Arizona department of revenue individual income tax model

1. Arizona department of revenue individual income tax model

2. Individual Income Tax Model • Model designed to measure impact of changes in Arizona state individual income tax given: • Changes in federal tax law • Proposed changes in state tax law • Contains a sample of approximately 60,000 individual income tax returns with both state and federal tax data

3. Model Sample • Sample size is determined using a formula that considers variation in the tax liability for all resident returns by filing status within an income bracket • Want a sample size that has the smallest number of returns while maintaining a high level of confidence in the data in each bracket • Returns are randomly selected by filing status and FAGI bracket • Returns selected contain both federal and state data

4. Model Output • Model output compares the original state tax liability on the sample returns with the newly calculated liability • Sample returns are expanded to represent the universe of resident returns • The output is then grown to current tax year • Actual tax liability growth for completed years • Estimated filer growth used for future years

7. Final Notes on Model Output • Output is presented in terms of a tax year • Numbers reflect total tax liability in a given tax year not a fiscal year • Database was chosen on tax liability and filing status and not on smaller groups within the whole population therefore impacts are guidelines and should not be considered exact representations of the impact. • Model does not include the impact of credits