By Matthew Holloway |
Legislation sent to Gov. Katie Hobbs last week would add an additional layer of legislative oversight before the Arizona Department of Revenue could adopt certain new legal interpretations that increase tax liability.
SB 1221, sponsored by Sen. J.D. Mesnard (R-LD13), would require the Arizona Department of Revenue to notify the chairmen of the Senate Finance Committee and the House Ways and Means Committee before adopting a proposed new interpretation or application of state tax law that would adversely affect taxpayers prospectively. An affected taxpayer would also be permitted to notify the committee chairmen of the proposed change.
If the committee chairmen hold a hearing on the proposed interpretation or application, the Department of Revenue would be required to provide testimony explaining why the change is necessary.
The Arizona Senate Republican Caucus announced that the measure had passed the Legislature and was being transmitted to Hobbs for consideration. The caucus said the bill is intended to protect taxpayers from unexpected tax burdens and provide public scrutiny before agency interpretations take effect.
“Taxpayers should not wake up one day and discover a state agency has quietly changed the rules in a way that costs them money,” Mesnard said in a statement. “If the Department of Revenue wants to adopt a new interpretation of tax law that negatively impacts Arizona families, job creators, or small businesses, there ought to be transparency, public scrutiny, and accountability first.”
The measure would amend A.R.S. § 42-2078, which governs the Department of Revenue’s new interpretations or applications of tax law. Current law generally bars the department from applying newly enacted law retroactively or penalizing a taxpayer for complying with prior law unless expressly authorized by law.
Current law also provides that when the department adopts a new interpretation or determines that a tax law applies to a new or additional category of taxpayer, the change applies prospectively unless it is favorable to taxpayers. The department may not assess tax, penalties, or interest retroactively based on that change, and the change may be used as an affirmative defense in an administrative or judicial action involving retroactive assessments.
SB 1221 would add a step before that kind of adverse interpretation is adopted. The notice requirement would apply to proposed interpretations or applications of provisions under Title 42 or Title 43 of Arizona law, which govern taxation and income tax.
The bill specifies that a “new interpretation or application” includes policies and procedures adopted by administrative rule, tax ruling, tax procedure, or instructions to a tax return.
The proposal moved through the Legislature largely along party lines.
Mesnard, who chairs the Senate Finance Committee, said the legislation is aimed at giving taxpayers more certainty before state tax administration changes affect families, businesses, and employers.
“SB 1221 helps ensure taxpayers have a voice before government expands its reach, while providing the certainty and predictability people deserve when planning their finances and investments,” Mesnard concluded.
Matthew Holloway is a senior reporter for AZ Free News. Follow him on X for his latest stories, or email tips to Matthew@azfreenews.com.
