This document provides instructions for Arizona's 2002 part-year resident personal income tax return (Form 140PY). It discusses who must file, income sources that are taxable, filing dates and penalties, how to make estimated payments, and line-by-line filing instructions. Specifically, it notes that part-year residents are subject to tax on income earned while an Arizona resident as well as from Arizona sources when nonresident. It also provides details about special filing situations for military members, American Indians, those with deceased taxpayers, and when filing amendments or making changes based on the IRS.

1. Arizona Form
2002 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, 2003 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 2002 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 2002 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
Do You Have to File? brochure, Pub 704, Taxpayers in the Military.
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:
parent must include that same income in his or her Arizona
• Single $15,000 $5,500
• Married filing $15,000 taxable income.
$11,000
jointly
Residency Status
• Married filing $15,000 $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 American Part-Year Resident Personal Income Tax Return.
Indian? You are a part-year resident if you did either of the following
during 2002.
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 file. Also make sure that you check either box 82D or 82F
your Arizona residency. on page 1 of the return. If you must make a payment, use
Arizona Form 204.
Nonresidents
2. You may use your federal extension (federal Form 4868
If you are a nonresident, you must file Form 140NR, or 2688). File your Arizona return by the same due
Nonresident Personal Income Tax Return. date. If you are filing under a federal extension, you do
not have to attach a copy of your federal extension to
What if a Taxpayer Died?
your return, but make sure that you check either box
If a taxpayer died before filing a return for 2002, the 82D or 82F on page 1 of the return.
taxpayer's spouse or personal representative may have to file
When Should You File if You Are a
and sign a return for that taxpayer. If the deceased taxpayer
Nonresident Alien?
did not have to file a return but had tax withheld, a return
must be filed to get a refund. You must file your Arizona tax return by April 15, even
though your federal income tax return is due on June 15. If
The person who files the return should use the form the
you want to file your Arizona return when you file your
taxpayer would have used. If the department mailed the
federal return, you may ask for an extension. See Form 204
taxpayer a booklet, do not use the label. The person who
for extension filing details.
files the return should print the word quot;deceasedquot; after the
If you are a fiscal year filer, your return is due on the 15th day of
decedent's name in the address section of the form. Also
the fourth month following the close of your fiscal year.
enter the date of death after the decedent's name.
What if You File or Pay Late?
If your spouse died in 2002 and you did not remarry in 2002,
or if your spouse died in 2003 before filing a return for 2002, If you file or pay late, the department can charge you interest
you may file a joint return. If your spouse died in 2002, the and penalties on the amount you owe. If the U.S. Post Office
joint return should show your spouse's 2002 income before postmarks your 2002 calendar year return by April 15, 2003,
death, and your income for all of 2002. If your spouse died your return will not be late. You may also use certain private
delivery services designated by the IRS to meet the “timely
in 2003, before filing the 2002 return, the joint return should
mailing as timely filed” rule.
show all of your income and all of your spouse's income for
2002. Print quot;Filing as surviving spousequot; in the area where Late Filing Penalty
you sign the return. If someone else is the personal
If you file late, the department can charge you a late filing
representative, he or she must also sign the return. penalty. This penalty is 4½ percent of the tax required to be
shown on the return for each month or fraction of a month
Are Any Other Returns Required?
the return is late. This penalty cannot exceed 25 percent of
You may also have to file fiduciary income tax or estate tax the tax found to be remaining due.
returns. For details about filing a fiduciary income tax return, call
Late Payment Penalty
the department at (602) 255-3381. For details about filing an
If you pay your tax late, the department can charge you a late
estate tax return, call the department at (602) 542-4643.
payment penalty. This penalty is ½ of 1 percent (.005) of the
Claiming a Refund For a Deceased Taxpayer amount shown as tax for each month or fraction of a month
for which the failure continues. This penalty cannot exceed
If you are claiming a refund, you must complete Form 131,
a total of 10 percent.
Claim for Refund on Behalf of Deceased Taxpayer. Attach
Extension Underpayment Penalty
this form to the front of the return.
If you file your return under an extension, you must pay 90
What Are the Filing Dates and Penalties? percent of the tax shown on your return by the return's
original due date. If you do not pay this amount, the
When Should You File? department can charge you a penalty. The department can
also charge you this penalty if you do not attach a copy of
Your 2002 calendar year tax return is due no later than
the Arizona extension to your return when you file. This
midnight, April 15, 2003. File your return as soon as you can
penalty is one-half of one percent (.005) of the tax not paid
after January 1, but no later than April 15, 2003.
for each 30 day period or fraction of a 30 day period. The
If you are a fiscal year filer, your return is due on the 15th day of department charges this penalty from the original due date of
the fourth month following the close of your fiscal year. the return until the date you pay the tax. This penalty cannot
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
You may request an extension if you know you will not be penalties, the total cannot exceed 25 percent.
able to file on time.
Interest
NOTE: An extension does not extend the time to pay your income
tax. For details, see the instructions for Arizona Form 204. The department charges interest on any tax not paid by the due
date. The department will charge you interest even if you have an
To get a filing extension, you can either:
extension. If you have an extension, the department will charge
1. Apply for a state extension (Form 204). To apply for a you interest from the original due date until the date you pay the
state extension, file Arizona Form 204 by April 15. See tax. The Arizona interest rate is the same as the federal rate.
Form 204 for details. You must attach a copy of the
Arizona extension to the back of your return when you
2

3. Form 140PY
When Should You Amend a Return? For details, see Arizona Form 221.
Can You Make Estimated Payments if You
If you need to make changes to your return once you have filed,
do Not Have to?
you should file Form 140X, Individual Amended Return. Do
not file a new return for the year you are correcting. Generally,
If you do not have to make Arizona estimated income tax
you have four years to amend a return to claim a refund.
payments, you may still choose to make them.
If you amend your federal return for any year, you must also
For details, see Arizona Form 140ES.
file an Arizona Form 140X for that year. You must file the
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 • Complete your return using black ink.
option, you must amend your Arizona return within 90 days
• You must round dollar amounts to the nearest whole
of the change. Attach a complete copy of the federal notice
dollar. If 50 cents or more, round up to the next dollar.
to your Form 140X.
If less than 50 cents, round down.
Option 2
• When asked to provide your own schedule, attach a separate
You may file a copy of the final federal notice with the sheet with your name and social security number at the top.
department within 90 days. If you choose this option, you Attach your own schedules to the back of your return.
must include a statement in which you must:
• You must complete your federal return before you can
1. Request that the department recompute your tax; and start your Arizona return.
2. Indicate if you agree or disagree with the federal notice. • Make sure you include your home telephone number. If
your daytime number is not the same as your home
If you do not agree with the federal notice, you must also
include any documents that show why you do not agree. number, make sure you include a daytime number.
• If filing a fiscal year return, fill in the period covered in
If you choose option 2, mail the federal notice and any other
the space provided at the top of the form.
documents to:
Arizona Department of Revenue Entering Your Name, Address, and Social
1600 W. Monroe, Attention: Individual Income Audit
Security Number
Phoenix, AZ 85007-2650
Lines 1, 2, and 3 -
Do You Need to Make Estimated Payments in
2003? Print or type your name, address, and SSN in the space
You must make Arizona estimated income tax payments provided. If you are a nonresident of the United States or a
during 2003 if: resident alien who does not have an SSN use the
Your filing status is: AND AND identification number (ITIN) the IRS issued to you.
Your Arizona gross Your Arizona gross
If you are filing a joint return, enter your SSNs in the same order
income for 2002 income for 2003
as your first names. If your name appears first on the return,
was greater than: exceeds:
Married Filing Joint make sure your SSN is the first number listed. Put your last
$150,000 $150,000
Single $75,000 $75,000 names in the same order as your first names and SSNs.
Head of Household $75,000 $75,000
For a deceased taxpayer, see page 2 of these instructions.
Married Filing $75,000 $75,000
Separately Use your current home address. The department will send
your refund or correspond with you at that address.
If you met the income threshold for 2002, you must make
NOTE: Make sure your SSN is correct.
estimated payments during 2003 unless you are sure you will
not meet the threshold for 2003.
Make sure that every return, statement, or document that you file
As a part-year resident, your Arizona gross income is that with the department has your SSN. Make sure that all SSNs are
part of your federal adjusted gross income that you must clear and correct. You may be subject to a penalty if you fail to
report to Arizona. Your Arizona gross income is on line 15 include your SSN. It may take longer to process your return if
of the 2002 Arizona Form 140PY. SSNs are missing, incorrect, or unclear.
Identification Numbers for Paid Preparers
See the worksheet for 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
• his or her PTIN
any required payments. The department will charge you a
• the federal employer identification number for the business
penalty if you make any of your required payments late.
3

4. Form 140PY
A paid preparer who fails to include the proper numbers may Exemptions
also be subject to a penalty.
Write the number of exemptions you are claiming in boxes 8,
Determining Your Filing Status 9, 10, and 11. Do not put a checkmark. You may lose the
The filing status that you use on your Arizona return may be exemption if you put a checkmark in these boxes. You may
different from that used on your federal return. lose the dependent exemption if you do not complete Part A,
lines A1 through A3 on page 2. You may lose the exemption
Use this section to determine your filing status. Check the
for qualifying parents or ancestors if you do not complete
correct box (4 through 7) on the front of Form 140PY.
Part A, lines A4 and A5, on page 2.
Line 4 Box - Married Filing a Joint Return
Line 8 Box - Age 65 and Over
You may use this filing status if married as of December 31,
2002. It does not matter whether or not you were living with Write quot;1quot; in box 8 if you or your spouse were 65 or older in
your spouse. You may elect to file a joint return, even if you 2002. Write quot;2quot; in box 8 if both you and your spouse were
and your spouse filed separate federal returns. 65 or older in 2002.
You may use this filing status if your spouse died during
Line 9 Box - Blind
2002 and you did not remarry in 2002. See page 2 of these
instructions for details. Write quot;1quot; in box 9 if you or your spouse are totally or partially
blind. Write quot;2quot; in box 9 if both you and your spouse are totally
If you are a part-year resident married to an Arizona full year
or partially blind.
resident, you may file a joint return using the 140PY. For
more information, see Arizona Department of Revenue If you or your spouse were partially blind as of December
Income Tax Ruling ITR 95-2. 31, 2002, you must get a statement certified by your eye
doctor or registered optometrist that:
Line 5 Box - Head of Household
1. You cannot see better than 20/200 in your better eye with
You may file as head of household on your Arizona return,
glasses or contact lenses or
only if one of the following applies.
2. Your field of vision is 20 degrees or less.
• You qualify to file as head of household on your federal
return. If your eye condition is not likely to improve beyond the
• You qualify to file as a qualifying widow or widower on conditions listed above, you can get a statement certified by your
your federal return. eye doctor or registered optometrist to that effect instead.
Line 6 Box - Married Filing Separately You must keep the statement for your records.
Line 10 Box - Dependents
You may use this filing status if married as of December 31,
2002, and you elect to file a separate Arizona return. You You must complete Part A, lines A1 through A3, on page 2 of
may elect to file a separate return, even if you and your your return before you can total your dependent exemptions.
spouse filed a joint federal return.
You may claim only the following as a dependent.
If you are filing a separate return, check the line 6 box and • A person that qualifies as your dependent on your
enter your spouse's name in the space provided. Also enter federal return.
your spouse's SSN in the space provided. • A person who is age 65 or over (related to you or not)
that does not qualify as your dependent on your federal
If you are filing a separate return and your spouse is an Arizona
return, but one of the following applies.
resident, you must figure how much income to report using
community property laws. Under these laws, a separate return 1. In 2002, you paid more than one-fourth of the cost of
must reflect one-half of the community income taxable to Arizona keeping this person in an Arizona nursing care institution,
plus any separate income taxable to Arizona. For details, see an Arizona residential care institution, or an Arizona
Arizona Department of Revenue Income Tax Ruling, ITR 93-20. assisted living facility. Your cost must be more than $800.
2. In 2002, you paid more than $800 for either Arizona
NOTE: If you can treat community income as separate
home health care or other medical costs for the person.
income on your federal return, you may also treat that
community income as separate on your Arizona return. See
Completing Line(s) A1
Arizona Department of Revenue Ruling ITR 93-22.
NOTE: If a person who qualifies as your dependent is also
Line 7 Box - Single
a qualifying parent or ancestor of your parent, you may
claim that person as a dependent on line A2, or you may
Use this filing status if you were single on December 31,
claim that person as a qualifying parent or ancestor of your
2002. You are single if any of the following apply to you.
parent on line A5. You may not claim that same person on
• You have never been married. both line A2 and line A5. Do not list the same person on line
A1 that you listed on line A4.
• You are legally separated under a decree of divorce or
of separate maintenance. Enter the following on line(s) A1.
• You were widowed before January 1, 2002, and you did
1. The dependent's name.
not remarry in 2002, and you do not qualify to file as a
2. The dependent's social security number.
qualifying widow or widower with dependent children
on your federal return. 3. The dependent's relationship to you.
4

5. Form 140PY
4. The number of months the dependent lived in your home Line A5 - Total Qualifying Parents or
during 2002.
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
Dependents on Your Federal Return Than Active Duty Military
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
2002, 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 2002.
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.
• If married filing a joint return, your spouse’s parent or Use Part B to determine what portion of your total income is
taxable by Arizona.
an ancestor of your spouse’s parent.
You may claim this exemption if all of the following apply. NOTE: If you are unable to determine the proper line to use,
please contact one of the 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 2002 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 B18 should equal the federal adjusted
or older during 2002. gross income shown on your 2002 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
example, if you became an Arizona resident on June 30, enter
You must complete Part A, lines A4 and A5, on page 2 of
all income you received from that day to December 31, 2002.
your return before you can total your exemptions for
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 nonresident, also include that source income on the
that person as a dependent on line A2, or you may claim appropriate line in the Arizona column.
that person as a qualifying parent or ancestor of your parent
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
the taxpayer does not materially participate.
Completing Line(s) A4
As a part-year resident, your Arizona gross income may include
Enter the following on line(s) A4. 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
Arizona resident. For the part of the year you were an Arizona
2. The social security number of the qualifying parent or
nonresident, you may consider only those passive losses that arose
ancestor of your parent.
from Arizona sources. Your 2002 Arizona gross income can
3. The qualifying parent’s or ancestor’s relationship to you, include only losses you used on your 2002 federal return.
or your spouse if filing a joint return.
The following line-by-line instructions apply to the
4. The number of months the qualifying parent or ancestor
ARIZONA column.
of your parent lived in your home during 2002.
Line B6 - Dates of Arizona Residency
You may lose the exemption if you do not furnish this
information. If you became an Arizona resident during 2002, enter the date
5

6. Form 140PY
that you became an Arizona resident. If you gave up your Enter any income or (loss) derived from Arizona sources
Arizona residency during 2002, do both of the following. from partnerships, small business corporations, etc., during
the part of the year you were an Arizona nonresident.
1. Enter the date you became an Arizona resident.
Line B15 - Other Income Reported on Your
2. Enter the date you gave up your Arizona residency.
Federal Return
Line B7 - Wages, Salaries, Tips, etc.
Enter other income shown on your federal return that you
Enter all amounts received while an Arizona resident. received while an Arizona resident. Other income may include
pensions, social security, unemployment, and lottery winnings.
Also enter all amounts received from Arizona employment
Attach a schedule listing these other items.
during the part of the year you were an Arizona nonresident.
Also enter any other income derived from Arizona sources
NOTE: Do not include active duty military pay for the part during the part of the year you were an Arizona nonresident.
of the year you were a nonresident.
Line B16 - Total Income
Line B8 - Interest
Add lines B7 through B15 and enter the total.
Enter all amounts received while an Arizona resident.
Line B17 - Federal Adjustments
You must also enter any interest income derived from
If any of the following are included in adjustments shown on your
Arizona sources during the part of the year you were an
federal return, make an entry on this line as explained below.
Arizona nonresident. Interest income from Arizona sources is
1. IRA. Enter the amount actually paid while an Arizona
interest income that has acquired an Arizona business situs.
resident for your IRA and/or your spouse's IRA.
If you received tax exempt interest from municipal bonds, attach
2. Student loan interest: Enter the amount you paid while
a schedule listing the payors and the amount received from each
an Arizona resident.
payor. You may also want to attach supporting documents for
amounts received from Arizona municipal bonds that are exempt 3. Archer medical savings account: Enter the amount you
from Arizona income tax. These may be items such as bank contributed to the MSA while an Arizona resident.
statements, brokerage statements, etc. Be sure you add the 4. Self-employed SEP, SIMPLE and qualified plans: Enter
amount you received while an Arizona resident from non- the amount actually paid while an Arizona resident.
Arizona municipal bonds to your income on line C23.
5. Self-employment tax: Enter that portion of the self-
Line B9 - Dividends employment tax that relates to self-employment income
reportable to Arizona.
Enter all amounts received while an Arizona resident.
6. Self-employed health insurance: Enter that amount of
You must also enter any dividends derived from Arizona self-employed health insurance that was actually paid
sources during the part of the year you were an Arizona while an Arizona resident.
nonresident. Dividend income from Arizona sources is
7. Penalty on early withdrawal of savings: Multiply the
dividend income that has acquired an Arizona business situs.
federal deduction by the ratio of your Arizona interest to
Line B10 - Arizona Income Tax Refunds your federal interest.
Enter the amount of Arizona income tax refunds received in 8. Alimony: Enter the amount actually paid while an
2002 that you included in your federal adjusted gross income. Arizona resident.
Line B11 - Alimony Received 9. Moving expenses: Enter the amount of moving expenses
included in your federal adjusted gross income that you
Enter amounts received while an Arizona resident. accrued and paid during the part of the year you were an
Line B12 - Business Income or (Loss) Arizona resident.
NOTE: Do not enter any amounts for items 1 through 9
Enter any business or farm income or (loss) incurred while
above unless you deducted these items in computing your
you were an Arizona resident.
federal adjusted gross income.
Also enter income or (loss) derived from Arizona businesses
If your federal return shows other adjustments to income,
during the part of the year you were an Arizona nonresident.
attach your own schedule to show your calculation.
Line B13 - Gains or (Losses)
Line B19 - Arizona Income
Enter any gain or (loss) on property sold while an Arizona
Complete line B19 as instructed on the form.
resident if you included the amount as income on your 2002
federal return. Line B20 - Arizona Percentage
Also enter gains or (losses) on sales of Arizona property during Divide line B19 by line B18, and enter the result on line
the part of the year you were an Arizona nonresident. B20. (Do not enter more than 100 percent.) This is the
Arizona percentage of your total income.
Line B14 - Rents, etc.
Example:
Enter income received from rents, royalties, partnerships,
Arizona Federal Arizona percentage
estates, trusts, small business corporations, etc., while an
Gross Income Adjusted
Arizona resident.
from line B19 Gross Income
Also enter rents or royalties earned on Arizona properties from line B18
during the part of the year you were an Arizona nonresident. $ 7,500 $ 30,000 $7,500/30,000 = 25%
6

7. Form 140PY
ordinary income on your federal return. If you chose to treat the
Determining Additions to Income capital gain portion of the distributions as ordinary income, you
must also include that amount on line C23.
Line C21 - Early Withdrawal of Arizona,
County, City, or School Retirement System For more information, see Arizona Department of Revenue
Income Tax Ruling, ITR 93-5.
Contributions
C. Trust or Estate Deductions
If you meet all the following, you must enter an amount here.
You must add the following estate or trust deductions to your
1. You left your job with the State of Arizona or an
Arizona gross income.
Arizona county, city, or school district for reasons other
than retirement. 1. Your share of the estate's or trust's deductions allowed
2. When you left, you took out the contributions you had under the Internal Revenue Code.
made to the retirement system while employed. 2. Your share of the excess deductions and loss carryovers
3. You deducted these contributions on your Arizona allowed under the Internal Revenue Code as deductions
income tax returns that you filed for prior years. to the beneficiary on termination of an estate or trust.
4. You did not include these contributions in your federal You must add the above deductions and loss carryovers to
adjusted gross income this year. Arizona gross income only to the extent you included these
items in computing your Arizona taxable income.
If you meet all these tests, you must report as income those
contributions previously deducted on your prior years' D. Medical Savings Account (MSA) Distributions
Arizona tax returns. For information on Arizona's MSA provisions, see the
For more information, see Arizona Department of Revenue department's MSA brochure, Pub 542.
Income Tax Ruling ITR 93-7.
You must add amounts received from an MSA here if any of
NOTE: Any interest earned on your retirement contributions the following apply.
while they were in the system should be reported on line B8 in
1 - You Withdrew Funds From Your MSA For Other
both the FEDERAL and ARIZONA income columns. Than Qualified Expenses
Line C22 - Bonus Depreciation Allowed If you had an MSA during the part of the year you were an
Under I.R.C. § 168(k) Arizona resident, you must make an entry here if all of the
following apply.
The federal Job Creation and Worker Assistance Act of 2002
1. You withdrew money from your MSA during 2002,
(P.L. 107-147), which was signed by President Bush on
while either a resident or a nonresident.
March 9, 2002, allows businesses to claim a 30% bonus
depreciation for qualified capital investments in property 2. You did not use the amount withdrawn to pay qualified
placed in service after September 10, 2001. However, for medical expenses.
Arizona income tax purposes, Arizona will not allow the 3. You did not have to include the withdrawal as income
bonus depreciation. Taxpayers that claim the bonus on your federal income tax return.
depreciation on their federal income tax return must add the
Enter the amount withdrawn.
amount claimed for federal purposes to their Arizona gross
income. Enter the amount of such depreciation claimed on If you had an MSA during the part of the year you were an
your 2002 federal income tax return only to the extent you Arizona nonresident, you must make an entry here if all of
included the depreciation in computing your Arizona gross the following apply.
income. If you make an entry here, also see the instructions 1. You had Arizona source income while an Arizona
for line D35, “Other Subtractions From Income”. nonresident.
Line C23 - Other Additions to Income 2. Your MSA qualified as an MSA under Arizona law.
3. If you were an employee, your high deductible health
Use line C23 if any of the special circumstances below
coverage was provided by your Arizona employer. If
applies. Attach your own schedule to the back of your return,
you were self employed, your high deductible health
explaining any amounts entered on line C23.
coverage was provided by your Arizona business.
Items A, B, C, and D that follow must be added to income on 4. You withdrew money from your MSA during 2002,
line C23 of your return. while either a resident or a nonresident.
A. Non-Arizona Municipal Interest 5. You did not use the amount withdrawn to pay qualified
medical expenses.
Enter interest income earned from non-Arizona municipal
bonds while an Arizona resident. 6. You did not have to include the withdrawal as income
on your federal income tax return.
NOTE: You may reduce this addition by any interest or other
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
2 - Deceased Account Holder Where the Named
amount of those expenses attributable to income subject to
Beneficiary is Not the Decedent's Surviving Spouse
Arizona tax. You may reduce the addition by those expenses
You must make an entry here if all of the following apply.
that you could not deduct on your federal return.
1. The account holder died during the part of the year you
B. Ordinary Income Portion of Lump Sum
were an Arizona resident.
Distribution Excluded on Your Federal Return
2. The decedent's MSA qualified as an MSA under
Arizona law does not provide for averaging. Enter the amount of
Arizona law.
the distributions received while an Arizona resident and treated as
7

8. Form 140PY
3. You are the named beneficiary of the decedent's MSA. Pension Adjustment Worksheet Continued
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.
In this case, the MSA ceases to be an MSA. Enter the fair not less than zero).
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 C23.
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 C23)
Make an entry here if all of the following apply. or subtract (line D35) this amount.
1. The account holder died during the part of the year in Use this adjustment if your Arizona Form 165 Schedule K-1
which he or she was an Arizona resident. shows a difference between federal and state distributable income.
2. There is no named MSA beneficiary. If the difference reported on your Arizona Form 165,
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 C23.
the decedent's final federal income tax return.
If the difference reported on your Arizona Form 165, Schedule
In this case, the MSA ceases to be an MSA. Enter the fair K-1, is a negative number, enter that portion of the difference
market value of the MSA as of the date of death. This rule that is allocable to partnership income taxable by Arizona as a
applies in all cases in which there is no named beneficiary, subtraction. Enter the subtraction on line D35.
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 C23)
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 Credit
1. You reported your pension income as fully taxable on
If you take this credit (Form 312), you cannot deduct any expenses
your federal return.
for which you claim the credit. If you take this credit, enter the
2. You reported your pension income on your federal
amount of 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. 1. interest and passive activity losses were such items. In some cases,
2. Pension amount received in prior you could have deducted such amounts in their entirety on the
years. 2. Arizona return. For federal purposes, the deduction for these items
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 2002
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 2002, 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 2002 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.
2002 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 an
taxable income. agricultural preservation district, you cannot deduct any
amounts for conveying ownership or development rights of
For more information on the Arizona claim of right
provisions, see Arizona Department of Revenue Individual property to an agricultural district. If you take this credit, enter
Income Tax Procedure ITP 95-1. the amount 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
You must make an entry here if all of the following apply.
to make an addition for depreciation or amortization. You
1. During a year prior to 2002 you were required to repay may also need to make an addition if you claimed certain tax
income held under a claim of right. credits. Call one of the numbers listed on the back cover if
2. You computed your tax for that prior year under any of the 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 2002
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.
Line C24 - Total Additions
An S corporation that passes the following credits through to its
shareholders must notify each shareholder of his or her pro rata
Add lines C21 through C23. Enter the total on line C24 and
share of the adjustment. You must enter an amount on this line
on 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 numbers listed on
electric vehicle recharge outlets 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 D25 - 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 D33 - Social Security Benefits or
Line D26 - 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 D27 - 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 D28 - Exemption: Qualifying Parents line B15, subtract this income on line D33.
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 D29 - Total
96-1 for more information about railroad retirement benefits.
Add lines D25 through D28 and enter the total.
Line D34 - Construction of an Energy
Line D30 - Prorated Exemptions Efficient Residence
Multiply the amount on line D29 by the Arizona percentage For taxable years beginning from and after December 31, 2001,
from line B20 and enter the result. through December 31, 2010, Arizona law allows a subtraction
for an energy efficient residence. The subtraction is allowed for
Active Duty Military Personnel Only: If you were an
selling one or more new energy efficient residences located in
active duty military member who either began or gave up
Arizona. The subtraction is equal to 5% of the sales price
Arizona residency during 2002, do not prorate these
excluding commissions, taxes, interest, points, and other
exemptions. You are allowed 100 percent deductions for the
brokerage, finance and escrow charges. The subtraction cannot
age 65, the blind, and the dependent exemptions. Enter the
exceed $5,000 for each new qualifying residence.
amount on line D29 (Total) on this line.
The taxpayer that builds the new residence may claim the
Line D31 - Interest on U.S. Obligations subtraction when the taxpayer first sells the residence. However,
Enter the amount of interest income from U.S. Government the seller may elect to transfer the subtraction to the buyer.
obligations included on line B8 in the ARIZONA column. U.S. For more information, see Arizona Department of Revenue
Government obligations include obligations such as U.S. savings
Income Tax Procedure ITP 02-1.
bonds and treasury bills. You cannot deduct any interest or other
Enter the number of residences for which you are claiming a
related expenses incurred to purchase or carry the obligations. If
subtraction on line D34a, then enter the amount of the
such expenses are included in your Arizona gross income, you
subtraction on line D34. Also enter the number on line D34a
must reduce the subtraction by such expenses. If you are itemizing
on Form 140PY, page 1, line 181.
deductions on your Arizona return, you must exclude such
expenses from the amount deducted. Line D35 - Other Subtractions
NOTE: Do not subtract interest earned on FNMA or GNMA Use line D35 if any of the following special circumstances
bonds since this interest is taxable by Arizona. For details, see
apply. Attach your own schedule to the back of your return,
the department's income tax ruling, ITR 02-1.
explaining any amounts entered here.
Do not subtract any amount received from a qualified pension A. Exclusion for U.S. Government, Arizona State, or
plan that invests in U.S. Government obligations. Do not Local Government Pensions
subtract any amount received from an IRA that invests in U.S.
If you receive pension income from any of the sources listed
Government obligations. These amounts are not interest
below, subtract the amount you received or $2,500,
income. For more information, see Arizona Department of
whichever is less. Include only the amount you reported as
Revenue Income Tax Rulings ITR 96-2 and ITR 96-3.
income on your federal return and included on line B15 in
Line D32 - Arizona Lottery Winnings the ARIZONA column. If both you and your spouse receive
such pension income, each spouse may subtract the amount
You may subtract all winnings received in 2002 related to an
received or $2,500, whichever is less.
Arizona lottery prize won before March 22, 1983. You may
subtract up to $5,000 of winnings received in 2002 for Public pensions from the following sources qualify
for this subtraction:
Arizona lottery prizes won after March 21, 1983. Only
subtract those Arizona lottery winnings that you included on • The United States Government Service Retirement and
Disability Fund
10

11. Form 140PY
• The United States Foreign Service Retirement and of farming or processing agricultural crops. The crop must
Disability System be grown in Arizona. You must make your gift to a
charitable organization located in Arizona which is exempt
• Retired or retainer pay of the uniformed services of the
from Arizona income tax.
United States
• Any other retirement system or plan established by The subtraction is the greater of 80 percent of the wholesale
market price or 80 percent of the most recent sale price for
federal law
the given crop.
NOTE: This applies only to those retirement plans authorized
To determine if your crop contribution qualifies for this
and enacted into the U.S. Code. This does not apply to a
subtraction, see Arizona Department of Revenue Procedure
retirement plan that is only regulated by federal law (i.e., plans
ITP 93-2.
which must meet certain federal criteria to be qualified plans).
F. Certain Wages of American Indians
• The Arizona State Retirement System
Enrolled members of American Indian tribes may subtract
• The Arizona State Retirement Plan
wages earned while living and working on their tribe's
• The Corrections Officer Retirement Plan reservation. You can subtract only those amounts that you
• The Public Safety Personnel Retirement System included on line B7, ARIZONA column. The federal
• The Elected Officials' Retirement Plan government must recognize these tribes.
• A retirement plan established for employees of a county, For more information, see Arizona Department of Revenue
city, or town in Arizona Income Tax Ruling, ITR 96-4.
• An optional retirement program established by the Arizona G. Combat Pay
Board of Regents under Arizona Revised Statutes
Members of the U.S. armed forces may subtract pay received
• An optional retirement plan established by an Arizona
for serving in a combat zone or an area given the treatment
community college district.
of a combat zone. Enter only that amount of pay reported on
your 2002 federal return that you also included on line B7 in
NOTE: Public retirement pensions from states other than
the ARIZONA column.
Arizona do not qualify for this subtraction.
H. Federally Taxable Arizona Municipal Interest
B. Previously Reported Gain on Decedent's
Installment Sale Enter the amount of any interest income received on obligations of
the State of Arizona, or any political subdivisions of Arizona, that
Prior Arizona law required acceleration of any unrecognized
you included in your Arizona gross income. Enter only that
installment sale gain upon the death of a taxpayer. However,
amount of Arizona municipal interest income that you included on
this acceleration could have been avoided by the posting of a
line B8 in the ARIZONA column. Do not enter any Arizona
bond. If acceleration was required, your federal adjusted
municipal interest that is exempt from federal taxation and not
gross income may include installment sale amounts already
included in your federal adjusted gross income.
recognized on a decedent's final Arizona return. Deduct that
portion of the gain included on line B13, ARIZONA column. I. Adoption Expenses
C. Deposits Made Into Your MSA You may take this subtraction only in the year the final
adoption order is granted.
If you have an MSA, you may be able to subtract deposits
made into that MSA. Make an entry here if all of the Enter the lesser of the total of the following adoption
following apply. expenses or $3,000.
1. You have an MSA that qualifies as an MSA under When figuring your subtraction, you may include expenses
Arizona law, but not federal law. incurred in prior years.
2. Either you or your employer made deposits into that
The following expenses are qualified adoption expenses.
MSA during the tax year.
1. Nonreimbursed medical and hospital costs.
3. You had to include the deposits in income on your
federal income tax return. 2. Adoption counseling.
3. Legal and agency fees.
Enter the amount of the MSA deposits that you had to
include in your federal adjusted gross income. 4. Other nonrecurring costs of adoption.
D. Employer Contributions Made to Employee MSAs If filing separately, you may take the entire subtraction, or
you may divide the subtraction with your spouse. However,
If you are an employer, you may subtract the amount
the total subtraction taken by both you and your spouse
contributed to your employees' MSAs that are established
cannot exceed $3,000.
under Arizona law. You can subtract these contributions only
to the extent not deductible for federal income tax purposes. J. Qualified Wood Stove, Wood Fireplace, or Gas
Enter these contributions here. Fired Fireplace
E. Agricultural Crops Given to Arizona Charitable Arizona law provides a subtraction for converting an existing
Organizations fireplace to a qualified wood stove, qualified wood fireplace,
or gas fired fireplace and non-optional equipment directly
Arizona law allows a subtraction for qualified crop gifts
related to its operation. You may subtract up to $500 of the
made during 2002 to one or more charitable organizations.
costs incurred for converting an existing fireplace to a
To take this subtraction, you must be engaged in the business
11