This document provides information about filing Arizona personal income tax returns, including who must file, residency requirements, filing dates and penalties. It discusses: - Filing requirements for Arizona residents based on income and filing status. - Nonresidents must file if they have Arizona-sourced income above the filing limit. - Special rules apply to American Indians and those in the military. - Residency is based on intent - part-year residents must file Form 140PY. - Returns are due April 16th unless an extension is filed. Late filing penalties apply after that date.

1. Arizona Form
2006 Resident Personal Income Tax Return 140
Leave the Paper Behind - e-File! Do You Have to File?
• Quick Refunds Arizona Filing Requirements
• Accurate
• These rules apply to all Arizona taxpayers.
Proof of Acceptance
• You must file if AND your OR your gross
Free **
you are: Arizona adjusted income is at
No more paper, math errors, or mailing delays when gross income is least:
you e-File! at least:
• Single $ 5,500 $15,000
Refunds in as little as 5 days with direct deposit option.
• Married $11,000 $15,000
e-File today, pay by April 16, 2007, to avoid penalties
filing jointly
and interest.
• Married $ 5,500 $15,000
e-File through an Authorized IRS/DOR E-file provider or filing
by using your Personal Computer and the Internet. Visit separately
• Head of
our web site at www.azdor.gov for a listing of approved e- $ 5,500 $15,000
file providers and on-line filing sources. household
If you are an Arizona resident, you must report income
** For free e-file requirements, check out our web site at
from all sources. This includes out-of-state income.
www.azdor.gov.
To see if you have to file, figure your gross income the
Who Must Use Form 140?
same as you would figure your gross income for federal
You (and your spouse if married filing a joint return) may income tax purposes. Then, you should exclude income
file Form 140 only if you are full year residents of Arizona.
Arizona law does not tax.
You must use Form 140 rather than Form 140A or Form
Income Arizona law does not tax includes:
140EZ to file for 2006 if any of the following apply to you.
•
• Your Arizona taxable income is $50,000 or more, Interest from U.S. Government obligations
• Social security retirement benefits received under
regardless of filing status.
• You are making adjustments to income. Title II of the Social Security Act
• You itemize deductions. • Benefits received under the Railroad Retirement Act
• You claim tax credits other than the family income tax • Active duty military pay
credit, the credit for increased excise taxes, the property You can find your Arizona adjusted gross income on
tax credit, or the Clean Elections Fund tax credit. line 16 of Arizona Form 140.
NOTE: Even if you do not have to file, you must still file a
return to get a refund of any Arizona income tax withheld.
Did You Know? Do You Have to File if You Are an American
Indian?
You must file if you meet the Arizona filing requirements
unless all the following apply to you.
Tax software does all the hard work for
• You are an enrolled member of an Indian tribe.
you! The software: • You live on the reservation established for that tribe.
• You earned all of your income on that reservation.
• Calculates Tax
• Does the Math To find out more, see Arizona Department of Revenue
Income Tax Ruling ITR 96-4.
• Selects Forms and Schedules
Do You Have to File if You Are a Non-
• Makes Complex Returns Simple Indian or Non-Enrolled Indian Married to
• Checks for Errors Before You File an American Indian?
• E-Files the IRS and AZ Returns at You must file if you meet the Arizona filing requirements. For
the same time details on how to figure what income to report, see Arizona
Department of Revenue Income Tax Ruling ITR 96-4.
• Gives Proof of E-Filing
Do You Have to File if You Are in the Military?
You must file if you meet the Arizona filing requirements
FREE
unless all the following apply to you.
• You are an active duty member of the United States
E-File
www.azdor.gov armed forces.
• Your only income for the taxable year is compensation
For details & eligibility received for active duty military service.
Available • There was no Arizona tax withheld from your active
duty military pay.
If Arizona tax was withheld from your active duty military
pay, you must file an Arizona income tax return to claim any

2. Form 140
refund you may be due from that withholding. It is where you intend to return if you are living or working
temporarily in another state or country. If you leave Arizona
You must also file an Arizona income tax return if you have
for a temporary period, you are still an Arizona resident while
any other income besides compensation received for active
gone. A resident is subject to tax on all income no matter
duty military pay.
where the resident earns the income.
If you are an Arizona resident and you have to file an
Part-Year Residents
Arizona return, you should file using Form 140. If you were
an Arizona resident when you entered the service, you If you are a part-year resident, you must file Form 140PY,
remain an Arizona resident, no matter where stationed, until Part-Year Resident Personal Income Tax Return.
you establish a new domicile. As an Arizona resident, you
You are a part-year resident if you did either of the
must report all of your income, no matter where stationed.
following during 2006.
You must include your military pay, but using Form 140,
• You moved into Arizona with the intent of becoming a
you may subtract all compensation received for active duty
military service, to the extent such income is included in resident.
• You moved out of Arizona with the intent of giving up
your federal adjusted gross income.
your Arizona residency.
If you are not an Arizona resident, but stationed in Arizona,
the following applies to you. Nonresidents
• You are not subject to Arizona income tax on your If you are a nonresident, you must file Form 140NR,
military pay. Nonresident Personal Income Tax Return.
• You must report any other income you earn in Arizona.
What if a Taxpayer Died?
Use Form 140NR, Nonresident Personal Income Tax
Return, to report this income. If a taxpayer died before filing a return for 2006, the
To find out more, see Arizona Department of Revenue taxpayer's spouse or personal representative may have to file
brochure, Pub 704, Taxpayers in the Military. and sign a return for that taxpayer. If the deceased taxpayer
did not have to file a return but had tax withheld, a return
If You Included Your Child's Unearned must be filed to get a refund.
Income on Your Federal Return, Does Your
The person who files the return should use the form the
Child Have to File an Arizona Return? taxpayer would have used. If the department mailed the
taxpayer a booklet, do not use the label. The person who
In this case, the child should not file an Arizona return. The
files the return should print the word quot;deceasedquot; after the
parent must include that same income in his or her Arizona
decedent's name in the address section of the form. Also
taxable income.
enter the date of death after the decedent's name.
If your spouse died in 2006 and you did not remarry in 2006,
or if your spouse died in 2007 before filing a return for 2006,
you may file a joint return. If your spouse died in 2006, the
joint return should show your spouse's 2006 income before
death, and your income for all of 2006. If your spouse died
Find an Authorized E-File Provider in 2007, before filing the 2006 return, the joint return should
show all of your income and all of your spouse's income for
2006. Print quot;Filing as surviving spousequot; in the area where
An authorized E-File provider can
you sign the return. If someone else is the personal
take the guesswork out of filing taxes. representative, he or she must also sign the return.
e-File the return to receive the refund in as
To Find an little as 5 days with direct deposit option.
Authorized E-File Are Any Other Returns Required?
Provider near you You may also have to file a fiduciary income tax return. For
log on details about filing a fiduciary income tax return, call the
department at (602) 255-3381.
www.azdor.gov
Claiming a Refund for a Deceased Taxpayer
If you are claiming a refund, you must complete Form 131,
Claim for Refund on Behalf of Deceased Taxpayer. Attach
this form to the front of the return.
What Are The Filing Dates And Penalties?
Residency Status
When Should You File?
If you are not sure if you are an Arizona resident for state
April 15, 2007 falls on a Sunday. Therefore, your 2006
income tax purposes, you should get Arizona Department of
calendar year tax return is due no later than midnight, April 16,
Revenue Income Tax Procedure ITP 92-1.
2007. File your return as soon as you can after January 1,
Residents but no later than April 16, 2007.
If you are a fiscal year filer, your return is due on the 15th day
You are a resident of Arizona if your domicile is in Arizona.
Domicile is the place where you have your permanent home. of the fourth month following the close of your fiscal year.
2

3. Form 140
penalty from the original due date of the return until the date
What if You Cannot File on Time? you pay the tax. This penalty cannot exceed 25 percent of
You may request an extension if you know you will not be the unpaid tax.
able to file on time.
NOTE: If you are subject to two or more of the above
NOTE: An extension does not extend the time to pay your income penalties, the total cannot exceed 25 percent.
tax. For details, see the instructions for Arizona Form 204.
Interest
To get a filing extension, you can either: The department charges interest on any tax not paid by the
due date. The department will charge you interest even if you
1. Apply for a state extension (Form 204). To apply for a state
have an extension. If you have an extension, the department
extension, file Arizona Form 204 by April 16. See Form
will charge you interest from the original due date until the
204 for details. You do not have to attach a copy of the
date you pay the tax. The Arizona interest rate is the same as
extension to your return when you file, but make sure that
the federal rate.
you check box 82F on page 1 of the return. If you must
make a payment, use Arizona Form 204.
When Should You Amend a Return?
2. You may use your federal extension (federal Form 4868).
If you need to make changes to your return once you have
File your Arizona return by the same due date. You do
filed, you should file Form 140X, Individual Amended
not have to attach a copy of your federal extension to
Return. Do not file a new return for the year you are
your return, but make sure that you check box 82F on
correcting. Generally, you have four years to amend a return
page 1 of the return.
to claim a refund.
When Should You File if You Are a If you amend your federal return for any year, you must also
Nonresident Alien? file an Arizona Form 140X for that year. You must file the
You must file your Arizona tax return by April 16, even Form 140X within 90 days of amending your federal return.
though your federal income tax return is due on June 15. If If the IRS makes a change to your federal taxable income for
you want to file your Arizona return after April 16, you must any year, you must report that change to Arizona. You may
file for an extension by April 16. If you have a federal 6- use one of the following two options to report this change.
month extension until December 15, 2007, Arizona will
Option 1
recognize the federal extension, but only for a period of 6
months from the due date of your Arizona return. So, if you You may file a Form 140X for that year. If you choose this
are filing your Arizona return under a federal extension, you option, you must amend your Arizona return within 90 days
must file your Arizona return by October 15, 2007, even of the change. Attach a complete copy of the federal notice
though your federal return will not be due until December 15, to your Form 140X.
2007. See Form 204 for extension filing details. Option 2
If you are a fiscal year filer, your return is due on the 15th day You may file a copy of the final federal notice with the
of the fourth month following the close of your fiscal year. department within 90 days. If you choose this option, you
must include a statement in which you must:
What if You File or Pay Late?
1. Request that the department recompute your tax; and
If you file or pay late, the department will charge you interest
2. Indicate if you agree or disagree with the federal notice.
and penalties on the amount you owe. If the U.S. Post Office
postmarks your 2006 calendar year return by April 16, 2007, If you do not agree with the federal notice, you must also
your return will not be late. You may also use certain private include any documents that show why you do not agree.
delivery services designated by the IRS to meet the “timely If you choose option 2, mail the federal notice and any other
mailing as timely filed” rule. documents to:
Late Filing Penalty Arizona Department of Revenue
1600 W. Monroe, Attention: Individual Income Audit
If you file late, the department will charge you a late filing
Phoenix, AZ 85007-2650
penalty. This penalty is 4½ percent of the tax required to be
shown on the return for each month or fraction of a month
the return is late. This penalty cannot exceed 25 percent of
the tax found to be remaining due.
Refunds in as little as 5
Late Payment Penalty
days when you E-File
If you pay your tax late, the department will charge you a
and select the Direct
late payment penalty. This penalty is ½ of 1 percent (.005)
of the amount shown as tax for each month or fraction of a
Deposit option
month for which the failure continues. This penalty cannot
exceed a total of 10 percent.
Extension Underpayment Penalty
If you file your return under an extension, you must pay 90
percent of the tax shown on your return by the return's
original due date. If you do not pay this amount, the
department will charge you a penalty. This penalty is ½ of
one percent (.005) of the tax not paid for each 30 day period
or fraction of a 30 day period. The department charges this
3

4. Form 140
Do You Need To Make Estimated Payments
DO YOU HAVE A COMPLICATED RETURN ?
in 2007?
You must make Arizona estimated income tax payments
E-File Software Offers:
during 2007 if: E-File makes filing Easy step-by-step instructions
a complex return
Your filing status is: AND AND Error detection before filing
Your Arizona gross Your Arizona gross simple! Easy form selection
income for 2006 income for 2007 Maximum deductions
was greater than: exceeds:
Married Filing Joint For a list of
$150,000 $150,000
Single approved software
$75,000 $75,000
Head of Household visit our website at
$75,000 $75,000
Married Filing www.azdor.gov
$75,000 $75,000
Separately
If you met the income threshold for 2006, you must make
estimated payments during 2007 unless you are sure you will Entering Your Name, Address, and Social
not meet the threshold for 2007. Security Number (SSN)
As a full year resident, your Arizona gross income is your
Lines 1, 2, and 3 -
federal adjusted gross income. This amount is on line 12 of
the 2006 Form 140. NOTE: Make sure that you write your social security
number on the appropriate line.
See the worksheet for Form 140ES to figure how much your
payments should be. If your booklet has a peel-off label, use that label if all the
What If You Make Your Estimated information is correct. If any of the information on the
label is incorrect, do not use the label. Attach the label
Payments Late?
after you finish your return. If you do not have a peel-off
The department will charge you a penalty if you fail to make
label, print or type your name, address, and SSN in the space
any required payments. The department will charge you a
provided.
penalty if you make any of your required payments late.
If you e-File, you do not need a label.
For details, see Arizona Form 221.
If you are filing a joint return, enter your SSNs in the same
Can You Make Estimated Payments If You
order as your names. If your name appears first on the
Do Not Have To? return, make sure your SSN is the first number listed. If you
If you do not have to make Arizona estimated income tax are a nonresident of the United States or a resident alien who
payments, you may still choose to make them. does not have an SSN use the identification number (ITIN)
the IRS issued to you.
For details, see Arizona Form 140ES.
For a deceased taxpayer, see page 2 of these instructions.
Line-by-Line Instructions
Use your current home address. The department will send
Tips for Preparing Your Return: your refund to or correspond with you at that address.
• NOTE: Make sure your SSN is correct. If you are filing a
Make sure that you write your social security number on
joint return, also make sure you list your SSNs in the same
your return.
order every year.
• Complete your return using black ink.
Make sure that every return, statement, or document that you
• You must round dollar amounts to the nearest whole
file with the department has your SSN. Make sure that all
dollar. If 50 cents or more, round up to the next dollar.
SSNs are clear and correct. You may be subject to a penalty if
If less than 50 cents, round down. Do not enter cents.
you fail to include your SSN. It may take longer to process
• When asked to provide your own schedule, attach a your return if SSNs are missing, incorrect, or unclear.
separate sheet with your name and SSN at the top.
Identification Numbers for Paid Preparers
Attach your own schedules to the back of your return.
• If you pay someone else to prepare your return, that person
You must complete your federal return before you can
must also include an identification number where requested.
start your Arizona return.
• A paid preparer may use any of the following.
Make sure you include your home telephone number. If
your daytime number is not the same as your home number, • his or her SSN
make sure you include a daytime telephone number.
• his or her PTIN
• If filing a fiscal year return, fill in the period covered in
• the federal employer identification number for the business
the space provided at the top of the form.
A paid preparer who fails to include the proper numbers may
e-File checks your return for errors before
also be subject to a penalty.
you file.
4

5. Form 140
dependent. Both of you cannot claim the same dependent on
Determining Your Filing Status
both returns.
The filing status that you use on your Arizona return may be For details on how to file a separate Arizona income tax
different from that used on your federal return. return, see Arizona Department of Revenue Income Tax
Rulings ITR 93-18 and ITR 93-19.
Use this section to determine your filing status. Check the
correct box (4 through 7) on the front of Form 140. NOTE: If you can treat community income as separate
income on your federal return, you may also treat that
Line 4 Box - Married Filing a Joint Return community income as separate on your Arizona return. See
Arizona Department of Revenue Ruling ITR 93-22.
You may use this filing status if married as of December 31,
2006. It does not matter whether or not you were living with If you are filing a separate return and your spouse is not a
your spouse. You may elect to file a joint return, even if you resident of Arizona, other special rules may apply. For more
and your spouse filed separate federal returns. details, see Arizona Department of Revenue Income Tax
You may use this filing status if your spouse died during Ruling, ITR 93-20.
2006 and you did not remarry in 2006. See page 2 of these
Line 7 Box - Single
instructions for details.
Use this filing status if you were single on December 31,
The Arizona Form 140 is for full year residents only. You
2006. You are single if any of the following apply to you.
may not file a joint Arizona income tax return on Form 140
• You have never been married.
if any of the following apply.
• You are legally separated under a decree of divorce or
1. Your spouse is a nonresident alien (citizen of and living
of separate maintenance.
in another country).
• You were widowed before January 1, 2006, and you did
2. Your spouse is a resident of another state.
not remarry in 2006, and you do not qualify to file as a
3. Your spouse is a part-year Arizona resident. qualifying widow or widower with dependent children
on your federal return.
If filing a joint return with your nonresident spouse, you may file
a joint return using Form 140NR. See Form 140NR instructions.
FOR PEACE OF MIND…E-FILE
If filing a joint return with your part-year resident spouse,
you may file a joint return using Form 140PY. See Form Ask your tax professional for E-File
140PY instructions. or
For details on filing a joint return with your part-year Do-it-yourself using the Internet
resident or nonresident spouse, see Arizona Department of
Revenue Income Tax Ruling ITR 95-2.
www.azdor.gov
Line 5 Box - Head of Household
Exemptions
You may file as head of household on your Arizona return,
only if one of the following applies. Write the number of exemptions you are claiming in boxes 8,
• You qualify to file as head of household on your federal 9, 10, and 11. Do not put a checkmark. You may lose the
return. exemption if you put a checkmark in these boxes. You may
• You qualify to file as a qualifying widow or widower on lose the dependent exemption if you do not complete Part A,
your federal return. lines A1 through A3 on page 2. You may lose the exemption
Line 6 Box - Married Filing Separately for qualifying parents or ancestors if you do not complete
Part A, lines A4 and A5, on page 2.
You may use this filing status if married as of December 31,
2006, and you elect to file a separate Arizona return. You Line 8 Box - Age 65 and Over
may elect to file a separate return, even if you and your
Write quot;1quot; in box 8 if you or your spouse were 65 or older in
spouse filed a joint federal return.
2006. Write quot;2quot; in box 8 if both you and your spouse were
If you are filing a separate return, check the line 6 box and 65 or older in 2006.
enter your spouse's name in the space provided. Also enter
Line 9 Box - Blind
your spouse's SSN in the space provided.
Write quot;1quot; in box 9 if you or your spouse are totally or partially
Arizona is a community property state. If you file a separate
blind. Write quot;2quot; in box 9 if both you and your spouse are totally
return, you must figure how much income to report using
or partially blind.
community property laws. Under these laws, a separate
return must reflect one-half of the community income from If you or your spouse were partially blind as of December 31,
all sources plus any separate income. 2006, you must get a statement certified by your eye doctor
or registered optometrist that:
When you file separate returns, you must account for
community deductions and credits on the same basis as 1. You cannot see better than 20/200 in your better eye with
community income. Both you and your spouse must either glasses or contact lenses or
itemize or not itemize. If one of you itemizes, you both must 2. Your field of vision is 20 degrees or less.
itemize. If one of you takes a standard deduction, you both
If your eye condition is not likely to improve beyond the
must take a standard deduction. One of you may not claim a
conditions listed above, you can get a statement certified by your
standard deduction while the other itemizes.
eye doctor or registered optometrist to that effect instead.
If you and your spouse support a dependent child from
You must keep the statement for your records.
community income, either you or your spouse may claim the
5

6. Form 140
4. The number of months the dependent lived in your home
during 2006. If you are claiming an exemption for a stillborn
child, enter the date of birth resulting in the stillbirth.
See the light of day You may lose the exemption if you do not furnish this
Forget about information.
from the comfort of
midnight runs to
your home with E-File Line A2 - Total Dependents
the post office
Enter the total number of persons listed on line(s) A1. Enter
the same number on the front of the return in box 10.
www.azdor.gov
Lines A3a and A3b - Persons You Did Not
Take as Dependents on Your Federal Return
Line 10 Box - Dependents
On line A3a, enter the following.
You must complete Part A, lines A1 through A3b, on page 2 of
1. The names of any dependents age 65 or over listed on
your return before you can total your dependent exemptions.
line(s) A1 that you cannot take as a dependent on your
You may claim only the following as a dependent. federal return.
• A person that qualifies as your dependent on your 2. The name of any stillborn child listed on line(s) A1, if the
federal return. stillborn child was named. If the stillborn child was not
named, enter “stillborn child” on line A3a. Also enter the
NOTE: If you do not claim a dependent exemption for a
date of birth resulting in the stillbirth.
student on your federal return in order to allow the student
to claim a federal education credit on the student’s federal On line A3b, enter the name of any student listed on line(s)
return, you may still claim the exemption on your Arizona A1, that you did not claim as an exemption on your federal
return. For more information, see Arizona Individual return in order to allow that student to claim a federal
Income Tax Ruling ITR 05-02. education credit on the student’s federal return.
• A person who is age 65 or over (related to you or not) Line 11 Box - Qualifying Parents and
that does not qualify as your dependent on your federal
Ancestors of Your Parents
return, but one of the following applies.
A qualifying parent or ancestor of your parent may be any
1. In 2006, you paid more than one-fourth of the cost one of the following.
of keeping this person in an Arizona nursing care
• Your parent or your parent’s ancestor. Your parent’s
institution, an Arizona residential care institution, or
ancestor is your grand parent, great grand parent, great
an Arizona assisted living facility. Your cost must
great grand parent, etc.
be more than $800.
• If married filing a joint return, your spouse’s parent or
2. In 2006, you paid more than $800 for either
an ancestor of your spouse’s parent.
Arizona home health care or other medical costs for
the person. You may claim this exemption if all of the following apply.
• A stillborn child if the following apply: 1. The parent or ancestor of your parent lived in your
principal residence for the entire taxable year.
1. The stillbirth occurred during 2006.
2. You paid more than one-half of the support and
2. You received a certificate of birth resulting in stillbirth
maintenance costs of the parent or ancestor of your
from the Arizona Department of Health Services.
parent during the taxable year.
3. The child would have otherwise been a member of your
household. 3. The parent or ancestor of your parent was 65 years old
or older during 2006.
Completing Line(s) A1
4. The parent or ancestor of your parent required assistance
NOTE: If a person who qualifies as your dependent is also
with activities of daily living, like getting in and out of
a qualifying parent or ancestor of your parent, you may
bed or chairs, walking around, going outdoors, using the
claim that person as a dependent on line A2, or you may
claim that person as a qualifying parent or ancestor of your toilet, bathing, shaving, brushing teeth, combing hair,
parent on line A5. You may not claim that same person on dressing, medicating or feeding.
both line A2 and line A5. Do not list the same person on line
You must complete Part A, lines A4 and A5, on page 2 of
A1 that you listed on line A4.
your return before you can total your exemptions for
Enter the following on line(s) A1.
qualifying parents and ancestors of your parents.
1. The dependent's name. If you are claiming an
NOTE: If a person who is a qualifying parent or ancestor of
exemption for a stillborn child and the child was not
your parent also qualifies as your dependent, you may claim
named, enter “stillborn child” in place of a name.
that person as a dependent on line A2, or you may claim
2. The dependent's social security number. If you are
that person as a qualifying parent or ancestor of your parent
claiming an exemption for a stillborn child enter the
on line A5. You may not claim that same person on both
certificate number from the certificate of birth resulting
line A2 and line A5. Do not list the same person on line A4
in stillbirth.
that you listed on line A1.
3. The dependent's relationship to you.
6

7. Form 140
Completing Line(s) A4 Arizona law does not provide for averaging. Enter the
amount of the distribution that you treated as ordinary
Enter the following on line(s) A4.
income on your federal return. If you choose to treat the
1. The name of the qualifying parent or ancestor of your parent. capital gain portion of the distribution as ordinary income,
2. The social security number of the qualifying parent or you must also include that amount.
ancestor of your parent.
For details, see Arizona Department of Revenue Income Tax
3. The qualifying parent’s or ancestor’s relationship to you,
Ruling ITR 93-5.
or your spouse if filing a joint return.
Line B9 - Total Federal Depreciation
4. The number of months the qualifying parent or ancestor
of your parent lived in your home during 2006. Enter the total amount of depreciation deducted on the
federal return. If you make an entry here, also see line C23.
You may lose the exemption if you do not furnish this information.
Line B10 - Medical Savings Account (MSA)
Line A5 - Total Qualifying Parents or
Distributions
Ancestors of Your Parents
For information on Arizona's MSA provisions, see the
Enter the total number of persons listed on line(s) A4. Enter
the same number on the front of the return in box 11. department's MSA brochure, Pub 542.
You must add amounts received from an MSA here if any of
Additions to Income
the following apply.
Line B6 - Non-Arizona Municipal Interest 1 - You Withdrew Funds From Your MSA For Other
Than Qualified Expenses
Enter the amount of interest income from non-Arizona
municipal bonds that you did not include as income on your You must make an entry here if all of the following apply.
federal return.
1. You withdrew money from your MSA during 2006.
You may exclude any expenses incurred to purchase or carry the
2. You did not use the amount withdrawn to pay qualified
obligation. Reduce the interest income by the amount of those medical expenses.
expenses that you could not deduct on your federal return.
3. You did not have to include the withdrawal as income
If you received tax exempt interest from municipal bonds, attach on your federal income tax return.
a schedule listing the payors and the amount received from each
Enter the amount withdrawn.
payor. You may also want to attach supporting documents for
amounts received from Arizona municipal bonds that are exempt 2 - Deceased Account Holder Where the Named
from Arizona income tax. These may be items such as bank Beneficiary is Not the Decedent's Surviving Spouse
statements, brokerage statements, etc.
You must make an entry here if all of the following apply.
Line B7 - Early Withdrawal of Arizona, 1. The account holder died during the year.
County, City, or School Retirement System
2. You are the named beneficiary of the decedent's MSA.
Contributions
3. You are not the decedent's surviving spouse.
If you meet all of the following, you must enter an amount here.
4. You did not have to include the value of the MSA as
1. You left your job with the State of Arizona or an income on your federal income tax return.
Arizona county, city, or school district for reasons other
In this case, the MSA ceased to be an MSA. Enter the fair
than retirement.
market value of the MSA as of the date of death, less the amount
2. When you left, you took out the contributions you had
of MSA funds used within one year of the date of death, to pay
made to the retirement system while employed.
the decedent's qualified medical expenses. You can reduce the
3. You deducted these contributions on your Arizona fair market value by only those expenses paid from the MSA. If
income tax returns that you filed for prior years. you pay additional medical expenses for the decedent from the
MSA after you file, you may file an amended return to further
4. You did not include these contributions in your federal
reduce the fair market value of the MSA.
adjusted gross income this year.
3 - Decedent's Final Return And No Named MSA
If you meet all these tests, you must report as income those
Beneficiary
contributions previously deducted on your prior years'
Arizona tax returns. Make an entry here if all of the following apply.
For details, see Arizona Department of Revenue Income Tax 1. The account holder died during the year.
Ruling ITR 93-7. 2. There is no named MSA beneficiary.
Line B8 - Ordinary Income Portion of 3. This is the decedent's final return.
Lump Sum Distributions Excluded on Your 4. The value of the MSA did not have to be included on
Federal Return the decedent's final federal income tax return.
Use line B8 if you use federal averaging for lump-sum In this case, the MSA ceases to be an MSA. Enter the fair
distributions from your pension or profit-sharing plan. market value of the MSA as of the date of death. This rule
7

8. Form 140
B. Married Persons Filing Separate Returns
applies in all cases in which there is no named beneficiary,
even if the surviving spouse ultimately obtains the right to If you file a separate Arizona return, you must report the
the MSA assets. following income on that return.
• one-half of the community income from all sources.
NOTE: The following are not withdrawals. Do not enter
• all of your separate income.
any of the following:
• Amounts from the MSA used to pay qualified medical If you and your spouse file a joint federal return but separate
expenses Arizona returns, you must make sure that each separate
• A qualified return of excess contributions return reflects the correct income. If you begin your Arizona
• A qualified rollover return with only the income that you earned during the year,
• The fair market value of an MSA received by a you will have to adjust this income.
surviving spouse who was the deceased account If you file separate federal returns, each of your federal returns
holder's named beneficiary should already reflect the correct income. Since your separate
For more information about the above items, see the Arizona returns will begin with the federal adjusted gross
department's MSA brochure, Pub 542. income, you will not have to adjust your income.
If you have to adjust your income, attach a schedule
showing how you figured your adjustment.
Line B11 - I.R.C. § 179 Expense in Excess
C. Partnership Income
of Allowable Amount
Use this adjustment if your Arizona Form 165, Schedule K-1,
Enter the amount of IRC § 179 expense deducted on the shows a difference between federal and state distributable income.
federal return that exceeds $25,000.
If the difference reported on your Arizona Form 165,
Line B12 - Other Additions to Income Schedule K-1, is a positive number, enter that difference as an
addition. Enter the addition on line B12.
Use line B12 if any of the special circumstances below apply.
If the difference reported on your Arizona Form 165,
Attach your own schedule to the back of your return
Schedule K-1, is a negative number, enter that difference as a
explaining any amounts entered here.
subtraction. Enter the subtraction on line C29.
You may either add or subtract items A through D below
D. Fiduciary Adjustment
(line B12 or C29, respectively) depending on your situation.
A fiduciary uses Form 141AZ, Schedule K-1, to report to you
A. Pension Adjustments
your share of the fiduciary adjustment from the trust or estate.
Use this adjustment if both of the following apply.
Line 3 of Form 141AZ, Schedule K-1, shows your share of
1. Arizona taxed your pension for years before 1979. the fiduciary adjustment from the estate or trust. If the
amount reported on line 3 of your Arizona Form 141AZ,
2. You reported that pension on your federal return using
Schedule K-1, is a positive number, enter that amount as an
the percentage exclusion method.
addition. Enter the addition on line B12.
Do not use this adjustment if either of the following apply.
If the amount reported on line 3 of your Arizona Form 141AZ,
1. You reported your pension income as fully taxable on Schedule K-1, is a negative number, enter that amount as a
your federal return. subtraction. Enter the subtraction on line C29.
2. You reported your pension income on your federal E. Net Operating Losses
return under the quot;three-year-rulequot;.
Arizona does not have specific net operating loss provisions
Pension Adjustment Worksheet - Line B12 for individual taxpayers. Arizona conforms to the federal net
Follow these steps to figure the adjustment. operating loss provisions, including the carryback
Worksheet (Keep for your records.) provisions. Generally, the amount of net operating loss
1. Your contribution to annuity. deduction included in your federal adjusted gross income is
1. the amount allowable for Arizona purposes. However, there
2. Pension amount received in prior are instances when the amount allowable for Arizona
years. 2. purposes may be different. You must adjust the amount of
3. Remainder of cost (line 1 minus net operating loss deduction included in your federal
line 2 but not less than zero). 3. adjusted gross income if the following apply.
4. Pension amount received this year. 1. You have already deducted any amount of the net
4. operating loss included in your federal adjusted gross
5. Subtract line 3 from line 4 (but income for Arizona purposes.
not less than zero). 5.
2. You took a separate subtraction for the net operating
6. Enter the pension amount taxable
loss on an amended return filed for a prior tax year
on your federal return. 6.
under the special net operating loss transition rule.
7. Subtract line 6 from line 5.
7. If the above apply, enter the following on line B12.
If line 7 is more than zero, enter the amount on line 7 as an 1. The amount of net operating loss included in your
addition to income. Enter the addition on line B12.
federal adjusted gross income which you previously
If line 6 is more than line 5, enter the difference as a
deducted for Arizona purposes.
subtraction from income. Enter the subtraction on line C29.
2. The amount of net operating loss included in your federal
8

9. Form 140
An S corporation that passes the following credits through to its
adjusted gross income for which you took a separate
shareholders must notify each shareholder of his or her pro rata
subtraction on an amended return filed for a prior tax year
share of the adjustment. You must enter an amount on this line
under the special net operating loss transition rule.
when claiming any of the following credits.
For information on deducting a net operating loss carryback, see
• Agricultural water conservation system credit
Arizona Department of Revenue Income Tax Procedure ITP 99-1.
• Defense contracting credit
F. Items Previously Deducted for Arizona Purposes • Environmental technology facility credit
• Pollution control credit
Arizona statutes prohibit a taxpayer from deducting items more
• Recycling equipment credit
than once. However, under the operation of former Arizona
• Credit for solar hot water heater plumbing stub outs and
law (1989 and prior), you could deduct certain items in greater
amounts for Arizona purposes than for federal purposes. electric vehicle recharge outlets
• Credit for employment of TANF recipients
Investment interest and passive activity losses were such
• Credit for agricultural pollution control equipment
items. In some cases, you could have deducted such amounts
• Credit for motion picture production costs
in their entirety on the Arizona return. For federal purposes,
the deduction for these items was limited, with the unused
J. Solar Hot Water Heating Plumbing Stub Out And
portions being carried forward and deducted in future years.
Electric Vehicle Recharge Outlet Expenses
Your Arizona return may include these previously deducted
items because of the difference between the federal and If you take a credit for installing solar hot water heating plumbing
former Arizona treatment. If your Arizona taxable income stub outs or electric vehicle recharge outlets in a dwelling you
includes items previously deducted for Arizona purposes, constructed, you cannot deduct any expenses for which you claim
you must add such amounts to your Arizona gross income. the credit. If you take this credit, enter the amount of such expenses
that you deducted on your federal return.
G. Claim of Right Adjustment for Amounts Repaid
in 2006 K. Wage Expense for Employers of TANF Recipients
You must make an entry here if all of the following apply. If you take a credit for employing TANF recipients, you
cannot deduct any wage expense for which you claim the
1. During 2006, you were required to repay amounts held
credit. If you take this credit, enter the amount of such
under a claim of right.
expenses that you deducted on your federal return.
2. The amount required to be repaid during 2006 was more
L. Motion Picture Production Expenses
than $3,000.
If you take a credit for motion picture production costs on
3. You took a deduction for the amount repaid on your
Form 334, you cannot deduct any expenses deducted on your
2006 federal income tax return.
federal return incurred in the production of the motion
If the above apply, enter the amount deducted on your picture. If you are claiming this credit as credit transfer (from
federal income tax return here. Form 334-E), you may not deduct any expenses incurred in
For more information on the Arizona claim of right acquiring the credit transfer. If you take this credit, enter the
provisions, see Arizona Department of Revenue Individual amount of such expenses deducted on your federal return.
Income Tax Procedure ITP 95-1.
M. Agricultural Water Conservation System Credit
H. Claim of Right Adjustment for Amounts Repaid
If you take this credit (Form 312), you cannot deduct any
in Prior Taxable Years
expenses for which you claim the credit. If you take this credit,
You must make an entry here if all of the following apply. enter the amount of such expenses that you deducted on your
federal return.
1. During a year prior to 2006 you were required to repay
amounts held under a claim of right. N. Other Adjustments
2. You computed your tax for that prior year under Other special adjustments may be necessary. You may need
Arizona's claim of right provisions. to make an addition for depreciation or amortization. You
may also need to make an addition if you claimed certain tax
3. A net operating loss or capital loss was established due
credits. Call one of the numbers listed on the back cover if
to the repayment made in the prior year.
any of the following apply.
4. You are entitled to take that net operating loss or capital
• You are a qualified defense contractor that elected to
loss carryover into account when computing your 2006
amortize under Arizona Revised Statutes section 43-1024.
Arizona taxable income.
• You sold or disposed of property that was held for the
5. The amount of the loss carryover included in your
production of income and your basis was computed
federal income is more than the amount allowed to be
under the Arizona Income Tax Act of 1954.
taken into account for Arizona purposes.
• You claimed the environmental technology facility credit.
Enter the amount by which the loss carryover included in
• You claimed the pollution control credit.
your federal adjusted gross income is more than the amount
• You claimed the recycling equipment credit.
allowed for the taxable year under Arizona law.
• You claimed the credit for agricultural pollution control
I. Addition to S Corporation Income Due to Credits
equipment.
Claimed
• You elected to amortize the basis of a pollution control
Shareholders of an S corporation who claim a credit passed
device or the cost of a child care facility under Arizona
through from an S corporation must make an addition to
law in effect before 1990. You are still deducting
income for the amount of expenses disallowed by reason of
amortization or depreciation for that device or facility
claiming the credit.
on your federal income tax return.
9

10. Form 140
Line B13 - Total Additions whichever is less. Include only the amount you reported as
income on your federal return. If both you and your spouse
Add lines B6 through B12. Enter the total on line B13 and
receive such pension income, each spouse may subtract the
on the front of your return on line 13.
amount received or $2,500, whichever is less.
Subtractions From Income Public pensions from the following sources qualify
for this subtraction.
You may only subtract those items for which statutory
• The United States Government Service Retirement and
authority exists. Without such authority you cannot take a
Disability Fund
subtraction. If you have any questions concerning
• The United States Foreign Service Retirement and
subtractions from income, call one of the numbers listed on
Disability System
the back cover.
• Retired or retainer pay of the uniformed services of the
NOTE: You may not subtract any amount that is allocable United States
• Any other retirement system or plan established by
to income excluded from your Arizona taxable income.
federal law
Line C14 - Exemption: Age 65 or Over
NOTE: This applies only to those retirement plans
Multiply the number in box 8 on the front of your return by authorized and enacted into the U.S. Code. This does not
$2,100 and enter the result. apply to a retirement plan that is only regulated by federal
Line C15 - Exemption: Blind law (i.e., plans which must meet certain federal criteria to
be qualified plans).
Multiply the number in box 9 on the front of your return by
•
$1,500 and enter the result. The Arizona State Retirement System
• The Arizona State Retirement Plan
Line C16 - Exemption: Dependents
• The Corrections Officer Retirement Plan
Multiply the number in box 10 on the front of your return by • The Public Safety Personnel Retirement System
$2,300 and enter the result.
• The Elected Officials' Retirement Plan
•
Line C17 - Exemption: Qualifying Parents A retirement plan established for employees of a county,
and Ancestors city, or town in Arizona
• An optional retirement program established by the Arizona
Multiply the number in box 11 on the front of your return by
Board of Regents under Arizona Revised Statutes
$10,000 and enter the result.
• An optional retirement program established by an
Line C18 - Total Arizona community college district.
Add lines C14 through C17 and enter the total. If you have NOTE: Public retirement pensions from states other than
no other subtractions from income, skip lines C19 through Arizona do not qualify for this subtraction.
C30 and enter this total on Form 140, page 1, line 15.
Line C21 - Arizona Lottery Winnings
Line C19 - Interest on U.S. Obligations
You may subtract up to $5,000 of winnings received in 2006
Enter the amount of interest income from U.S. Government for Arizona lottery prizes.
obligations included as income on your federal return. U.S.
If you subtract Arizona lottery winnings here, you may have
Government obligations include obligations such as savings bonds
to adjust the amount of gambling losses claimed as an
and treasury bills. You cannot deduct any interest or other related
itemized deduction. See instructions for Form 140 Schedule
expenses incurred to purchase or carry the obligations. If such A, Itemized Deduction Adjustments.
expenses are included in your Arizona gross income, you must
Line C22 - Social Security Benefits or
reduce the subtraction by such expenses. If you are itemizing
Railroad Retirement Benefits
deductions on your Arizona return, you must exclude such
expenses from the amount deducted. Arizona does not tax social security benefits received under
Title II of the Social Security Act. Arizona does not tax railroad
NOTE: Do not subtract interest earned on FNMA or GNMA
retirement benefits received from the Railroad Retirement
bonds since this interest is taxable by Arizona. For details, see
Board under the Railroad Retirement Act. If you included such
the department's income tax ruling, ITR 02-1. social security or railroad retirement benefits as income on your
federal return, use line C22 to subtract this income.
Do not subtract any amount received from a qualified
pension plan that invests in U.S. Government obligations. Do NOTE: Enter only the taxable amount (the amount that was
not subtract any amount received from an IRA that invests in subject to federal tax). Do not include any amount that was
U.S. Government obligations. These amounts are not interest not subject to federal income tax.
income. For details, see Arizona Department of Revenue See Arizona Department of Revenue Income Tax Ruling ITR
Income Tax Rulings ITR 96-2 and ITR 96-3. 96-1 for more information about railroad retirement benefits.
Line C20 - Exclusion for U.S. Government, Line C23 - Recalculated Arizona Depreciation
Arizona State or Local Government Enter the total amount of depreciation allowable pursuant to
Pensions IRC § 167(a) for the taxable year calculated as if you had
elected not to claim bonus depreciation for eligible
If you receive pension income from any of the sources listed
properties for federal purposes.
below, subtract the amount you received or $2,500,
10

11. Form 140
Line C24 - Certain Wages of American Indians Line C29 - Other Subtractions From Income
Use line C29 if any of the following special circumstances
Enrolled members of American Indian tribes may subtract wages
apply. Attach your own schedule to the back of your return
earned while living and working on their tribe's reservation. The
explaining any amounts entered here.
federal government must recognize these tribes.
A. Previously Reported Gain on Decedent's
For more information, see Arizona Department of Revenue
Installment Sale
Income Tax Ruling ITR 96-4.
Prior Arizona law required acceleration of any unrecognized
Line C25 - Income Tax Refund From Other installment sale gain upon the death of a taxpayer. However, this
States acceleration could have been avoided by the posting of a bond.
You may subtract income tax refunds received from other If acceleration was required, your federal adjusted gross income
states if both of the following apply. may include installment sale amounts already recognized on a
decedent's final Arizona return. If your federal adjusted gross
1. You reported the refund as income on your federal return.
income includes such amounts, you may subtract that portion of
2. You did not deduct the taxes paid to the other state as an the gain included on your federal return.
itemized deduction on a prior year Arizona return.
B. Fiduciary Adjustment
Line C26 - Deposits and Employer A fiduciary uses Form 141AZ, Schedule K-1 to report to you
Contributions Into MSAs your share of the fiduciary adjustment from the trust or estate.
Deposits Made Into Your MSA Line 3 of Form 141AZ, Schedule K-1 shows your share of
the fiduciary adjustment from the estate or trust. If the
If you have a medical savings account (MSA), you may be
amount reported on line 3 of your Arizona Form 141AZ,
able to subtract deposits made into that MSA. Make an entry
Schedule K-1, is a negative number, enter that amount as a
here if all of the following apply.
subtraction. Enter the subtraction on line C29.
1. You have an MSA that qualifies as an MSA under
If the amount reported on line 3 of your Arizona Form
Arizona law, but not federal law.
141AZ, Schedule K-1, is a positive number, enter that
2. Either you or your employer made deposits into that amount as an addition. Enter the addition on line B12.
MSA during the tax year.
C. Partnership Income
3. You had to include the deposits in income on your
Use this adjustment if your Arizona Form 165, Schedule K-1,
federal income tax return.
shows a difference between federal and state distributable income.
Enter the amount of the MSA deposits that you had to
If the difference reported on your Arizona Form 165, Schedule
include in your federal adjusted gross income.
K-1, is a negative number, enter that difference as a
Employer Contributions Made to Employee MSAs subtraction. Enter the subtraction on line C29.
If you are an employer, you may subtract the amount If the difference reported on your Arizona Form 165, Schedule
contributed to your employees' MSAs that are established K-1, is a positive number, enter that difference as an addition.
under Arizona law. You can subtract these contributions only Enter the addition on line B12.
to the extent not deductible for federal income tax purposes.
D. Federally Taxable Arizona Municipal Interest
Enter these contributions here.
Enter the amount of any interest income received on
Line C27 - Construction of an Energy obligations of the State of Arizona, or any political
Efficient Residence subdivisions of Arizona, that is included in your Arizona
For taxable years beginning from and after December 31, 2001, gross income. Do not enter any Arizona municipal interest
through December 31, 2010, Arizona law allows a subtraction that is exempt from federal taxation and not included in your
for an energy efficient residence. The subtraction is allowed for federal adjusted gross income.
selling one or more new energy efficient residences located in E. Adoption Expenses
Arizona. The subtraction is equal to 5% of the sales price
You may take this subtraction only in the year the final adoption
excluding commissions, taxes, interest, points, and other
order is granted. Enter the lesser of the total of the following
brokerage, finance and escrow charges. The subtraction cannot
adoption expenses or $3,000. When figuring your subtraction,
exceed $5,000 for each new qualifying residence.
you may include expenses incurred in prior years.
The taxpayer that builds the new residence may claim the
The following expenses are qualified adoption expenses.
subtraction when the taxpayer first sells the residence. However,
the seller may elect to transfer the subtraction to the buyer. 1. Nonreimbursed medical and hospital costs.
2. Adoption counseling.
For more information, see Arizona Department of Revenue
Income Tax Procedure ITP 02-1. 3. Legal and agency fees.
4. Other nonrecurring costs of adoption.
Enter the number of residences for which you are claiming a
subtraction on line C27a, then enter the amount of the If filing separately, you may take the entire subtraction, or
subtraction on line C27. Also enter the number on line C27a you may divide the subtraction with your spouse. However,
on Form 140, page 1, line 151. the total subtraction taken by both you and your spouse
cannot exceed $3,000.
Line C28 Active Duty Military Pay
F. Qualified Wood Stove, Wood Fireplace, or Gas
Starting with 2006, members of the U.S. armed forces may
Fired Fireplace
subtract compensation received for active duty military
Arizona law provides a subtraction for converting an existing
service, including pay for serving in a combat zone or an area
fireplace to a qualified wood stove, qualified wood fireplace,
given the treatment of a combat zone. Enter the amount of
or gas fired fireplace and non-optional equipment directly
such income included in your federal adjusted gross income.
11