Partnership Highlights

2022 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. The Arizona PTE income tax is assessed at a rate of 2.98% 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 imputedunderpayment adjustment by the IRS, thatpartnership must file the federal changes to Arizonausing Arizona Form 165PA.
  • If a partnership does not receive a federal imputedunderpayment assessment from the IRS, it will fileits federal changes to Arizona on an amendedArizona Form 165.

 

Electronic Filing of Partnership Tax Returns

Electronic filing of Arizona partnership income tax returns is required for the 2022 taxable year. Please see the department’s website at https://azdor.gov 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. Arizona Form 292 is available at: Electronic Filing and Payment Waiver Application

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.

 

Change to MSP Election

Effective for taxable years beginning from and after December 31, 2019, the Multistate Service Provider election includes sales from services or sales from intangibles in its calculation. This includes sales derived from credit and charge card receivables, including fees, merchant discounts, interchanges, interest and related revenue. See the instructions for the MSP for additional information.

 

Changes to Tax Credits Credits Repealed

  • The Environmental Technology Facility Credit, claimed on Form 305, has been repealed for taxable years beginning from and after December 31, 2021.
  • The Employment Credit for Healthy Forest Enterprises, claimed on Form 332, has been repealed for taxable years beginning from and after December 31, 2021.

 

New Tax Credit

  • Affordable Housing Tax Credit - A.R.S. § 43-1163 provides for a nonrefundable credit for projects in Arizona that qualify for the federal low-income housing tax credit under Section 42 of the IRC. For more information, refer to the instructions for Form 354.