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The starting point for the Arizona individual income tax return is the federal adjusted gross income (FAGI) determined on the federal return. This number is then adjusted for specific Arizona additions, subtractions, deductions and exemptions to determine Arizona taxable income. The deduction taken on the federal return for qualified business income (QBI) is taken after the determination of FAGI on the federal return; therefore the deduction is not part of Arizona’s starting point. In addition, Arizona does not have an Arizona specific adjustment to allow the QBI deduction. As a result, QBI may not be deducted on the Arizona return.
If you claimed a subtraction for QBI on your 2018 Arizona individual income tax return, you should file an amended return (Arizona form 140X) to remove the subtraction.