Overview
- Republicans passed SB1106 to largely mirror federal changes in H.R. 1, with an estimated $441.3 million hit in fiscal 2026 and added language positioning Arizona for a potential federal school voucher program.
- Gov. Katie Hobbs rejected the bill and backs a roughly $250 million plan focused on middle-income relief, including a higher standard deduction, tax breaks for tips and overtime, a $6,000 senior deduction, and interest deductions for new U.S.-assembled car loans.
- Key differences include GOP-favored retirement income deductions, larger child benefits, and accelerated business expensing worth well over $100 million across three years, which Hobbs excluded.
- The Department of Revenue issued forms assuming full conformity and warned retroactive changes could require $20 million and 200 staff, raising the prospect of amended returns, though Hobbs’ office says most filers would not need to refile under her approach.
- Hours after the veto, Hobbs unveiled a $17.7 billion budget that kicks off negotiations and proposes ESA voucher reforms, an affordability fund, and a major fee increase on large sports-betting operators, while Republicans float yet-unsettled offsets such as border reimbursements and redirecting Prop. 123 backfill.