It's not a question of how long records have to be kept. You have to keep your records as long as necessary to properly respond to notices from the DOR.
The general rule is that Arizona can audit your state tax return for four years after the due date of the return or the date that you filed it, whichever is later. There is a long list of exceptions that allow the deadline to be extended. One of the exceptions might apply to your situation.
But a Notice of Proposed Assessment is not the first notice you would have gotten. If you got a Notice of Proposed Assessment, there must have been at least one previous audit notice. The Notice of Proposed Assessment means that either you did not respond to the first notice, or the DOR did not agree with your response. Once you got the first notice, you should have kept all relevant records until the audit is concluded.
See the following page on the AZ DOR web site for information about audit procedures, including what to do if you disagree with the proposed assessment.
Individual Income Audits
If you are not comfortable responding to the notice on your own, or if you do not have adequate records to back up your response, you should consult a local tax professional. Of course, if you think the assessment is correct, you can simply pay the tax that is being assessed.
