A.R.S. tit. 43 ch. 9 — Arizona Revised Statutes Title 43 Chapter 9 — General Accounting Provisions

43-901. Taxable income computation Taxable income shall be computed on the basis of the taxpayer's taxable year as defined in section 441 of the internal revenue code. 43-902. Period in which deductions and credits to be taken The deductions and credits provided for in this title shall be taken for the taxable year in which "paid or accrued" or "paid or incurred", dependent upon the method of accounting upon the basis of which the taxable income is computed, unless in order clearly to reflect the income the deductions or credits should be taken as of a different period. In the case of the death of a taxpayer whose taxable income is computed upon the basis of the accrual method of accounting, amounts except amounts includible in computing a partner's taxable income under section 43-1412, accrued as deductions and credits only by reason of the death of the taxpayer, shall not be allowed in computing taxable income for the period in which falls the date of the taxpayer's death. 43-921. Computation of tax when law changed The tax for any period beginning in one calendar year ("first calendar year") and ending in the following calendar year ("second calendar year") where the law applicable to the computation of taxes for taxpayers reporting on a calendar year basis differs for the second calendar year from the law applicable to the first calendar year, shall, except as otherwise provided, be the sum of paragraphs 1 and 2: 1. The same proportion of a tax for the entire period, determined under the law applicable to the first calendar year and at the rates for such year, which the portion of such period falling within the first calendar year is of the entire period. 2. The same proportion of a tax for the entire period, determined under the law applicable to the second calendar year and at the rates for such year, which the portion of such period falling within the second calendar year is of the entire period. 43-922. Payment or refund of tax when law changed If any tax which has been paid under the law applicable to the first calendar year exceeds the tax imposed by section 43-921, the excess shall be refunded or credited to the taxpayer. Any tax in addition to that paid under the law applicable to the first calendar year made necessary by such section is immediately due and payable upon notice and demand from the department. 43-923. Change in tax rates If any rate of tax imposed by this title changes and if the taxable year includes the effective date of the change, unless that date is the first day of the taxable year, then: 1. Tentative taxes shall be computed by applying the rate for the period before the effective date of the change, and the rate for the period on and after such date, to the taxable income for the entire taxable year. 2. The tax for such taxable year shall be the sum of that proportion of each tentative tax which the number of days in each period bears to the number of days in the entire taxable year. 43-931. Change of accounting period; computation of income; due date of return If a separate return is made under section 443 of the internal revenue code on account of a change in the accounting period, and in all other cases in which a separate return is required or allowed by treasury regulations to be made for a fractional part of a year, the income shall be computed on the basis of the period for which the separate return is made. Except for partnership and S corporation returns, the due date of the separate return for the period is the fifteenth day of the fourth month following the close of that period unless the short period return is due to a change in ownership of a corporation, in which case the due date shall be determined pursuant to treasury regulations. For a partnership or S corporation, the due date of the separate return for the period is the fifteenth day of the third month following the close of that period. 43-932. Return for a taxpayer not in existence throughout a complete taxable year In the case of a taxpayer not in existence during the whole of an annual accounting period ending on the last day of a month or if the taxpayer has no annual accounting period or does not keep books during the whole of a calendar year, the return shall be made for the fractional part of the year during which the taxpayer was in existence. 43-941. Allocation in the case of affiliated taxpayers A. In any case of two or more persons, organizations, trades or businesses, whether or not organized in the United States and whether or not affiliated, owned or controlled directly or indirectly by the same interests, the department may distribute, apportion or allocate gross income, deductions, credits or allowances between or among such taxpayers, if it determines that such distribution, apportionment or allocation is necessary in order to prevent evasion of taxes or clearly to reflect the income of any such taxpayers. B. For the purpose of enforcing this section, the department may require the filing of a combined report and such other information as it deems necessary unless the taxpayer has elected or is required to file a consolidated return pursuant to section 43-947. 43-942. Allocation in the case of controlled corporations A. In any case of two or more corporations owned or controlled directly or indirectly by the same interests, the department may distribute, apportion or allocate gross income, deductions, credits or allowances between or among such taxpayers, if it determines that such distributions, apportionment or allocation is necessary in order to prevent evasion of taxes or clearly to reflect the income of any such taxpayer. B. For the purpose of enforcing this section, the department may require the filing of a combined report and such other information as it deems necessary unless the taxpayer has elected or is required to file a consolidated return pursuant to section 43-947. 43-943. Allocation in the case of husband and wife If husband and wife file separate returns, the department may distribute, apportion or allocate gross income between the spouses, if it is determined that such distribution, apportionment or allocation is necessary in order to reflect the proper income of the spouses. 43-944. Disclosure by department of basis of allocation If the department reallocates income or deductions upon its examination of any return, it shall, upon the written request of the taxpayer, disclose to him the basis upon which its reallocation has been made. 43-945. Allocation of exemptions for blind persons and persons over sixty-five years of age In the case of a return made for a fractional part of the year, the exemptions allowed under section 43-1023 shall be reduced respectively to an amount that bears the same ratio to the full exemptions provided as the number of months in the period for which the return is made bears to twelve months. 43-946. Transactions between corporations and affiliated taxpayers In the case of a corporation doing business within the meaning of this title, whether under agreement or otherwise, in such manner as either directly or indirectly to benefit any members or stockholders of the corporation or any person or persons directly or indirectly interested in such business by rendering services of any nature whatsoever or acquiring or disposing of its products or the goods or commodities in which it deals, at less than a fair price therefor, the department, in order to prevent evasion of taxes or clearly to reflect the income of such corporation, may require a report of such facts as it deems necessary and may determine the amount which shall be deemed to be the entire taxable income allocable to this state of the business of such corporation for the calendar or fiscal year and compute the tax upon such taxable income. In determining the entire taxable income the department shall have regard to the fair profits which, but for any agreement, arrangement or understanding, might be or could have been obtained from dealing in such products, goods or commodities. 43-947. Consolidated returns by an affiliated group of corporations; definitions A. On or before the due date, including any extensions, for filing the original return for taxable years beginning from and after December 31, 1993, the common parent of an affiliated group may elect to consolidate the taxable income of all members of the affiliated group, regardless of whether each member is subject to tax under this title. B. The affiliated group shall file a consolidated return for the year of election and for each succeeding taxable year, unless the department consents to a change of filing method. The election under subsection A by the common parent of the affiliated group is not effective unless it is accompanied by written consents to the election signed by each of the members of the affiliated group. In taxable years after the year of the election, a corporation that was not a member of the Arizona affiliated group in the year of the election but is a member of the affiliated group in the current year is considered to have waived any objection to the filing of the consolidated return to this state by its consent, if any, to join in filing a federal consolidated return pursuant to section 1501 of the internal revenue code by the election previously made by the common parent of the Arizona affiliated group and by the consent of the other members of the Arizona affiliated group previously given and shall be included in the Arizona affiliated group. C. The department may require a consolidated return for an affiliated group that is eligible, but has not elected, to file a consolidated return under this section if the department determines that a consolidated return is necessary to prevent evasion of taxes or to clearly reflect the taxable income that is attributable to the business conducted in this state by the affiliated group. D. An affiliated group may file a consolidated return to this state only if the affiliated group properly elected or was required to file a consolidated federal return under section 1501 of the internal revenue code. E. The Arizona gross income of an Arizona affiliated group is the consolidated federal taxable income of the affiliated group. F. The affiliated group shall allocate and apportion its income to this state in the manner prescribed in chapter 11, article 4 of this title. For the purposes of allocation and apportionment of income, the Arizona affiliated group is considered to be and shall be treated as a single taxpayer. G. The department may adopt administrative rules as appropriate to implement this title and title 42 as they relate to consolidated returns by Arizona affiliated groups. H. For any tax year, all members of an Arizona affiliated group that elected or were required to file a consolidated return to this state under this section are jointly and severally liable for the taxes, interest and penalties of the Arizona affiliated group under this title and title 42. I. As used in this section: 1. "Affiliated group" means the corporations that have properly elected or are required to file consolidated federal income tax returns under section 1501 of the internal revenue code. 2. "Arizona affiliated group" means the corporations for which a proper election to file a consolidated return under this section has been made or the corporations that are required to file a consolidated return under subsection C. 43-951. Assessment against transferee for tax The taxes imposed by this title upon any taxpayer other than a transferee, for whose payment any bank or person other than the taxpayer is liable at law or in equity, may be assessed against such bank or person in the same manner as is provided in chapter 5 of this title for the assessment of deficiencies and may be assessed within the periods specified in section 43-953. The provisions of this section and other provisions of this title respecting the collection of taxes shall apply to the collection of such taxes from such bank or person to the same extent and with the same force and effect as though such bank or person were the taxpayer. 43-952. Liability of transferee of assets A. The amounts of the following liabilities, except as hereinafter provided in this section and section 43-953, shall be assessed, collected and paid in the same manner and subject to the same provisions and limitations as in the case of a deficiency in a tax imposed by this title, including the provisions in the case of a delinquency in payment after notice and demand, the provisions authorizing proceeding in court for collection and the provisions prohibiting claims and suits for refunds: 1. The liability, at law or in equity, of a transferee of property of a taxpayer, in respect of the tax, including interest, additional amounts and additions to the tax provided by law, imposed upon the taxpayer by this title. 2. The liability of a fiduciary under this title, in respect of the payment of any such tax from the estate of the taxpayer. B. Any such liability may be either as to the amount of tax shown on the return or as to any deficiency in tax. 43-953. Period of limitation relating to transferees The period of limitation for assessment of such liability of a transferee or fiduciary of the taxpayer shall be as follows: 1. In the case of the liability of an initial transferee of the property of the taxpayer, within one year after the expiration of the period of limitation for assessment against the taxpayer. 2. In the case of the liability of a transferee of a transferee of the property of the taxpayer, within one year after the expiration of the period of limitation for assessment against the preceding transferee but only if within three years after the expiration of the period of limitation for assessment against the taxpayer, except that if before the expiration of the period of limitation for the assessment of the liability of the transferee of a transferee a court proceeding for the collection of the tax or liability in respect thereof has been begun against the taxpayer or last preceding transferee, respectively, the period of limitation for assessment of the liability of the transferee of a transferee shall expire one year after the return of execution in the court proceeding. 3. In the case of the liability of a fiduciary, not later than one year after the liability arises or not later than the expiration of the period for collection of the tax in respect of which such liability arises, whichever is the later. 4. If before the expiration of the time prescribed in paragraph 1, 2 or 3 for the assessment of the liability, both the department and the transferee or fiduciary have consented in writing to its assessment after such time, the liability may be assessed at any time prior to the expiration of the period agreed upon. The period so agreed upon may be extended by subsequent agreements in writing made before the expiration of the period previously agreed upon. 43-961. Items not deductible in computation of taxable income In computing taxable income no deduction shall in any case be allowed in respect of: 1. Personal, living or family expenses, except medical expenses allowed pursuant to section 43-1042. 2. With respect to financial institutions, as defined in section 6-101, that portion of any amount otherwise allowable as an interest expense deduction pursuant to the internal revenue code and determined by dividing the total of the amount of interest income received on obligations of the United States, this state or any political subdivision of this state by the sum of tax exempt interest as defined in section 103 of the internal revenue code plus gross income determined pursuant to the internal revenue code, and by multiplying the result thus obtained by any interest deduction allowed pursuant to section 163 or 591 of the internal revenue code without regard to the application of section 265 of the internal revenue code, and by adding to such result an amount equal to ten per cent of the total of the amount of interest income received on obligations of the United States, this state or any political subdivision of this state. The total amount disallowed by operation of this paragraph shall be reduced to the extent such disallowance would cause the tax payable by the financial institution under this title to exceed the total of gross income determined pursuant to the internal revenue code, plus 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 this state, less the amount of interest income received on obligations of the United States. 3. Any amount paid or accrued on indebtedness incurred or continued to purchase a single premium life insurance or endowment contract. For the purposes of this paragraph, if substantially all the premiums of a life insurance or endowment contract are paid within a period of four years from the date on which such contract is purchased, such contract shall be considered a single premium life insurance or endowment contract. 4. Expenses attributable to Arizona gross income derived from illegal activities nor shall any deductions be allowed to any taxpayer on any of his Arizona gross income derived from any other activities which tend to promote or to further, or are connected or associated with, such illegal activities. 5. Any amount, not otherwise provided for by this section, that would otherwise be allowable as a deduction or an adjustment, which is allocable to one or more classes of income, whether or not any amount of income of that class or classes is received or accrued, and that is not required to be included in a person's Arizona adjusted gross income or Arizona taxable income.