Key Points:

• No tax conformity bill has been signed yet
• Republicans are now recommending Arizonans file their state income taxes anyway
• A bill that matches tax forms from the Arizona Department of Revenue will likely pass with the budget later this session

Arizona legislative Republicans are now advising taxpayers to file their 2025 income tax returns, despite no tax conformity bill being signed by Gov. Katie Hobbs yet. 

The governor vetoed House Bill 2785 on Feb. 12, a second GOP attempt at a bill that would conform the state’s tax code to the federal tax code that was signed into law as a result of 2025’s H.R.1, the “One Big Beautiful Bill.” 

Hobbs vetoed the bill and told Republicans in her veto letter that she wanted the “Middle Class Tax Cuts Package” that she and Democratic legislators are supporting with House Bill 2531 and Senate Bill 1203. 

But Republicans said at a Feb. 18 press conference that the only acceptable outcome for them was full conformity and keeping state law consistent with tax forms the Department of Revenue has already prepared for taxpayers. Those forms assume conformity to H.R.1. 

“This Legislature will not send a bill that forces Arizonans to file a paper copy of amended returns this year,” said House Speaker Steve Montenegro, R-Goodyear. “As far as we’re concerned, the forms published by the governor’s own Department of Revenue must be supported by all.”

The governor’s preferred approach to the Middle Class Tax Cuts Package would decouple Arizona’s income tax for tax year 2025 while keeping middle class tax policy provisions she supports, including no tax on tips and overtime. 

Hobbs has said numerous times she’s not opposed to conforming, but she wants to know how Republicans will pay for it in the budget. 

During the House vote on HB2785, many Democrats echoed that message, saying House Republicans have no plan to pay for conformity. 

“The Republicans have no plan to pay for this tax cut for the wealthy and large corporations,” said House Minority Leader Oscar De Los Santos, D-Laveen. 

Republicans have not unveiled any budget plans for this year yet, but Montenegro said there are sufficient cash balances to cover the estimated $441 million loss in general fund revenue in the upcoming fiscal year. 

All members of the House and Senate GOP caucuses signed a letter sent to Hobbs on Feb. 18 informing her that the only path they were willing to take was to fully conform during budget negotiations. 

The Governor’s Office did not respond to a request for comment from the Arizona Capitol Times. In her veto letter, Hobbs called on Republicans to stop “partisan political theater” and said anything more than the Middle Class Tax Cuts Package must be negotiated in the budget process. 

During the first week of the legislative session, Republicans fast-tracked a different conformity bill they preferred to HB2785. Hobbs vetoed that measure, Senate Bill 1106, which included an increased deduction for child care expenses and provided deductions for retirement income.

Kevin McCarthy, director of the Arizona Tax Research Association, said he couldn’t imagine another solution other than full conformity following the governor’s veto. The association supported HB2785 because it was the simplest solution for taxpayers since it aligned with the Department of Revenue’s forms. 

“I can’t imagine what version three looks like,” McCarthy said. “I don’t think you’ll see any action for the immediate future.”

Tax day is April 15, and the budget likely won’t be passed until May or June given the Legislature’s recent track record. But because of the Revenue Department’s forms, the state can still avoid requiring taxpayers to file amended returns if the bill that is eventually signed aligns with the department’s forms. 

“At this point, there is nothing left,” said Sen. J.D. Mesnard, R-Chandler. “If we do nothing, then essentially conformity continues and taxpayers can file. It’s not the ideal arrangement, but we’re sort of operating in the continuing of bad options.”