Partnership Highlights

2024 HIGHLIGHTS

 

Partnership Returns

A partnership that has no Arizona income, deductions or credits for a taxable year is not required to file a partnership return for that year.

 

Inclusion of Federal Return with Arizona Return

The Department requests that partnerships include a copy of their “as-filed” federal Form 1065 and all its schedules and attachments with their Arizona return.

 

Partnerships and the Pass-Through Entity Election

For taxable years beginning from and after December 31, 2021 the shareholders of a partnership may consent to be taxed at the entity level in Arizona.

NOTE: S.B. 1734 mandated a change in the starting point to compute Arizona taxable income for partnerships making the PTE election. For taxable years beginning from and after December 31, 2022, the starting point to calculate Arizona taxable income for a partnership making the PTE election is the partnership’s ordinary and rental income including any Arizona additions found in A.R.S. § 43-1021 less any Arizona subtractions found in A.R.S. § 43-1022, plus, the items that require separate computation under A.R.S. § 43-1412, paragraphs 1 through 16.

For taxable year 2024, the Arizona PTE income tax is assessed at a rate of 2.5% of the income attributable to the partnership’s resident partners and the income derived from sources within Arizona attributable to the nonresident partners.

This election must be made by the partnership no later than the due date or extended due date of its return. Partners that are not individuals or estates and trusts may not participate in this election. Partners who are individuals or estates and trusts who opt out of this election also may not participate in this election.

For additional information, see the instructions for Form 165.

 

Bipartisan Budget Act of 2015 (P.L. 114-74)

For taxable years beginning after December 31, 2017, partnerships must elect NOT to participate in the federal imputed underpayment assessment program. Only those partnerships that issue 100 or fewer statements under 6031(b) of the Internal Revenue Code with respect to its partners may elect not to participate.

  • If a partnership is issued a federal imputed underpayment adjustment by the IRS, that partnership must file the federal changes to Arizona using Arizona Form 165PA.
  • If a partnership does not receive a federal imputed underpayment assessment from the IRS, it will file its federal changes to Arizona on an amended Arizona Form 165.

 

Electronic Funds Transfer

Partnerships making the PTE election are required to pay their tax liability by electronic funds transfer (EFT) if the partnership’s PTE tax liability is $500 or more for any taxable year beginning from and after December 31, 2020.

A partnership may apply to the director for an annual waiver from the electronic payment requirement. The application must be received by December 31 of each year. The director may grant the waiver if any of the following applies:

  • The partnership has no computer.
  • The partnership has no internet access.
  • Any other circumstance considered to be worthy by the director exists, including:
    • The partnership has a sustained record of timely payments and
    • The partnership has no delinquent tax account with the Department.

To request a waiver, submit Form 292, Electronic Filing and Payment Waiver Application, to the Department. 

NOTE: A partnership who is required to pay by EFT but who fails to do so is subject to a penalty of 5% of the amount of the payment not made by EFT. See A.R.S. § 42-1125(O).
For additional information on electronic funds transfer, refer to A.R.S. § 42-1129 and the related Arizona Administrative Code rules (A.A.C. R15-10-301 through R15-10-307) for detailed information.

 

Electronic Filing of Partnership Tax Returns

Electronic filing of Arizona partnership income tax returns is required for the 2024 taxable year. Please see the Department’s website at https://azdor.gov/file-and-pay/e-file-services/approved-vendors for a list of approved software vendors.

Any partnership that is required to file its income tax return electronically may apply to the director for an annual waiver from the electronic filing requirement. The waiver may be granted and renewed for one subsequent year if any of the following apply:

  • The partnership has no computer.
  • The partnership has no internet access.
  • Any other circumstance considered to be worthy by the director.

Waivers are granted on an annual basis and expire at the end of the requested tax year. Waivers must be renewed each calendar year. If a waiver is not renewed, you will be subject to statutory electronic filing and payment requirements at the expiration of your waiver.

To request a waiver, submit Arizona Form 292, Electronic Filing and Payment Waiver Application, to the Department. 

A waiver is not required if the partnership tax return cannot be electronically filed for reasons beyond the taxpayer’s control, including situations in which the taxpayer was instructed by either the Internal Revenue Service or the Arizona Department of Revenue to file by paper.

Please contact the Department at [email protected] if you need assistance in electronically submitting your Arizona partnership tax return.

Partnerships filing their partnership return electronically must electronically submit Schedule(s) K-1 and K-1(NR) to the Department.

Partnerships filing their partnership return by paper may submit Schedule(s) K-1 and K-1(NR) to the Department by CD, DVD, flash drive (Optical Media), or by paper.

 

Changes to Tax Credits

Arizona Credit for Increased Research Activities

For taxable years beginning from and after December 31, 2022, Arizona will permit taxpayers to compute the Credit for Increased Research Activities using:

  • The regular method – the excess of Arizona qualified research expenses for the taxable year over the base amount and the Arizona basic research payments; or,
  • The Alternative Simplified Credit – the excess of Arizona qualified research expenses for the taxable year over the average Arizona qualified research expenses for the previous three years.

See the instructions for Form 308 for additional information.

For taxable years beginning before January 1, 2023, taxpayers may file an amended return to claim the Arizona Credit for Increased Research Activities using the Alternative Simplified Credit (ASC) method of computing the Credit for Increased Research Activities.

See the instructions for Form 308-ASC for additional information.

Credits Repealed

The carryover period for The Credit for Solar Energy Devices – Commercial and Industrial Applications, claimed on Form 336, has expired and is no longer available to taxpayers.