Federal tax code changes in the One Big Beautiful Bill could cost the state nearly $400 million, legislative budget analysts estimate.

Why it matters: The massive tax and spending legislation that President Trump signed this month could subvert the $17.6 billion budget agreement that Arizona lawmakers and Gov. Katie Hobbs reached after a protracted fight that threatened a government shutdown.

How it works: Federally adjusted gross income serves as the basis for calculating individual state income taxes.

• When the federal code is amended, the state must also adopt those changes to maintain consistency, per the Arizona Department of Revenue.
• Arizona usually passes annual legislation to conform to federal tax code changes.

The big picture: An analysis by the Joint Legislative Budget Committee last week concluded that conformity with federal tax changes would cost Arizona about $381 million this fiscal year.

• Those changes include reduced taxes on tips ($23.6 million in fiscal year 2026) and overtime pay ($76.5 million), increased federal deductions for state and local taxes ($79.7 million), and increased standard deductions for seniors ($53.7 million).
• Other non-conformity changes could cost the state nearly $57 million.

What they're saying: Gubernatorial spokesperson Christian Slater declined to comment on whether Hobbs would be willing to sign a tax conformity bill next session if it means losing hundreds of millions, telling Axios, "We are still examining the full impacts of the bill that's anything but beautiful."

The other side: Sen. John Kavanagh (R-Fountain Hills), who chairs the Senate Appropriations Committee, told Axios that non-compliance in 2026 would create "chaos," and he predicted that Hobbs would support tax conformity.

• He said conformity means Arizonans can spend more of the money they earn.
• Kavanagh said he expects an improving economy will bring more tax revenue to the state, and even if that doesn't happen, he said the lost revenue could likely be offset by delaying budgeted infrastructure projects to the following year.

Between the lines: Arizona can adopt some but not all changes, and Sen. J.D. Mesnard (R-Chandler) thinks partial adherence is likely the way to go.

• Mesnard said it wouldn't make sense for Arizona to adopt all the changes, some of which are only in effect federally for a few years.

What's next: The governor's office is analyzing the full effects of the reconciliation bill, which Slater said will have other local impacts, including cuts to Medicaid and federal food assistance.

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Arizonans pay fewer taxes than people in most other states when they crack open a cold one.

By the numbers: Arizona's tax on beer is $0.16 per gallon, lower than 35 other states and D.C., per an analysis by the Tax Foundation, a Washington, D.C.-based think tank.

Zoom out: Tennessee (about $1.29 per gallon), Alaska ($1.07) and Hawai'i ($0.93) have the highest overall state taxes on beer.

• Wyoming ($0.02), Missouri ($0.06) and Wisconsin ($0.07) have the lowest.

Between the lines: Some states tax beer differently based on its strength, the size of the container, where it's purchased and other factors.

What they're saying: Federal and state beer taxes "are often levied on the manufacturer, wholesaler, or retailer," write the Tax Foundation's Jacob Macumber-Rosin and Adam Hoffer, with the tax burden "baked into the final retail price."

• "The tax burden accounts for more of the final price of beer than labor and materials combined."

🏫 AG Kris Mayes joined 23 other states in suing the Trump administration over $6.8 billion in federal education grants that were frozen, including $132 million for Arizona. (Arizona's Family)

💼 Intel plans to lay off 696 employees at its Chandler campus, more than quadruple the 172 announced last week. (AZcentral)

🏢 The Mesa City Council last week approved new zoning rules for data centers. (KJZZ)

🍕 Tempe police completed a pizza delivery after the original driver was arrested during a traffic stop. (ABC15)

A mashup of Indian cuisine and the Valley's ubiquitous Mexican fare has arrived in north Phoenix.

State of play: Fusion restaurant Tikka N Taco opened earlier this year on 19th Avenue just north of Peoria Avenue.

Best bites: I ordered lamb tacos and masala nachos.

• The lamb was delicious and tender, complemented by the tacos' creamy sauce.
• And the nachos — I never would've thought to put masala on tortilla chips, but it worked.

Zoom out: Tikka N Taco isn't the only Indian-Mexican fusion in the Valley. Taco Papi in north Scottsdale offers Indian tacos and Basmati rice bowls, though most of the menu is more traditional Mexican fare.

• You can also try Italian-Indian fusion at Curry N Crust in Tempe. Try the tikka masala pizza. And, this being Arizona, they've got Indian-inspired tacos, as well.

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