HB2972 amends Arizona’s revenue statutes to continue funding the Department of Revenue’s integrated tax system modernization project. The bill extends the existing fee-and-transfer framework through June 30, 2028, allowing the department to assess annual fees against counties, cities, towns, councils of governments, and certain regional transportation authorities that receive state-shared revenues. It also continues two related transfers tied to specific tax streams, with the amounts limited to the actual reasonable costs of modernization work related to those taxes.
For fiscal year 2025-2026, the bill sets legislative intent that the total fee assessment not exceed $6,558,800, with additional caps of $795,300 for one transfer and $177,200 for another. It also provides formulas for apportioning the fee burden among local governments based on prior-year distributions and census-based population measures, and it states that the resulting monies must be deposited into the Department of Revenue integrated tax system project fund for administrative, development, and operating costs. The bill therefore affects local governments financially by requiring them to help pay for the state’s tax system upgrade, while also preserving the department’s authority to withhold delinquent amounts from future distributions.
The general sentiment around HB2972 appears mixed but ultimately favorable among legislative majorities. It advanced through the House Appropriations Committee 11-6 and the House Rules Committee 5-1, then passed the House on third reading 31-25 and the Senate on third reading 16-11. Those vote margins suggest support from most majority-party members and opposition from most minority-party members, consistent with a revenue and spending measure that imposes costs on local governments to support a state administrative project.
The main point of contention is the cost-sharing structure. Supporters appear to view the bill as necessary to keep the tax system modernization project funded and operational, while critics likely object to requiring counties, cities, towns, councils of governments, and regional transportation authorities to pay fees or accept withheld distributions to finance a state technology upgrade. Another likely area of concern is the use of state-shared revenues and other local distributions to cover the department’s costs, which shifts part of the burden from the state to local entities that rely on those funds for their own budgets.
HB2972 extends and updates Arizona Revised Statutes section 42-5041, continuing the Department of Revenue’s authority to assess fees and receive transfers to fund the integrated tax system modernization project through June 30, 2028. It also creates and maintains the Department of Revenue integrated tax system project fund, into which all assessed or transferred monies are deposited and from which expenditures may be made only for modernization-related administrative, development, and operating costs. The bill directly affects counties, cities, towns, councils of governments, and certain regional transportation authorities by preserving their obligation to contribute to the project and by allowing the state treasurer to withhold delinquent payments from state-shared revenue distributions.
The bill’s overall sentiment is supportive but partisan. It cleared committee and floor votes with majority support in both chambers, indicating that legislative leaders and a majority of members accepted the need to continue funding the tax system modernization project. At the same time, the relatively close floor votes show meaningful opposition, suggesting concern about the fiscal burden placed on local governments and the use of shared revenue streams to finance a state administrative initiative.
The central contention is who should pay for the Department of Revenue’s integrated tax system modernization project. Opponents are likely to argue that counties, cities, towns, councils of governments, and regional transportation authorities should not be required to fund a state technology project through fees or withheld distributions, especially when those entities depend on state-shared revenues for local services. Supporters likely contend that the modernization benefits the tax system as a whole and that the cost-sharing formula is a fair way to allocate expenses among the jurisdictions that benefit from the system. The bill’s use of statutory withholding authority and its detailed apportionment formulas are the main policy flashpoints.