Why Some Taxpayers May Need to File Amended 2025 Arizona Tax Returns

Here’s something to ponder next time you can’t fall asleep: do state tax laws have to be the same as or at least closely follow federal tax laws? The short answer is no; they do not. (We recognize that a short answer renders this sleep aid unhelpful and apologize for getting your hopes up.)

States are entirely free to create any tax laws they want, but big differences between state and federal tax law add a lot of complexity for taxpayers who must file both federal and state tax returns. Filing is easier when a taxpayer can use the same figures for both federal and state tax returns.

State tax conformity refers to how closely a state’s tax laws align with the federal Internal Revenue Code (IRC). States have a lot of latitude in choosing the process by which they align their tax codes with the IRC, but generally, the goal is to simplify filing for taxpayers and administration for states while maximizing state tax revenues.

The primary types of state tax conformity include:

• Rolling conformity: the state automatically adopts changes to the federal tax code as they are passed by Congress. This keeps state law current with federal tax law. About half of states use this type of conformity.
• Static conformity: the state links its tax code to the federal code as a specific historical date. Changes made by Congress after this date are not adopted unless the state legislature passes new law. Arizona currently conforms to the IRC as of 1/1/2025.
• Selective conformity: States with either rolling or static conformity may choose to explicitly reject specific federal tax provisions. For example, state municipal interest is not included in federal taxable income. However, Arizona only allows the exclusion of municipal interest from Arizona. Municipal interest from other states that was not taxed on the federal tax return must be added back to Arizona income when filing a state tax return.

Arizona is a static conformity state, meaning that when federal changes to tax law are made, the Arizona legislature must adopt those changes. As indicated above, it also uses selective conformity in some instances.

On January 15, 2026, the Arizona Legislature transmitted to the governor a tax relief bill designed to align Arizona’s tax code with the federal tax changes made by the federal One Big Beautiful Bill Act (OBBBA) passed in July 2025. Governor Hobbs vetoed the bill the next day because she favored selective adoption of benefits rather than full, broad conformity. To date, this disagreement remains unresolved, meaning that Arizona conformity legislation is stalled even though the 2025 tax filing season is well under way.

This problem is not unusual for Arizona. The State Legislature does not generally adopt tax conformity until the final budget bill is passed at the end of the regular legislative session. This typically occurs well after the April 15 filing deadline.

What makes this circumstance especially problematic for the Arizona Department of Revenue (ADOR) and taxpayers in 2026 is that the OBBBA had significant revenue impact, and 2025 tax forms had to be issued before the conformity issues were resolved.

The 2025 tax forms issued assume conformity with the federal tax changes. If the Legislature passes a conformity bill that is not consistent with the forms released by ADOR, some taxpayers may need to file amended Arizona tax returns.

The ADOR has encouraged taxpayers to file their tax returns on time in 2026, but anticipating the potential for many taxpayers having to file amended returns, it has established a safe harbor. If a taxpayer files a 2025 tax return using current forms, and the forms are later deemed inconsistent with the final law passed, ADOR will provide specific guidance on how to amend. Additionally, taxpayers will not be subject to penalties or interest, provided the amended return is filed by October 15, 2027.

You will know if you need to file an amended tax return if you receive correspondence from  ADOR about your 2025 tax return. The State can handle some adjustments automatically, meaning many taxpayers may not need to file anything themselves.

In the meantime, the tax professionals at R&A CPAs are carefully monitoring the 2026 Arizona Legislative Session and will keep you informed of pertinent developments. Let us know if you have any questions or concerns about this issue, or any other issue. We love hearing from you!