income tax rate; reduction; surplus

Arizona's SB 1318 reduces individual income tax rates starting in 2026 by 50% of the state's excess tax revenue ("structural surplus") above a calculated growth limit. This surplus is defined as tax collections exceeding a yearly cap tied to inflation and population growth, calculated by the joint budget committee. The bill directly affects Arizona individual taxpayers by lowering their income tax rate each year based on this formula, without changing the tax brackets or filing requirements. The reduction applies automatically to the tax rate for each taxable year beginning after December 31, 2025.