Cite the Arkansas games-of-skill sources and tighten the gambling deduction tests

changelog.d/ar-gambling-followup-tests.changed.md

@@ -0,0 +1 @@
+Cite Act 732 of 2007 and DFA Subject 208 for the Arkansas electronic games of skill exclusion, and tighten the Arkansas gambling loss deduction tests (no 2% floor on the separate-filing path, status 4 proration).

policyengine_us/parameters/gov/states/ar/tax/income/gross_income/sources/individual.yaml

@@ -100,6 +100,10 @@ metadata:
   period: year
   label: Arkansas gross income sources when married filing separately
   reference:
+    - title: Arkansas Act 732 of 2007, § 8, enacting Ark. Code § 26-51-1310(f) (electronic games of skill winnings are not includable as income; their losses are not deductible)
+      href: https://www.arkleg.state.ar.us/Acts/FTPDocument?path=%2FACTS%2F2007%2FPublic%2F&file=732.pdf&ddBienniumSession=2007%2F2007R#page=5
+    - title: Arkansas DFA Subject 208, Gambling Income and Expenses (gambling winnings are fully taxable; the electronic games of skill exception covers winnings before July 1, 2019)
+      href: https://www.dfa.arkansas.gov/wp-content/uploads/208-GamblingIncomeExpenses.pdf#page=1
     - title: Arkansas 2015 Individual Income Tax Instructions (unemployment compensation is exempt from tax)
       href: https://www.dfa.arkansas.gov/wp-content/uploads/LongBookwTaxTables_2015.pdf#page=12
     - title: Arkansas 2016 Individual Income Tax Instructions (unemployment compensation is exempt from tax)

policyengine_us/parameters/gov/states/ar/tax/income/gross_income/sources/joint.yaml

@@ -100,6 +100,10 @@ metadata:
   period: year
   label: Arkansas gross income sources when married filing jointly
   reference:
+    - title: Arkansas Act 732 of 2007, § 8, enacting Ark. Code § 26-51-1310(f) (electronic games of skill winnings are not includable as income; their losses are not deductible)
+      href: https://www.arkleg.state.ar.us/Acts/FTPDocument?path=%2FACTS%2F2007%2FPublic%2F&file=732.pdf&ddBienniumSession=2007%2F2007R#page=5
+    - title: Arkansas DFA Subject 208, Gambling Income and Expenses (gambling winnings are fully taxable; the electronic games of skill exception covers winnings before July 1, 2019)
+      href: https://www.dfa.arkansas.gov/wp-content/uploads/208-GamblingIncomeExpenses.pdf#page=1
     - title: Arkansas 2015 Individual Income Tax Instructions (unemployment compensation is exempt from tax)
       href: https://www.dfa.arkansas.gov/wp-content/uploads/LongBookwTaxTables_2015.pdf#page=12
     - title: Arkansas 2016 Individual Income Tax Instructions (unemployment compensation is exempt from tax)

policyengine_us/tests/policy/baseline/gov/states/ar/tax/income/ar_gambling_winnings_and_losses.yaml

@@ -126,3 +126,34 @@
     ar_agi_joint: 70_000
     ar_itemized_deductions_joint: 8_000
     ar_taxable_income_joint: 62_000
+
+- name: Married filing separately on the same return prorates pooled itemized deductions, gambling losses included, by AGI
+  period: 2025
+  input:
+    people:
+      head:
+        age: 40
+        employment_income: 200_000
+        real_estate_taxes: 20_000
+      spouse:
+        age: 40
+        employment_income: 10_000
+        gambling_winnings: 50_000
+        gambling_losses: 50_000
+    tax_units:
+      tax_unit:
+        members: [head, spouse]
+    households:
+      household:
+        members: [head, spouse]
+        state_code: AR
+  output:
+    ar_files_separately: true
+    ar_agi_indiv: [200_000, 60_000]
+    ar_gambling_loss_deduction: 50_000
+    # AR3 lines 31-35: the 70,000 of pooled itemized deductions is split by AGI
+    # share rounded to the nearest percent, 77% / 23%. The winnings raise the
+    # spouse's share, so part of the head's real estate tax moves to the spouse,
+    # which is how the form works. Total taxable income is unchanged at 190,000.
+    ar_itemized_deductions_indiv: [53_900, 16_100]
+    ar_taxable_income_indiv: [146_100, 43_900]

policyengine_us/tests/policy/baseline/gov/states/ar/tax/income/deductions/itemized/ar_gambling_loss_deduction.yaml

@@ -1,5 +1,7 @@
 # DFA Subject 208 applied the same cap and 2% exemption before Act 155 of 2017
-# codified it from 2015, so the deduction is not limited to 2015 and later.
+# codified it from 2015, so the formula has no year gate. This case guards
+# against adding one; PolicyEngine computes Arkansas income tax only from 2015
+# (Arkansas parameters are backdated to 2015-01-01).
 - name: 2014 gambling losses are deductible only to the extent of winnings
   period: 2014
   input:

policyengine_us/tests/unit/test_ar_gambling_properties.py

@@ -74,6 +74,8 @@ def test_deduction_is_losses_capped_at_winnings(year):
     )
     deduction = sim.calculate("ar_gambling_loss_deduction", year)
     np.testing.assert_allclose(deduction, np.minimum(LOSSES, WINNINGS))
+    # The bounds and monotonicity follow from the exact check above; they are
+    # kept as the stated invariants.
     assert np.all(deduction >= 0)
     assert np.all(deduction <= WINNINGS)
     assert np.all(deduction <= LOSSES)
@@ -93,9 +95,10 @@ def test_deduction_does_not_depend_on_the_year():
         np.testing.assert_array_equal(result, results[0])
 
 
-@pytest.mark.parametrize("agi", [0, 50_000, 1_000_000])
-def test_deduction_is_not_subject_to_the_two_percent_floor(agi):
-    year = 2019
+@pytest.mark.parametrize("year", [2019, 2025])
+@pytest.mark.parametrize("agi", [10_000, 50_000, 1_000_000])
+def test_deduction_is_not_subject_to_the_two_percent_floor(year, agi):
+    # At these AGIs a 2% floor would remove $200 to $20,000 of the losses.
     sim = grid_simulation(
         year,
         {
@@ -105,12 +108,12 @@ def test_deduction_is_not_subject_to_the_two_percent_floor(agi):
             "ar_agi_indiv": constant(agi),
         },
     )
-    deduction = sim.calculate("ar_gambling_loss_deduction", year)
-    np.testing.assert_allclose(deduction, np.minimum(LOSSES, WINNINGS))
-    # No other itemized deduction has inputs, so the itemized total is the
-    # full gambling deduction whatever the AGI.
-    itemized = sim.calculate("ar_itemized_deductions_joint", year)
-    np.testing.assert_allclose(itemized, deduction)
+    deduction = np.minimum(LOSSES, WINNINGS)
+    # No other itemized deduction has inputs, so both itemized totals equal the
+    # full gambling deduction whatever the AGI. A one-person unit gets 100% of
+    # the separate-filing proration.
+    for variable in ["ar_itemized_deductions_joint", "ar_itemized_deductions_indiv"]:
+        np.testing.assert_allclose(sim.calculate(variable, year), deduction)
 
 
 @pytest.mark.parametrize("year", YEARS)