Arizona lawmakers are advancing a proposal to exempt tips from state income taxes. On Thursday, the state House granted preliminary approval to HB 2081, introduced by Rep. Gail Griffin, R-Hereford. The bill allows tipped workers to deduct their tips from taxable income.
The proposal awaits a final roll-call vote before moving to the Senate. Democratic support remains uncertain, with Rep. Maria Sandoval, D-Goodyear, expressing concerns about a lack of limits on tip claims, which could lead to potential abuse.
Rep. Seth Blattman, D-Mesa, suggested capping the exemption for those earning less than 80% of the area median income, approximately $57,000 annually. However, Republicans opposed this, questioning the feasibility of eligibility calculations.
The bill's financial implications are significant, with Blattman estimating a $31 million annual loss to the state. He emphasized the need for targeted state-funded programs to support struggling families.
Griffin argues that tips should be considered gifts and not taxed. However, state labor laws require employers to pay a minimum wage while allowing lower base pay for tipped workers, contingent on tips making up the difference.
Opponents of the bill, including Rep. Jeff Weninger, R-Chandler, questioned the projected loss, suggesting increased disposable income could stimulate sales tax revenue.
The proposal has gained traction amid discussions in Congress regarding federal tax reforms affecting tips. Arizona's tax system relies on federal adjustments, meaning changes at the federal level could render the state bill unnecessary.