receiving the notice to notify the partnership or S corporation that the partner or shareholder who is an individual, estate or trust is exercising the partner's or shareholder's right to opt out of the election. If the partner or shareholder who is an individual, estate or trust does not respond within the sixty-day period or waives the right to opt out, the partner or shareholder will be included in the election. E. The department shall adopt rules and prescribe forms and procedures as necessary to administer this section. 43-1021. Addition to Arizona gross income In computing Arizona adjusted gross income, the following amounts shall be added to Arizona gross income: 1. A beneficiary's share of the fiduciary adjustment to the extent that the amount determined by section 43-1333 increases the beneficiary's Arizona gross income. 2. An amount equal to the ordinary income portion of a lump sum distribution that was excluded from federal adjusted gross income pursuant to the special rule for individuals who attained fifty years of age before January 1, 1986 under Public Law 99-514, section 1122(h)(3). 3. 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 of this state, reduced, for taxable 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. 4. 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. 5. 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. 6. 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. 7. 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 43-1081.01 or that is pollution control equipment for which a credit was taken before taxable year 2022 exceeds the amount of depreciation or amortization computed pursuant to the internal revenue code on the Arizona adjusted basis of the property. 8. 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 43-1074.02 or 43-1081.01 or that is pollution control equipment for which a credit was taken before taxable year 2022 and that is sold or otherwise disposed of during the taxable year exceeds the adjusted basis of the property computed under section 43-1074.02 or 43-1081.01 or for pollution control equipment, the section in which the credit was taken, as applicable. 9. 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. 10. 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. 11. The amount of any depreciation allowance allowed pursuant to section 167(a) of the internal revenue code to the extent not previously added. 12. The amount of a nonqualified withdrawal, as defined in section 15-1871, from a college savings plan established pursuant to section 529 of the internal revenue code that is made to a distributee to the extent the amount is not included in computing federal adjusted gross income, except that the amount added under this paragraph shall not exceed the difference between the amount subtracted under section 43-1022 in prior taxable years and the amount added under this section in any prior taxable years. 13. If a subtraction is or has been taken by the taxpayer under section 43-1024, in the current or a prior taxable year for the full amount of eligible access expenditures paid or incurred to comply with the requirements of the Americans with disabilities act of 1990 (P.L. 101-336) or title 41, chapter 9, article 8, any amount of eligible access expenditures that is recognized under the internal revenue code, including any amount that is amortized according to federal amortization schedules, and that is included in computing taxable income for the current taxable year. 14. For taxable years beginning from and after December 31, 2017, the amount of any net capital loss included in Arizona gross income for the taxable year that is derived from the exchange of one kind of legal tender for another kind of legal tender. For the purposes of this paragraph: (a) "Legal tender" means a medium of exchange, including specie, that is authorized by the United States Constitution or Congress to pay debts, public charges, taxes and dues. (b) "Specie" means coins having precious metal content. 15. For taxable years beginning from and after December 31, 2021, the amount deducted by the partnership or S corporation pursuant to the internal revenue code for the amount paid to this state under section 43-1014 and for taxes that the department determines are substantially similar to the tax imposed under section 43-1014. This amount shall be reflected in the partner's or shareholder's Arizona gross income and the partnership's or S corporation's Arizona taxable income. 16. The amount of any motion picture production costs that was deducted pursuant to the internal revenue code for which a tax credit is claimed under section 43-1082. 17. For taxable years beginning from and after December 31, 2025, the amount of the special depreciation allowance for qualified production property allowed pursuant to section 168(n) of the internal revenue code for the taxable year to the extent not previously added. 43-1022. Subtractions from Arizona gross income In computing Arizona adjusted gross income, 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 $2,500 received from one or more of the following: (a) The United States government service retirement and disability fund, the United States foreign service retirement and disability system and any other retirement system or plan established by federal law, except retired or retainer pay of the uniformed services of the United States that qualifies for a subtraction under paragraph 26 of this section. (b) The Arizona state retirement system, 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 the fiduciary adjustment to the extent that the amount determined by section 43-1333 decreases the beneficiary's Arizona gross income. 4. Interest income received on obligations of the United States, minus any interest on indebtedness, or other related expenses, and deducted in arriving at Arizona gross income, that were incurred or continued to purchase or carry such obligations. 5. 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. 6. 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. 7. The amount allowed by section 43-1025 for contributions during the taxable year of agricultural crops to charitable organizations. 8. 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. 9. 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. 10. 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. 11. To the extent not already excluded from Arizona gross income under the internal revenue code, compensation received for active service as a member of the reserves, the national guard or the armed forces of the United States, including compensation for service in a combat zone as determined under section 112 of the internal revenue code. 12. The amount of unreimbursed medical and hospital costs, adoption counseling, legal and agency fees and other nonrecurring costs of adoption. 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. The amount subtracted may not exceed: (a) In taxable years beginning before December 31, 2025, $3,000. 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 may not exceed $3,000. (b) In taxable years beginning from and after December 31, 2025, $5,000 for a single individual or head of household. (c) For taxable years beginning from and after December 31, 2025, $10,000 for a married couple filing a joint return. 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 may not exceed $10,000. 13. The amount authorized by section 43-1027 for the taxable year relating to qualified wood stoves, wood fireplaces or gas fired fireplaces. 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. 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. 16. Any item of income resulting from an installment sale that has been properly subjected to income tax in another state in a previous taxable year and that is included in Arizona gross income in the current taxable year. 17. For property placed in service: (a) In taxable years beginning before December 31, 2012, an amount equal to the depreciation allowable pursuant to section 167(a) of the internal revenue code for the taxable year computed as if the election described in section 168(k) of the internal revenue code had been made for each applicable class of property in the year the property was placed in service. (b) In taxable years beginning from and after December 31, 2012 through December 31, 2013, an amount determined in the year the asset was placed in service based on the calculation in subdivision (a) of this paragraph. In the first taxable year beginning from and after December 31, 2013, the taxpayer may elect to subtract the amount necessary to make the depreciation claimed to date for the purposes of this title the same as it would have been if subdivision (c) of this paragraph had applied for the entire time the asset was in service. Subdivision (c) of this paragraph applies for the remainder of the asset's life. If the taxpayer does not make the election under this subdivision, subdivision (a) of this paragraph applies for the remainder of the asset's life. (c) In taxable years beginning from and after December 31, 2013 through December 31, 2015, an amount equal to the depreciation allowable pursuant to section 167(a) of the internal revenue code for the taxable year as computed as if the additional allowance for depreciation had been ten percent of the amount allowed pursuant to section 168(k) of the internal revenue code. (d) In taxable years beginning from and after December 31, 2015 through December 31, 2016, an amount equal to the depreciation allowable pursuant to section 167(a) of the internal revenue code for the taxable year as computed as if the additional allowance for depreciation had been fifty-five percent of the amount allowed pursuant to section 168(k) of the internal revenue code. (e) In taxable years beginning from and after December 31, 2016, an amount equal to the depreciation allowable pursuant to section 167(a) of the internal revenue code for the taxable year as computed as if the additional allowance for depreciation had been the full amount allowed pursuant to section 168(k) of the internal revenue code. 18. With respect to property that is sold or otherwise disposed of during the taxable year by a taxpayer that complied with section 43-1021, paragraph 11 with respect to that property, the amount of depreciation that has been allowed pursuant to section 167(a) of the internal revenue code to the extent that the amount has not already reduced Arizona taxable income in the current or prior taxable years. 19. The amount contributed during the taxable year to college savings plans established pursuant to section 529 of the internal revenue code on behalf of the designated beneficiary to the extent that the contributions were not deducted in computing federal adjusted gross income. The amount subtracted may not exceed: (a) $2,000 per beneficiary for a single individual or a head of household. (b) $4,000 per beneficiary for a married couple filing a joint return. 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 may not exceed $4,000 per beneficiary. 20. The portion of the net operating loss carryforward that would have been allowed as a deduction in the current year pursuant to section 172 of the internal revenue code if the election described in section 172(b)(1)(H) of the internal revenue code had not been made in the year of the loss that exceeds the actual net operating loss carryforward that was deducted in arriving at federal adjusted gross income. This subtraction only applies to taxpayers who made an election under section 172(b)(1)(H) of the internal revenue code as amended by section 1211 of the American recovery and reinvestment act of 2009 (P.L. 111-5) or as amended by section 13 of the worker, homeownership, and business assistance act of 2009 (P.L. 111-92). 21. For taxable years beginning from and after December 31, 2013, the amount of any net capital gain included in federal adjusted gross income for the taxable year derived from investment in a qualified small business as determined by the Arizona commerce authority pursuant to section 41-1518. 22. An amount of any net long-term capital gain included in federal adjusted gross income for the taxable year that is derived from an investment in an asset acquired after December 31, 2011, as follows: (a) For taxable years beginning from and after December 31, 2012 through December 31, 2013, ten percent of the net long-term capital gain included in federal adjusted gross income. (b) For taxable years beginning from and after December 31, 2013 through December 31, 2014, twenty percent of the net long-term capital gain included in federal adjusted gross income. (c) For taxable years beginning from and after December 31, 2014, twenty-five percent of the net long-term capital gain included in federal adjusted gross income. For the purposes of this paragraph, a transferee that receives an asset by gift or at the death of a transferor is considered to have acquired the asset when the asset was acquired by the transferor. If the date an asset is acquired cannot be verified, a subtraction under this paragraph is not allowed. 23. If an individual is not claiming itemized deductions pursuant to section 43-1042, the amount of premium costs for long-term care insurance, as defined in section 20-1691. 24. The amount of eligible access expenditures paid or incurred during the taxable year to comply with the requirements of the Americans with disabilities act of 1990 (P.L. 101-336) or title 41, chapter 9, article 8 as provided by section 43-1024. 25. For taxable years beginning from and after December 31, 2017, the amount of any net capital gain included in Arizona gross income for the taxable year that is derived from the exchange of one kind of legal tender for another kind of legal tender. For the purposes of this paragraph: (a) "Legal tender" means a medium of exchange, including specie, that is authorized by the United States Constitution or Congress to pay debts, public charges, taxes and dues. (b) "Specie" means coins having precious metal content. 26. Benefits, annuities and pensions received as retired or retainer pay of the uniformed services of the United States in amounts as follows: (a) For taxable years through December 31, 2018, an amount totaling not more than $2,500. (b) For taxable years beginning from and after December 31, 2018 through December 31, 2020, an amount totaling not more than $3,500. (c) For taxable years beginning from and after December 31, 2020, the full amount received. 27. For taxable years beginning from and after December 31, 2020, the amount contributed during the taxable year to an achieving a better life experience account established pursuant to section 529A of the internal revenue code on behalf of the designated beneficiary to the extent that the contributions were not deducted in computing federal adjusted gross income. The amount subtracted may not exceed: (a) $2,000 per beneficiary for a single individual or a head of household. (b) $4,000 per beneficiary for a married couple filing a joint return. 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 may not exceed $4,000 per beneficiary. 28. For taxable years beginning from and after December 31, 2020, Arizona small business gross income but only if an individual taxpayer has elected to separately report and pay tax on the taxpayer's Arizona small business adjusted gross income on the Arizona small business income tax return. 29. To the extent not already excluded from Arizona gross income under the internal revenue code, the value of virtual currency and non-fungible tokens the taxpayer received pursuant to an airdrop at the time of the airdrop. This paragraph may not be interpreted as providing a subtraction for any appreciation in value that occurs from holding the virtual currency after the initial receipt of the airdrop. For the purposes of this paragraph: (a) "Airdrop" means the receipt of virtual currency through a means of distribution of virtual currency to the distributed ledger addresses of multiple taxpayers. (b) "Non-fungible token" has the same meaning prescribed in section 43-1028. (c) "Virtual currency" has the same meaning prescribed in section 43-1028. 30. The amount allowed as a subtraction by section 43-1028 for gas fees not already included in the taxpayer's virtual currency or non-fungible token basis. 31. For taxable years beginning from and after December 31, 2024, to the extent not already excluded from Arizona gross income under the internal revenue code, the amount of qualified tips received during the taxable year that is deducted under section 224 of the internal revenue code. 32. For taxable years beginning from and after December 31, 2024, to the extent not already excluded from Arizona gross income under the internal revenue code, the amount of qualified overtime compensation received during the taxable year that is deducted under section 225 of the internal revenue code. 33. For taxable years beginning from and after December 31, 2025, to the extent not already excluded from Arizona gross income under the internal revenue code, the amount of a distribution from an account established pursuant to section 530A of the internal revenue code. 34. For taxable years beginning from and after December 31, 2025, to the extent not already excluded from Arizona gross income under the internal revenue code, the amount of child and dependent care expenses for a qualifying individual under section 21 of the internal revenue code paid or incurred by the taxpayer for the taxable year that exceeds the amount of the federal credit that the taxpayer received under section 21 of the internal revenue code. 35. For taxable years beginning from and after December 31, 2024, to the extent not already excluded from Arizona gross income under the internal revenue code, the amount deducted for a qualified individual under section 151(d)(5)(C) of the internal revenue code. 36. For taxable years beginning from and after December 31, 2024 through December 31, 2025, to the extent not already excluded from Arizona gross income under the internal revenue code, the amount deducted for qualified passenger vehicle loan interest under section 163(h)(4) of the internal revenue code. 43-1023. Exemptions for blind persons and persons sixty-five years of age or older A. A taxpayer is allowed an exemption of $1,500: 1. For a taxpayer who is blind or if either the taxpayer's central visual acuity does not exceed 20/200 in the better eye with correcting lenses or the taxpayer's visual acuity is greater than 20/200 but is accompanied by a limitation in the fields of vision such that the widest diameter of the visual field subtends an angle not greater than twenty degrees. 2. For the taxpayer's spouse if a separate return is made by the taxpayer and if the spouse is blind as described in paragraph 1 of this subsection, has no Arizona adjusted gross income for the calendar year in which the taxable year of the taxpayer begins and is not the dependent of another taxpayer. For the purposes of this paragraph, the determination of whether the spouse is blind shall be made at the close of the taxable year of the taxpayer. If the spouse dies during the taxable year, the determination shall be made as of the time of the spouse's death. B. A taxpayer is allowed an exemption of $2,300 for: 1. Each person sixty-five years of age or older regardless of the person's relationship to the taxpayer: (a) If the taxpayer pays more than one-fourth of the total cost of maintaining that person in a nursing care institution or residential care institution licensed pursuant to title 36, chapter 4, or an assisted living facility provider of a type certified pursuant to title 11, chapter 2, article 7, if such payments exceed $800 in the taxable year. (b) If the taxpayer otherwise makes payments exceeding $800 in the taxable year for home health care or other types of medical care. 2. For taxable years beginning from and after December 31, 2003, each birth for which a certificate of birth resulting in stillbirth has been issued pursuant to section 36-330 if the child otherwise would have been a member of the taxpayer's household. The taxpayer may claim the exemption under this paragraph only in the taxable year in which the stillbirth occurred. C. For taxable years beginning from and after December 31, 1998, a resident taxpayer is allowed an exemption of $10,000 for each parent or ancestor of a parent of the taxpayer, who is sixty-five years of age or older, who requires assistance with activities of daily living and who lives in the taxpayer's principal residence for the entire taxable year, if the taxpayer pays more than one-half of the person's total support and maintenance costs. An exemption under this subsection is in lieu of an exemption under subsection B of this section for the same person. D. An exemption under subsection B or C of this section is in lieu of claiming a credit for the same person under section 43-1073.01. E. A taxpayer is allowed an exemption of $2,100: 1. If the taxpayer has attained sixty-five years of age before the close of the taxable year filing a separate or joint return and the taxpayer is not claimed as a dependent by another taxpayer. 2. For the taxpayer's spouse if the spouse has attained sixty-five years of age before the close of the taxable year, a joint return is filed and the spouse is not a dependent of another taxpayer. 43-1024. Americans with disabilities act access expenditures A. For taxable years beginning from and after December 31, 2017, in computing Arizona adjusted gross income, a subtraction is allowed under section 43-1022, paragraph 24 for eligible business access expenditures paid or incurred by the taxpayer during the taxable year in order to comply with the requirements of the Americans with disabilities act of 1990 (P.L. 101-336) or title 41, chapter 9, article 8 by retrofitting developed real property that was originally placed in service at least ten years before the current taxable year. B. For the purposes of this section, eligible business access expenditures include reasonable and necessary amounts paid or incurred to: 1. Remove any barriers that prevent a business from being accessible to or usable by individuals with disabilities. 2. Provide qualified interpreters or other methods of making audio materials available to hearing-impaired individuals. 3. Provide qualified readers, taped texts and other effective methods of making visually delivered materials available to individuals with visual impairments. 4. Acquire or modify equipment or devices for individuals with disabilities. 5. Provide other similar services, modifications, materials or equipment. C. A taxpayer who has been cited for noncompliance with the Americans with disabilities act of 1990 or title 41, chapter 9, article 8 by either federal or state enforcement officials is ineligible for a subtraction under this section for any expenditure required to cure the cited violation. 43-1025. Agricultural crops contributed to charitable organizations; definitions A. 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: 1. Exceed the wholesale market price or the most recent sale price for the contributed crop, whichever is greater. 2. Include any amount deducted pursuant to section 170 of the internal revenue code with respect to crop contribution that exceeds the cost of producing the contributed crop. C. The contribution qualifies for a subtraction under this section only if all of the following apply: 1. 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. 2. The crop is not transferred by the donee charitable organization in exchange for money, other property or services. 3. 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. 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. 43-1026. Additions and subtractions; Arizona small business income tax returns A taxpayer who elects to file an Arizona small business income tax return under section 43-302 for the taxable year may not make the additions or subtractions under section 43-1021 or 43-1022 to the taxpayer's individual income tax return for amounts that are correctly made as additions or subtractions on the taxpayer's Arizona small business income tax return under section 43-1721. 43-1027. Subtraction for wood stoves, wood fireplace or gas fired fireplaces; definitions A. For taxable years beginning from and after December 31, 1993, 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. 43-1028. Sale of virtual currency or non-fungible tokens; calculation of gain or loss; gas fees; subtraction; definitions A. If a taxpayer has included in Arizona gross income a gain or loss on the sale of virtual currency or a non-fungible token and in calculating the gain or loss the taxpayer did not include in the basis of the virtual currency or non-fungible token any gas fees paid on the purchase of the virtual currency or non-fungible token or did not otherwise deduct these gas fees in determining Arizona gross income, the taxpayer may subtract the amount of the gas fees from Arizona gross income. B. For the purposes of this section: 1. "Foreign currency" means the coin and paper money of a country other than the United States that is designated as legal tender, circulates and is customarily used and accepted as a medium of exchange in the country of issuance. 2. "Gas fee" means a fee paid to the operator of a virtual network for the use of the network to facilitate the purchase, sale or exchange of virtual currency or a non-fungible token. 3. "Non-fungible token" means a non-fungible cryptographic asset on a blockchain that possesses unique identifiers or other metadata that distinguishes the asset from another token or asset in a manner that makes the asset irreplaceable and nonexchangeable for a similar token or asset. 4. "Virtual currency" means a digital representation of value that functions as a medium of exchange, a unit of account and a store of value other than a representation of the United States dollar or a foreign currency. 43-1029. Restoration of a substantial amount held under claim of right; computation of tax A. This section applies if: 1. An item of income was included in gross income for a prior taxable year or years because it appeared that the taxpayer had an unrestricted right to the item. 2. A deduction would be allowable under the internal revenue code or this title for the taxable year, without application of section 1341(b)(3) of the internal revenue code or section 43-1021, paragraph 9, because after the close of the prior taxable year or years it was established that the taxpayer did not have an unrestricted right to all or part of the item. 3. The amount of the deduction exceeds $3,000. B. If all of the conditions in subsection A of this section apply, the tax imposed by this chapter for the taxable year is an amount equal to the tax for the taxable year computed without the deduction, minus the decrease in tax under this chapter for the prior taxa