CCH Tax Day Report
Arizona legislation makes various changes to state tax provisions, including electronic filing and payment requirements, tax audits, and penalty provisions, among others.
Electronic Filing and Payment Requirements
The enacted law provides that the Department of Revenue may require all taxes, except individual income tax, to be paid by a taxpayer through electronic funds transfer pursuant to the following schedule:
– $20,000 or more for any taxable year ending before January 1, 2019;
– $10,000 or more for any taxable year beginning January 1, 2019, through December 31, 2019;
– $5,000 or more for any taxable year beginning January 1, 2020, through December 31, 2020; and
– $500 or more for any taxable year beginning January 1, 2021.
Transaction privilege tax (TPT) returns are also required to be filed using an electronic filing program established by the Department of Revenue pursuant to the schedule above. Additionally, the law expands the existing tax credit for accounting and reporting expenses by allowing a tax credit of 1.2% of the amount of tax due, not to exceed $12,000 in a calendar year, for a taxpayer who files using the established electronic filing program. Taxpayers filing by paper returns are eligible for a tax credit of 1% of the amount of tax due, not to exceed $10,000 in a calendar year.
Further, the enacted law requires an individual income tax preparer who prepares more than 10 original income tax returns that are timely filed during any taxable year that begins January 1, 2018, to file electronically all individual tax returns prepared by that tax preparer for that taxable year and each subsequent taxable year. The individual tax preparer may not charge a separate fee to the taxpayer for filing a return using the electronic filing program This requirement does not apply if the taxpayer elects to file a paper return or if the return cannot be electronically filed for reasons outside the tax preparer’s control.
Annual fiduciary returns, partnership returns and corporate returns are required to be filed electronically for taxable years beginning January 1, 2020, or when the department establishes an electronic filing program, whichever is later.
Taxpayers may apply for a waiver from electronic filing and/or payment of their tax liability, and the Director may grant and/or renew such a waiver if (1) the taxpayer has no computer, (2) the taxpayer has no internet access (3) or any other circumstance considered to be worthy by the Director.
The enacted law specifies that an adjustment due to any of the following is considered a nonaudit adjustment:
– an addition, subtraction, multiplication, division or other mathematical error shown on any return;
– the failure of the taxpayer to properly compute the tax liability based on the taxable income reported on the return;
– an incorrect usage or selection of information for a filed return from tax tables, schedules or similar documents provided by the department if the incorrect usage is apparent from the existence of other information on the return;
– an entry on a return that is inconsistent with an entry of a schedule, form, statement, list or other document filed with the return;
– an omission of information required on the return to substantiate an entry;
– an entry on a return of a deduction or credit in an amount that exceeds a statutory limit if the limit is a monetary figure, percentage, ratio or fraction and the items entered into the application of this limit appear on the return, including claiming a deduction or credit that is not authorized by statute for the taxable period;
– missing or incorrect taxpayer identification numbers for the purposes of claiming personal exemptions, dependents or credits;
– an entry of a credit or deduction that requires a preapproval of the credit or deduction has not been preapproved of if the entry is for more than the preapproved amount; or
– an entry of a credit or deduction amount carried forward from a prior year that is outside of the statutory period allowed for the carryforward or is for an amount that is inconsistent with the taxpayer’s prior year returns.
Additionally, a letter from the department is not considered to be regarding an audit or review if only requesting one or more or more of the following:
– the required filing of a tax return;
– a copy of the taxpayer’s federal return;
– required documents that the taxpayer failed to include with the return;
– documentation to resolve an inconsistency within the return or a discrepancy between the return and other information that is received from a third party or that is otherwise already in the possession of the department;
– information that was left out of the taxpayer’s return because a submitted form was incomplete; and
– replacements for documents that are not legible.
The law specifies the penalty on a taxpayer that fails to timely file a return for a TPT or local excise tax is imposed at 4.5% of the tax required to be shown on the return, or $25, whichever is greater. The total penalty may not exceed 25% of the tax found to be remaining due, or $100, whichever is greater. Where a taxpayer fails to file a return for a TPT or local excise tax on notice and demand by the department, the penalty is 25% of the tax or $100, whichever is greater, unless the failure to file is due to reasonable cause and not willful neglect.
Additionally, the department may revoke any TPT or municipal privilege tax license issued to any person who fails for 13 consecutive months to make and file a required return on or before the due date, unless the failure is due to reasonable cause.
The enacted law also increases the fee for bad checks issued to the department from $25 to $50, in addition to allowing a first-time violation of the tax fraud statutes to be designated as a Class 1 misdemeanor, rather than a Class 5 felony.
Tobacco Tax Reports and Payments
For tobacco tax purposes, the law requires all orders for the purchase or receipt of tax stamps, applications for a tobacco distributor license, and any request for a refund or rebate of taxes paid on tobacco products to be submitted pursuant to an electronic filing program established by the department. Further, tobacco distributors who are required to make payment by electronic funds transfer and who fail to do so are subject to civil penalties.
The law also requires a person who sells, ships or transfers cigarettes and roll-your-own tobacco for sale, shipment or transfer into or within the state to file a monthly report with the department on the 10th day of each month containing the following:
information regarding each shipment of cigarettes and roll-your-own tobacco into the state during the previous calendar month, including the date of shipment, the name and address of the person to whom the shipment was made and the name, address and telephone number of the person delivering the shipment to the recipient of the seller; and
the brand names and quantities of cigarettes and roll-your-own tobacco contained in each shipment, with invoices or references to invoice number documenting each shipment.
Elimination of Certain DOR Property Tax Reports
The enacted law eliminates the requirement that the department compile and report to the governor and Legislature the processes and procedures used by each county to identify and reclassify property that is rented while classified as Class 3.
H.B. 2280, Laws 2017, effective 91 days after adjournment of the 2017 Legislature