Take a closer look at Arizona’s small business income tax

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Some people have reached out after the previous blog on Arizona’s new alternative tax, called the Arizona Small Business Income Tax (SBI). So I thought I would do a follow up with some questions and answers:

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Small Business Income Tax (SBI) FAQs

Question: How do you file for Arizona SBI?

Answer: There is an election that you make, which consists of filing Form 140-SBI.

Q: I have already filed my Arizona Form 140. How do I now file Form 140 SBI?

A: Unfortunately, this is not possible. The two returns, Form 140 and Form 140-SBI, needed to be filed at the same time. It is not possible to amend the Form 140 and then file both returns.

Q: I have extended Form 140, but did not file a separate extension for Form 140-SBI. Can I still file the 140-SBI?

A: Yes, the 204 extension (or a federal extension if no tax due) extends both the Form 140 and the Form 140-SBI.

Q: In order to file both returns, do I need to pay tax in with my Form 140-SBI, and wait for a refund on Form 140?

A: No, the Arizona Department of Revenue has said that they will automatically take the refund from one return and apply it to the amount due on the other return.

Q: I always need to make estimated tax payments. I only made estimated tax payments for Form 140 – will I have an underpayment penalty if I now file Form 140-SBI?

A: As long as your 2021 estimates, and any applicable Arizona withholding, in total exceed the amount of the total Arizona tax (form 140 plus Form 140-SBI), there is no underpayment penalty. Since the SBI tax was new for 2021, the requirement for estimated tax payments for 2021 was waived.

Q: Okay, so no SBI estimates required for 2021. I still have not filed my extended 2021 returns but am making estimated tax payments for 2022. How do I know how to split my estimates for 2022 between 140 tax and SBI tax?

A: As it so happens, the Arizona legislature also passed an overall flat tax in June 2021. This flat tax is even less than the SBI tax. Therefore, we are struggling to find any circumstance in which a taxpayer would need to make an Arizona SBI estimated tax payment for 2022. In other words, while this alternative tax will be still be around, we do not envision using it past the 2021 tax year.

If you have further questions that need answering on this alternative tax, please reach out to your Henry+Horne adviser.

Donna Harmon Laubscher, CPA