PHOENIX — The head of the Senate Finance Committee says the Arizona Department of Revenue is misleading many Arizonans by urging them to file their state taxes now, even though legislators have yet to decide changes in the law that could affect what they owe.
In an extensive hearing Monday, Chandler Republican Sen. J.D. Mesnard grilled department employees about the advisory issued last week telling Arizonans not to wait to file.
The advisory was based on the premise that nearly 90% of individuals will not itemize their expenses and will take the standard deduction. And there does appear to be agreement between Democratic Gov. Katie Hobbs and Republican legislative leaders that they will increase that figure to conform with changes made in federal law — and conform with changes Hobbs ordered the revenue department to put into the already prepared forms.
But there are other proposed changes in the law where the governor and lawmakers differ. Potentially more significant, there are also several that are in the federal law — the way the Department of Revenue prepared the forms — that neither Hobbs nor GOP lawmakers want.
As a result, Molly Murphy, the department's director of legislative affairs, conceded that a third of Arizonans, if they follow the "file now'' advice, could have to redo their taxes and file amended returns with an updated figure of what they actually owe.
Mesnard said that creates not just hassles for those affected but also financial obligations if they have to go back to a tax preparer.
He said it also means the Department of Revenue will have to reprocess perhaps a third of tax returns — that's about a million of them. Mesnard said that, too, comes with a cost, estimated at $20 million.
All this is occurring against a political backdrop of Hobbs and Republican lawmakers wanting competing plans for providing tax relief.
Sen. J.D. Mesnard, R-Chandler
Both sides start with what Congress approved last year in the "Big Beautiful Bill,'' which includes not only a higher standard deduction but also an elimination of tax on tips and overtime.
Hobbs also wants an additional $6,000 deduction for those 65 and older, and another deduction paid on interest by people who finance the purchase of a new, built-in-the-USA vehicle.
All those are in the tax forms that the governor told the revenue department to produce.
Republican lawmakers have a different deduction for those age 60 and up for money from retirement accounts. And they want tax breaks for child care. The GOP plan also includes some tax cuts for businesses.
There is no deal. In fact, Hobbs vetoed the Republican plan last week.
Yet the Department of Revenue was telling people to go ahead and file now.
"Why should they not wait?'' Mesnard asked.
Murphy responded, "Based on our understanding of the different provisions that are being discussed between the Llegislature and the Governor's Office, two-thirds of people won't be affected by any of those debates."
What about the other third, Mesnard asked? "Your directive to everybody was, 'No, don't wait to file,' '' he said.
"Anyone who's read this, to the extent they may not have any awareness of what's happening here (at the Capitol), they are now more confident, 'Yeah, we should definitely file,' '' he told Murphy. "Isn't that increasing the likelihood of amended returns?''
Mesnard said that advice is even worse because "it's only January,'' while returns aren't due until April 15.
Murphy said the department was doing what it thought was right to minimize the number of people who need to file amended returns. But she conceded there will be those who, if they file now, will be back at it once the governor and legislature reach a deal.
She acknowledged that could come with a cost to the state. "If a million people are to amend their returns, that would cost approximately $20 million for the department to process,'' she said, especially if it tries to stick to its promise to process returns within 60 days.
Mesnard said that proves his point. "Why urge people to file today?'' he asked, if each amended return costs the state $20. "Why would you do that?''
Murphy said the advice to all taxpayers to file now — and hope that they won't have to file an amended return — "was designed to provide more clarity.''
"I understand that it didn't,'' she acknowledged, saying the department is now trying to "nuance'' that message. Those who could be impacted by what the governor and lawmakers decide "should take a look at their specific circumstance'' to decide when to file, Murphy said.
Mesnard told Murphy the department should get out that new message — and soon.
There was no immediate answer from a department spokeswoman about whether that will happen.
