Arizona’s state income tax rate history runs from a graduated system first enacted in 1933, through a mid-century structure of roughly ten brackets, down to a four-bracket code in the 2010s, and finally to the single 2.5% flat rate that took effect for the 2023 tax year and remains in place for 2026. Every Arizona resident now pays the same marginal rate on all taxable income, whether they earn $30,000 or $3 million. The corporate rate followed its own path, dropping in annual steps from 6.968% to the current 4.9%.
Where the Income Tax Started: 1933
Arizona had no state income tax until the Great Depression. Collapsing property values gutted the state’s primary revenue source, and the legislature responded with Laws 1933, Chapter 39, which imposed the first individual income tax as a graduated structure where higher earners paid steeper rates on each additional slice of income. A special session that same year repealed the original act and replaced it with a revised version that softened the graduation between brackets and cut the top rate by one percentage point.1Arizona Joint Legislative Budget Committee. Historical Tax Law Changes Individual Income Tax Laws
Rates started at 1% on the lowest tier and climbed through several brackets above it. The same legislative session created Arizona’s first corporate income tax under a parallel statute.2Arizona Joint Legislative Budget Committee. Historical Tax Law Changes Corporate Income Tax The progressive philosophy set in 1933 would hold for the next half-century.
Mid-Century Bracket Expansion
As Arizona’s population grew after World War II, the legislature expanded the number of brackets to capture a wider range of income levels. By the middle of the century the state had built a system with roughly ten distinct tiers, with each one carrying its own marginal rate. Brackets were periodically adjusted through the 1960s and 1970s to reflect inflation and rising wages, but the basic graduated approach stayed intact.
The gap between the lowest and highest rates was substantial, and by the 1980s the sheer number of tiers made the tax tables unwieldy for individual filers. That complexity set up the simplification push that followed.
Consolidation From the 1990s Through the 2010s
Starting in the early 1990s, the legislature began collapsing brackets and cutting rates, aiming to reduce complexity and lower the overall burden. Over roughly a decade, the old multi-tier system compressed into five brackets. For tax years beginning after December 31, 1996, A.R.S. § 43-1011 set the top marginal rate at 5.17%.3Arizona Legislature. Arizona Code 43-1011 – Taxes and Tax Rates
The compression continued into the 2000s and 2010s, trimming five brackets down to four. By 2019, the structure had settled into:
- 2.59% on the lowest tier of taxable income
- 3.34% on the next tier
- 4.17% on the third tier
- 4.50% on income above the highest threshold
For single filers, the top bracket kicked in at $159,001; for married couples filing jointly, it began at $318,001.4Arizona Department of Revenue. 2019 Arizona Tax Tables X and Y Several of these cuts were triggered by statutory mechanisms that mandated reductions when general fund revenue hit specific surplus thresholds, tying rate policy directly to the state’s financial performance.
Proposition 208 and the 2021 Legislative Response
In November 2020, Arizona voters approved Proposition 208, the Invest in Education Act, which would have imposed a 3.5% surcharge on taxable income above $250,000 for single filers and $500,000 for married couples filing jointly. Combined with the 4.5% top bracket already on the books, the surcharge would have pushed the effective top marginal rate to 8%.5Arizona Joint Legislative Budget Committee. Ballot Proposition 208 Invest in Education Act Fiscal Analysis Revenue was earmarked for public school teacher salaries and educational programs.
The surcharge did not last. In June 2021, the legislature passed SB 1828, which Governor Doug Ducey signed on June 30, 2021. The bill capped the individual income tax rate at 4.5%, effectively neutralizing the Proposition 208 surcharge, and established a phased transition toward a single flat rate of 2.5%.6Arizona Legislature. Arizona State Senate Fact Sheet for S.B. 1828/H.B. 2900 In March 2022, a Maricopa County Superior Court struck down Proposition 208 entirely as unconstitutional and permanently enjoined its tax-hike provisions. Between the legislative cap and the court ruling, the surcharge never collected a dollar at its intended rate.
The 2.5% Flat Tax Takes Effect
SB 1828 did not impose the flat tax immediately. It created a two-stage revenue trigger: the Arizona Department of Revenue would phase in lower rates only after general fund revenue hit specific benchmarks. Fiscal analysts initially expected the full 2.5% rate to arrive several years down the road.
Revenue moved faster than the forecast. General fund collections reached $16.7 billion in fiscal year 2022, blowing past the statutory thresholds more than two years ahead of schedule. The Governor’s Office and the Joint Legislative Budget Committee issued the required authorization letters, and the 2.5% flat tax took effect for the 2023 tax year, skipping the planned intermediate steps.6Arizona Legislature. Arizona State Senate Fact Sheet for S.B. 1828/H.B. 2900 The four-bracket system that had been in place since the late 2010s disappeared in a single tax year.
The 2.5% rate remains in effect for 2026. It is the lowest individual income tax rate in Arizona’s history and one of the lowest flat rates among states that impose an income tax.7Arizona Department of Revenue. Individual Income Tax Highlights
Corporate Income Tax Rate History
Arizona’s corporate income tax has always been structured differently from the individual tax. Rather than graduated brackets, the state has taxed corporations at a single flat rate on net income since the original 1933 enactment.2Arizona Joint Legislative Budget Committee. Historical Tax Law Changes Corporate Income Tax
The most significant modern changes came through a multi-year reduction plan that stepped the rate down each year:
- Through 2013: 6.968%
- 2014: 6.5%
- 2015: 6.0%
- 2016: 5.5%
- 2017 and after: 4.9%
The current rate stays at 4.9% of net Arizona taxable income under A.R.S. § 43-1111. Every corporation that files an Arizona return owes a minimum tax of $50, even if net income calculations would produce a lower amount.8Arizona Legislature. Arizona Code 43-1111 – Tax Rates for Corporations
What the Rate History Means for Today’s Filers
The practical effect of ninety years of change is a tax calculation that is far simpler than it has ever been. There are no brackets to look up, no marginal thresholds to compare against your filing status, and no graduated math on the top slice of your income. You apply 2.5% to your Arizona taxable income after the standard deduction or itemized deductions and any Arizona-specific additions or subtractions. For most households, the difference between the 2019 four-bracket calculation and the 2026 flat calculation is a single multiplication step.
Whether the flat rate holds depends on future legislative and revenue decisions. The 1933 statute, the mid-century expansion, the 1990s consolidation, the 2021 cap, and the 2022 revenue surge each rewrote the rate structure in a way that was not obvious a few years before it happened. The current 2.5% rate is the product of that same ongoing process.