Arizona Individual Income Tax Returns

1. Arizona Individual Income Tax Returns • More than 2.6 million individual income tax returns received by ADOR for a tax year • Paper , e-file and 2D bar code • Resident (140, 140a, 140ez), non-resident returns (140nr) and part-year returns (140py) • Growth in e-filed returns • Approximately 70% of individual income tax returns were e-filed for tax year 2012 • E-file just over 50% of all returns in tax year 2007

2. ADOR IIT Enforcement Efforts • Over 95% of Individual Income Tax Audits are directly linked to information received from the IRS. • Identify Non-filers • Compare differences between state and federal returns • Other Audit leads • FY 13 – approx. 65,000 IIT audits • FY 13 – approx. $30M in Audit Assessments • FY 13 – approx. $21M in Collections

3. Individual Income Tax Data • Arizona individual income tax data • E-file and 2D bar code returns – capture primary fields plus • Detail on additions to income, subtractions from income, exemptions, adjustments to itemized deductions (Arizona schedule A) and credits • Paper returns – capture primary fields • Limitations of Arizona data • Data is limited depending on how return was filed (paper vs. e-file/2D) • Additional data available from e-file/2D bar code returns

4. Individual Income Tax Data • Federal individual income tax data for Arizona filers • IRS federal information sharing program – strict limitations on federal data • IRS Statistics of Income (SOI) – summary of various federal income tax return data; also provided at the state level • Limitations of Federal data • Lag in data availability – first look at tax year 2012 would be fall 2013, but does not contain a full tax year at that point – available following fall 2014 • First look at IRS SOI data by state – tax year 2012 released spring 2014; estimates based on samples

5. Individual Income Tax Model • Individual income tax model simulates the state tax for the total return population given: • Changes in federal law • Changes in state data due to federal law • And/or proposed state changes • Returns in the sample contain federal information from IRS and data provided on Arizona returns • Model output provide values for additions, subtractions, exemptions, and deductions for a tax year • The impact of credits are not included in the model due to the unpredictability of taxpayer behavior • Current model contains tax year 2006 data grown to represent tax year 2013

6. Summary of Individual Income Tax Data • Arizona data • Primary fields – summary of all return data • Detail on additions/subtractions/adjustments to itemized deductions – from model • Credits • Pull returns to capture data; process to compile data from e-file/2D has improved • Larger volume credits – use reports from outside sources (Public School extracurricular report/STO annual report) • Federal data for Arizona filers • Components of income/additions/subtractions/exemptions/ itemized deductions • Federal SOI or from model

7. ADOR Reports • ADOR Annual Report – provides summary data on all tax types administered by the Department • Tax Expenditure Report – summary of state tax expenditures (exemptions, deductions, exclusions and credits) and estimated costs where available • Individual Income Tax Statistics – individual income tax data compiled by state, county and city levels • Arizona Income Tax Credits – summary of individual and corporate income tax credits • Tax Facts – summary of monthly tax revenue data

8. Individual Income Tax Data and Sources • Primary return data – Individual Income Tax Statistics (summary of return data) • Federal subtractions from income – Tax Expenditure Report (model) • Arizona exemptions – Tax Expenditure Report (model) • Arizona subtractions from income – Tax Expenditure Report (model) • Standard and Itemized Deductions - Tax Expenditure Report (model) • Credits – Tax Expenditure Report & Income Tax Credit Report, (return research, reports from outside sources)