Attorney General Kris Mayes has sued the Internal Revenue Service after the agency determined last year’s state-issued Arizona Families Tax Rebate is subject to federal tax.
The lawsuit was filed in federal court Wednesday and says the IRS’s decision is unlawful and inconsistent with how it’s treated similar rebates in other states.
Mayes says when Arizona enacted the program last spring it was based on IRS guidance that the payouts to residents wouldn’t be considered taxable income.
But last week the agency said the rebates are in fact subject to federal taxation.
According to the attorney general, the decision unfairly targets Arizona taxpayers and will negatively affect the state’s economy.