Arizonans who got the state's family rebate last year had better pay federal taxes on it when they file their returns next week. But they might ultimately get it back.

A federal judge has rejected a bid by state Attorney General Kris Mayes to get an immediate declaration that the proceeds — up to $750 per family — are exempt under rules adopted by the Internal Revenue Service.

U.S. District Court Judge Murray Snow said his reading of IRS regulations convinces him that the decision by Arizona lawmakers to give back about $260 million to about 750,000 Arizonans does not fall within exemptions from federal taxation.

He pointed out that under IRS rules tax-free treatment applies for "legislatively provided social benefit programs for the promotion of the general welfare.'' And what that means, Snow said, is the payments should be based on the need of the individual of family getting the payment.

That, however, was not the case in Arizona. Instead, Republican lawmakers crafted the measure to provide the cash to anyone who had dependents, regardless of how much they otherwise earned.

In fact, the rebate law actually included a provision linking eligibility to having paid at least $1 in state income taxes during prior years. That eliminated anyone whose income was so low they owed nothing to the state.

But Snow said even if he was buying the state's arguments, there was a bigger legal problem.

He pointed out that federal law spells out that courts are legally precluded from issuing injunctions like the one Mayes sought telling the government it cannot collect a tax.

Instead, the judge said, the only thing courts can do is adjudicate the legality of the tax after it has been collected and paid. And at that point, individuals who can prove they are not subject to the levy can apply for a refund.

"The court, therefore, believes it unlikely that is has jurisdiction to hear this particular claim wholly apart from whether the state has met its burden to receive a preliminary injunction,'' Snow wrote.

A spokesman for Mayes said while she could not get a ruling to immediately block the IRS from collecting the tax, she will continue to pursue the case. And, if she were to win, that could entitle affected taxpayers to seek a refund.

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