1. Arizona Form
2001 Part-Year Resident Personal Income Tax Return 140PY
•
Leave the Paper Behind…e-File! You live on the reservation established for that tribe.
•
• You earned all of your income on that reservation.
Quick Refunds
• Accurate To find out more, see Arizona Department of Revenue
• Proof of Acceptance Income Tax Ruling ITR 96-4.
Do You Have to File if You Are a Non-Indian
No more paper, math errors, or mailing delays; when you e-File!
or Non-Enrolled Indian Married to an
e-File is a cooperative tax filing program which makes it
American Indian?
possible for you to file both your Federal and Arizona
Personal Income Tax Returns electronically at the same time.
You must file if you meet the Arizona filing requirements. For
Reap the benefits of e-File even if you owe taxes. details on how to figure what income to report, see Arizona
Department of Revenue Income Tax Ruling ITR 96-4.
e-File today, pay by April 15, 2002 to avoid penalties and interest.
Do You Have to File if You Are in The Military?
e-File your returns through an Authorized IRS/DOR e-file
Provider or by using your Personal Computer and the Internet. You must file if you meet the Arizona filing requirements.
Visit our web site at www.revenue.state.az.us for a listing of
If you are an Arizona resident, you must report all of your
approved e-file providers and on-line filing sources.
income, no matter where stationed. You must include your
Are You Subject to Tax in Arizona? military pay. If you were an Arizona resident when you
entered the service, you remain an Arizona resident, no
As a part-year resident, you are subject to tax on all of the
matter where stationed, until you establish a new domicile.
following.
1. Any income you earned in 2001 while an Arizona If you are not an Arizona resident, but stationed in Arizona,
resident. This includes any interest or dividends the following applies to you.
received from sources outside Arizona.
• You are not subject to Arizona income tax on your
2. Any income you earned from an Arizona source in 2001 military pay.
before moving to (or after leaving) the state.
• You must report any other income you earn in Arizona.
NOTE: If you also have Arizona source income and deductions Use Form 140NR, Nonresident Personal Income Tax
for the portion of the year you were an Arizona nonresident, file Return, to report this income.
Arizona Form 140PY for the entire taxable year.
To find out more, see Arizona Department of Revenue
brochure, Pub 704, Taxpayers in the Military.
Do You Have to File?
If You Included Your Child's Unearned
Arizona Filing Requirements
Income on Your Federal Return, Does Your
These rules apply to all Arizona taxpayers.
You must file if AND your OR your Arizona Child Have to File an Arizona Return?
you are: gross income adjusted gross
In this case, the child should not file an Arizona return. The
is at least: income is at least:
• Single parent must include that same income in his or her Arizona
$15,000 $5,500
• Married filing $15,000 taxable income.
$11,000
jointly
• Married filing $15,000 Residency Status
$5,500
separately
If you are not sure if you are an Arizona resident for state
• Head of $15,000 $5,500
income tax purposes, you should get Arizona Department of
household
Revenue Income Tax Procedure ITP 92-1.
If you are a part-year resident, you must report all
income for the part of the year you were an Arizona Residents
resident, plus any income from Arizona sources for the
You are a resident of Arizona if your domicile is in Arizona.
part of the year you were an Arizona nonresident.
Domicile is the place where you have your permanent home. It
To see if you have to file, figure your gross income the
same as you would figure your gross income for federal is where you intend to return if you are living or working
income tax purposes. Then you should exclude income temporarily in another state or country. If you leave Arizona for
Arizona law does not tax. a temporary period, you are still an Arizona resident while gone.
You can find your Arizona adjusted gross income on A resident is subject to tax on all income no matter where the
line 19 of Arizona Form 140PY. resident earns the income.
NOTE: You must file a state return even if your employer If you are a full year resident, you must file Form 140, Form
withheld all or part of the tax. Even if you do not have to 140A, or Form 140EZ.
file, you must still file a return to get a refund of any Arizona Part-Year Residents
income tax withheld.
If you are a part-year resident, you must file Form 140PY,
Do You Have to File if You Are an Part-Year Resident Personal Income Tax Return.
American Indian? You are a part-year resident if you did either of the following
during 2001.
You must file if you meet the Arizona filing requirements
unless all the following apply to you. • You moved into Arizona with the intent of becoming a
• resident.
You are an enrolled member of an Indian tribe.

2. Form 140PY
• You moved out of Arizona with the intent of giving up Form 204 for details. You must attach a copy of the
your Arizona residency. Arizona extension to the back of your return when you
file. Also make sure that you check either box 82D or 82F
Nonresidents
on page 1 of the return. If you must make a payment, use
If you are a nonresident, you must file Form 140NR,
Arizona Form 204.
Nonresident Personal Income Tax Return.
2. You may use your federal extension (federal Form 4868
What if a Taxpayer Died? or 2688). File your Arizona return by the same due
If a taxpayer died before filing a return for 2001, the date. If you are filing under a federal extension, you do
taxpayer's spouse or personal representative may have to file not have to attach a copy of your federal extension to
and sign a return for that taxpayer. If the deceased taxpayer your return, but make sure that you check either box
did not have to file a return but had tax withheld, a return 82D or 82F on page 1 of the return.
must be filed to get a refund.
When Should You File if You Are a
The person who files the return should use the form the
Nonresident Alien?
taxpayer would have used. If the department mailed the
You must file your Arizona tax return by April 15, even
taxpayer a booklet, do not use the label. The person who
though your federal income tax return is due on June 15. If
files the return should print the word quot;deceasedquot; after the
you want to file your Arizona return when you file your
decedent's name in the address section of the form. Also
federal return, you may ask for an extension. See Form 204
enter the date of death after the decedent's name.
for extension filing details.
If your spouse died in 2001 and you did not remarry in
If you are a fiscal year filer, your return is due on the 15th day of
2001, or if your spouse died in 2002 before filing a return
the fourth month following the close of your fiscal year.
for 2001, you may file a joint return. If your spouse died
in 2001, the joint return should show your spouse's 2001 What if You File or Pay Late?
income before death, and your income for all of 2001. If
If you file or pay late, the department can charge you interest
your spouse died in 2002, before filing the 2001 return,
and penalties on the amount you owe. If the U.S. Post Office
the joint return should show all of your income and all of
postmarks your 2001 calendar year return by April 15, 2002,
your spouse's income for 2001. Print quot;Filing as surviving
your return will not be late. You may also use certain private
spousequot; in the area where you sign the return. If
delivery services designated by the IRS to meet the “timely
someone else is the personal representative, he or she
mailing as timely filed” rule.
must also sign the return.
Late Filing Penalty
Are Any Other Returns Required?
If you file late, the department can charge you a late filing
You may also have to file fiduciary income tax or estate tax
penalty. This penalty is 4½ percent of the tax required to be
returns. For details about filing a fiduciary income tax return, call
shown on the return for each month or fraction of a month
the department at (602) 255-3381. For details about filing an
the return is late. This penalty cannot exceed 25 percent of
estate tax return, call the department at (602) 542-4643.
the tax found to be remaining due.
Claiming a Refund For a Deceased Taxpayer Late Payment Penalty
If you are claiming a refund, you must complete Form 131, If you pay your tax late, the department can charge you a late
Claim for Refund on Behalf of Deceased Taxpayer. Attach payment penalty. This penalty is ½ of 1 percent (.005) of the
this form to the front of the return. amount shown as tax for each month or fraction of a month
for which the failure continues. This penalty cannot exceed
What Are the Filing Dates and Penalties? a total of 10 percent.
Extension Underpayment Penalty
When Should You File?
If you file your return under an extension, you must pay 90
Your 2001 calendar year tax return is due no later than
percent of the tax shown on your return by the return's
midnight, April 15, 2002. File your return as soon as you can original due date. If you do not pay this amount, the
after January 1, but no later than April 15, 2002. department can charge you a penalty. The department can
If you are a fiscal year filer, your return is due on the 15th day of also charge you this penalty if you do not attach a copy of
the Arizona extension to your return when you file. This
the fourth month following the close of your fiscal year.
penalty is one-half of one percent (.005) of the tax not paid
What If You Cannot File On Time? for each 30 day period or fraction of a 30 day period. The
department charges this penalty from the original due date of
You may request an extension if you know you will not be
the return until the date you pay the tax. This penalty cannot
able to file on time.
exceed 25 percent of the unpaid tax.
NOTE: An extension does not extend the time to pay your income
NOTE: If you are subject to two or more of the above
tax. For details, see the instructions for Arizona Form 204.
penalties, the total cannot exceed 25 percent.
To get a filing extension, you can either:
Interest
1. Apply for a state extension (Form 204). To apply for a
The department charges interest on any tax not paid by the due
state extension, file Arizona Form 204 by April 15. See
date. The department will charge you interest even if you have an
2

3. Form 140PY
extension. If you have an extension, the department will charge any required payments. The department will charge you a
you interest from the original due date until the date you pay the penalty if you make any of your required payments late.
tax. The Arizona rate of interest is the same as the federal rate. For details, see Arizona Form 221.
When Should You Amend a Return? Can You Make Estimated Payments if You
do Not Have to?
If you need to make changes to your return once you have
filed, you should file Form 140X, Individual Amended
If you do not have to make Arizona estimated income tax
Return. Do not file a new return for the year you are
payments, you may still choose to make them.
correcting. Generally, you have four years to amend a return
to claim a refund. For details, see Arizona Forms 140ES.
If you amend your federal return for any year, you must also
Line-by-Line Instructions
file an Arizona Form 140X for that year. You must file the
Form 140X within 90 days of amending your federal return.
Tips for Preparing Your Return:
If the IRS makes a change to your federal taxable income for
• Make sure that you write your social security number on
any year, you must report that change to Arizona. You may
your return.
use one of the following two options to report this change.
• Complete your return using black ink.
Option 1
• You must round dollar amounts to the nearest whole
You may file a Form 140X for that year. If you choose this
dollar. If 50 cents or more, round up to the next dollar.
option, you must amend your Arizona return within 90 days
If less than 50 cents, round down.
of the change. Attach a complete copy of the federal notice
• When asked to provide your own schedule, attach a separate
to your Form 140X.
sheet with your name and social security number at the top.
Option 2
Attach your own schedules to the back of your return.
You may file a copy of the final federal notice with the
• You must complete your federal return before you can
department within 90 days. If you choose this option, you
start your Arizona return.
must include a statement in which you must:
• Make sure you include your home telephone number. If
1. Request that the department recompute your tax; and
your daytime number is not the same as your home
2. Indicate if you agree or disagree with the federal notice. number, make sure you include a daytime number.
•
If you do not agree with the federal notice, you must also If filing a fiscal year return, fill in the period covered in
include any documents that show why you do not agree. the space provided at the top of the form.
If you choose option 2, mail the federal notice and any other
Entering Your Name, Address, and Social
documents to:
Security Number
Arizona Department of Revenue
PO Box 29210 Lines 1, 2, and 3 -
Phoenix, AZ 85038-9210
Print or type your name, address, and SSN in the space
Do You Need to Make Estimated Payments in provided. If you are a nonresident of the United States or a
2002? resident alien who does not have an SSN use the
You must make Arizona estimated income tax payments identification number (ITIN) the IRS issued to you.
during 2002 if:
If you are filing a joint return, enter your SSNs in the same order
Your filing status is: AND AND
Your Arizona gross Your Arizona gross as your first names. If your name appears first on the return,
income for 2001 income for 2002 make sure your SSN is the first number listed. Put your last
was greater than: exceeds: names in the same order as your first names and SSNs.
Married Filing Joint $150,000 $150,000 For a deceased taxpayer, see page 2 of these instructions.
Single $75,000 $75,000
Head of Household Use your current home address. The department will send
$75,000 $75,000
Married Filing your refund or correspond with you at that address.
$75,000 $75,000
Separately
NOTE: Make sure your SSN is correct.
If you met the income threshold for 2001, you must make
Make sure that every return, statement, or document that you file
estimated payments during 2002 unless you are sure you will
with the department has your SSN. Make sure that all SSNs are
not meet the threshold for 2002.
clear and correct. You may be subject to a penalty if you fail to
As a part-year resident, your Arizona gross income is that include your SSN. It may take longer to process your return if
part of your federal adjusted gross income that you must SSNs are missing, incorrect, or unclear.
report to Arizona.
Identification Numbers for Paid Preparers
See Form 140ES to figure how much your payments should be.
If you pay someone else to prepare your return, that person
What if You Make Your Estimated Payments must also include an identification number where requested.
Late? A paid preparer may use any of the following.
•
The department will charge you a penalty if you fail to make his or her SSN
3

4. Form 140PY
• his or her PTIN • You were widowed before January 1, 2001, and you did
• the federal employer identification number for the business not remarry in 2001, and you do not qualify to file as a
A paid preparer who fails to include the proper numbers may qualifying widow or widower with dependent children
also be subject to a penalty. on your federal return.
Determining Your Filing Status Exemptions
The filing status that you use on your Arizona return may be
Write the number of exemptions you are claiming in boxes 8,
different from that used on your federal return.
9, 10, and 11. Do not put a checkmark. You may lose the
Use this section to determine your filing status. Check the
exemption if you put a checkmark in these boxes. You may
correct box (4 through 7) on the front of Form 140PY.
lose the dependent exemption if you do not complete Part A,
Line 4 Box - Married Filing a Joint Return lines A1 through A3 on page 2. You may lose the exemption
for qualifying parents or ancestors if you do not complete
You may use this filing status if married as of December 31,
Part A, lines A4 and A5, on page 2.
2001. It does not matter whether or not you were living with
your spouse. You may elect to file a joint return, even if you
Line 8 Box - Age 65 and Over
and your spouse filed separate federal returns.
Write quot;1quot; in box 8 if you or your spouse were 65 or older in
You may use this filing status if your spouse died during
2001. Write quot;2quot; in box 8 if both you and your spouse were
2001 and you did not remarry in 2001. See page 2 of these
65 or older in 2001.
instructions for details.
Line 9 Box - Blind
If you are a part-year resident married to an Arizona full year
resident, you may file a joint return using the 140PY. For Write quot;1quot; in box 9 if you or your spouse are totally or partially
more information, see Arizona Department of Revenue blind. Write quot;2quot; in box 9 if both you and your spouse are totally
Income Tax Ruling ITR 95-2. or partially blind.
Line 5 Box - Head of Household If you or your spouse were partially blind as of December
You may file as head of household on your Arizona return, 31, 2001, you must get a statement certified by your eye
only if one of the following applies. doctor or registered optometrist that:
• You qualify to file as head of household on your federal 1. You cannot see better than 20/200 in your better eye with
return. glasses or contact lenses or
• You qualify to file as a qualifying widow or widower on 2. Your field of vision is 20 degrees or less.
your federal return.
If your eye condition is not likely to improve beyond the
Line 6 Box - Married Filing Separately conditions listed above, you can get a statement certified by your
eye doctor or registered optometrist to that effect instead.
You may use this filing status if married as of December 31,
2001, and you elect to file a separate Arizona return. You You must keep the statement for your records.
may elect to file a separate return, even if you and your
Line 10 Box - Dependents
spouse filed a joint federal return.
You must complete Part A, lines A1 through A3, on page 2 of
If you are filing a separate return, check the line 6 box and
your return before you can total your dependent exemptions.
enter your spouse's name in the space provided. Also enter
You may claim only the following as a dependent.
your spouse's SSN in the space provided.
• A person that qualifies as your dependent on your
If you are filing a separate return and your spouse is an Arizona
federal return.
resident, you must figure how much income to report using
• A person who is age 65 or over (related to you or not)
community property laws. Under these laws, a separate return
that does not qualify as your dependent on your federal
must reflect one-half of the community income taxable to Arizona return, but one of the following applies.
plus any separate income taxable to Arizona. For details, see
1. In 2001, you paid more than one-fourth of the cost of
Arizona Department of Revenue Income Tax Ruling, ITR 93-20.
keeping this person in an Arizona nursing care institution,
an Arizona residential care institution, or an Arizona
NOTE: If you can treat community income as separate
assisted living facility. Your cost must be more than $800.
income on your federal return, you may also treat that
2. In 2001, you paid more than $800 for either Arizona
community income as separate on your Arizona return. See
home health care or other medical costs for the person.
Arizona Department of Revenue Ruling ITR 93-22.
Completing Line(s) A1
Line 7 Box - Single
NOTE: If a person who qualifies as your dependent is also
Use this filing status if you were single on December 31,
a qualifying parent or ancestor of your parent, you may
2001. You are single if any of the following apply to you.
claim that person as a dependent on line A2, or you may
• You have never been married. claim that person as a qualifying parent or ancestor of your
• parent on line A5. You may not claim that same person on
You are legally separated under a decree of divorce or
both line A2 and line A5. Do not list the same person on line
of separate maintenance.
A1 that you listed on line A4.
4

5. Form 140PY
Enter the following on line(s) A1. 4. The number of months the qualifying parent or ancestor
of your parent lived in your home during 2001.
1. The dependent's name.
You may lose the exemption if you do not furnish this
2. The dependent's social security number.
information.
3. The dependent's relationship to you.
Line A5 - Total Qualifying Parents or
4. The number of months the dependent lived in your home
during 2001. Ancestors of Your Parents
You may lose the exemption if you do not furnish this
Enter the total number of persons listed on line(s) A4. Enter
information.
the same number on the front of the return in box 11.
Line A2 - Total Dependents
Reporting Your Residency Status
Enter the total number of persons listed on line(s) A1. Enter
the same number on the front of the return in box 10. Check the appropriate box.
Line A3 - Persons You Cannot Take as Line 12 Box - Part-Year Resident Other
Than Active Duty Military
Dependents on Your Federal Return
Enter the names of any dependents age 65 or over listed on Check box 12 if you were an Arizona resident for part of
line(s) A1 that you cannot take as a dependent on your 2001, and were not an active duty military member.
federal return.
Line 13 Box - Part-Year Resident Active
Line 11 Box - Qualifying Parents and Military
Ancestors of Your Parents Check box 13 if you were an active duty military member who
A qualifying parent or ancestor of your parent may be any either began or gave up Arizona residency during 2001.
one of the following.
Determining Arizona Income
• Your parent, or your parent’s ancestor. Your parent’s
ancestor is your grandparent, great grandparent, great
Now complete Parts B, C, and D on page 2 of the return.
great grandparent, etc.
Use Part B to determine what portion of your total income is
• If married filing a joint return, your spouse’s parent or
taxable by Arizona.
an ancestor of your spouse’s parent.
NOTE: If you are unable to determine the proper line to use,
You may claim this exemption if all of the following apply.
please contact one of the help numbers listed on the back cover.
1. The parent or ancestor of your parent lived in your
principal residence for the entire taxable year.
FEDERAL Column
2. You paid more than one-half of the support and
maintenance costs of the parent or ancestor of your Enter the actual amounts shown on your 2001 federal income
parent during the taxable year. tax return in the FEDERAL column. Complete lines B7
3. The parent or ancestor of your parent was 65 years old through B20. Line B20 should equal the federal adjusted
or older during 2001. gross income shown on your 2001 federal return Form 1040,
Form 1040A, or Form 1040EZ.
4. The parent or ancestor of your parent required assistance
with activities of daily living, like getting in and out of
ARIZONA Column
bed, or chairs, walking around, going outdoors, using
the toilet, bathing, shaving, brushing teeth, combing
Enter that portion of your federal income received while you
hair, dressing, medicating or feeding.
were an Arizona resident in the Arizona column. For
You must complete Part A, lines A4 and A5, on page 2 of example, if you became an Arizona resident on June 30, enter
your return before you can total your exemptions for
all income you received from that day to December 31, 2001.
qualifying parents and ancestors of your parents.
NOTE: If you also have Arizona source income for the
NOTE: If a person who is a qualifying parent or ancestor of
portion of the taxable year you were an Arizona
your parent also qualifies as your dependent, you may claim
that person as a dependent on line A2, or you may claim nonresident, also include that source income on the
that person as a qualifying parent or ancestor of your parent appropriate line in the Arizona column.
on line A5. You may not claim that same person on both line
The Tax Reform Act of 1986 limits the amount of losses that
A2 and line A5. Do not list the same person on line A4 that
you may deduct from passive activities. A passive activity is
you listed on line A1.
one that involves the conduct of any trade or business in which
Completing Line(s) A4 the taxpayer does not materially participate.
Enter the following on line(s) A4. As a part-year resident, your Arizona gross income may include
some of these losses. For the part of the year you were an Arizona
1. The name of the qualifying parent or ancestor of your parent.
resident, you may consider any passive losses that arose while an
2. The social security number of the qualifying parent or Arizona resident. For the part of the year you were an Arizona
ancestor of your parent. nonresident, you may consider only those passive losses that arose
3. The qualifying parent’s or ancestor’s relationship to you, from Arizona sources. Your 2001 Arizona gross income can
or your spouse if filing a joint return. include only losses you used on your 2001 federal return.
5

6. Form 140PY
Line B14 - Rents, etc.
The following line-by-line instructions apply to the
ARIZONA column.
Enter income received from rents, royalties, partnerships,
Line B6 - Dates of Arizona Residency estates, trusts, small business corporations, etc., while an
Arizona resident.
If you became an Arizona resident during 2001, enter the date
that you became an Arizona resident. If you gave up your Also enter rents or royalties earned on Arizona properties
Arizona residency during 2001, do both of the following. during the part of the year you were an Arizona nonresident.
Enter any income or (loss) derived from Arizona sources
1. Enter the date you became an Arizona resident.
from partnerships, small business corporations, etc., during
2. Enter the date you gave up your Arizona residency. the part of the year you were an Arizona nonresident.
Line B7 - Wages, Salaries, Tips, etc. Line B15 - Other Income Reported on Your
Federal Return
Enter all amounts received while an Arizona resident.
Also enter all amounts received from Arizona employment Enter other income shown on your federal return that you
during the part of the year you were an Arizona nonresident. received while an Arizona resident. Other income may include
pensions, social security, unemployment, and lottery winnings.
NOTE: Do not include active duty military pay for the part
Attach a schedule listing these other items.
of the year you were a nonresident.
Also enter any other income derived from Arizona sources
Line B8 - Interest
during the part of the year you were an Arizona nonresident.
Enter all amounts received while an Arizona resident.
Line B16 - Total Income
You must also enter any interest income derived from
Add lines B7 through B15 and enter the total.
Arizona sources during the part of the year you were an
Line B17 - Total IRA Deduction
Arizona nonresident. Interest income from Arizona sources is
interest income that has acquired an Arizona business situs. Enter the amount actually paid while an Arizona resident for
your IRA and/or your spouse's IRA.
If you received tax exempt interest from municipal bonds, attach
a schedule listing the payors and the amount received from each Line B18 - Other Federal Adjustments
payor. You may also want to attach supporting documents for
If any of the following are included in adjustments shown on your
amounts received from Arizona municipal bonds that are exempt
federal return, make an entry on this line as explained below.
from Arizona income tax. These may be items such as bank
1. Student loan interest: Enter the amount you paid while
statements, brokerage statements, etc. Be sure you add the
an Arizona resident.
amount you received while an Arizona resident from non-
2. Archer medical savings account: Enter the amount you
Arizona municipal bonds to your income on line C24.
contributed to the MSA while an Arizona resident.
Line B9 - Dividends
3. Self-employed SEP, SIMPLE and qualified plans: Enter
Enter all amounts received while an Arizona resident. the amount actually paid while an Arizona resident.
4. Self-employment tax: Enter that portion of the self-
You must also enter any dividends derived from Arizona
employment tax that relates to self-employment income
sources during the part of the year you were an Arizona
reportable to Arizona.
nonresident. Dividend income from Arizona sources is
5. Self-employed health insurance: Enter that amount of
dividend income that has acquired an Arizona business situs.
self-employed health insurance that was actually paid
Line B10 - Arizona Income Tax Refunds while an Arizona resident.
Enter the amount of Arizona income tax refunds received in 6. Penalty on early withdrawal of savings: Multiply the
2001 that you included in your federal adjusted gross income. federal deduction by the ratio of your Arizona interest to
your federal interest.
Line B11 - Alimony Received
7. Alimony: Enter the amount actually paid while an
Enter amounts received while an Arizona resident.
Arizona resident.
Line B12 - Business Income or (Loss) 8. Moving expenses: Enter the amount of moving expenses
Enter any business or farm income or (loss) incurred while included in your federal adjusted gross income that you
you were an Arizona resident. accrued and paid during the part of the year you were an
Arizona resident.
Also enter income or (loss) derived from Arizona businesses
during the part of the year you were an Arizona nonresident. NOTE: Do not enter any amounts for items 1 through 8
Line B13 - Gains or (Losses) above unless you deducted these items in computing your
federal adjusted gross income.
Enter any gain or (loss) on property sold while an Arizona
If your federal return shows other adjustments to income,
resident if you included the amount as income on your 2001
attach your own schedule to show your calculation.
federal return.
Line B19 - Total Adjustments
Also enter gains or (losses) on sales of Arizona property during
the part of the year you were an Arizona nonresident. Add lines B17 and B18 and enter the total.
6

7. Form 140PY
Line B21 - Arizona Income treated as ordinary income on your federal return. If you chose to
treat the capital gain portion of the distributions as ordinary
Complete line B21 as instructed on the form. income, you must also include that amount on line C24.
Line B22 - Arizona Percentage For more information, see Arizona Department of Revenue
Income Tax Ruling, ITR 93-5.
Divide line B21 by line B20, and enter the result on line
C. Trust or Estate Deductions
B22. (Do not enter more than 100 percent.) This is the
Arizona percentage of your total income. You must add the following estate or trust deductions to your
Arizona gross income.
Example:
Arizona Federal Arizona percentage 1. Your share of the estate's or trust's deductions allowed
Gross Income Adjusted under the Internal Revenue Code.
from line B21 Gross Income 2. Your share of the excess deductions and loss carryovers
from line B20 allowed under the Internal Revenue Code as deductions
$ 7,500 $ 30,000 $7,500/30,000 = 25% to the beneficiary on termination of an estate or trust.
You must add the above deductions and loss carryovers to
Determining Additions to Income Arizona gross income only to the extent you included these
items in computing your Arizona taxable income.
Line C23 - Early Withdrawal of Arizona,
D. Medical Savings Account (MSA) Distributions
County, City, or School Retirement System
Contributions For information on Arizona's MSA provisions, see the
department's MSA brochure, Pub 542.
If you meet all the following, you must enter an amount here.
You must add amounts received from an MSA here if any of
1. You left your job with the State of Arizona or an
the following apply.
Arizona county, city, or school district for reasons other
1 - You Withdrew Funds From Your MSA For Other
than retirement.
Than Qualified Expenses
2. When you left, you took out the contributions you had
made to the retirement system while employed. If you had an MSA during the part of the year you were an
Arizona resident, you must make an entry here if all of the
3. You deducted these contributions on your Arizona
following apply.
income tax returns that you filed for prior years.
1. You withdrew money from your MSA during 2001,
4. You did not include these contributions in your federal
while either a resident or a nonresident.
adjusted gross income this year.
2. You did not use the amount withdrawn to pay qualified
If you meet all these tests, you must report as income those medical expenses.
contributions previously deducted on your prior years'
3. You did not have to include the withdrawal as income
Arizona tax returns. on your federal income tax return.
For more information, see Arizona Department of Revenue Enter the amount withdrawn.
Income Tax Ruling ITR 93-7.
If you had an MSA during the part of the year you were an
NOTE: Any interest earned on your retirement contributions Arizona nonresident, you must make an entry here if all of
while they were in the system should be reported on line B8 in the following apply.
both the FEDERAL and ARIZONA income columns. 1. You had Arizona source income while an Arizona
nonresident.
Line C24 - Other Additions to Income
2. Your MSA qualified as an MSA under Arizona law.
Use line C24 if any of the special circumstances below
3. If you were an employee, your high deductible health
applies. Attach your own schedule to the back of your return,
coverage was provided by your Arizona employer. If
explaining any amounts entered on line C24. you were self employed, your high deductible health
Items A, B, C, and D that follow must be added to income on coverage was provided by your Arizona business.
line C24 of your return. 4. You withdrew money from your MSA during 2001,
while either a resident or a nonresident.
A. Non-Arizona Municipal Interest
5. You did not use the amount withdrawn to pay qualified
Enter interest income earned from non-Arizona municipal
medical expenses.
bonds while an Arizona resident.
6. You did not have to include the withdrawal as income
NOTE: You may reduce this addition by any interest or other on your federal income tax return.
related expenses incurred to purchase or carry the obligation.
Enter the amount withdrawn.
As a part-year resident, you may reduce the addition by the
amount of those expenses attributable to income subject to 2 - Deceased Account Holder Where the Named
Arizona tax. You may reduce the addition by those expenses Beneficiary is Not the Decedent's Surviving Spouse
that you could not deduct on your federal return.
You must make an entry here if all of the following apply.
B. Ordinary Income Portion of Lump Sum
1. The account holder died during the part of the year you
Distribution Excluded on Your Federal Return
were an Arizona resident.
Arizona law does not provide for 5 or 10 year averaging. Enter the 2. The decedent's MSA qualified as an MSA under
amount of the distributions received while an Arizona resident and Arizona law.
7

8. Form 140PY
Pension Adjustment Worksheet Continued
3. You are the named beneficiary of the decedent's MSA.
3. Remainder of cost (line 1 minus
4. You are not the decedent's surviving spouse.
line 2 but not less than zero). 3.
5. You did not have to include the value of the MSA as 4. Pension amount received this year. 4.
income on your federal income tax return. 5. Subtract line 3 from line 4 (but 5.
not less than zero).
In this case, the MSA ceases to be an MSA. Enter the fair
market value of the MSA as of the date of death, less the amount 6. Enter the pension amount taxable
of MSA funds used within one year of the date of death, to pay on your federal return. 6.
the decedent's qualified medical expenses. You can reduce the 7. Subtract line 6 from line 5. 7.
fair market value by only those expenses paid from the MSA. If If line 7 is more than zero, enter the amount on line 7 as an
you pay additional medical expenses for the decedent from the addition to income. Enter the addition on line C24.
MSA after you file, you may file an amended return to further If line 6 is more than line 5, enter the difference as a
reduce the fair market value of the MSA. subtraction from income. Enter the subtraction on line D35.
3 - Decedent's Final Return And No Named MSA F. Partnership Income
Beneficiary
Depending on your situation, you may either add (line C24)
Make an entry here if all of the following apply. or subtract (line D35) this amount.
Use this adjustment if your Arizona Form 165 Schedule K-1
1. The account holder died during the part of the year in
shows a difference between federal and state distributable income.
which he or she was an Arizona resident.
If the difference reported on your Arizona Form 165,
2. There is no named MSA beneficiary.
Schedule K-1, is a positive number, enter that portion of the
3. This is the decedent's final return.
difference that is allocable to partnership income taxable by
4. The value of the MSA did not have to be included on Arizona as an addition. Enter the addition on line C24.
the decedent's final federal income tax return. If the difference reported on your Arizona Form 165, Schedule
K-1, is a negative number, enter that portion of the difference
In this case, the MSA ceases to be an MSA. Enter the fair
that is allocable to partnership income taxable by Arizona as a
market value of the MSA as of the date of death. This rule
subtraction. Enter the subtraction on line D35.
applies in all cases in which there is no named beneficiary,
even if the surviving spouse ultimately obtains the right to G. Net Operating Losses
the MSA assets.
Arizona does not have specific Arizona net operating loss provisions
NOTE: The following are not withdrawals. Do not enter for individual taxpayers. Arizona conforms to the federal net
any of the following: operating loss provisions, including the carryback provisions.
• Amounts from the MSA used to pay qualified medical As a part-year resident, Arizona recognizes that portion of
expenses the federal net operating loss which is attributable to income
• A qualified return of excess contributions taxed by Arizona as the Arizona net operating loss.
• A qualified rollover
As a part-year Arizona resident, include in Arizona gross income
• The fair market value of an MSA received by a
the amount of federal net operating loss carryforward or carryback
surviving spouse who was the deceased account
attributable to Arizona unless any of the following apply.
holder's named beneficiary
1. The net operating loss attributable to Arizona included
For more information about the above items, see the
in your federal adjusted gross income has already been
department's MSA brochure, Pub 542.
deducted for Arizona purposes.
E. Pension Adjustments 2. The net operating loss included in your federal adjusted
gross income was incurred from non-Arizona sources
Depending on your situation, you may either add (line C24)
while a nonresident.
or subtract (line D35) this amount.
3. You took a separate subtraction for the net operating
Use this adjustment if both of the following apply. loss included in your federal adjusted gross income on
1. Arizona taxed your pension for years before 1979. an amended return filed for a prior tax year under the
special net operating loss transition rule.
2. You reported that pension on your federal return using
the percentage exclusion method. For information on deducting a net operating loss carryback, see
Arizona Department of Revenue Income Tax Procedure ITP 99-1.
Do not use this adjustment if either of the following apply.
H. Agricultural Water Conservation System Expenses
1. You reported your pension income as fully taxable on
If you take this credit, you cannot deduct any expenses for which
your federal return.
you claim the credit. If you take this credit, enter the amount of
2. You reported your pension income on your federal
such expenses that you deducted on your federal return.
return under the quot;three-year-rulequot;.
I. Items Previously Deducted for Arizona Purposes
Follow the worksheet below to figure the adjustment.
Arizona statutes prohibit a taxpayer from deducting items more
Pension Adjustment Worksheet than once. However, under the operation of former Arizona law
Follow these steps to figure the adjustment: (1989 and prior), you could deduct certain items in greater
Worksheet (Keep for your records.) amounts for Arizona purposes than federal purposes. Investment
1. Your contribution to annuity. interest and passive activity losses were such items. In some cases,
1.
you could have deducted such amounts in their entirety on the
2. Pension amount received in prior
Arizona return. For federal purposes, the deduction for these items
years. 2.
8

9. Form 140PY
•
was limited, with the unused portions being carried forward and Credit for employment of TANF recipients
•
deducted in future years. Your Arizona return may include these Credit for agricultural pollution control equipment
•
previously deducted items because of the difference between the Credit for taxpayers participating in agricultural
federal and former Arizona treatment. If your Arizona taxable preservation district
income includes items previously deducted for Arizona purposes,
M. Solar Hot Water Heating Plumbing Stub Out And
you must add such amounts to your Arizona gross income.
Electric Vehicle Recharge Outlet Expenses
J. Claim of Right Adjustment for Amounts Repaid
If you take a credit for installing solar hot water heating plumbing
in 2001
stub outs or electric vehicle recharge outlets in a dwelling you
You must make an entry here if all of the following apply. constructed, you cannot deduct any expenses for which you claim
the credit. If you take this credit, enter the amount of such expenses
1. During 2001, you were required to repay amounts held
that you deducted on your federal return.
under a claim of right.
2. The amount required to be repaid was subject to N. Wage Expense for Employers of TANF Recipients
Arizona income tax in the year included in income.
If you take a credit for employing TANF recipients, you
3. The amount required to be repaid during 2001 was more
cannot deduct any wage expense for which you claim the
than $3,000.
credit. If you take this credit, enter the amount of such
4. You took a deduction for the amount repaid on your
expenses that you deducted on your federal return.
2001 federal income tax return.
O. Amounts Deducted for Conveying Ownership or
5. The deduction taken on your federal income tax return is
Development Rights of Property to an Agricultural
reflected in your Arizona taxable income.
Preservation District
If the above apply, enter the amount deducted on your
federal income tax return which is reflected in your Arizona If you take a credit for taxpayers participating in agricultural
taxable income. preservation district, you cannot deduct any amounts for
conveying ownership or development rights of property to an
For more information on the Arizona claim of right
provisions, see Arizona Department of Revenue Individual agricultural district. If you take this credit, enter the amount
Income Tax Procedure ITP 95-1. of such deductions for which you claim a credit.
K. Claim of Right Adjustment for Amounts Repaid P. Other Adjustments
in Prior Taxable Years
Other special adjustments may be necessary. You may need to
You must make an entry here if all of the following apply.
make an addition for depreciation or amortization. You may also
1. During a year prior to 2001 you were required to repay need to make an addition if you claimed certain tax credits.
income held under a claim of right. Call one of the numbers listed on the back cover if any of the
2. You computed your tax for that prior year under following apply.
Arizona's claim of right provisions.
• You are a qualified defense contractor that elected to
3. A net operating loss or capital loss was established due
amortize under Arizona Revised Statutes section 43-1024.
to the repayment made in the prior year.
• You sold or disposed of property that was held for the
4. You are entitled to take that net operating loss or capital
production of income and your basis was computed
loss carryover into account when computing your 2001
under the Arizona Income Tax Act of 1954.
Arizona taxable income.
• You are still depreciating or amortizing a child care
5. The amount of the loss carryover included in your
facility for which you claimed a state credit.
Arizona gross income is more than the amount allowed
• You claimed the environmental technology facility credit.
to be taken into account for Arizona purposes.
• You claimed the pollution control credit.
Enter the amount by which the loss carryover included in
• You claimed the recycling equipment credit.
your Arizona gross income is more than the amount allowed
• You claimed the credit for agricultural pollution control
for the taxable year under Arizona law.
equipment.
L. Addition to S Corporation Income Due to Credits
• You elected to amortize the basis of a pollution control
Claimed
device or the cost of a child care facility under Arizona
Shareholders of an S corporation who claim a credit passed
law in effect before 1990. You are still deducting
through from an S corporation must make an addition to
amortization or depreciation for that device or facility
income for the amount of expenses disallowed by reason of
on your federal income tax return.
claiming the credit.
An S corporation that passes the following credits through to its Line C25 - Total Additions
shareholders must notify each shareholder of his or her pro rata
Add lines C23 and C24. Enter the total on line C25 and on
share of the adjustment. You must enter an amount on this line
the front of your return on line 16.
when claiming any of the following credits.
• Agricultural water conservation system credit Determining Subtractions From Income
• Defense contracting credit
• Environmental technology facility credit You may only subtract those items for which statutory
• Pollution control credit authority exists. Without such authority you cannot take a
• Recycling equipment credit subtraction. If you have any questions concerning
• Credit for solar hot water heater plumbing stub outs and subtractions from income, call one of the help numbers listed
electric vehicle recharge outlets on the back cover.
9

10. Form 140PY
line B15 in the ARIZONA column and reported on your
NOTE: You may not subtract any amount which is allocable to
income excluded from your Arizona taxable income. federal income tax return.
Line D26 - Exemption: Age 65 or Over If you subtract Arizona lottery winnings here, you may have
to adjust the amount of gambling losses claimed as an
Multiply the number in box 8 on the front of your return by
itemized deduction.
$2,100 and enter the result.
Line D34 - Social Security Benefits or
Line D27 - Exemption: Blind
Railroad Retirement Benefits
Multiply the number in box 9 on the front of your return by
Arizona does not tax social security benefits received under Title
$1,500 and enter the result.
II of the Social Security Act. Arizona does not tax railroad
Line D28 - Exemption: Dependents retirement benefits received from the Railroad Retirement Board
under the Railroad Retirement Act. If you included such social
Multiply the number in box 10 on the front of your return by
$2,300 and enter the result. security or railroad retirement benefits on your federal return as
income and also included this amount in the Arizona column on
Line D29 - Exemption: Qualifying Parents line B15, subtract this income on line D34.
and Ancestors
Subtract only the amount you reported as income on your federal
Multiply the number in box 11 on the front of your return by
return and included on line B15 in the Arizona column.
$10,000 and enter the result.
See Arizona Department of Revenue Income Tax Ruling ITR
Line D30 - Total
96-1 for more information about railroad retirement benefits.
Add lines D26 through D29 and enter the total.
Line D35 - Other Subtractions
Line D31 - Prorated Exemptions
Use line D35 if any of the following special circumstances
Multiply the amount on line D30 by the Arizona percentage apply. Attach your own schedule to the back of your return,
from line B22 and enter the result. explaining any amounts entered here.
Active Duty Military Personnel Only: If you were an A. Exclusion for U.S. Government, Arizona State, or
active duty military member who either began or gave up Local Government Pensions
Arizona residency during 2001, do not prorate these
If you receive pension income from any of the sources listed
exemptions. You are allowed 100 percent deductions for the
below, subtract the amount you received or $2,500,
age 65, the blind, and the dependent exemptions. Enter the
whichever is less. Include only the amount you reported as
amount on line D30 (Total) on this line.
income on your federal return and included on line B15 in
Line D32 - Interest on U.S. Obligations the ARIZONA column. If both you and your spouse receive
such pension income, each spouse may subtract the amount
Enter the amount of interest income from U.S. Government received or $2,500, whichever is less.
obligations included on line B8 in the ARIZONA column. U.S.
Public pensions from the following sources qualify
Government obligations include obligations such as U.S. savings
for this subtraction:
bonds and treasury bills. You cannot deduct any interest or other
•
related expenses incurred to purchase or carry the obligations. If The United States Government Service Retirement and
such expenses are included in your Arizona gross income, you Disability Fund
• The United States Foreign Service Retirement and
must reduce the subtraction by such expenses. If you are itemizing
deductions on your Arizona return, you must exclude such Disability System
expenses from the amount deducted. • Retired or retainer pay of the uniformed services of the
United States
NOTE: Do not subtract interest earned on FNMA or GNMA
• Any other retirement system or plan established by
bonds since this interest is taxable by Arizona. For more
federal law
information, see the department's Guidelines for Exempt
Securities, G91-4. NOTE: This applies only to those retirement plans authorized
and enacted into the U.S. Code. This does not apply to a
Do not subtract any amount received from a qualified pension
retirement plan that is only regulated by federal law (i.e., plans
plan that invests in U.S. Government obligations. Do not
which must meet certain federal criteria to be qualified plans).
subtract any amount received from an IRA that invests in U.S.
•
Government obligations. These amounts are not interest The Arizona State Retirement System
•
income. For more information, see Arizona Department of The Arizona State Retirement Plan
Revenue Income Tax Rulings ITR 96-2 and ITR 96-3. • The Corrections Officer Retirement Plan
•
Line D33 - Arizona Lottery Winnings The Public Safety Personnel Retirement System
• The Elected Officials' Retirement Plan
You may subtract all winnings received in 2001 related to an
• A retirement plan established for employees of a county,
Arizona lottery prize won before March 22, 1983. You may
city, or town in Arizona
subtract up to $5,000 of winnings received in 2001 for
• An optional retirement program established by the Arizona
Arizona lottery prizes won after March 21, 1983. Only
Board of Regents under Arizona Revised Statutes
subtract those Arizona lottery winnings that you included on
10

11. Form 140PY
• An optional retirement plan established by an Arizona of a combat zone. Enter only that amount of pay reported on
community college district. your 2001 federal return that you also included on line B7 in
the ARIZONA column.
NOTE: Public retirement pensions from states other than
H. Federally Taxable Arizona Municipal Interest
Arizona do not qualify for this subtraction.
Enter the amount of any interest income received on obligations of
B. Previously Reported Gain on Decedent's
the State of Arizona, or any political subdivisions of Arizona, that
Installment Sale
you included in your Arizona gross income. Enter only that
Prior Arizona law required acceleration of any unrecognized
amount of Arizona municipal interest income that you included on
installment sale gain upon the death of a taxpayer. However,
line B8 in the ARIZONA column. Do not enter any Arizona
this acceleration could have been avoided by the posting of a
municipal interest that is exempt from federal taxation and not
bond. If acceleration was required, your federal adjusted
included in your federal adjusted gross income.
gross income may include installment sale amounts already
I. Adoption Expenses
recognized on a decedent's final Arizona return. Deduct that
portion of the gain included on line B13, ARIZONA column. You may take this subtraction only in the year the final
adoption order is granted.
C. Deposits Made Into Your MSA
Enter the lesser of the total of the following adoption
If you have an MSA, you may be able to subtract deposits
expenses or $3,000.
made into that MSA. Make an entry here if all of the
following apply. When figuring your subtraction, you may include expenses
incurred in prior years.
1. You have an MSA that qualifies as an MSA under
Arizona law, but not federal law. The following expenses are qualified adoption expenses.
2. Either you or your employer made deposits into that 1. Nonreimbursed medical and hospital costs.
MSA during the tax year.
2. Adoption counseling.
3. You had to include the deposits in income on your
3. Legal and agency fees.
federal income tax return.
4. Other nonrecurring costs of adoption.
Enter the amount of the MSA deposits that you had to
include in your federal adjusted gross income. If filing separately, you may take the entire subtraction, or
you may divide the subtraction with your spouse. However,
D. Employer Contributions Made to Employee MSAs
the total subtraction taken by both you and your spouse
If you are an employer, you may subtract the amount cannot exceed $3,000.
contributed to your employees' MSAs that are established
J. Qualified Wood Stove, Wood Fireplace, or Gas
under Arizona law. You can subtract these contributions only
Fired Fireplace
to the extent not deductible for federal income tax purposes.
Enter these contributions here. Arizona law provides a subtraction for converting an existing
fireplace to a qualified wood stove, qualified wood fireplace,
E. Agricultural Crops Given to Arizona Charitable
or gas fired fireplace and non-optional equipment directly
Organizations
related to its operation. You may subtract up to $500 of the
Arizona law allows a subtraction for qualified crop gifts made costs incurred for converting an existing fireplace to a
during 2001 to one or more charitable organizations. To take this qualified wood stove, qualified wood fireplace, or gas fired
subtraction, you must be engaged in the business of farming or fireplace on your property located in Arizona. When you
processing agricultural crops. The crop must be grown in figure your subtraction, do not include taxes, interest, or
Arizona. You must make your gift to a charitable organization other finance charges.
located in Arizona which is exempt from Arizona tax.
A qualified wood stove or a qualified wood fireplace is a
The subtraction is the greater of 80 percent of the wholesale
residential wood heater that was manufactured on or after July 1,
market price or 80 percent of the most recent sale price for
1990, or sold at retail on or after July 1, 1992. The residential
the given crop.
wood heater must also meet the U.S. Environmental Protection
To determine if your crop contribution qualifies for this Agency's July 1990 particulate emissions standards.
subtraction, see Arizona Department of Revenue Procedure
A qualified gas fired fireplace is any device that burns
ITP 93-2.
natural or liquefied petroleum gas as its fuel through a burner
F. Certain Wages of American Indians
system that is permanently installed in the fireplace. The
Enrolled members of American Indian tribes may subtract conversion of an existing wood burning fireplace to
wages earned while living and working on their tribe's noncombustible gas logs that are permanently installed in the
reservation. You can subtract only those amounts that you
fireplace also qualifies as a gas fired fireplace.
included on line B7, ARIZONA column. The federal
government must recognize these tribes. K. Claim of Right Adjustment for Amounts Repaid
in Prior Taxable Years.
For more information, see Arizona Department of Revenue
Income Tax Ruling, ITR 96-4. You must make an entry here if all of the following apply.
G. Combat Pay
1. During a year prior to 2001 you were required to repay
Members of the U.S. armed forces may subtract pay received income held under a claim of right.
for serving in a combat zone or an area given the treatment
11