I live in Arizona (AZ resident), but I work in California. My tax return coming back that I'll be receive a refund for all the taxes with-held in CA is this right?

[TerryA]

Actually, between CA & AZ (and a few other states), it's the nonresident return that takes the other state tax credit. So prepare AZ first, then TT/Calif. Be sure you tell TT/Calif (or accept the default wages from Calif) the amount of Calif wages in Nonresident Adjustments, but enter 0 for any other income type.

[DS30]

Yes. Because of the agreement between AZ and CA, instead of an AZ resident getting a state tax credit for taxes paid on a CA nonresident state income tax return, you need to paid the taxes on this CA-sourced income in AZ and will be allowed an AZ tax credit on your CA nonresident state income tax return. So this means that you will get a refund of your CA withholdings but you will need to pay taxes in AZ on this CA source income.

Please see AZ - Out of State Tax Credit Form for more information.