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Arizona Tax News

AZ does major tax reform

The Arizona legislature passed a major tax reform measure in the budget bill passed in 2021. The bill phases in a flat tax of 2.5% for nearly everyone over four years, eliminating the state's progressive taxation system.

Because the state's budget exceeded projections, the timetable was accelerated. For 2022, Arizona has two tax brackets, 2.55% and 2.98%, down from four brackets in 2021. For 2023, there will be only one tax bracket of 2.5%.

The Legislature's budget analysis reports the average Arizona resident earning between $75,000 and $100,000 will save $231 a year in state income taxes, while a taxpayer earning between $500,000 and $1 million a year will save more than $12,000.

A separate bill, SB 1783, allows owners of pass-through businesses to choose to pay taxes at the entity level. This will let higher-income business owners elect to be taxed at a lower rate than non-business owners making the same amount of income.

The new law also will reduce the property tax assessment ratio for most commercial property. The current 18% rate will drop a half percent a year to 16% in 2025 and later.