A.R.S. tit. 43 ch. 17 — Arizona Revised Statutes Title 43 Chapter 17 — Small Businesses

43-1701. Definitions In this chapter, unless the context otherwise requires: 1. "Arizona small business" means an activity that generates Arizona small business gross income. 2. "Arizona small business adjusted gross income" of a resident taxpayer means the Arizona small business gross income subject to the adjustments provided in article 3 of this chapter. 3. "Arizona small business gross income" of a resident taxpayer: (a) Means the sum of the amounts, whether positive or negative, that are included in a taxpayer's federal adjusted gross income for the taxable year, computed pursuant to the internal revenue code, and that are reported on the following schedules and forms or on equivalent successor schedules and forms designated by the internal revenue service: (i) Schedule B, interest and ordinary dividends. (ii) Schedule C, profit or loss from business. (iii) Schedule E, supplemental income or loss. (iv) Schedule F, profit or loss from farming. (v) Form 4797, sale of business property. (vi) Form 4835, farm rental income and expenses. (b) Includes any amount reported on schedule D, capital gains and losses, that is recognized with respect to either the taxable disposition of an ownership interest in any entity other than a publicly traded entity, or the taxable disposition of capital assets used in connection with a trade or business activity, including goodwill and going concern value. 4. "Arizona small business taxable income" of a resident taxpayer means the Arizona small business adjusted gross income minus any deductions allowable in article 4 of this chapter. 43-1702. Rules The department may adopt rules and publish and prescribe forms necessary to administer this chapter. 43-1711. Taxes and tax rate If an Arizona small business taxpayer makes the election pursuant to section 43-302, there shall be levied, collected and paid for each taxable year on the Arizona small business taxable income taxes as determined in the following manner: 1. For taxable years beginning from and after December 31, 2020 through December 31, 2021, an amount equal to 3.5% of the Arizona small business taxable income. 2. For taxable years beginning from and after December 31, 2021 through December 31, 2022, an amount equal to 3.0% of the Arizona small business taxable income. 3. For taxable years beginning from and after December 31, 2022, an amount equal to 2.5% of the Arizona small business taxable income. 43-1721. Additions and subtractions to Arizona small business gross income In computing Arizona small business adjusted gross income, the additions and subtractions provided in sections 43-1021 and 43-1022 shall be made but only to the extent the additions and subtractions directly relate to Arizona small business gross income. The subtraction provided in section 43-1022, paragraph 28 may not be included as a subtraction under this chapter. 43-1731. Deductions Deductions other than those deductions already reflected in the net amounts reported on the federal schedules prescribed in section 43-1701 may not be taken against Arizona small business adjusted gross income in computing Arizona small business taxable income. 43-1741. Credit for income taxes paid to other states; definitions A. Subject to the following conditions, residents of this state are allowed a credit against the taxes imposed by this chapter for net income taxes imposed by and paid to another state or country on income taxable under this chapter: 1. The credit is allowed only for taxes paid to the other state or country on income that is derived from sources within that state or country and that is taxable under its laws irrespective of the residence or domicile of the recipient. 2. The credit is not allowed if the other state or country allows residents of this state a credit against the taxes imposed by that state or country for taxes paid or payable under this chapter. 3. The credit may not exceed the proportion of the tax payable under this chapter as the small business income subject to tax in the other state or country and also taxable under this chapter bears to the taxpayer's entire small business income on which the tax is imposed by this chapter. B. If any taxes paid to another state or country for which a taxpayer has been allowed a credit under this section are at any time credited or refunded to the taxpayer: 1. The taxpayer shall immediately report that fact to the department. 2. A tax equal to the credit allowed for the taxes credited or refunded by the other state or country is due and payable from the taxpayer on notice and demand from the department. 3. Interest shall be added to and collected as a part of the tax at the rate determined pursuant to section 42-1123 from the date the credit was allowed under this chapter to the date of the notice and demand. 4. If the tax and interest are not paid within ten days after the date of notice and demand, there shall be collected as a part of the tax interest on the unpaid amount of tax and interest at the rate of twelve percent a year from the date of the notice and demand until the amount is paid. C. The credit against the taxes imposed by this chapter for net income taxes paid to another state or country is not allowed to any taxpayer or any class of taxpayers if the allowances of the credit will result in any invalid or illegal discrimination against another taxpayer or another class of taxpayers. D. Subject to the following conditions, a resident of this state, who is also considered to be a resident of another state under the laws of the other state, is allowed a credit against the taxes imposed by this chapter for net income taxes imposed by and paid to that state on income taxable under this chapter as follows: 1. The credit is allowed only if the other state taxes the income to the resident of this state and does not allow the taxpayer a credit against taxes imposed by that state on that income for taxes paid or payable on that income under this chapter. 2. The credit is allowed only for the proportion of the taxes paid to the other state as the income taxable under this chapter and also subject to tax in the other state bears to the entire income under this chapter on which the taxes paid to the other state are imposed. 3. The credit may not exceed the proportion of the tax payable under this chapter as the income taxable under this chapter and also subject to tax in the other state bears to the entire income taxable under this chapter. 4. For the purpose of the credit allowed under this subsection, "income taxable under this chapter and also subject to tax in the other state" means income that would be sourced to the other state if the other state were imposing its income tax on the taxpayer as if the taxpayer was a nonresident of that other state. E. The taxpayer may apply the allowable credit only against Arizona income tax for the same taxable year in which the income is subject to tax in the other state. F. A small business taxpayer who participates in a composite income tax return in another state may claim a credit for taxes paid to the other state if the taxpayer meets all the requirements of this section and the taxes paid to the other state are imposed on and paid directly by the small business taxpayer and not the entity. For the purposes of this subsection, taxes are considered to be imposed on and paid directly by the small business taxpayer under one or more of the following circumstances: 1. The small business taxpayer makes direct payment to the other state. 2. The small business taxpayer makes direct payment to the entity filing the composite income tax return. 3. The entity charges the small business taxpayer's loan account for the amount of the tax. 4. The entity reduces the small business taxpayer's capital account. G. If the taxpayer claims the credit for taxes paid to a foreign country, the taxpayer shall use the conversion rate in effect on the date the taxpayer paid the taxes to the foreign country. H. For the purposes of this section: 1. "Composite income tax return" means a single income tax return that is filed with another state on behalf of a group of small business taxpayers who are partners or shareholders of the partnership or S corporation that filed the return on their behalf. 2. "Entire small business income on which the tax is imposed by this chapter" means Arizona small business adjusted gross income as defined and computed under section 43-1701. 3. "Income subject to tax in the other state or country and also taxable under this chapter" means the portion of income that is included in the entire income on which the tax is imposed by this chapter that is also included in the entire small business income on which the other state's or country's tax is imposed. The taxpayer shall increase or reduce the portion of income that is included in the entire small business income on which the tax is imposed by this chapter by any related additions under section 43-1021 and by any related subtractions under section 43-1022. The taxpayer shall increase or reduce the portion of income that is included in the entire small business income on which the other state's or country's tax is imposed by any related additions and subtractions under the other state's equivalent of sections 43-1021 and 43-1022, as applicable. 4. "Net income tax": (a) Means: (i) A tax that grants deductions or exemptions from gross income. (ii) Any tax imposed by another country that qualifies for a credit under sections 901 and 903 of the internal revenue code and the regulations under those sections, even if withheld from income. (b) Except as specifically included in subdivision (a) of this paragraph, does not include: (i) A system of taxation that assesses taxes on gross income, gross receipts or gross dividends. (ii) Taxes withheld from income. 5. "Small business income on which the other state's or country's tax is imposed" means the other state's or country's income computed under the equivalent of section 43-1094 but does not include any exemption allowable under the equivalent of section 43-1023. 6. "Tax payable under this chapter" means the income tax imposed by this state on the taxpayer's taxable income as defined by section 43-1001 minus any tax credit amount claimed for the taxable year under this article but not including the credit amount allowed under this section. 43-1742. Individual income tax credits; applicability The credits allowed under chapter 10, article 5 of this title are allowed against the tax due under this chapter to the extent the credit is derived from items otherwise included in computing Arizona small business gross income. To the extent the credits allowed by this section exceed the tax due under this chapter for the taxable year, the excess amount of the credits claimed by the Arizona small business is allowed as a credit against the tax imposed on the small business taxpayer under chapter 10 of this title. 43-1751. Nonresidents Notwithstanding any other law, chapter 10, article 6 of this title applies in the case of nonresidents such that Arizona small business gross income includes only that portion of federal adjusted gross income that represents income from sources within this state. All other provisions of chapter 10, article 6 of this title apply to the extent the provisions directly relate to Arizona small business gross income.