2022 Legislative Session Updates — State Taxes in Arizona, Colorado, and New Mexico
Changes to state tax laws enacted during 2022 legislative sessions, so far, in the states of Arizona, Colorado, and New Mexico have meaningful implications for taxpayers and, in some cases, may potentially reduce tax liabilities.
Maricopa County Superior Court struck down a voter-approved income tax increase on high earners, Proposition 208, on March 11, 2022.
Proposition 208, which has been entangled in litigation since voters passed it in 2020, imposed a 3.5% surcharge on taxable income above $250,000 for individuals and $500,000 for joint filers or heads of households to fund education and was struck down by Maricopa County Superior Court Judge John Hannah.
Hannah ruled on the narrow question of whether the new school funding would exceed annual spending limits, which the Arizona Supreme Court said would make the measure invalid.
The Superior Court “is obligated to strike down Proposition 208″ based on the state Supreme Court’s reasoning, Hannah wrote.
Arizona Department of Revenue has released a statement that they are working on updating the individual income tax forms and the administrative system in response to the ruling. For taxpayers that have already filed an Arizona individual income tax return, no action is required. The Department will hold returns with the surcharge and will process them correctly once their systems have been updated, removing the surcharge and correcting tax bracket rates. The Department has advised taxpayers who have not yet filed to use the current form following the current instructions. The Department will make the necessary changes to these returns as well, once they have updated their systems.
Colorado Governor Jared Polis signed a law regarding the exception to the sales and use tax destination sourcing requirement for Colorado retailers with less than $100,000 in annual retail sales. The law, which took effect January 31, 2022 extends the exception’s sunset date from February 1, 2022 to October 1, 2022.
On March 8, 2022 New Mexico Governor Michelle Lujan-Grisham signed several bills into law regarding New Mexico State taxes. Addressing taxes including individual income, corporate income, trust income, sales and use, and excise tax changes. The measures included in the newly signed laws are:
- A one-time, refundable income tax rebate of $500 for married couples filing joint returns with incomes under $150,000, and $250 for single filers with income under $75,000;
- A new refundable child tax credit of up to $175 per child;
- Exempting Social Security from state income taxation, the bill includes a cap for exemption eligibility of $100,000 for single filers and $150,000 for married couples filing jointly;
- A three-year income tax exemption for armed forces retirees, starting at $10,000 of military retirement income in 2022 and rising to $30,000 of retirement income in tax year 2024;
- A one-time $1,000 refundable income tax credit for tax year 2022 for full-time hospital nurses;
- An extension of the solar market tax credit, worth 10% of the purchase and installation cost of a solar power system;
- A new gross receipts tax deduction for certain professional services sold to manufacturers, aimed at reducing tax “pyramiding”;
- A law allowing pass-through entities to elect to pay an entity-level income tax in lieu of withholding, for individual income and corporate income tax purposes;
- A law extending the Technology Readiness Gross Receipts Tax Credit available for qualified expenditures incurred by national laboratories, for sales and use tax purposes; and
- creating a gross receipts tax deduction for feminine hygiene products.
- expanding the deduction to apply to payments received by a health care practitioner from a “Medicare administrative contractor” for medical services provided to Medicare recipients;
- defining “Medicare administrative contractor” as a third-party administrator operating under contract with the federal centers for Medicare, and Medicaid services to process Medicare claims and make Medicare fee-for-service payments for Medicare fee-for-service recipients; and
- expanding the deduction to apply to payments to a hospice or nursing home from a U.S. federal agency or a Medicare administrative contractor for medical and other health and palliative services provided to Medicare recipients.
Laws will generally go into effect on July 1, 2022. For more in-depth information on the 2022 changes to state tax laws in Arizona, Colorado, and New Mexico, and how they may apply to you, contact your trusted state and local tax advisors at REDW.