Hobbs Touts ‘No Tax On Tips’ After Vetoing Provision In Three Bills

Arizona Gov. Katie Hobbs is promoting the state’s newly enacted “No Tax on Tips” provision as part of a $1.4 billion tax-relief package after vetoing three earlier Republican-backed bills containing substantially similar relief.

“I’m proud my 4th bipartisan budget cuts taxes for middle class Arizonans and delivers meaningful relief,” Hobbs wrote in a post on X. “We fought to eliminate taxes on tips & overtime, secure deductions for seniors, & expand the child tax credit.” 

Hobbs signed the final provision June 13 as part of House Bill 4168, the taxation component of Arizona’s negotiated fiscal year 2027 budget. The law creates state income-tax subtractions for qualified tips and overtime compensation beginning with the 2025 tax year.

Hobbs later promoted the provision in a July 23 video posted from Yuma through her campaign account with the caption, “No tax on tips means more money in Arizonans’ pockets.”

No tax on tips means more money in Arizonans' pockets. pic.twitter.com/dDxgmMME28

— Katie Hobbs (@katiehobbs) July 24, 2026

Tyler Bowyer, COO of Turning Point Action, shared the video Sunday quipping, “When liars lie like this they get ratioed.” As of this report, Hobbs’ post has garnered a more than 4-to-1 ratio of comments and retweets over likes.

Saguaro Group and Arizona Capitol Oversight founder Brian Anderson posted an image of one of Hobbs’ veto letters and wrote that she was “bragging about how she had just vetoed No Tax On Tips.”

Here's one of the letters @KatieHobbs sent to the #AZLeg bragging about how she had just *vetoed* No Tax On Tipshttps://t.co/0ETkxEkJyV pic.twitter.com/k2K3589QIb

— Brian Anderson (@AZBrianAnderson) July 24, 2026

The Democratic governor publicly supported eliminating state taxes on qualified tips from the beginning of the legislative session. Her January State of the State proposal included tax relief for tips and overtime, a higher standard deduction and an additional deduction for seniors. 

Her dispute with Republican lawmakers concerned the broader tax and spending provisions attached to the relief. Before reaching the final budget agreement, Hobbs rejected the qualified-tip subtraction three times as part of larger legislative packages.

The first veto came on Jan. 16, when Hobbs rejected Senate Bill 1106, a Republican tax-conformity package passed during the opening week of the legislative session.

SB 1106 would have aligned Arizona’s tax code with federal changes enacted through President Donald Trump’s One Big Beautiful Bill Act. It included state income-tax subtractions for qualified tips and overtime, increased the dependent tax credit, and made other changes to deductions and tax treatment retroactive to Jan. 1, 2025. 

The Senate approved the bill 17-12, with one member not voting, and the House passed it 31-27, with two members not voting. Hobbs vetoed it the following day. 

In her veto letter, Hobbs said the bill provided tax breaks to special interests while increasing taxes on some seniors. She called for lawmakers to enact her Middle Class Tax Cuts Package and said additional tax-conformity issues should be resolved through budget negotiations.

“We should not hold tax cuts for over 88% of Arizonans hostage in order to force through tax breaks for special interests,” Hobbs wrote.

House Speaker Steve Montenegro responded that Hobbs had vetoed a range of provisions aimed at families and workers, including the tip and overtime deductions.

“Governor Hobbs vetoed an increase to the standard deduction,” Montenegro said in a Jan. 16 statement. “Hobbs vetoed a deduction for childcare expenses. Hobbs vetoed an increase to the child tax credit. Hobbs vetoed no tax on tips. Hobbs vetoed no tax on overtime. Hobbs vetoed relief for seniors.”

Hobbs rejected the provision a second time on Feb. 12 when she vetoed House Bill 2785.

HB 2785 established state income-tax subtractions for qualified tips, overtime compensation, vehicle-loan interest and qualifying seniors. It also would have coupled Arizona’s standard deduction to the federal deduction and applied the changes retroactively to Jan. 1, 2025. 

The House passed HB 2785 by a vote of 32-26, with two members not voting. The Senate approved it 17-13. Hobbs vetoed the measure one day after its final passage. 

Her Feb. 12 legislative action announcement confirmed the veto. According to the Legislature’s bill summary, Hobbs maintained that tax-conformity provisions extending beyond her preferred package should be handled during state budget negotiations. 

Republican lawmakers said HB 2785 was intended to bring state law into conformity with tax forms already issued by the Arizona Department of Revenue. In a joint legislative statement, Republicans said the bill would prevent taxpayers from being required to amend returns after filing under the department’s existing instructions.

The third veto came on May 5, when Hobbs rejected the Republican Legislature’s initial budget package. Its taxation omnibus, House Bill 4152, again included income-tax subtractions for qualified tips and overtime retroactive to Jan. 1, 2025. 

HB 4152 also contained deductions involving vehicle-loan interest, seniors, retirement income and child-care expenses. It increased the dependent tax credit, repealed several existing tax credits, addressed Arizona’s participation in a federal school scholarship tax-credit program and would have ended the state transaction privilege tax diversion supporting Tucson’s Rio Nuevo district. 

The House approved HB 4152 by a vote of 33-20, with seven members not voting. The Senate passed it 16-12, with two members not voting. Hobbs vetoed the bill along with the remainder of the Republican budget package. 

Hobbs said in her May 5 veto announcement that the budget was unbalanced and would cut funding for health care, food assistance, child welfare, wildfire suppression, border security and other state programs while providing tax breaks to corporations and special interests. 

“This budget is unbalanced and reckless,” Hobbs said. “I have made it clear that I will engage in good-faith negotiation. But I will not sign a budget that brings Washington-style chaos and dysfunction to Arizona’s budget.”

Hobbs and Republican legislative leaders announced a bipartisan budget agreement on June 9. The governor described the agreement as providing $1.4 billion in tax relief for working-class families while maintaining funding for state services and imposing a three-year moratorium on new data-center tax incentives. 

“I’m thrilled to sign the bipartisan Arizona First budget into law,” Hobbs said in a statement announcing the signing. “Starting on July 1, Arizonans will have no taxes on tips and overtime, a higher standard deduction, a deduction for seniors, and next year, an expanded child tax credit.” 

The Legislature passed HB 4168 as the final taxation omnibus two days later. In addition to the deductions for tips and overtime, the bill set Arizona’s standard deduction at $15,750 for single filers, $23,625 for heads of household and $31,500 for married couples filing jointly. It also increased the dependent tax credit for children under 17 from $100 to $125 beginning with the 2026 tax year.

The final measure suspended new data-center tax incentives for three years, repealed portions of several other tax credits and modified state incentives for infrastructure supporting large manufacturing projects. Hobbs signed it into law on June 13. 

Hobbs later held a news conference promoting the tax package one day before early voting began in Arizona’s primary election. According to Arizona’s Family, she said the package would place more money in residents’ pockets and emphasized that taxes had been reduced during each year of her administration. 

Republican gubernatorial nominee Andy Biggs criticized Hobbs for claiming the tax package as an accomplishment after rejecting earlier proposals. A Biggs campaign spokesman called her attempt to take credit for the package “laughable” and credited Biggs with supporting and voting for the federal tax provisions that prompted the state changes. 

The final law emerged after five months of negotiations. Hobbs publicly supported eliminating state taxes on qualified tips throughout the dispute but vetoed three broader Republican-backed packages containing the provision before signing the negotiated taxation omnibus in June. She vetoed SB 1106 in January, HB 2785 in February, and HB 4152 in May before signing HB 4168 on June 13.