This week, in response to what he called “the reckless decision by the Biden Administration’s IRS,” to tax Arizonans on their tax rebates, Arizona State Senate President Warren Petersen called on the Arizona Attorney General’s Office to join him in finding a resolution.
Petersen also called on the Arizona Department of Revenue, the Arizona Attorney General’s Office, and most recently, the Office of U.S. Senator Kyrsten Sinema to discuss next steps to protect Arizona families.
On Thursday, Attorney General Kris Mayes finally stepped up and sent a letter to the IRS Commissioner requesting the agency reconsider its decision to tax the 2023 Arizona Families Tax Rebate.
This state-provided family tax relief is part of Arizona’s budget and mirrors tax relief efforts in other states where taxpayers were not subjected to federal taxation for their rebates.
“The IRS should act promptly to reverse this decision and provide clear guidance to Arizona taxpayers as tax season nears,” said Mayes in a press release. “If they do not, my office is prepared to examine all legal avenues to ensure these dollars stay in the pockets of Arizona taxpayers.”
Attorney General Mayes’s letter highlighted the seemingly arbitrary and inconsistent approach by the IRS, arguing that Arizona taxpayers should not be taxed for rebates similar to those in other states where taxpayers have not been hit with a federal tax bill for state rebates they received.
Attorney General Mayes also argued that under the IRS’s 2023 guidance, Arizona’s rebate should be excludable from federal income under the general welfare exclusion—or, at a minimum, it should be excludable to the extent a rebate amount does not exceed state taxes that a taxpayer actually paid and did not deduct from their federal income.