Key Points:

• Gov. Katie Hobbs rejects Department of Revenue’s tax filing advice

• State tax forms filed today may require amended returns for Arizonans

• Arizona tax policy remains unsettled amid tax season

Gov. Katie Hobbs is disavowing new advice from the Department of Revenue about when best to start filing state taxes.

The governor said this past week that the forms she ordered the agency to produce back in November “should work for all Arizonans that are filing.”

“And they should feel confident filing and having certainty that they will be OK,” Hobbs said.

That’s a direct contradiction of what agency employees told members of the Senate Finance Committee this past week. They said that a third of Arizonans — about a million tax filers — could be required to file amended returns if they use the current forms.

That’s because the forms that are available from the Department of Revenue conform state tax law to the changes made by Congress last year in the “Big Beautiful Bill.” More to the point, they match neither the tax cuts proposed by the governor — what she has dubbed “my middle class tax cut package” — nor those being pushed by the Republican majority in the Legislature which more closely align, but do not match, what Congress enacted.

Hobbs vetoed the GOP plan the first week of the session, saying she wants a bill now that includes only her plan, which carries an annual price tag approaching $250 million.

In exchange, she promised that if lawmakers approve that, she’s willing to talk about the $440 million in tax cuts Republicans want. But Hobbs also is conditioning that on Republicans showing her how they will pay for it.

Republicans insist there’s enough money in an $18.7 billion budget to provide the relief.

However, the governor’s budget itself is not exactly on solid ground, as it is built in part on the federal government paying Arizona $760 million in reimbursements for border security costs incurred during the Biden administration.

But with no movement on either side, Arizonans are left wondering what happens if they file their 2025 tax returns now, as the governor advised on Jan. 29.

Sen. J.D. Mesnard, R-Chandler. said following the governor’s counsel may force many Arizonans to file amended returns once a deal is reached. And that’s precisely what Department of Revenue workers told the Senate Finance Committee which Mesnard chairs.

With no deal in sight, GOP lawmakers are raising the stakes.

They have scheduled a Feb. 4 vote on legislation they believe would bring Arizona’s tax forms into exact conformity with what Congress approved.

However, it’s not the plan anyone seems to want. For example, it includes provisions such as allowing people who buy new U.S.-built cars and trucks to deduct the interest payments they make, something in the governor’s plan.

It also includes a $6,000 deduction for seniors.

Hobbs wants that. But the GOP plan allows a $6,000 deduction only for payments from pension funds and retirement accounts, something the governor says favors those who can afford to have such plans and don’t have to work beyond 65.

Conversely, simply adopting what Congress approved without offsets in state law would mean additional tax breaks for businesses to more quickly write off the cost of buying new equipment, provisions Republicans want but the governor does not.

And doing that also would mean providing big tax cuts for Arizonans with high state and local income taxes, something neither side wants.

But what HB 2785 would provide is some finality and allow Arizonans to use the already prepared state tax forms — and use them without fear of having to file an amended return, whether they do it themselves or pay a tax preparer.

“This is definitely not our preferred approach,” Mesnard said. But he and other Republicans say it’s the only way to clear the path for people to start preparing their returns and be ready to file before the April 15 deadline.

That’s just 72 days away.

“Doing nothing would only guarantee more confusion and force families and businesses to fix the government’s mistakes later,” Mesnard said. And he said it would be “completely unjust” to tell taxpayers to file now and hope that they won’t have to refile later.

Gubernatorial press aide Christian Slater said that bill won’t even get the governor’s consideration because it has “tax cuts for special interests and billionaires” with no plan from Republicans on how they’re going to pay for them.”

A veto, though, would still leave Arizona with those tax forms that Hobbs’ own Department of Revenue says could leave a third of Arizonans in the position of wondering if they’re going to have to prepare their taxes twice. And those are the forms that Hobbs said Arizonans “should feel confident filing (with) and having certainty that they will be OK.”

But what of the testimony that state tax officials provided last week to legislators in a public meeting?

“I will continue to work to clarify what the Department of Revenue is saying,” the governor said. But she balked when asked to detail where the agency was incorrect.

“I don’t want to litigate the details,” Hobbs responded. “I just think there was a miscommunication there.”

On Friday, the agency issued a revised advisory. But despite the governor’s comments, it still says that, based on its calculations, a third of taxpayers still could have to file amended returns depending on a final deal.

That new advisory tells taxpayers they are “unlikely” to need to file an amended return — but only if they take the standard deduction and don’t plan to claim other deductions that conform with federal law, like those for tipped income, overtime compensation, that $6,000 senior deduction and writing off interest on purchase of a qualified new car.

And as to whether taxpayers should file now or wait, the department calls that “a personal decision” depending on how soon they want their refund and “their comfort level with potentially filing an amended return later.”