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Tsunami-relief deduction in limbo after tax bill veto

PHOENIX - Arizonans who donated money in January to tsunami relief may have to file their state taxes this year without knowing if they're going to get a promised deduction. The reason is the budget spat between Gov. Janet Napolitano and the Republican-controlled Legislature. When Napolitano vetoed the $8.2 billion state budget Monday, she also rejected another measure to alter state tax laws to mirror changes approved by Congress in the Internal Revenue Code. That includes a provision permitting donations made this past January to be deducted as if they were made in 2004. Napolitano had asked the Legislature to make precisely that change three months ago. "I hope this tax provision will encourage residents of Arizona to continue to make contributions to the tsunami relief," the Democratic governor said then. But she vetoed the bill, which included other changes in the tax code, saying she would not agree to any tax cuts until she gets a budget of her liking. But if lawmakers don't act by the April 15 deadline for filing personal income tax returns, life could become complicated. That's because Arizona is a "piggy-back" state: Arizonans compute their state taxes based on their federal adjusted gross income. And that figure will be reduced by the amount of any tsunami donation deductible under federal law. Dan Zemke, spokesman for the Arizona Department of Revenue, said taxpayers could file a state tax return using the federally adjusted gross income in anticipation of state lawmakers' eventually coming around. Isn't that filing a false return? "Technically, yes," Zemke said. "And, legally, yes. But it's not something that we are going to rake you over the coals for." But he said if lawmakers do not eventually alter the state tax code, anyone who uses the lower income figure will have to file an amended return, and pay the additional tax owed. He said the tax forms and instructions were printed months ago, based on the assumption lawmakers would conform the state tax code to federal law. But he said those documents also contain a warning to taxpayers that that may not be the case and they could end up owing money to the state. Zemke said taxpayers also can seek an automatic four-month extension to file their state tax returns and wait to see what lawmakers and the governor do. There are no figures on how much Arizonans donated. But the Salvation Army in Arizona alone reported $750,000 given to its own tsunami relief fund.