Arizona’s income tax computation for resident individuals begins with federal adjusted gross income (AGI), which serves as the starting point for determining Arizona gross income. From this base, certain additions and subtractions are applied to arrive at Arizona taxable income. One of the most common additions is interest income from non-Arizona municipal bonds, which is taxable in Arizona even though it may be exempt from federal income tax.
Other Additions to Arizona Taxable Income
- Interest from non-Arizona municipal bonds: This is a key addition, as such interest is generally exempt from federal tax but taxable under Arizona state law.
- Other additions: Arizona Form 140 instructions provide a complete list of additions to income. These may include other types of income that are federally taxable but subject to state taxation in Arizona.
Source:
PUBLICATION 10.pdf (Arizona Department of Revenue)
Form 140
Disclaimer: Always verify details with the current year’s Federal and State Department of Revenue Forms and Instructions. Tax rules may change annually, and professional advice from a CPA or tax attorney is recommended for complex situations.