PHOENIX, AZ – A bill that provides tax relief to small business owners, sponsored by Rep. Joseph Chaplik, which passed with bipartisan support, was signed by Gov. Doug Ducey on Friday. The bill revises state tax structure for taxpayers and protects small business from over taxation by the federal government.
“As promised, I’m glad to help give small businesses the ability to keep more of their hard earned dollars in their pockets by deducting their state income taxes on their federal returns,” Rep. Chaplik told AZ Free News. “This offers them much needed tax relief after a difficult couple of years.”
HB 2838 will not impact the state general fund, but according to Chaplik, will “provide Arizona’s small businesses with more working capital and tax relief without having a negative fiscal impact to the state.”
Since 2017, 15 states, both red and blue alike, have adopted SALT-parity legislation, including Connecticut, Wisconsin, Oklahoma, Louisiana, Rhode Island, New Jersey, and Maryland. Under HB2838, Arizona would join those other states, providing small businesses significant potential tax savings.
The federal government is also on board. In November 2020, the Internal Revenue Service issued guidance (Notice 2020-75) that pass-through entity businesses may claim deductions above the $10,000 State and Local Tax (SALT) cap.
HB 2838 is revenue neutral, as the deduction reduces federal taxes owed. It has no negative fiscal impact on the General Fund revenues, and Arizona cities and towns.