PHOENIX — Saying Arizonans deserve certainty, the House and Senate on Wednesday approved a package of tax cuts that mirror what Congress enacted last year and what's in the tax forms already printed by the Arizona Department of Revenue at the direction of Democratic Gov. Katie Hobbs and are being used by state taxpayers.
But the victory for GOP lawmakers will be short lived: Hobbs already has pronounced the package dead on arrival when it reaches her desk. And in a statement late Wednesday, she accused Republican lawmakers, in approving this bill — and not just the tax cuts she wants — of "holding middle class tax cuts hostage to deliver tax breaks to special interests and billionaires.''
That leaves millions of Arizonans wondering whether to file their 2025 tax returns now, given that there is no deal on how much the state will cut income taxes and who will benefit.
Hobbs previously vetoed a measure which contained some parts of the federal law but with alternations Republicans wanted.
Gov. Katie Hobbs
Instead, she told them to approve just the parts she wants, with a promise to consider their demands at some future date.
GOP lawmakers aren't buying it.
More immediate, however, is that what's in the governor's plan does not match what's on the tax forms that Hobbs directed the state agency last year to prepare, the ones being used now. And that means that, even if she were to get her way, some percentage of taxpayers who use the current forms would have to file amended returns.
The message Wednesday from GOP leaders is that, two months before taxes are due, it's time for both sides to move on and give taxpayers assurance they can file without fear of having to do it again — even if neither they nor the governor are happy with the results.
"This is the right thing to do for all Arizonans,'' said Rep. Justin Olson, pointing out that what is in the legislation simply conforms to what is already in those tax forms.
"Taxpayers are filing their tax returns today,'' said the Mesa Republican. In fact, the Department of Revenue reports nearly 626,000 Arizonans already have filed, close to one out of every seven.
"And those tax returns are on forms that will only comply with the law if we adopt this bill and the governor signs it,'' Olson said.
He said there is no other reasonable alternative.
"The only other scenario is that a million taxpayers — a million Arizona taxpayers — will have to amend their return and cut a new check to the state,'' Olson said. "It will increase their taxes and create a significant amount of filing burden for Arizona taxpayers. That's the wrong thing to do.''
Sen. Mitzi Epstein said Republicans are making too much of an issue of the fact that some people will need to file amended tax returns if the governor's plan is adopted. The Tempe Democrat claimed that most of those affected will be the most wealthy and business owners, though there are disputes about that.
Anyway, Epstein pointed out, state law says that there are no penalties or interest if people file their taxes now, using the forms available, and then end up having to refile and owing more because of a subsequent change in the law.
But Sen. J.D. Mesnard, who sponsored the Senate version of the plan, said that ignores the fact that the Department of Revenue itself reported that unless lawmakers adopt a tax package that conforms with the forms already printed, a third of all 3.7 million taxpayers will have to file those amended returns.
"That is not a drop in the bucket,'' said the Chandler Republican.
Even if there is no state-imposed financial penalty, Mesnard said that still means having to pay a tax preparer to redo the taxes or, for those who do their own taxes, "go through the headache'' of refiling.
And Mesnard said there will be a political price to pay if more than a million Arizonans find they have to do their taxes all over again, all because the governor wouldn't sign this bill.
"You can own that in the election,'' he said to Democrats in the Senate and, by extension, to the governor who is seeking a new four-year term.
"We're not going to support something that makes people amend their returns,'' Mesnard said. "Take the opposite position and see what happens in November.''
Senate President Warren Petersen said the governor has no one but herself to blame.
"It would be completely reckless and irresponsible for the governor to put out a form and filers file their taxes and then later tell those taxpayers, 'Oh, sorry, not only do you have to amend your tax return, you have to pay more,' '' said the Gilbert Republican.
Senate Minority Leader Priya Sundareshan did not dispute that what's in the bill being sent to the governor actually mirrors what's on the tax forms.
It includes some things both the governor and Republicans want, like increasing the standard deduction by $1,500 and eliminating taxes on tips and overtime.
It also has an additional $6,000 deduction for seniors 65 and older that's also in the federal law. Hobbs wants that; the GOP plan prefers a deduction for those 60 and older — but only against their pension or retirement benefits.
What's also in the bill that mirrors the federal law allows businesses to immediately deduct the cost of purchasing new equipment faster versus having to write it off over time. Republicans like that; Hobbs does not.
There's also a provision that allows individuals to deduct up to $40,000 to offset what they pay in state and local taxes, one that mainly benefits those who are rich enough to have such high tax bills. And another one allows people who buy new cars built in this country to deduct their interest payments on their car loans, whether they itemize expenses or not.
Neither of those are in the Hobbs or GOP plans. But they are in what was approved Wednesday because it happens to match the federal law — and the already prepared tax forms — allowing Arizonans to file their 2025 income taxes now and pretty much forget about it.
Sundareshan, a Tucson Democrat, said that's unacceptable because there is no plan to make up the $440 million that the measure would cut state revenues.
That theme was echoed in choreographed comments by House Democrats.
"The Republicans have no plan to pay for this tax cut for the wealthy and large corporations,'' they recited in turn, each singling out a program that could be cut, ranging from health care for the poor to utility assistance, aid for higher education, and rural health care.
But Mesnard said he's convinced it's possible to cut $440 million from a state budget that exceeds $18 billion.
Arizona Gov. Katie Hobbs has pronounced a GOP-led tax package approved Wednesday by the state House and Senate dead on arrival.
And then there's the separate question of whether the budget presented by the governor — the one that includes the higher standard deduction and the tax breaks on tips, overtime and for seniors — is itself balanced.
It is — on paper.
But Hobbs' plan is built on the state getting some revenues that may never develop, like her belief that the Trump administration will accede to Arizona's request for $760 million as reimbursement for money the state spent on border security since 2021.
It also presumes that GOP lawmakers will put an income cap on which families are eligible for vouchers of taxpayer funds to send their children to private and parochial schools as well as do home schooling. That proposal, with a $90 million savings, has been pronounced a non-starter by Republicans.
And Hobbs also is counting on Republicans to raises taxes, including a $146 million boost in levies on sports betting, first legalized in 2021, and eliminating $38 million a yearly tax breaks handed out to new or expanding data centers.
Olson said there was no need for the situation to get to get to a point where GOP lawmakers felt that time had run out for talks and taxpayers needed answers — and soon.
He pointed out that Congress approved the federal tax changes last summer. And Republicans had asked Hobbs to start tax cut discussions in November.
The governor refused, saying she wanted to first decide on a spending package, something that is usually negotiated several months into the new calendar year. But that refusal came even though the forms that the Department of Revenue prepared at her direction — the ones now available and being used — conform only to what's in federal law and not to either what she proposed or what Republican lawmakers want.
