By Daniel Stefanski |
Arizona’s Attorney General is taking the Internal Revenue Service to court.
Last week, Democrat Attorney General Kris Mayes issued a press release to announce that “the State of Arizona has sued the IRS to prevent it from taxing the state-issued Arizona Families Tax Rebate.”
Mayes’ lawsuit was filed in the U.S. District Court of Arizona.
The legal issue at hand stems from the Arizona Legislature’s May 2023 passage of a “General Welfare Income Tax Rebate to offer financial relief to eligible taxpayers.” Few – if anyone – in the state expected this rebate to be taxable by the federal government, but that all changed earlier this year when a notice came from the IRS. The Arizona Attorney General’s Office confirmed that “the IRS did not confirm its decision in writing until late last week.”
In a statement that accompanied the release, Mayes said, “This lawsuit is about standing up for Arizona taxpayers. The federal government’s decision to tax these rebates is unfair and unlawful – and I will do everything I can to ensure the tax relief provided to Arizonans by their state government remains in the pockets of Arizona taxpayers, as intended.”
Mayes had previously sent a letter to the IRS Commissioner over the issue, arguing that “the full Tax Rebate should be excludable from federal tax under the general welfare exclusion,” and that “at a minimum, the Tax Rebate should be excluded from federal tax to the extent it does not exceed state taxes that were actually paid and that were not deducted from federal income.”
According to the State Attorney General’s Office, the legal challenge makes the following allegations:
- Unlawful Taxation: The IRS’s decision to tax the rebates lacks legal basis and contradicts prior IRS guidance and precedents.
- Arbitrary and Discriminatory: The decision by the IRS is arbitrary, capricious, and unfairly targets Arizona taxpayers.
- Economic Impact and Violation of Taxpayers’ Rights: Taxing these rebates affects not only the individual taxpayers but also the broader economic well-being of Arizona, reducing the disposable income of taxpayers and state sales tax revenue.
Mayes’ public involvement in the matter over the IRS taxing these rebates appears to have followed that of Arizona Senate President Warren Petersen, who, in January, shared that he was “working diligently to come to a resolution that will protect the more than 700,000 recipients from having to give the federal government a portion of [the rebate] this tax season.”
Daniel Stefanski is a reporter for AZ Free News. You can send him news tips using this link.
