March 25, 2005
The state Department of Revenue has a suggestion for Arizonans who donated money in January to tsunami relief in hopes of getting a deduction: Lie when you file your return next month.
And the reason is the budget spat between Gov. Janet Napolitano and the Republican-controlled Legislature.
When Napolitano vetoed the $8.2 billion budget Monday, she also rejected another measure to alter state tax laws to mirror changes approved by Congress in the Internal Revenue Code. That includes a provision permitting donations made this past January to be deducted as if they were made in 2004.
Napolitano asked the Legislature to make precisely that change three months ago.
But she vetoed the bill, which included other changes in the tax code, saying she would not agree to any tax cuts until she gets a budget of her liking.
But if lawmakers don’t act by the April 15 deadline for filing personal income tax returns, life could become complicated.
That’s because Arizona is a "piggy-back" state: Arizonans compute their state taxes based on their federal adjusted gross income. And that figure will be reduced by the amount of any tsunami donation deductible under federal law.
Dan Zemke, spokesman for the Arizona Department of Revenue, said taxpayers could file a state tax return using the federally adjusted gross income in anticipation of lawmakers eventually coming around.
Isn’t that filing a false return?
"Technically, yes," Zemke said.
"And, legally, yes," he continued. "But it’s not something that we are going to rake you over the coals for."
But he said if lawmakers do not eventually alter the state tax code, anyone who used the lower income figure will have to file an amended return — and pay the additional tax owed.
Zemke said taxpayers also can seek an automatic four-month extension to file their state tax returns and wait to see what lawmakers and the governor do.