Key Points:

• Arizona Department of Revenue questioned for urging taxpayers to file now
• Lawmakers have yet to decide on tax deductions and credits
• Arizona taxpayers may face a $20 million cost to reprocess a million returns 

The head of the Senate Finance Committee says the Arizona Department of Revenue is misleading Arizonans by urging them to file their state taxes before legislators have reached consensus on federal tax conformity. 

And Sen. J.D. Mesnard, R-Chandler, wants the agency to revise that advice.

In an extensive hearing on Jan. 26, Mesnard grilled agency employees about last week’s advisory telling Arizonans to not delay in filing their taxes. 

That was based on the premise that nearly 90% of individuals will not itemize their expenses and will take the standard deduction. And there appears to be agreement between Gov. Katie Hobbs and Republican legislative leaders that they will increase that figure to conform with changes made in federal law — and conform with changes that the governor ordered the agency to put into the already prepared forms.

But there are other proposed changes still in flux at the Legislature, and, more significantly, several new federal laws that neither Hobbs nor GOP lawmakers want.

And the result of that contest, according to Molly Murphy, the agency’s director of legislative affairs, is that a third of Arizonans, if they follow the “file now” advice, could have to redo their taxes and file amended returns with a new updated figure once state lawmakers finally determine what they’ll owe.

Mesnard said that creates not just extra work for those affected but also financial obligations if they have to go back to a tax preparer.

But what it also means, he said, is that the Department of Revenue will likely have to reprocess close to a third of the state’s tax filings — about a million — and that, too, comes with a cost, estimated at about $20 million.

All this is developing against a contentious political backdrop of negotiation between state party officials and the governor over the best plan for state tax relief. 

Both start with what Congress approved last year in the “Big Beautiful Bill” and include not only a higher standard deduction but also the elimination of taxes on tips and overtime.

Hobbs also wants an additional $6,000 deduction for those 65 and older, and another deduction for interest paid on financing the purchase of a new, built-in-the-USA vehicle.

All those are in the tax forms that the governor told the agency to produce.

Republican lawmakers have a different deduction for those aged 60 and up targeted at retirement accounts. And they want tax breaks for child care.

The GOP plan also includes some tax cuts for businesses.

So far, there’s been no deal. In fact, Hobbs last week vetoed the Republican plan.

Yet the Department of Revenue was telling people to go ahead and file now.

“Why should they not wait?” Mesnard asked.

“Based on our understanding of the different provisions that are being discussed between the Legislature and the Governor’s Office, two-thirds of people won’t be affected by any of those debates,” said Murphy.

And what of the other third?

“Your directive to everybody was, ‘No, don’t wait to file,'” he said.

“Anyone who’s read this, to the extent they may not have any awareness of what’s happening here (at the Capitol), they are now more confident, ‘Yeah, we should definitely file,’ ” he told Murphy. “Isn’t that increasing the likelihood of amended returns?”

And what makes that advice even worse, Mesnard said, is that “it’s only January,” with returns not due until April 15.

Murphy said the department was doing what it thought was right to minimize the number of people who need to file amended returns. But she conceded that there will be those who, if they file now, will be back at it once the governor and Legislature reach a deal.

And that, Murphy said, could come with a cost.

“If a million people are to amend their returns, that would cost approximately $20 million for the department to process,” she said, especially if the agency is to try to stick to its promise to process returns within 60 days.

Mesnard said that proves his point.

“Why urge people to file today?” he asked, if each amended return costs $20. “Why would you do that?”

Murphy said the advice to all taxpayers to file now “was designed to provide more clarity.”

“I understand that it didn’t,” she acknowledged, saying the agency is now trying to “nuance” that message. And Murphy said that those who could be impacted by what the governor and lawmakers decide “should take a look at their specific circumstance” to decide when to file.

Mesnard told Murphy the department should get out that new message — and soon.

There was no immediate answer from an agency spokeswoman about whether that would happen.