2838, signed into law July 9, 2021, Arizona began to allow partnerships, limited liability companies (LLCs), and S corporations to pay a 4.5 percent tax at the entity level in lieu of all business-related income passing through to the individual income tax. Three of the signed bills were implemented without delay, but a petition successfully gathered enough signatures to convert a fourth bill into a ballot measure intended for the November 2022 election.

All interacted with the Proposition 208 surcharge. 1828-were passed by the legislature while Proposition 208 worked its way through the court system. As the dust settles around the Superior Court’s ruling, it is worth examining where Arizona’s individual income tax is now and what is likely in store for the future.įour bills-H.B. Although the legislature’s response to Proposition 208 had already counteracted the surtax, it also sparked counter-initiatives which contributed to confusion around the state’s individual income tax system. On March 11, the lower court confirmed the measure did, in fact, violate the expenditure limit.

The Maricopa County Superior Court was left to determine whether appropriated education expenditures with Proposition 208 revenue would truly exceed the cap. Proposition 208 reached the Arizona Supreme Court on August 19, 2021, but it was ultimately declared unconstitutional to the extent it mandated expending tax revenue in excess of a constitutional cap on education spending. As Proposition 208 wound its way through the adjudication process in the summer of 2021, the Arizona legislature passed four bills that curtailed the reach of the surtax. Arizona) was filed, which challenged its constitutionality. But by the end of November, a lawsuit ( Fann v. The initiated state statute, which assessed a 3.5 percent surtax on income over $250,000 ($500,000 for joint filers), was approved by voters on Election Day 2020. The only uncertainly that remains concerns the timing of Arizona’s transition to a flat-rate individual income tax.

The saga of Proposition 208, Arizona’s income surtax, appears to have finally reached its conclusion.

What is flat tax