Arizona launches legal battle against IRS to halt taxation of state-issued tax rebate

Feb 22, 2024, 10:26 AM | Updated: 10:47 am

Entrance to the Internal Revenue Service building....

Arizona Attorney General Kris Mayes said Feb. 21, 2024, the state is suing the Internal Service Revenue in hopes of stopping it from taxing a state-issued tax rebate. (AP File Photo)

(AP File Photo)

PHOENIX — Arizona Attorney General Kris Mayes said the state is suing the IRS in hopes of stopping it from taxing a state-issued tax rebate.

The lawsuit alleges it is illegal and unfair for the IRS to tax money from the Arizona Families Tax Rebate because it goes against how similar rebates in other states are treated by the IRS, Mayes said in a Wednesday press release.

It additionally alleges that taxing these rebates affects the economic well-being of Arizona and is arbitrary and fickle toward state taxpayers.

“This lawsuit is about standing up for Arizona taxpayers,” Mayes said in the release. “The federal government’s decision to tax these rebates is unfair and unlawful — and I will do everything I can to ensure the tax relief provided to Arizonans by their state remains in the pockets of Arizona taxpayers, as intended.”

What does Mayes say happened with the Arizona Families Tax Rebate?

A General Welfare Income Tax Rebate was enacted for Arizonans in May 2023 to help with financial relief to qualifying families.

The Attorney General’s Office said the rebate was designed off an understanding from previous IRS guidelines that similar rebates would not be taxable.

While the actions of the IRS are different than in past situations, the IRS didn’t confirm its decision in writing until last week, Mayes said.

The Attorney General’s Office said prior to filing the lawsuit, it tried to convince the IRS to backpedal its decisions.

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Arizona launches legal battle against IRS to halt taxation of state-issued tax rebate