Reference Title: income tax; flat rate withholding

AN ACT
AMENDING SECTION 43-401, ARIZONA REVISED STATUTES; RELATING TO INCOME TAXES.

Be it enacted by the Legislature of the State of Arizona:

Section 1. Section 43-401, Arizona Revised Statutes, is amended to read:

43-401 . Withholding tax; rates; election by employee

A. Every employer at the time of the payment of wages, salary, bonus or other emolument to any employee whose compensation is for services performed within this state shall deduct and retain therefrom an amount equal to a percentage of the total amount of the federal income tax deducted and withheld by an employer from the total value of such wages, bonus or other emolument of an employee under the provisions of the United States internal revenue code computed without deductions for any amount withheld.

B. The percentage deducted and retained under subsection A of this section shall be:

1. If the employee's annual compensation is less than fifteen thousand dollars, ten per cent, SEVENTEEN PER CENT, twenty per cent, twenty-two per cent, twenty-eight per cent or thirty-two per cent, at the employee's election pursuant to subsection E of this section.

2. If the employee's annual compensation is fifteen thousand dollars or more, SEVENTEEN PER CENT, twenty per cent, twenty-two per cent, twenty-eight per cent or thirty-two per cent, at the employee's election pursuant to subsection E of this section.

3. ZERO PER CENT AT THE ELECTION OF AN EMPLOYEE WHO HAD NO STATE TAX LIABILITY IN THE PRIOR TAXABLE YEAR AND EXPECTS TO HAVE NO STATE TAX LIABILITY FOR THE CURRENT TAXABLE YEAR.

C. If the amount collected and payable by the employer to the department in each of the preceding four calendar quarters did not exceed an average of one thousand five hundred dollars, the amount collected shall be paid to the department on or before April 30, July 31, October 31 and January 31 for the preceding calendar quarter. If such amount exceeded one thousand five hundred dollars in each of the preceding four calendar quarters, the employer shall pay to the department the amount the employer deducts and retains pursuant to this section at the same time as the employer is required to make deposits of federal tax pursuant to section 6302 of the internal revenue code. On or before April 30, July 31, October 31 and January 31 each year the employer shall reconcile the amounts payable during the preceding calendar quarter in a manner prescribed by the department. For taxable years or reporting periods that begin from and after December 31, 1997, the department by rule may allow and determine which employers qualify for annual payments of withholding taxes, with an annual report by the employer pursuant to section 43-412, subsection B, if the qualifying employer has established sufficient payment history to indicate that the employer is current and in good standing pursuant to standards established by rule. For any business which has not had a withholding certificate for the four preceding consecutive quarters, the quarterly average shall be computed in a manner prescribed by the department.

D. If an employer fails to make a timely monthly payment because prior to that reporting period it reported on a quarterly basis instead of on a monthly basis, the department shall notify the employer that it is out of compliance with this section. Notwithstanding section 42-136, the department shall not assess a penalty against an employer for failing to make a timely monthly payment if the employer had filed and remitted all taxes due on a quarterly basis and brings all filings and payments into current compliance within thirty days after being notified by the department.

E. Each employee shall elect which percentage of the federal income tax deducted and withheld shall THE AMOUNT AUTHORIZED BY SUBSECTION B OF THIS SECTION TO be withheld for application toward the employee's state income tax liability. The election provided under this subsection shall be exercised by each employee, in writing on a form prescribed by the department. The election shall be made within five days of employment. Each employer shall notify the employees of the election made available under this subsection and shall have election forms available at all times. Each form shall be completed in triplicate, with one copy each for the department, the employer and the employee. The employer shall file a copy of each completed form with the department. Any employee failing to complete an election form as prescribed shall be deemed to have elected the smallest applicable withholding percentage.

APPROVED BY THE GOVERNOR MAY 20, 1998.

FILED IN THE OFFICE OF THE SECRETARY OF STATE MAY 22, 1998.