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Mayes sues IRS over state tax rebate

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(The Center Square) – Arizona Attorney General Kris Mayes is suing the Internal Revenue Service for the agency’s desire to tax a state rebate as miscellaneous income.

Last year, the state distributed a tax rebate of up to $750 with the “Arizona Families Tax Rebate.”

“This lawsuit is about standing up for Arizona taxpayers,” Mayes said in a statement on Wednesday. “The federal government’s decision to tax these rebates is unfair and unlawful – and I will do everything I can to ensure the tax relief provided to Arizonans by their state government remains in the pockets of Arizona taxpayers, as intended.”

The rebate was broken down by $250 for each dependent 17 years old and young and $100 for dependents 18 and over.

“State tax refunds generally are not includible in the recipient’s federal gross income because, as the return of an overpayment of the recipient’s State tax liability, these refunds are not an accession to wealth,” the lawsuit filing states, alleging unlawful taxation.

Mayes, Sen. Kyrsten Sinema, and state Senate President Warren Petersen raised concern about the plan by the federal government to tax it, The Center Square reported in January.

“It makes zero sense that the IRS is choosing to hurt Arizona families by taxing a tax rebate,” Petersen said in a statement at the time.

The Arizona Department of Revenue began sending out 1099-MISC forms for the rebate on Jan. 31, but the department emphasizes that it is not subject to state tax, according to its website.

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