1. Arizona Form
2002 Resident Personal Income Tax Return 140
Leave the Paper Behind…e-File! 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.
• Quick Refunds
• Do You Have to File if You Are an American
Accurate
• Proof of Acceptance Indian?
No more paper, math errors, or mailing delays when you e-File! You must file if you meet the Arizona filing requirements
unless all the following apply to you.
e-File is a cooperative tax filing program which makes it
possible for you to file both your Federal and Arizona • You are an enrolled member of an Indian tribe.
Personal Income Tax Returns electronically at the same time. • You live on the reservation established for that tribe.
• You earned all of your income on that reservation.
Reap the benefits of e-File even if you owe taxes.
To find out more, see Arizona Department of Revenue
e-File today, pay by April 15, 2003 to avoid penalties and interest. Income Tax Ruling ITR 96-4.
e-File your returns through an Authorized IRS/DOR e-file Do You Have to File if You Are a Non-
Provider or by using your Personal Computer and the Internet. Indian or Non-Enrolled Indian Married to
Visit our web site at www.revenue.state.az.us for a listing of an American Indian?
approved e-file providers and on-line filing sources.
You must file if you meet the Arizona filing requirements. For
Who Must Use Form 140? details on how to figure what income to report, see Arizona
Department of Revenue Income Tax Ruling ITR 96-4.
You (and your spouse if married filing a joint return) may
Do You Have to File if You Are in the Military?
file Form 140 only if you are full year residents of Arizona.
You must use Form 140 rather than Form 140A or Form You must file if you meet the Arizona filing requirements.
140EZ to file for 2002 if any of the following apply to you.
If you are an Arizona resident, you must report all of your
• Your Arizona taxable income is $50,000 or more, income, no matter where stationed. You must include your
regardless of filing status.
military pay. If you were an Arizona resident when you
• You are making adjustments to income.
entered the service, you remain an Arizona resident, no
• You itemize deductions.
matter where stationed, until you establish a new domicile.
• You claim tax credits other than the family income tax
credit, the credit for increased excise taxes, the property If you are not an Arizona resident, but stationed in Arizona,
tax credit, or the Clean Elections Fund tax credit. the following applies to you.
Do You Have to File? • You are not subject to Arizona income tax on your
military pay.
Arizona Filing Requirements • You must report any other income you earn in Arizona.
Use Form 140NR, Nonresident Personal Income Tax
These rules apply to all Arizona taxpayers.
Return, to report this income.
You must file if AND your gross OR your
you are: income is at Arizona adjusted To find out more, see Arizona Department of Revenue
brochure, Pub 704, Taxpayers in the Military.
least: gross income is
at least: If You Included Your Child's Unearned
• Single $15,000 $ 5,500 Income on Your Federal Return, Does Your
• Married $15,000 $11,000
Child Have to File an Arizona Return?
filing jointly
In this case, the child should not file an Arizona return. The
• Married $15,000 $ 5,500
parent must include that same income in his or her Arizona
filing
taxable income.
separately
Residency Status
• Head of $15,000 $ 5,500
household
If you are not sure if you are an Arizona resident for state
If you are an Arizona resident, you must report income income tax purposes, you should get Arizona Department of
from all sources. This includes out-of-state income. Revenue Income Tax Procedure ITP 92-1.
To see if you have to file, figure your gross income the
Residents
same as you would figure your gross income for federal
You are a resident of Arizona if your domicile is in Arizona.
income tax purposes. Then, you should exclude income
Domicile is the place where you have your permanent home. It
Arizona law does not tax.
is where you intend to return if you are living or working
temporarily in another state or country. If you leave Arizona
Income Arizona law does not tax includes:
for a temporary period, you are still an Arizona resident while
• Interest from U.S. Government obligations gone. A resident is subject to tax on all income no matter
where the resident earns the income.
• Social security retirement benefits received under
Title II of the Social Security Act Part-Year Residents
• Benefits received under the Railroad Retirement Act
If you are a part-year resident, you must file Form 140PY,
You can find your Arizona adjusted gross income on
Part-Year Resident Personal Income Tax Return.
line 16 of Arizona Form 140.

2. Form 140
You are a part-year resident if you did either of the See Form 204 for details. You must attach a copy of the
following during 2002. Arizona extension to the back of your return when you
file. Also make sure that you check either box 82D or
• You moved into Arizona with the intent of becoming a
82F on page 1 of the return. If you must make a
resident.
payment, use Arizona Form 204.
• You moved out of Arizona with the intent of giving up
your Arizona residency. 2. You may use your federal extension (federal Form
4868 or 2688). File your Arizona return by the same
Nonresidents due date. If you are filing under a federal extension,
If you are a nonresident, you must file Form 140NR, you do not have to attach a copy of your federal
Nonresident Personal Income Tax Return. extension to your return, but make sure that you check
either box 82D or box 82F on page 1 of the return.
What if a Taxpayer Died?
When Should You File if You Are a
If a taxpayer died before filing a return for 2002, the
Nonresident Alien?
taxpayer's spouse or personal representative may have to file
and sign a return for that taxpayer. If the deceased taxpayer You must file your Arizona tax return by April 15, even
did not have to file a return but had tax withheld, a return though your federal income tax return is due on June 15. If
must be filed to get a refund. you want to file your Arizona return when you file your
The person who files the return should use the form the federal return, you may ask for an extension. See Form 204
taxpayer would have used. If the department mailed the for extension filing details.
taxpayer a booklet, do not use the label. The person who
What if You File or Pay Late?
files the return should print the word quot;deceasedquot; after the
decedent's name in the address section of the form. Also If you file or pay late, the department can charge you interest
enter the date of death after the decedent's name. and penalties on the amount you owe. If the U.S. Post Office
If your spouse died in 2002 and you did not remarry in 2002, postmarks your 2002 calendar year return by April 15, 2003,
or if your spouse died in 2003 before filing a return for 2002, your return will not be late. You may also use certain private
you may file a joint return. If your spouse died in 2002, the delivery services designated by the IRS to meet the “timely
joint return should show your spouse's 2002 income before mailing as timely filed” rule.
death, and your income for all of 2002. If your spouse died
Late Filing Penalty
in 2003, before filing the 2002 return, the joint return should
show all of your income and all of your spouse's income for If you file late, the department can charge you a late filing
2002. Print quot;Filing as surviving spousequot; in the area where penalty. This penalty is 4½ percent of the tax required to be
you sign the return. If someone else is the personal shown on the return for each month or fraction of a month
representative, he or she must also sign the return. the return is late. This penalty cannot exceed 25 percent of
Are Any Other Returns Required? the tax found to be remaining due.
Late Payment Penalty
You may also have to file fiduciary income tax or estate tax
returns. For details about filing a fiduciary income tax return, call If you pay your tax late, the department can charge you a late
the department at (602) 255-3381. For details about filing an payment penalty. This penalty is ½ of 1 percent (.005) of the
estate tax return, call the department at (602) 542-4643. amount shown as tax for each month or fraction of a month
for which the failure continues. This penalty cannot exceed
Claiming a Refund for a Deceased Taxpayer a total of 10 percent.
If you are claiming a refund, you must complete Form 131,
Extension Underpayment Penalty
Claim for Refund on Behalf of Deceased Taxpayer. Attach
this form to the front of the return. If you file your return under an extension, you must pay 90
percent of the tax shown on your return by the return's
What Are The Filing Dates And Penalties? original due date. If you do not pay this amount, the
department can charge you a penalty. The department can
When Should You File? also charge you this penalty if you do not attach a copy of
the Arizona extension to your return when you file. This
Your 2002 calendar year tax return is due no later than
penalty is ½ of one percent (.005) of the tax not paid for each
midnight, April 15, 2003. File your return as soon as you can
30 day period or fraction of a 30 day period. The
after January 1, but no later than April 15, 2003.
department charges this penalty from the original due date of
If you are a fiscal year filer, your return is due on the 15th day of the return until the date you pay the tax. This penalty cannot
the fourth month following the close of your fiscal year. exceed 25 percent of the unpaid tax.
What if You Cannot File on Time? NOTE: If you are subject to two or more of the above
penalties, the total cannot exceed 25 percent.
You may request an extension if you know you will not be
able to file on time.
Interest
NOTE: An extension does not extend the time to pay your The department charges interest on any tax not paid by the
income tax. For details, see the instructions for Arizona due date. The department will charge you interest even if you
Form 204. have an extension. If you have an extension, the department
will charge you interest from the original due date until the
To get a filing extension, you can either: date you pay the tax. The Arizona interest rate is the same as
1. Apply for a state extension (Form 204). To apply for a the federal rate.
state extension, file Arizona Form 204 by April 15.
2

3. Form 140
penalty if you make any of your required payments late.
When Should You Amend a Return?
For details, see Arizona Form 221.
If you need to make changes to your return once you have
filed, you should file Form 140X, Individual Amended Can You Make Estimated Payments If You
Return. Do not file a new return for the year you are
Do Not Have To?
correcting. Generally, you have four years to amend a return
to claim a refund. If you do not have to make Arizona estimated income tax
payments, you may still choose to make them.
If you amend your federal return for any year, you must also
file an Arizona Form 140X for that year. You must file the For details, see Arizona Form 140ES.
Form 140X within 90 days of amending your federal return.
Line-by-Line Instructions
If the IRS makes a change to your federal taxable income for
any year, you must report that change to Arizona. You may
Tips for Preparing Your Return:
use one of the following two options to report this change.
• Make sure that you write your social security number on
Option 1
your return.
You may file a Form 140X for that year. If you choose this
option, you must amend your Arizona return within 90 days • Complete your return using black ink.
of the change. Attach a complete copy of the federal notice
• You must round dollar amounts to the nearest whole
to your Form 140X.
dollar. If 50 cents or more, round up to the next dollar.
Option 2 If less than 50 cents, round down.
You may file a copy of the final federal notice with the • When asked to provide your own schedule, attach a
department within 90 days. If you choose this option, you separate sheet with your name and SSN at the top.
must include a statement in which you must: Attach your own schedules to the back of your return.
1. Request that the department recompute your tax; and • You must complete your federal return before you can
start your Arizona return.
2. Indicate if you agree or disagree with the federal notice.
• Make sure you include your home telephone number. If
If you do not agree with the federal notice, you must also
your daytime number is not the same as your home number,
include any documents that show why you do not agree.
make sure you include a daytime telephone number.
If you choose option 2, mail the federal notice and any other
• If filing a fiscal year return, fill in the period covered in
documents to:
the space provided at the top of the form.
Arizona Department of Revenue
1600 W. Monroe, Attention: Individual Income Audit Entering Your Name, Address, and Social
Phoenix, AZ 85007-2650 Security Number (SSN)
Do You Need To Make Estimated Payments
Lines 1, 2, and 3 -
in 2003?
NOTE: Make sure that you write your social security
You must make Arizona estimated income tax payments
number on the appropriate line.
during 2003 if:
Your filing status is: AND AND If your booklet has a peel-off label, use that label if all the
Your Arizona gross Your Arizona gross information is correct. If any of the information on the
income for 2002 income for 2003 label is incorrect, do not use the label. Attach the label
was greater than: exceeds: after you finish your return. If you do not have a peel-off
label, print or type your name, address, and SSN in the space
Married Filing Joint $150,000 $150,000
provided. If you are a nonresident of the United States or a
Single $75,000 $75,000
resident alien who does not have an SSN use the
Head of Household $75,000 $75,000
identification number (ITIN) the IRS issued to you.
Married Filing $75,000 $75,000
Separately If you are filing a joint return, enter your SSNs in the same
order as your names. If your name appears first on the
If you met the income threshold for 2002, you must make
return, make sure your SSN is the first number listed.
estimated payments during 2003 unless you are sure you will
not meet the threshold for 2003. For a deceased taxpayer, see page 2 of these instructions.
As a full year resident, your Arizona gross income is your Use your current home address. The department will send
your refund or correspond with you at that address.
federal adjusted gross income. This amount is on line 12 of
the 2002 Form 140. NOTE: Make sure your SSN is correct. If you are filing a
joint return, also make sure you list your SSNs in the same
See the worksheet for Form 140ES to figure how much your
order every year.
payments should be.
Make sure that every return, statement, or document that you
What If You Make Your Estimated
file with the department has your SSN. Make sure that all
Payments Late? SSNs are clear and correct. You may be subject to a penalty if
The department will charge you a penalty if you fail to make you fail to include your SSN. It may take longer to process
any required payments. The department will charge you a your return if SSNs are missing, incorrect, or unclear.
3

4. Form 140
Identification Numbers for Paid Preparers return must reflect one-half of the community income from
all sources plus any separate income.
If you pay someone else to prepare your return, that person
When you file separate returns, you must account for
must also include an identification number where requested.
community deductions and credits on the same basis as
A paid preparer may use any of the following. community income. Both you and your spouse must either
• his or her SSN itemize or not itemize. If one of you itemizes, you both must
itemize. If one of you takes a standard deduction, you both
• his or her PTIN
must take a standard deduction. One of you may not claim a
• the federal employer identification number for the business standard deduction while the other itemizes.
A paid preparer who fails to include the proper numbers may If you and your spouse support a dependent child from
also be subject to a penalty. community income, either you or your spouse may claim the
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
Line 4 Box - Married Filing a Joint Return income on your federal return, you may also treat that
community income as separate on your Arizona return. See
You may use this filing status if married as of December 31,
Arizona Department of Revenue Ruling ITR 93-22.
2002. It does not matter whether or not you were living with
your spouse. You may elect to file a joint return, even if you If you are filing a separate return and your spouse is not a
and your spouse filed separate federal returns. resident of Arizona, other special rules may apply. For more
details, see Arizona Department of Revenue Income Tax
You may use this filing status if your spouse died during
Ruling, ITR 93-20.
2002 and you did not remarry in 2002. See page 2 of these
instructions for details.
Line 7 Box - Single
The Arizona Form 140 is for full year residents only. You
Use this filing status if you were single on December 31,
may not file a joint Arizona income tax return on Form 140
2002. You are single if any of the following apply to you.
if any of the following apply.
• You have never been married.
1. Your spouse is a nonresident alien (citizen of and living
• You are legally separated under a decree of divorce or
in another country).
of separate maintenance.
2. Your spouse is a resident of another state.
• You were widowed before January 1, 2002, and you did
3. Your spouse is a part-year Arizona resident. not remarry in 2002, and you do not qualify to file as a
qualifying widow or widower with dependent children
If filing a joint return with your nonresident spouse, you may file
on your federal return.
a joint return using Form 140NR. See Form 140NR instructions.
Exemptions
If filing a joint return with your part-year resident spouse,
you may file a joint return using Form 140PY. See Form Write the number of exemptions you are claiming in boxes 8,
140PY instructions.
9, 10, and 11. Do not put a checkmark. You may lose the
For details on filing a joint return with your part-year exemption if you put a checkmark in these boxes. You may
resident or nonresident spouse, see Arizona Department of lose the dependent exemption if you do not complete Part A,
Revenue Income Tax Ruling ITR 95-2.
lines A1 through A3 on page 2. You may lose the exemption
Line 5 Box - Head of Household for qualifying parents or ancestors if you do not complete
Part A, lines A4 and A5, on page 2.
You may file as head of household on your Arizona return,
only if one of the following applies.
Line 8 Box - Age 65 and Over
• You qualify to file as head of household on your federal
Write quot;1quot; in box 8 if you or your spouse were 65 or older in
return.
2002. Write quot;2quot; in box 8 if both you and your spouse were
• You qualify to file as a qualifying widow or widower on
65 or older in 2002.
your federal return.
Line 9 Box - Blind
Line 6 Box - Married Filing Separately
Write quot;1quot; in box 9 if you or your spouse are totally or partially
You may use this filing status if married as of December 31,
blind. Write quot;2quot; in box 9 if both you and your spouse are totally
2002, and you elect to file a separate Arizona return. You
or partially blind.
may elect to file a separate return, even if you and your
spouse filed a joint federal return. If you or your spouse were partially blind as of December
31, 2002, you must get a statement certified by your eye
If you are filing a separate return, check the line 6 box and
doctor or registered optometrist that:
enter your spouse's name in the space provided. Also enter
your spouse's SSN in the space provided. 1. You cannot see better than 20/200 in your better eye with
Arizona is a community property state. If you file a separate glasses or contact lenses or
return, you must figure how much income to report using 2. Your field of vision is 20 degrees or less.
community property laws. Under these laws, a separate
4

5. Form 140
You may claim this exemption if all of the following apply.
If your eye condition is not likely to improve beyond the
conditions listed above, you can get a statement certified by your 1. The parent or ancestor of your parent lived in your
eye doctor or registered optometrist to that effect instead. principal residence for the entire taxable year.
2. You paid more than one-half of the support and
You must keep the statement for your records.
maintenance costs of the parent or ancestor of your
Line 10 Box - Dependents parent during the taxable year.
3. The parent or ancestor of your parent was 65 years old
You must complete Part A, lines A1 through A3, on page 2 of your
or older during 2002.
return before you can total your dependent exemptions.
4. The parent or ancestor of your parent required assistance
You may claim only the following as a dependent.
with activities of daily living, like getting in and out of
• A person that qualifies as your dependent on your bed, or chairs, walking around, going outdoors, using
federal return. the toilet, bathing, shaving, brushing teeth, combing
• A person who is age 65 or over (related to you or not) hair, dressing, medicating or feeding.
that does not qualify as your dependent on your federal
You must complete Part A, lines A4 and A5, on page 2 of
return, but one of the following applies.
your return before you can total your exemptions for
1. In 2002, you paid more than one-fourth of the cost qualifying parents and ancestors of your parents.
of keeping this person in an Arizona nursing care
NOTE: If a person who is a qualifying parent or ancestor of
institution, an Arizona residential care institution, or
your parent also qualifies as your dependent, you may claim
an Arizona assisted living facility. Your cost must
that person as a dependent on line A2, or you may claim
be more than $800.
that person as a qualifying parent or ancestor of your parent
2. In 2002, you paid more than $800 for either
on line A5. You may not claim that same person on both
Arizona home health care or other medical costs for
line A2 and line A5. Do not list the same person on line A4
the person.
that you listed on line A1.
Completing Line(s) A1
Completing Line(s) A4
NOTE: If a person who qualifies as your dependent is also
Enter the following on line(s) A4.
a qualifying parent or ancestor of your parent, you may
claim that person as a dependent on line A2, or you may 1. The name of the qualifying parent or ancestor of your parent.
claim that person as a qualifying parent or ancestor of your 2. The social security number of the qualifying parent or
parent on line A5. You may not claim that same person on ancestor of your parent.
both line A2 and line A5. Do not list the same person on line 3. The qualifying parent’s or ancestor’s relationship to you,
A1 that you listed on line A4. or your spouse if filing a joint return.
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 2002.
1. The dependent's name.
You may lose the exemption if you do not furnish this information.
2. The dependent's social security number.
Line A5 - Total Qualifying Parents or
3. The dependent's relationship to you.
Ancestors of Your Parents
4. The number of months the dependent lived in your home
during 2002. Enter the total number of persons listed on line(s) A4. Enter
the same number on the front of the return in box 11.
You may lose the exemption if you do not furnish this
information.
Additions to Income
Line A2 - Total Dependents
Line B6 - Non-Arizona Municipal Interest
Enter the total number of persons listed on line(s) A1. Enter
Enter the amount of interest income from non-Arizona
the same number on the front of the return in box 10.
municipal bonds that you did not include as income on your
Line A3 - Persons You Cannot Take as federal return.
Dependents on Your Federal Return You may exclude any expenses incurred to purchase or carry the
obligation. Reduce the interest income by the amount of those
Enter the names of any dependents age 65 or over listed on
expenses that you could not deduct on your federal return.
line(s) A1 that you cannot take as a dependent on your
If you received tax exempt interest from municipal bonds, attach
federal return.
a schedule listing the payors and the amount received from each
Line 11 Box - Qualifying Parents and payor. You may also want to attach supporting documents for
Ancestors of Your Parents amounts received from Arizona municipal bonds that are exempt
from Arizona income tax. These may be items such as bank
A qualifying parent or ancestor of your parent may be any statements, brokerage statements, etc.
one of the following.
Line B7 - Early Withdrawal of Arizona,
• Your parent, or your parent’s ancestor. Your parent’s
County, City, or School Retirement System
ancestor is your grand parent, great grand parent, great
Contributions
great grand parent, etc.
• If married filing a joint return, your spouse’s parent or If you meet all of the following, you must enter an amount here.
an ancestor of your spouse’s parent. 1. You left your job with the State of Arizona or an
5

6. Form 140
Arizona county, city, or school district for reasons other 2 - Deceased Account Holder Where the Named
than retirement. Beneficiary is Not the Decedent's Surviving Spouse
2. When you left, you took out the contributions you had You must make an entry here if all of the following apply.
made to the retirement system while employed.
1. The account holder died during the year.
3. You deducted these contributions on your Arizona
2. You are the named beneficiary of the decedent's MSA.
income tax returns that you filed for prior years.
4. You did not include these contributions in your federal 3. You are not the decedent's surviving spouse.
adjusted gross income this year.
4. You did not have to include the value of the MSA as
If you meet all these tests, you must report as income those income on your federal income tax return.
contributions previously deducted on your prior years'
In this case, the MSA ceased to be an MSA. Enter the fair
Arizona tax returns.
market value of the MSA as of the date of death, less the amount
For details, see Arizona Department of Revenue Income Tax
of MSA funds used within one year of the date of death, to pay
Ruling ITR 93-7.
the decedent's qualified medical expenses. You can reduce the
Line B8 - Ordinary Income Portion of fair market value by only those expenses paid from the MSA. If
Lump Sum Distributions Excluded on you pay additional medical expenses for the decedent from the
Your Federal Return MSA after you file, you may file an amended return to further
reduce the fair market value of the MSA.
Use line B8 if you use federal averaging for lump-sum
distributions from your pension or profit-sharing plan. 3 - Decedent's Final Return And No Named MSA
Arizona law does not provide for averaging. Enter the Beneficiary
amount of the distribution that you treated as ordinary
Make an entry here if all of the following apply.
income on your federal return. If you choose to treat the
capital gain portion of the distribution as ordinary income, 1. The account holder died during the year.
you must also include that amount. 2. There is no named MSA beneficiary.
For details, see Arizona Department of Revenue Income Tax 3. This is the decedent's final return.
Ruling ITR 93-5.
4. The value of the MSA did not have to be included on
Line B9 - Bonus Depreciation Allowed the decedent's final federal income tax return.
Under I.R.C. § 168(k) In this case, the MSA ceases to be an MSA. Enter the fair
The federal Job Creation and Worker Assistance Act of 2002 market value of the MSA as of the date of death. This rule
(P.L. 107-147), which was signed by President Bush on applies in all cases in which there is no named beneficiary,
March 9, 2002, allows businesses to claim a 30% bonus even if the surviving spouse ultimately obtains the right to
depreciation for qualified capital investments in property the MSA assets.
placed in service after September 10, 2001. However, for
NOTE: The following are not withdrawals. Do not enter
Arizona income tax purposes, Arizona will not allow the
any of the following:
bonus depreciation. Taxpayers that claim the bonus
• Amounts from the MSA used to pay qualified medical
depreciation on their federal income tax return must add the
expenses
amount claimed for federal purposes to their Arizona gross
• A qualified return of excess contributions
income. Enter the amount of such depreciation claimed on
• A qualified rollover
your 2002 federal income tax return here. If you make an
• The fair market value of an MSA received by a
entry here, also see line C22.
surviving spouse who was the deceased account
Line B10 - Medical Savings Account (MSA) holder's named beneficiary
Distributions
For more information about the above items, see the
For information on Arizona's MSA provisions, see the department's MSA brochure, Pub 542.
department's MSA brochure, Pub 542.
Line B11 - Other Additions to Income
You must add amounts received from an MSA here if any of
Use line B11 if any of the special circumstances below applies.
the following apply.
Attach your own schedule to the back of your return
1 - You Withdrew Funds From Your MSA For Other explaining any amounts entered here.
Than Qualified Expenses
You may either add or subtract items A through C below
You must make an entry here if all of the following apply. (line B11 or C27, respectively) depending on your situation.
1. You withdrew money from your MSA during 2002. A. Pension Adjustments
Use this adjustment if both of the following apply.
2. You did not use the amount withdrawn to pay qualified
medical expenses. 1. Arizona taxed your pension for years before 1979.
3. You did not have to include the withdrawal as income 2. You reported that pension on your federal return using
the percentage exclusion method.
on your federal income tax return.
Do not use this adjustment if either of the following apply.
Enter the amount withdrawn.
6

7. Form 140
1. You reported your pension income as fully taxable on You must also add to Arizona gross income:
your federal return. 1. Your share of the estate's or trust's deductions allowed
2. You reported your pension income on your federal under the Internal Revenue Code.
return under the quot;three-year-rulequot;. 2. Your share of excess deductions and loss carryovers
allowed under the Internal Revenue Code as deductions
Pension Adjustment Worksheet - Line B11
to the beneficiary on termination of an estate or trust.
Follow these steps to figure the adjustment.
Worksheet (Keep for your records.) You must add the above deductions and loss carryovers to
1. Your contribution to annuity. your Arizona gross income only to the extent these items are
1. included in computing your Arizona taxable income.
2. Pension amount received in prior E. Net Operating Losses
years. 2.
Arizona does not have specific net operating loss provisions
3. Remainder of cost (line 1 minus
for individual taxpayers. Arizona conforms to the federal net
line 2 but not less than zero). 3.
operating loss provisions, including the carryback
4. Pension amount received this year.
provisions. Generally, the amount of net operating loss
4.
deduction included in your federal adjusted gross income is
5. Subtract line 3 from line 4 (but
the amount allowable for Arizona purposes. However, there
not less than zero). 5.
are instances when the amount allowable for Arizona
6. Enter the pension amount taxable
purposes may be different. You must adjust the amount of
on your federal return. 6.
net operating loss deduction included in your federal
7. Subtract line 6 from line 5.
adjusted gross income if the following apply.
7.
1. You have already deducted any amount of the net
If line 7 is more than zero, enter the amount on line 7 as an
operating loss included in your federal adjusted gross
addition to income. Enter the addition on line B11.
income for Arizona purposes.
If line 6 is more than line 5, enter the difference as a
subtraction from income. Enter the subtraction on line C27. 2. You took a separate subtraction for the net operating
loss on an amended return filed for a prior tax year
B. Married Persons Filing Separate Returns
under the special net operating loss transition rule.
If you file a separate Arizona return, you must report the
If the above apply, enter the following on line B11.
following income on that return.
1. The amount of net operating loss included in your
• one-half of the community income from all sources.
federal adjusted gross income which you previously
• all of your separate income.
deducted for Arizona purposes.
If you and your spouse file a joint federal return but separate
2. The amount of net operating loss included in your federal
Arizona returns, you must make sure that each separate
adjusted gross income for which you took a separate
return reflects the correct income. If you begin your Arizona
subtraction on an amended return filed for a prior tax year
return with only the income that you earned during the year,
under the special net operating loss transition rule.
you will have to adjust this income.
For information on deducting a net operating loss carryback, see
If you file separate federal returns, each of your federal returns
Arizona Department of Revenue Income Tax Procedure ITP 99-1.
should already reflect the correct income. Since your separate
F. Items Previously Deducted for Arizona Purposes
Arizona returns will begin with the federal adjusted gross
income, you will not have to adjust your income. Arizona statutes prohibit a taxpayer from deducting items more
than once. However, under the operation of former Arizona law
If you have to adjust your income, attach a schedule showing
(1989 and prior), you could deduct certain items in greater
how you figured your adjustment.
amounts for Arizona purposes than for federal purposes.
C. Partnership Income
Investment interest and passive activity losses were such
Use this adjustment if your Arizona Form 165, Schedule K-1,
items. In some cases, you could have deducted such amounts
shows a difference between federal and state distributable income.
in their entirety on the Arizona return. For federal purposes,
If the difference reported on your Arizona Form 165, Schedule the deduction for these items was limited, with the unused
K-1, is a positive number, enter that difference as an addition. portions being carried forward and deducted in future years.
Enter the addition on line B11. Your Arizona return may include these previously deducted
items because of the difference between the federal and
If the difference reported on your Arizona Form 165, Schedule
former Arizona treatment. If your Arizona taxable income
K-1, is a negative number, enter that difference as a subtraction.
includes items previously deducted for Arizona purposes,
Enter the subtraction on line C27.
you must add such amounts to your Arizona gross income.
D. Estate or Trust Income
G. Claim of Right Adjustment for Amounts Repaid
Enter on line B11 the amount from Arizona Form 141, in 2002
Schedule K-1, line 3. For Arizona purposes, this is your
You must make an entry here if all of the following apply.
share of the distributive income.
1. During 2002, you were required to repay amounts held
If you make an entry here, you must also make an entry on
under a claim of right.
line C27, Other Subtractions. Subtract trust or estate income
shown on your federal Form 1041, Schedule K-1, included in 2. The amount required to be repaid during 2002 was more
your federal adjusted gross income. than $3,000.
3. You took a deduction for the amount repaid on your
2002 federal income tax return.
7

8. Form 140
L. Amounts Deducted for Conveying Ownership or
If the above apply, enter the amount deducted on your
Development Rights of Property to an Agricultural
federal income tax return here.
Preservation District
For more information on the Arizona claim of right
If you take a credit for taxpayers participating in agricultural
provisions, see Arizona Department of Revenue Individual
preservation district, you cannot deduct any amounts for
Income Tax Procedure ITP 95-1.
conveying ownership or development rights of property to an
H. Claim of Right Adjustment for Amounts Repaid agricultural district. If you take this credit, enter the amount
in Prior Taxable Years of such deductions for which you claim a credit.
You must make an entry here if all of the following apply. M. Agricultural Water Conservation System Credit
1. During a year prior to 2002 you were required to repay If you take this credit (Form 312), you cannot deduct any
amounts held under a claim of right. expenses for which you claim the credit. If you take this credit,
enter the amount of such expenses that you deducted on your
2. You computed your tax for that prior year under
federal return.
Arizona's claim of right provisions.
N. Other Adjustments
3. A net operating loss or capital loss was established due
Other special adjustments may be necessary. You may need
to the repayment made in the prior year.
to make an addition for depreciation or amortization. You
4. You are entitled to take that net operating loss or capital
may also need to make an addition if you claimed certain tax
loss carryover into account when computing your 2002 credits. Call one of the numbers listed on the back cover if
Arizona taxable income. any of the following apply.
5. The amount of the loss carryover included in your • You are a qualified defense contractor that elected to
federal income is more than the amount allowed to be amortize under Arizona Revised Statutes section 43-1024.
taken into account for Arizona purposes.
• You sold or disposed of property that was held for the
Enter the amount by which the loss carryover included in production of income and your basis was computed
your federal adjusted gross income is more than the amount under the Arizona Income Tax Act of 1954.
allowed for the taxable year under Arizona law.
• You are still depreciating or amortizing a child care
I. Addition to S Corporation Income Due to Credits facility for which you claimed a state credit.
Claimed
• You claimed the environmental technology facility credit.
Shareholders of an S corporation who claim a credit passed
• You claimed the pollution control credit.
through from an S corporation must make an addition to
• You claimed the recycling equipment credit.
income for the amount of expenses disallowed by reason of
• You claimed the credit for agricultural pollution control
claiming the credit.
equipment.
An S corporation that passes the following credits through to its
• You elected to amortize the basis of a pollution control
shareholders must notify each shareholder of his or her pro rata
device or the cost of a child care facility under Arizona
share of the adjustment. You must enter an amount on this line
law in effect before 1990. You are still deducting
when claiming any of the following credits. amortization or depreciation for that device or facility
on your federal income tax return.
• Agricultural water conservation system credit
• Defense contracting credit Line B12 - Total Additions
• Environmental technology facility credit
Add lines B6 through B11. Enter the total on line B12 and
• Pollution control credit
on the front of your return on line 13.
• Recycling equipment credit
• Credit for solar hot water heater plumbing stub outs and Subtractions From Income
electric vehicle recharge outlets
• Credit for employment of TANF recipients You may only subtract those items for which statutory
• Credit for agricultural pollution control equipment authority exists. Without such authority you cannot take a
subtraction. If you have any questions concerning
• Credit for taxpayers participating in agricultural
subtractions from income, call one of the numbers listed on
preservation district
the back cover.
J. Solar Hot Water Heating Plumbing Stub Out And
NOTE: You may not subtract any amount that is allocable
Electric Vehicle Recharge Outlet Expenses
to income excluded from your Arizona taxable income.
If you take a credit for installing solar hot water heating plumbing
stub outs or electric vehicle recharge outlets in a dwelling you Line C13 - Exemption: Age 65 or Over
constructed, you cannot deduct any expenses for which you claim
Multiply the number in box 8 on the front of your return by
the credit. If you take this credit, enter the amount of such expenses
$2,100 and enter the result.
that you deducted on your federal return.
Line C14 - Exemption: Blind
K. Wage Expense for Employers of TANF Recipients
If you take a credit for employing TANF recipients, you Multiply the number in box 9 on the front of your return by
cannot deduct any wage expense for which you claim the $1,500 and enter the result.
credit. If you take this credit, enter the amount of such
expenses that you deducted on your federal return.
8

9. Form 140
Line C15 - Exemption: Dependents • The Public Safety Personnel Retirement System
• The Elected Officials' Retirement Plan
Multiply the number in box 10 on the front of your return by
• A retirement plan established for employees of a county,
$2,300 and enter the result.
city, or town in Arizona
Line C16 - Exemption: Qualifying Parents • An optional retirement program established by the Arizona
and Ancestors Board of Regents under Arizona Revised Statutes
• An optional retirement program established by an
Multiply the number in box 11 on the front of your return by Arizona community college district.
$10,000 and enter the result.
NOTE: Public retirement pensions from states other than
Line C17 - Total Arizona do not qualify for this subtraction.
Add lines C13 through C16 and enter the total. If you have
Line C20 - Arizona Lottery Winnings
no other subtractions from income, skip lines C18 through
You may subtract all winnings received in 2002 related to an
C28 and enter this total on Form 140, page 1, line 15.
Arizona lottery prize won before March 22, 1983. You may
Line C18 - Interest on U.S. Obligations subtract up to $5,000 of winnings received in 2002 for
Arizona lottery prizes won after March 21, 1983.
Enter the amount of interest income from U.S. Government
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 C21 - 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 Board
bonds since this interest is taxable by Arizona. For details, see
under the Railroad Retirement Act. If you included such social
the department's income tax ruling, ITR 02-1.
security or railroad retirement benefits as income on your federal
Do not subtract any amount received from a qualified return, use line C21 to subtract this income.
pension plan that invests in U.S. Government obligations. Do
Enter only the amount that you had to include as income on
not subtract any amount received from an IRA that invests in
your federal return.
U.S. Government obligations. These amounts are not interest
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 C19 - Exclusion for U.S. Government, Line C22 - Adjustment for Bonus
Arizona State or Local Government Depreciation Allowed Under I.R.C. § 168(k)
Pensions Added to Arizona Gross Income.
If you receive pension income from any of the sources listed If you added the 30% special depreciation allowed under
below, subtract the amount you received or $2,500, I.R.C. § 168(k) to Arizona gross income, you may adjust the
whichever is less. Include only the amount you reported as amount of regular annual depreciation you claimed on your
income on your federal return. If both you and your spouse federal return for that asset. You may subtract an amount
receive such pension income, each spouse may subtract the
equal to three-sevenths of the amount of regular annual
amount received or $2,500, whichever is less.
depreciation you claimed on your federal return for that asset.
Public pensions from the following sources qualify
For example: Bob places a five-year useful life asset costing
for this subtraction.
$9,000 in service on January 1, 2002 and deducts $2,700
• The United States Government Service Retirement and
($9,000 X 30%) of special depreciation and $1,260 ($9,000 -
Disability Fund
$2,700 X 20%) of regular annual depreciation on his federal
• The United States Foreign Service Retirement and
return. On his Arizona return, Bob must add the $2,700 of
Disability System
• Retired or retainer pay of the uniformed services of the special depreciation to his Arizona income (on line B9), but
United States Bob may then take a subtraction of $540. Bob figures the
• Any other retirement system or plan established by amount to subtract on his Arizona return as follows:
federal law
Bob multiplies the amount of regular annual depreciation
he claimed on his federal return for this asset by three-
NOTE: This applies only to those retirement plans
sevenths ($1,260 X 3/7 = $540).
authorized and enacted into the U.S. Code. This does not
apply to a retirement plan that is only regulated by federal Bob should compute this subtraction for each year that he
law (i.e., plans which must meet certain federal criteria to be deducts regular depreciation for this asset on his federal return.
qualified plans).
Line C23 - Certain Wages of American Indians
• The Arizona State Retirement System
Enrolled members of American Indian tribes may subtract wages
• The Arizona State Retirement Plan
earned while living and working on their tribe's reservation. The
• The Corrections Officer Retirement Plan federal government must recognize these tribes.
9

10. Form 140
For more information, see Arizona Department of Revenue this acceleration could have been avoided by the posting of a
Income Tax Ruling ITR 96-4. bond. If acceleration was required, your federal adjusted
gross income may include installment sale amounts already
Line C24 - Income Tax Refund From Other recognized on a decedent's final Arizona return. If your
States federal adjusted gross income includes such amounts, you
may subtract that portion of the gain included on your
You may subtract income tax refunds received from other
federal return.
states if both of the following apply.
B. Estate or Trust Income
1. You reported the refund as income on your federal return.
Enter on line C27 the amounts from federal Form 1041,
2. You did not deduct the taxes paid to the other state as an
Schedule K-1, included in your federal adjusted gross income.
itemized deduction on a prior year Arizona return.
If making an entry here, you must also make an entry on line B11,
Line C25 - Deposits and Employer
Additions to Income. Add the estate or trust income shown on
Contributions Into MSAs Arizona Form 141, Schedule K-1, to your Arizona income.
Deposits Made Into Your MSA C. Combat Pay
If you have a medical savings account (MSA), you may be Members of the U.S. armed forces may subtract pay received
able to subtract deposits made into that MSA. Make an entry for serving in a combat zone or an area given the treatment
here if all of the following apply. of a combat zone. Subtract only the amount included in your
1. You have an MSA that qualifies as an MSA under 2002 federal adjusted gross income.
Arizona law, but not federal law. D. Federally Taxable Arizona Municipal Interest
2. Either you or your employer made deposits into that Enter the amount of any interest income received on
MSA during the tax year. obligations of the State of Arizona, or any political
subdivisions of Arizona that is included in your Arizona
3. You had to include the deposits in income on your
gross income. Do not enter any Arizona municipal interest
federal income tax return.
that is exempt from federal taxation and not included in your
Enter the amount of the MSA deposits that you had to federal adjusted gross income.
include in your federal adjusted gross income.
E. Adoption Expenses
Employer Contributions Made to Employee MSAs
You may take this subtraction only in the year the final adoption
If you are an employer, you may subtract the amount order is granted. Enter the lesser of the total of the following
contributed to your employees' MSAs that are established adoption expenses or $3,000. When figuring your subtraction,
under Arizona law. You can subtract these contributions only you may include expenses incurred in prior years.
to the extent not deductible for federal income tax purposes.
The following expenses are qualified adoption expenses.
Enter these contributions here.
Line C26 - Construction of an Energy 1. Nonreimbursed medical and hospital costs.
Efficient Residence 2. Adoption counseling.
3. Legal and agency fees.
For taxable years beginning from and after December 31,
2001, through December 31, 2010, Arizona law allows a 4. Other nonrecurring costs of adoption.
subtraction for an energy efficient residence. The
If filing separately, you may take the entire subtraction, or
subtraction is allowed for selling one or more new energy
you may divide the subtraction with your spouse. However,
efficient residences located in Arizona. The subtraction is
the total subtraction taken by both you and your spouse
equal to 5% of the sales price excluding commissions, taxes,
cannot exceed $3,000.
interest, points, and other brokerage, finance and escrow
charges. The subtraction cannot exceed $5,000 for each new F. Qualified Wood Stove, Wood Fireplace, or Gas
qualifying residence. Fired Fireplace
The taxpayer that builds the new residence may claim the Arizona law provides a subtraction for converting an existing
subtraction when the taxpayer first sells the residence. However, fireplace to a qualified wood stove, qualified wood fireplace,
the seller may elect to transfer the subtraction to the buyer. or gas fired fireplace and non-optional equipment directly
related to its operation. You may subtract up to $500 of the
For more information, see Arizona Department of Revenue
costs incurred for converting an existing fireplace to a
Income Tax Procedure ITP 02-1.
qualified wood stove, qualified wood fireplace, or gas fired
Enter the number of residences for which you are claiming a fireplace on your property located in Arizona. When you
subtraction on line C26a, then enter the amount of the figure your subtraction, do not include taxes, interest, or
subtraction on line C26. Also enter the number on line C26a other finance charges.
on Form 140, page 1, line 151.
A qualified wood stove or a qualified wood fireplace is a
Line C27 - Other Subtractions From Income residential wood heater that was manufactured on or after
July 1, 1990, or sold at retail on or after July 1, 1992. The
Use line C27 if any of the following special circumstances
residential wood heater must also meet the U.S.
apply. Attach your own schedule to the back of your return
Environmental Protection Agency's July 1990 particulate
explaining any amounts entered here.
emissions standards.
A. Previously Reported Gain on Decedent's
A qualified gas fired fireplace is any device that burns
Installment Sale
natural or liquefied petroleum gas as its fuel through a burner
Prior Arizona law required acceleration of any unrecognized system that is permanently installed in the fireplace. The
installment sale gain upon the death of a taxpayer. However,
10

11. Form 140
conversion of an existing wood burning fireplace to 1. The income from the sale is subject to Arizona income tax
noncombustible gas logs that are permanently installed in the in 2002; and
fireplace also qualifies as a gas fired fireplace. 2. You paid income tax to another state on that income in a
prior tax year.
G. Claim of Right Adjustment for Amounts Repaid
in Prior Taxable Years Enter the amount of such income that you included in your
Arizona gross income for 2002.
You must make an entry here if all of the following apply.
Do not enter any amount that is subject to tax by both Arizona
1. During a year prior to 2002 you were required to repay
and another state in 2002. In this case, you may be eligible for a
amounts held under a claim of right.
tax credit. See Form 309 for details.
2. You computed your tax for that prior year under
Arizona's claim of right provisions. L. Agricultural Crops Given to Arizona Charitable
3. A net operating loss or capital loss was established due Organizations
to the repayment made in the prior year.
Arizona law allows a subtraction for qualified crop gifts
4. You are entitled to take that net operating loss or capital made during 2002 to one or more charitable organizations.
loss carryover into account when computing your 2002 To take this subtraction, you must be engaged in the business
Arizona taxable income. of farming or processing agricultural crops. The crop must
5. The amount of the loss carryover allowed to be taken be grown in Arizona. You must make your gift to a
into account for Arizona purposes is more than the charitable organization located in Arizona that is exempt
amount included in your federal income. from Arizona income tax.
Enter the amount by which the loss carryover allowed for the The subtraction is the greater of 80 percent of the wholesale
taxable year under Arizona law is more than the amount market price or 80 percent of the most recent sale price for
included in your federal adjusted gross income. the contributed crop.
H. Certain Expenses Not Allowed for Federal Purposes To determine if your crop gift qualifies for this subtraction, see
Arizona Department of Revenue Income Tax Procedure ITP 93-2.
You may subtract some expenses that you cannot deduct on
your federal return when you claim certain federal tax M. Depreciation Adjustment for Property Sold or
credits. These federal tax credits are:
Otherwise Disposed of During the Taxable Year
• The federal work opportunity credit
If you sold or otherwise disposed of property that you
• The empowerment zone employment credit
acquired and put into service after September 10, 2001, you
• The credit for employer-paid social security taxes on
may have an additional subtraction for Arizona purposes if
employee cash tips
all of the following apply to you.
• The Indian employment credit
1. In the year of acquisition, you made an addition to
If you received any of the above federal tax credits for 2002,
income for the 30% bonus depreciation claimed on your
enter the portion of wages or salaries you paid or incurred
federal return.
during the taxable year equal to the amount of those federal
tax credits you received. 2. You sold or otherwise disposed of that property during
the taxable year.
I. Qualified State Tuition Program Distributions
3. The depreciation allowed for Arizona purposes (for all
If you are a beneficiary of a qualified state tuition program, you
may subtract some of the amount distributed from the program taxable years for which depreciation was claimed) was
for qualified education expenses. Enter the amount of the less than what would have been allowed under I.R.C. §
distribution that you had to include in your federal adjusted gross 167(a) without regard to I.R.C. § 168(k).
income. A qualified state tuition program is a program that meets
If 1 through 3 above apply to you, calculate the amount of
the requirements of I.R.C. § 529.
depreciation you would have been allowed had you chosen not
J. Subtraction for World War II Victims to claim the 30% bonus depreciation. If this amount is greater
than the amount of depreciation you have actually claimed for
You may subtract distributions made to you for your
this asset on your Arizona returns, you may claim a subtraction
persecution or the persecution of your ancestors by Nazi
for the difference.
Germany or any other Axis regime for racial, religious or
political reasons. If you are the first recipient of such NOTE: This is not an adjustment for the difference in basis
distributions, enter the amount of the distributions that you
caused by the effect of the 30% bonus depreciation allowed
had to include in your federal adjusted gross income.
on the federal return.
You may also subtract items of income that are attributable to,
N. Other Adjustments
derived from or related to assets that were stolen or hidden from
or lost to you if you were persecuted by Nazi Germany or any Other special adjustments may be necessary. Call one of the
other Axis regime for racial, religious or political reasons before, numbers listed on the back cover if any of the following apply.
during or immediately after World War II. If you are the first
• You are a qualified defense contractor that elected to
recipient of such income, enter the amount of income that you
amortize under Arizona Revised Statutes section 43-1024.
had to include in your federal adjusted gross income.
• You sold or disposed of property that was held for the
K. Installment Sale Income From Another State
production of income and your basis was computed
Taxed by the Other State in a Prior Taxable Year
under the Arizona Income Tax Act of 1954.
You may subtract income from an installment sale if both of the
• You were an Arizona resident before December 31,
following apply:
1975, and you are receiving IRA distributions from your
11