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There's a major change to the way Arizona taxes are collected starting in 2023

Published: Monday, January 2, 2023 - 2:23pm
Updated: Thursday, January 5, 2023 - 8:25am
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With the new year comes a major change to the way state taxes are collected in Arizona that not many people are talking about.

“You’re on to something, and I think it’s a big deal. I don’t why it wasn’t a bigger deal in the election," said economist Dennis Hoffman of Arizona State University’s WP Carey School of Business.

A new flat tax rate of 2.5% across the board takes effect in the state, replacing individual brackets based on income. And Hoffman said you’ll start noticing soon — some more than others.

“For lower income taxpayers this is a modest tax reduction, very slight tax reduction. For middle income taxpayers, it’s a little bit more of a tax reduction, but not a huge deal. But for our high income taxpayers, it’s a 40-45% tax reduction,” said Hoffman.

The new tax makes Arizona’s flat rate the lowest in the country — but it was never voted on by the public. It was passed by the state Legislature in 2021 and enacted by Gov. Doug Ducey for 2023, a year earlier than scheduled.

Flush with a budget surplus, Hoffman says the permanent change makes sense for now.

"It’s going to leave a mark in terms of revenue collection. It comes at a time where the state is actually very healthy in terms of revenue. And then what happens is, when times get tough, we look around and say, ‘Wow’, where’s all the money gone?” Hoffman said.

And now that Arizonans passed a law in November requiring 60% approval for future tax and revenue-related referendums, Hoffman believes that will make it nearly impossible to change the law at the ballot box — if need be — in the future.