2019 Department Update

1. 2019 Department Update 2019 | Flagstaff, Ariz. By: Dr. Grant Nülle, Deputy Director Arizona Department of Revenue

2. Agenda • ADOR Mission, Visionand High-level Summary • ADOR Strategic Priorities and Execution • ADOR Major Projects • Legislative Update

3. Mission and Vision OUR MISSION Serving Taxpayers! OUR VISION Funding Arizona’s future through excellence in innovation, customer service and continuous improvement PURSUANT TO ARIZONA REVISED STATUTES (A.R.S.) TITLES 42 AND 43 FY19 ANNUAL OPERATING BUDGET PURSUANT TO ARIZONA REVISED STATUTES (A.R.S.) TITLES 42 AND 43 FY19 ANNUAL OPERATING BUDGET $78.3 MILLION 514 Employees $78.3 MILLION 514 Employees

4. Revenue collections exceeded $19 billion in FY 2019 – highest in Arizona history

5. Revenue distributions primarily fund state operations, cities/towns and counties

6. Total returns processed in 2019 Total Payments Received – 5 million

7. ADOR’s multi-faceted operations touch every part of Arizona - FY19 highlights • $8 million in individual income tax fraud stopped. • Nearly 43,751 new TPT licenses issued. • $48.4 million in unclaimed property returned. • Property Tax Unit valued 810+ centrally valued properties and trained more than 70 certified county appraisers.

8. ADOR is the most efficient revenue agency among comparable states *Gross State Product; Sources: FY18 Appropriation/Annual Reports for each state

9. Strategic Priorities and Execution

10. How we get there deploying the AMS: • Set Goals • Measure Performance via Scorecard Metrics • Identify Gaps Between Our Performance & Goals • Execute Countermeasures to Close Gaps

11. Measuring to manage and drive agency – the AMS performance

12. Operating at the speed of business: Average speed to answer: < 1 minute FY 2019 Average Speed to Answer: 2.3 minutes

13. Deploy Countermeasures

14. Creating capacity by increasing E-File and E-Pay FY 2016 E-File/E-Pay rates are low for the 3 major tax types

15. Paper Returns Processing Time(Electronic Returns take 0 mins) Individual Income Tax 7.4 3.6 Corporate Income Tax mins. mins. 4.9 4.5 WithCash/Check Payment WithoutCash/Check Payment WithoutCash/Check Payment mins. mins. WithoutCash/Check Payment WithCash/Check Payment 6.2 2.9 Transaction Privilege Tax mins. mins. WithCash/Check Payment WithoutCash/Check Payment

16. Electronic Filing and Payment Requirements *E-File thresholds apply when E-file option becomes available • With the passage of House Bill 2280 in 2017, electronic filing and payment of the following taxes are mandatory at certain liability thresholds: • Transaction Privilege Tax • Withholding Tax • Corporate Income Tax*

17. Higher rates of E-Pay results in nearly 113,000 less paper payments (8% decrease YOY)

18. Higher rates of E-Filing results in nearly 600,000 less paper returns (26% decrease YoY)

19. Serving taxpayers by creating capacity:major ADOR projects • Finish TPT reform – Completed calendar year 2017 • Partner with ADOT to simplify vehicle use tax administration – Completed Nov. 1, 2017 • Residential rental tax e-file solution – Completed Jan. 2018 • Electronic self-serve 1099-G – Completed Jan. 2018 • IT infrastructure modernization – Deploy $11 million state investment – Completed June 2018 • Consolidating tax return processing and Cloud storage of TPT filings – Completed October 2018 • Deploy corporate e-file solution – On Track for Jan. 2020

20. ADOR’s performance driven by engaged employees: 2019 Employee Engagement Survey

21. ADOR’s performance driven by engaged employees

22. 2019 Legislative Update

23. 2019 dominated by two major topics Tax Year 2018 Income Tax Conformity Taxation of Online Transactions

24. For Income Taxes, Arizona must annually conform to the Internal Revenue Code Source: The Tax Foundation

25. Arizona conforms to IRC for tax year 2018 Release of ADOR’s tax forms coincided with the beginning of IRS filing season and assumed full conformity to the Internal Revenue Code (IRC) except for items Arizona has not conformed to historically. No action is required of taxpayers who have already filed; for taxpayers who have filed an extension, returns are due on October 15, 2019.

26. Tax Year 2019 • Beginning in 2020, Arizona individual income tax returns for tax year 2019 will include the following changes: • Match the federal standard deduction amount ($12,200 single and married filing separate, $18,350 head of household, $24,400 married filing joint.) • Remove Arizona personal and dependent exemption amounts. • Provide $100 child tax credit per dependent under 17 years of age and $25 for dependents 17 and older. • The credit is phased out for federal adjusted gross income greater than $200,000 single, married filing separate and head of household, and $400,000 married filing joint. • Allow taxpayers to increase standard deduction by 25 percent of the charitable donations that would have been claimed as an itemized deduction.

27. Tax Year 2019 Four tax brackets from the previous five tax brackets were also established:

28. Preparing for income tax filing season is an extensive, complex, and interdependent undertaking

29. v. • The U.S. Supreme Court ruled that out-of-state (remote) sellers with no physical presence in a state can be liable for payment of that state’s sales/use taxes for transactions occurring in that state • The decision overturned a 25-year old ruling requiring physical presence to create a “substantial nexus" v.

30. ENJOY THE CONFERENCE!