ArizonaHB 4168Fifty-seventh Legislature - Second Regular SessionHouseWALLET

taxation; omnibus; 2026-2027

Sponsored By: Sponsor information unavailable

Signed by Governor

2026-2027aca (see also: arizona commerce authority)applicabilityarizona commerce authority (aca)computer data center tax reliefdepartment of revenue (dor)dor (see also: department of revenue)insurance - title 20internal revenue codeomnibuspinal countypublic infrastructure distributionretroactivitysaving clausestate board of tax appealsstate government - title 41taxationtaxation - title 42taxation of income - title 43unemployment insurance operating fund

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Bill Overview

Analyzed Economic Effects

28 provisions identified: 13 benefits, 8 costs, 7 mixed.

Bigger standard deduction for taxpayers

If you choose the Arizona standard deduction, it is $15,750 for single or married-separately filers, $23,625 for heads of household, and $31,500 for joint filers. For tax years beginning after December 31, 2025, you can also add eligible charitable gifts, up to $1,000 for single or married-separately filers or $2,000 for joint filers. You must choose the standard deduction to claim the charitable add-on.

Families deduct extra care costs

For tax years beginning after December 31, 2025, you can subtract qualifying child or dependent care costs from Arizona income. Only costs above your federal care credit count. You cannot claim costs already excluded from Arizona income.

Families deduct more adoption costs

For tax years beginning after December 31, 2025, you can subtract eligible adoption costs from Arizona income. The limit is $5,000 for single or head-of-household filers and $10,000 for joint filers. Spouses filing separately can share up to $10,000. Claim the costs in the year the final adoption order is granted.

Families get a larger dependent credit

Arizona’s credit rises from $100 to $125 for each dependent under age 17. The credit is $25 for each qualifying dependent age 17 or older. Above $200,000 in income for single, married-separately, or head-of-household filers, or $400,000 for joint filers, it falls by 5% per $1,000 or part of $1,000 over the limit. Nonresidents and part-year residents get a credit based on their Arizona income share.

Itemizers can deduct state taxes

For tax years beginning after December 31, 2025, you can deduct up to $10,000 of a qualifying federal state and local tax deduction from Arizona income. You must itemize, and the amount cannot exceed your qualifying federal deduction.

Workers pay less tax on overtime

For tax years beginning after December 31, 2024, you can subtract qualifying overtime pay from Arizona income. The pay must qualify for the federal deduction and cannot already be excluded from Arizona income. The law states no separate dollar cap.

Workers pay less tax on tips

For tax years beginning after December 31, 2024, you can subtract qualifying tips from Arizona income. The tips must qualify for the federal deduction and cannot already be excluded from Arizona income. The law sets no separate dollar cap.

Property tax relief for veteran families

A veteran with a 100% service-connected disability rating, or total disability status based on individual unemployability, gets a full property tax exemption on their primary home. An eligible surviving spouse can get a full exemption, or an exemption up to $4,188 multiplied by the veteran’s disability percentage. Remarriage ends survivor eligibility. Surviving spouses must file an affidavit and show proof of the veteran’s disability status.

Manufacturing projects face new funding rules

Manufacturing facilities must agree to invest at least $3 billion in counties with 800,000 or more people, or $100 million in smaller counties, to qualify for the infrastructure program. More types of wastewater facilities can qualify when needed to support manufacturing. The Department of Revenue can process requests after payments pause at the statewide cap, including partial payments and pro-rata allocations. It must also process eligible requests received from June 1, 2026, through the law’s effective date.

Veterans' disability pay excluded from income

When deciding eligibility for the subsection E property tax exemption, the law excludes certain veterans’ disability payments from income. This applies to payments based on a disability rating or total disability status based on individual unemployability. It does not guarantee that a claimant qualifies for the exemption.

Tax break for account distributions

For tax years beginning after December 31, 2025, you can subtract distributions from accounts established under the cited federal rule from Arizona income. You cannot subtract amounts already excluded from Arizona income. The law states no separate dollar limit.

Tax break for qualified individuals

For tax years beginning after December 31, 2024, you can subtract the amount deducted for a qualified individual under the cited federal rule. You cannot subtract an amount already excluded from Arizona income. The law states no separate dollar cap.

Tax break for vehicle loan interest

For tax years beginning after December 31, 2024, through December 31, 2025, you can subtract qualifying passenger vehicle loan interest from Arizona income. The amount must qualify for the federal deduction and cannot already be excluded from Arizona income.

Lower unemployment contributions for employers

In 2027, employers with an experience rating account receive a 3.15% reduction in quarterly contributions, or another adjustment set by law. No more than $8 million goes to the unemployment insurance operating fund that year. Any excess goes to the unemployment compensation fund.

Corporations deduct more foreign income

Corporations can subtract specified foreign-company income when calculating Arizona taxable income. This includes certain dividend income, related gross-up income, and subpart F income. The available summary gives no dollar limit or start date.

Some taxpayers lose an income credit

The law ends the Arizona income tax credit formerly allowed under A.R.S. § 43-1074. People who qualified for it can no longer claim it. The available summary does not state the credit amount or when the repeal takes effect.

Businesses lose some tax credit benefits

Businesses with fewer than 150 employees can no longer get a cash refund of excess Arizona research credit for tax years beginning after December 31, 2025. Unused research credit can still be carried forward. Businesses claiming the qualified-facility credit lose $4,000 for each covered full-time position vacant for more than 150 days. The law also ends two business tax credits, while allowing prior-year carryforwards under one of them to remain usable as allowed under prior law.

Corporations face depreciation addbacks

For tax years beginning after December 31, 2025, corporations must add certain federal depreciation for qualified production property to Arizona income. Arizona also applies specified depreciation, amortization, and asset-sale calculations to pollution-control equipment that received a credit before 2026. These rules can increase Arizona taxable income for affected corporations.

Insurers lose a premium tax credit

The law ends a tax credit for certain insurance-related companies. Eligible entities can still claim other credits under Arizona law. The text does not say whether this changes household insurance costs.

School tax credit cap falls

The combined yearly cap for these school tuition organization tax credits drops from $135 million to $110 million in fiscal year 2026–2027 and each year after. Contributions need Department of Revenue preapproval, and credits go out first-come, first-served.

Higher manufacturing aid, smaller cost share

The statewide cap for manufacturing infrastructure payments rises to $250 million through June 30, 2027, then $300 million through June 30, 2028, and $350 million after that. The program runs through September 30, 2033. For new agreements, state payments are limited to the lesser of specified state tax revenues or 75% of improvement costs, down from 80%. Agreements made before the law’s effective date keep the 80% limit for their full term.

Arizona adopts updated federal tax rules

For tax years beginning after December 31, 2025, Arizona uses the federal tax code as amended and in effect on January 1, 2026, subject to the law’s stated exceptions. Arizona also applies certain federal changes to tax years 2022 through 2025. These updates can change state tax calculations for individuals and businesses.

Homeowners must file exemption transfers

To transfer an exemption under A.R.S. § 42-11111 after moving, you must file a completed form with the assessor for your new home. You have 60 days after the new home becomes your primary residence. Missing the deadline may affect your exemption.

Pinal County tax funds remain on hold

Pinal County transportation tax money left after refunds must remain in escrow or with the state revenue department until lawmakers approve its use. This includes certain undistributed or unrefunded revenue and its interest. The hold applies after April 9, 2026.

New data centers lose tax relief access

From July 1, 2026, through June 30, 2029, the Arizona Commerce Authority cannot accept applications for new data centers seeking this tax relief. New centers cannot qualify under the program during that period.

District grants favor tax-generating projects

A covered district must direct at least 80% of its yearly grants and other financial support to projects that generate transaction privilege tax revenue. The share is measured after operating expenses and debt service. The law gives no total funding amount.

Earlier certifications keep old thresholds

Certifications filed before the law’s effective date remain valid under the thresholds that applied when they were filed. Updated thresholds apply to certifications filed on or after that date. The available summary does not identify the program or threshold values.

Local governments face project rules

The Department of Revenue must post covered manufacturing infrastructure agreements online. A facility gets 30 days to identify specific business information for possible redaction. A city, town, or county with a qualifying agreement must provide at least 5% of the stated non-state construction funding. Local governments must also report expected state revenue, job counts, and wage ranges; qualifying business secrets remain protected.

Sponsors & Cosponsors

Cosponsors

David Livingston
Republican • House
Julie Willoughby
Republican • House
Michael Carbone
Republican • House
Neal Carter
Republican • House
Steve Montenegro
Republican • House

Roll Call Votes

All Roll Calls

Yes: 46 • No: 6

Senate vote • 6/11/2026

Third Reading: Passed

Yes: 23 • No: 5

House vote • 6/10/2026

Appropriations: DP

Yes: 15 • No: 1 • Other: 2