HB 2838 — income tax; partnerships; S corporations

HB2838Chapter 0425 - 551R - HS Ver  of HB2838     HouseSenate Engrossed House Bill   income tax;

S corporations         State of Arizona House of Representatives Fifty-fifth Legislature First Regular Session       CHAPTER   HOUSE BILL 2838       AN ACT   amending sections 43-222 and 43-581, Arizona Revised Statutes;

For years ending in 1 and 6, sections 43-1072.02, 43-1074.02, 42-1075,43-1075, 43-1083, 43-1083.02, 43-1164.03 and 43-1183.

AFor partnership,taxable limitedyears liabilitybeginning companyfrom and after December 31, 2021, an entity that is treated as A partnership or s corporation for federal income tax purposes, that elects to pay the tax under section 43-1014 and whose taxable income for the taxable year exceeds $150,000 in the preceding taxable year shall make payments of estimated tax during the taxable year in a manner that is consistent with the manner prescribed in this section for individuals.

limitedS corporations liabilityA. companies;

For taxable years beginning from and after December 31, 2021, the partners or shareholders of a business that is treated as a partnership or S corporationscorporation A.for federal income tax purposes may consent to be taxed at the entity level at a rate of four and one-half percent of the entire portion of its taxable income that is attributable to its resident partners or shareholders and the portion of its taxable income derived from sources within this state that is attributable to its nonresident partners or shareholders for that taxable year.  The election under this subsection must be made on or before the due date or extended due date of the business's return under this title.

For taxable years beginning from and after December 31, 2017, the partners, members or shareholders of a business that is a partnership, limited liability company or S corporation for federal income tax purposes may consent to be taxed at the entity level at a rate of four percent of its entire taxable income that is derived from sources within this state for that taxable year.  The election under this subsection must be made on or before the due date or extended due date of the business's return under this chapter.

The taxable income of the partnership,partnership limited liability company or S corporation shall be computed under this chapter or chapter 14 of this title, as applicable.

If the partnership,partnership limited liability company or S corporation does not pay the amount owed to the department as a result of the election under this section, the department may collect the amount from the partners,partners members or shareholders based on theirthe proportionate share of suchincome income.that is attributable to each partner or shareholder for arizona tax purposes.

The partnership,partnership limited liability company or S corporation shall pay estimated tax pursuant to section 43-581 as necessary.

OnlyThe partnerships,election limitedunder liabilitysubsection companiesA and S corporations whose partners, members or shareholders are all residents of this statesection maydoes makenot theapply electionto underthe thisfollowing: section.

1.

Partners or shareholders that are not individuals, estates or trusts. The portion of the taxable income attributable to a partner or shareholder that is not an individual, estate or trust is not included in the entity-level tax under subsection A of this section.

2.

Partners or shareholders who are individuals, estates or trusts and who opt out or waive the right to opt out of the election pursuant to subsection D of this section. The portion of the taxable income attributable to a partner or shareholder who is an individual, estate or trust and who opts out or waives the right to opt out of the election pursuant to subsection D of this section is not included in the entity-level tax under subsection A of this section.

A partnership or S corporation that intends to make the election under subsection A of this section shall notify all partners or shareholders who are individuals, estates or trusts of the intent to make the election and that each partner or shareholder who is an individual, estate or trust has the right to opt out of the election. The notice shall allow each partner or shareholder who is an individual, estate or trust at least sixty days after receiving the notice to notify the partnership or S corporation that the partner or shareholder who is an individual, estate or trust is exercising the partner's or shareholder's right to opt out of the election.  If the partner or shareholder who is an individual, estate or trust does not respond within the sixty-day period or waives the right to opt out, the partner or shareholder will be included in the election.

E.

For taxable years beginning from and after December 31, 2017,2021, the partner's, member's or shareholder's pro rata share of the amount deducted by the partnership,partnership limited liability company or s corporation pursuant to the internal revenue code for the amount paid to this state under section 43-1014 and for taxes that the department determines are substantially similar to the tax imposed under section 43-1014.

This amount shall be reflected in the partner's or shareholder's Arizona gross income and the partnership's or S corporation's Arizona taxable income.

For taxable years beginning from and after December 31, 2017,2021, a resident taxpayer is allowed a credit against the tax otherwise due under this title for the amount of any tax that the department determines is substantially similar to the tax imposed pursuantunder to section 43-1014 for the taxable year and that is imposed by another state of the United States or a political subdivision of such a state, or by the District of Columbia, with respect to the direct and indirect distributivetaxable proceedsincome attributable to the resident taxpayer from a pass-through entity that areis also subject to tax under this title.  A credit allowed pursuant to this SUBSECTION MAY not exceed the amount that would have been allowed if the income were taxed at the individual level and not taxed at the entity level.

For taxable years beginning from and after December 31, 2017,2021, a credit is allowed against the taxes imposed by this title for a taxpayer who is a partner in a partnership,partnership a member in a limited liability company or a shareholder of an S corporation that elects to pay the tax under section 43-1014.

The amount of the credit is the partner's,portion member's or shareholder's pro rata share of the tax paid by the partnership,partnership limited liability company or S corporation under section 43-1014.43-1014 that is attributable to the partner's or shareholder's share of income taxable in this state.

Purpose Pursuant to section 43-223, Arizona Revised Statutes, the legislature enacts section 43-1075, Arizona Revised Statutes, as added by this act, to restore the ability for partnerships,partnerships limited liability companies and S corporations in this state to deduct state income taxes.

retroactivity This act is effective from and after December 31, 20212021. and applies retroactively to taxable years beginning from and after December 31, 2017.

      APPROVED BY THE GOVERNOR JULY 9, 2021.

  FILED IN THE OFFICE OF THE SECRETARY OF STATE JULY 9, 2021.