January 13, 2015


State & Local Taxes in 2015


Arizona Tax Code Features

Progressive Features

• Graduated personal income tax structure

• Provides a refundable income tax credit to offset the impact of sales taxes

• State sales tax base excludes groceries

• Requires the use of combined reporting for the corporate income tax

Regressive Features

• Provides an income tax deduction for state income taxes paid

• Provides a partial income tax exclusion for capital gains income

• Comparatively high reliance on sales taxes

• Comparatively high cigarette tax rate

• Fails to provide a refundable Earned Income Tax Credit (EITC)

• Fails to provide a property tax “circuit breaker” credit for low-income taxpayers

• Local sales tax bases include groceries

Tax Changes Enacted in 2013 & 2014

• Phased-in capital gains exclusion (for assets purchased after 2011) took full effect in 2015 at 25 percent of qualifying gains

• Corporate income tax rate is being gradually reduced and will reach final rate of 4.9 percent in 2017

ITEP Tax Inequality Index

According to ITEP’s Tax Inequality Index, Arizona has the 8th most unfair state and local tax system in the country. States with regressive tax struc­tures have negative tax inequality indexes, meaning that incomes are less equal in those states after state and local taxes than before (See Appendix B for state-by-state rankings and more details).

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