Arizona tax surcharge is wrong

[parkrunner]

Line 46B of the Arizona Income Tax Form 140 (Individual Income Tax return) is wrong.  Line 46B references a surcharge.  This surcharge was ruled unconstitutional by the state Supreme Court last year.  It does not belong on the form.  I have already tried using form view with an attempt to overtype the computed amount.  That failed.  I have the most current version of TT.  How can I override that amount that Turbotax is computing and force a zero into the field?

[JulieS]

Yes, it is true that the Arizona Supreme Court ruled that the surcharge was unconstitutional, they declined to enjoin the law, and remanded the law to a trial court to determine whether the law would exceed the state constitution’s expenditure limitation on local revenue. 

In plain English this means they decided it was unconstitutional, but they declined to enforce their opinion. Instead they ordered a trial court to examine a different aspect of the law. 

So, as of right now, The State of Arizona Department of Revenue is still collecting the surcharge. You can't override the surcharge. 

Here is an excerpt for the AZDOR website:

"2021 Tax Surcharge

Proposition 208, passed by voters in the last election, applies to tax year 2021 and requires individuals with taxable income of more than $250,000 (single and married filing separate) and more than $500,000 (married filing joint and head of household) to pay an additional tax surcharge."

Click here to learn more.

[parkrunner]

That is correct, and the trial court basically said the that department of revenue cannot collect the surcharge tax.  Perhaps the department of revenue is dragging their feet in issuing any new public directives regarding this manner even though they knew what was happening.  And perhaps TT is waiting on the DOR to issue the appropriate directive.

If TT doesn't change this, I will wait until April 15 and file the return on paper using hand written entries.

[Carl-AZ]

The following is also from the AZDOR website:

"Responding to an order of remand from the Arizona Supreme Court, on Friday, March 11, 2022, Maricopa Superior Court judge John R. Hannah Jr. issued a ruling that permanently enjoins the Arizona Department of Revenue from administering or collecting the income tax surcharge levied by 2020’s Arizona Proposition 208 (the “Prop 208 Surcharge”)."

https://azdor.gov/node/3610

[Carl-AZ]

I received a response from the AZDOR to an inquiry I made.  Following is an excerpt:

"As part of the 2021 budget reconciliation process, statutory changes were enacted to ensure that the combined rate of the Prop 208 Surcharge and top regular income tax rate could not exceed 4.5%.  The changes further required that, if the combined rate exceeded 4.5%, the top regular income tax rate would be adjusted downward to bring the combined rate to 4.5%.   Therefore, with the 3.5% Prop 208 surcharge, the top income tax rate was reduced to 1% to bring the combined rate to 4.5%."

Also: "You can review your return on Turbotax to ensure that you are not being assessed an income tax rate of above 4.5%."

I did a test in TurboTax by adding $100k to my income and confirmed that the marginal rate was indeed 4.5%.  So even though there is an amount shown on the surcharge line in TurboTax, it appears that the tax calculation is correct, and in effect no surcharge is being collected.

[DesireeAZ]

TurboTax please fix this.  I have gone on the AZ DOR website and on line 46b where the Prop 208 tax was to be entered the DOR form now says 'reserved.'  I recalculated my tax manually and as Carl said, the manually calculated tax is the same as the total TT comes up with, but I don't like it showing as a Prop 208 tax.