Fix AZ property tax credit income definition (exclude exemptions)

changelog_entry.yaml

@@ -0,0 +1,4 @@
+- bump: patch
+  changes:
+    fixed:
+      - Arizona property tax credit now uses correct income definition per ARS 43-1072 and ITR 12-1, excluding only Social Security (not pensions, capital gains, or exemptions)

policyengine_us/parameters/gov/states/az/tax/income/credits/property_tax/income_sources.yaml

@@ -1,22 +1,30 @@
-description: Arizona accounts for the following income sources for the property tax credit.
+description: Arizona accounts for the following income sources when computing household income for the property tax credit.
 values:
   2021-01-01:
+    # Item (7): Capital gains - excluded gains not in Federal AGI
     - capital_gains_excluded_from_taxable_income
+    # Item (2): All interest income including tax-exempt
     - tax_exempt_interest_income
-    - public_pension_income
-    - az_agi
+    # Item (9): Pension income - tax-exempt portions not in Federal AGI
+    # (taxable pension is already in Federal AGI via az_property_tax_credit_agi)
+    - tax_exempt_public_pension_income
+    - tax_exempt_private_pension_income
+    # Federal AGI minus Social Security (per ARS 43-1072(I) exclusion)
+    - az_property_tax_credit_agi
 metadata:
   unit: list
   period: year
   label: Arizona property tax credit income sources
   reference:
-    - title: 43-1072. Earned credit for property taxes; residents sixty-five years of age or older(H-6)
-      href: https://www.azleg.gov/viewdocument/?docName=https://www.azleg.gov/ars/43/01072.htm
+    - title: ARS 43-1072. Property tax credit - Income definition
+      href: https://www.azleg.gov/ars/43/01072.htm
+    - title: ITR 12-1. Income Tax Ruling - Property Tax Credit Household Income
+      href: https://azdor.gov/sites/default/files/2023-03/RULINGS_INDV_2012_itr12-1.pdf
     - title: 2024 Property Tax Refund (Credit) Claim Form 140PTC
-      href: https://azdor.gov/forms/tax-credits-forms/property-tax-refund-credit-claim-form-fillable#page=2
+      href: https://azdor.gov/forms/tax-credits-forms/property-tax-refund-credit-claim-form-fillable
     - title: 2023 Property Tax Refund (Credit) Claim Form 140PTC
-      href: https://azdor.gov/forms/tax-credits-forms/property-tax-refund-credit-claim-form-fillable#page=2
+      href: https://azdor.gov/forms/tax-credits-forms/property-tax-refund-credit-claim-form-fillable
     - title: 2022 Property Tax Refund (Credit) Claim Form 140PTC
-      href: https://azdor.gov/sites/default/files/2023-03/FORMS_INDIVIDUAL_2022_140PTC.pdf#page=2
+      href: https://azdor.gov/sites/default/files/2023-03/FORMS_INDIVIDUAL_2022_140PTC.pdf
     - title: 2021 Property Tax Refund (Credit) Claim Form 140PTC
-      href: https://azdor.gov/sites/default/files/2023-03/FORMS_INDIVIDUAL_2021_140PTC.pdf#page=2
+      href: https://azdor.gov/sites/default/files/2023-03/FORMS_INDIVIDUAL_2021_140PTC.pdf

policyengine_us/tests/policy/baseline/gov/states/az/tax/income/az_property_tax_credit_agi.yaml

@@ -0,0 +1,58 @@
+# Per ITR 12-1, property tax credit AGI is Federal AGI minus Social Security.
+# Unlike regular AZ income tax, it does NOT exclude pensions, capital gains, etc.
+
+- name: Basic wages and interest (no Social Security)
+  period: 2024
+  input:
+    state_code: AZ
+    adjusted_gross_income: 3_766.08
+    tax_unit_taxable_social_security: 0
+  output:
+    az_property_tax_credit_agi: 3_766.08
+
+- name: Social Security is excluded from property tax credit AGI
+  period: 2024
+  input:
+    state_code: AZ
+    adjusted_gross_income: 20_000
+    tax_unit_taxable_social_security: 8_500
+  output:
+    # $20,000 - $8,500 = $11,500
+    az_property_tax_credit_agi: 11_500
+
+- name: Pension income is NOT excluded (unlike regular AZ income tax)
+  period: 2024
+  input:
+    state_code: AZ
+    adjusted_gross_income: 15_000
+    tax_unit_taxable_social_security: 0
+  output:
+    az_property_tax_credit_agi: 15_000
+
+- name: Capital gains are NOT excluded (unlike regular AZ income tax)
+  period: 2024
+  input:
+    state_code: AZ
+    adjusted_gross_income: 25_000
+    tax_unit_taxable_social_security: 0
+  output:
+    az_property_tax_credit_agi: 25_000
+
+- name: Capped at zero when Social Security exceeds other income
+  period: 2024
+  input:
+    state_code: AZ
+    adjusted_gross_income: 5_000
+    tax_unit_taxable_social_security: 6_000
+  output:
+    az_property_tax_credit_agi: 0
+
+- name: Combined income types with Social Security exclusion
+  period: 2024
+  input:
+    state_code: AZ
+    adjusted_gross_income: 22_250
+    tax_unit_taxable_social_security: 4_250
+  output:
+    # $22,250 - $4,250 = $18,000
+    az_property_tax_credit_agi: 18_000

policyengine_us/tests/policy/baseline/gov/states/az/tax/income/integration.yaml

@@ -0,0 +1,28 @@
+# Integration tests for Arizona property tax credit income calculation
+# Per ARS 43-1072 and ITR 12-1
+
+- name: Property tax credit AGI with aged person (issue 6956)
+  period: 2024
+  input:
+    people:
+      person1:
+        age: 75
+        employment_income: 3_715.56
+        taxable_interest_income: 50.52
+    tax_units:
+      tax_unit:
+        members: [person1]
+    households:
+      household:
+        members: [person1]
+        state_code: AZ
+  output:
+    # Federal AGI = wages + interest = 3,715.56 + 50.52 = 3,766.08
+    adjusted_gross_income: 3_766.08
+    # AZ AGI subtracts aged exemption: 3,766.08 - 2,100 = 1,666.08
+    az_agi: 1_666.08
+    # Property tax credit AGI should NOT subtract exemptions or SS
+    # No SS, so equals Federal AGI
+    az_property_tax_credit_agi: 3_766.08
+    # Income $3,766.08 > threshold $3,751 for single, so not eligible
+    az_property_tax_credit: 0

policyengine_us/variables/gov/states/az/tax/income/credits/property_tax_credit/az_property_tax_credit_agi.py

@@ -0,0 +1,53 @@
+from policyengine_us.model_api import *
+
+
+class az_property_tax_credit_agi(Variable):
+    value_type = float
+    entity = TaxUnit
+    label = "Arizona adjusted gross income for property tax credit"
+    unit = USD
+    definition_period = YEAR
+    documentation = (
+        "Adjusted gross income as defined for Arizona property tax credit purposes. "
+        "Per ARS 43-1072(H)(6) and ITR 12-1, this starts with Federal AGI and only "
+        "excludes items specifically listed in ARS 43-1072(I): Social Security, "
+        "railroad retirement, workers compensation, Arizona unemployment, veterans "
+        "disability pensions, welfare, and gifts. Unlike regular Arizona income tax, "
+        "this does NOT exclude pension income, capital gains, or Arizona exemptions."
+    )
+    reference = [
+        "https://www.azleg.gov/ars/43/01072.htm",  # ARS 43-1072
+        "https://azdor.gov/sites/default/files/2023-03/RULINGS_INDV_2012_itr12-1.pdf",  # ITR 12-1
+    ]
+    defined_for = StateCode.AZ
+
+    def formula(tax_unit, period, parameters):
+        # Start with Federal AGI
+        # Per ITR 12-1, income includes wages, interest, business/farm income,
+        # rent/royalty, S-corp/partnership income, alimony, capital gains,
+        # pension/annuity income, and other non-excluded income.
+        federal_agi = tax_unit("adjusted_gross_income", period)
+
+        # Per ARS 43-1072(I) and ITR 12-1 "Items Excluded from Income",
+        # we ONLY exclude Social Security benefits (and other items like
+        # railroad retirement, workers comp, AZ unemployment, veterans
+        # disability pensions, welfare, and gifts - but these are typically
+        # not in Federal AGI anyway).
+        #
+        # Federal AGI only includes the TAXABLE portion of Social Security,
+        # but for property tax credit, ALL Social Security should be excluded.
+        # So we subtract the taxable portion that's in Federal AGI.
+        taxable_social_security = tax_unit(
+            "tax_unit_taxable_social_security", period
+        )
+
+        # NOTE: We do NOT subtract Arizona's regular subtractions here because:
+        # - Pension exclusions (az_public_pension_exclusion,
+        #   az_military_retirement_subtraction) should be INCLUDED per
+        #   ITR 12-1 item (9)
+        # - Capital gains subtraction (az_long_term_capital_gains_subtraction)
+        #   should be INCLUDED per ITR 12-1 item (7)
+        # - US Government interest should be INCLUDED per ITR 12-1 item (2)
+        # - Arizona exemptions (aged, blind) should NOT be subtracted
+
+        return max_(0, federal_agi - taxable_social_security)