While I can't verify as to exactly how this was reported on your state tax returns, I can confirm that there is an arrangement between Arizona and California. California and Arizona are reverse credit states. Normally, as you suggest, when you have income from a non-resident state (such as selling the home in California when you live in Arizona), the non-resident state (California) taxes the income first, and then the resident state provides a credit for the amount of tax you pay to the nonresident state, up to the amount that the resident state taxes the same income.
With reverse credit states, the opposite is true. Arizona will simply tax all of your income, and then California will give you a credit for the amount of income you derived from California (the sale of the house). If Arizona tax is equal to or greater than California tax on that income, you will not have a California tax liability.
I can't confirm that that is what you see on your tax return, but it is an actual provision and is what should be reported. Also note that this is in regards to taxes reported due to state income taxes (including capital gains). If you are speaking about a real estate or property tax, that is something else that is not reconciled through the tax return.
**Say "Thanks" by clicking the thumb icon in a post
**Mark the post that answers your question by clicking on "Mark as Best Answer"
