Arizona Enacts Legislation Aimed at Simplifying Transaction Privilege Tax

Thursday, June 27th, 2013

 
 
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Arizona
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On June 25, 2013, Arizona Governor Jan Brewer signed into law House Bill 2111, an act intended to simplify the administration of Arizona's transaction privilege tax (TPT). Ariz. Sess. Laws ch. 255 (2013).

Although the TPT is commonly referred to as a sales tax, it is actually a tax on the privilege of doing business in Arizona. Arizona levies the TPT on 16 business classifications, and the tax is based on the gross proceeds or gross income of the business. Instead of granting product- or use-based exemptions, Arizona allows taxpayers to deduct the proceeds from specific activities and transactions when determining the tax base.

Because Arizona localities also impose transaction and excise taxes, there are several tax collection and administration regimes in the state. Much of this new law aims to streamline those regimes. The law will require Arizona's Department of Revenue (DOR) to collect and administer any TPT and related excise taxes imposed by a locality.

Currently, Arizona businesses must file returns in each locality where they conduct business, and they can be subject to multiple audits per year. Once the new law takes effect in 2015, Arizona businesses will be required to file only with the state's Department of Revenue (DOR) and will be subject to only one audit per year.

The DOR will conduct all audits of multi-city taxpayers. Individual cities or towns will be permitted to audit only single-city taxpayers who operate only in that city. Following an audit, businesses will receive a single notice of an audit assessment instead of multiple audit assessments. The DOR will conduct all audit appeals.

The new law also clarifies the TPT prime contracting classification: real property repair or maintenance is not prime contracting. The current law does not define prime contracting. Taxable prime contracting activities include constructing buildings, but the current law is unclear about the extent to which repair or maintenance of real property qualifies as taxable contracting. When the new law takes effect, service contractors that perform maintenance, repair, or replacement of existing property directly for the property owner will not be subject to the TPT under the prime contracting classification. However, such contractors' purchases of materials will be subject to TPT under the retail classification.

Also, the DOR will create an exemption certificate for purchases of material that will be incorporated into real property if certain conditions are met. Contractors can use this new exemption certificate if they (1) present the certificate to the retailer; (2) are working as a subcontractor to a prime contractor, not for the property owner, who is responsible for paying tax on the gross revenue, income, or receipts of the project; (3) purchase tangible personal property to be incorporated into the project; and (4) do not have a delinquent tax balance.

The law changes several other areas of TPT administration. These changes include updated sourcing rules, an exemption for sales of motor vehicles to nonresidents intended for use outside Arizona, and the creation of an online portal for taxpayers to remit transaction privilege and affiliated excise taxes.


About TTR

Transaction (buying or selling things), Tax (the tax on this activity), Resources (our people, our website, our support services) - TTR, Inc.

TTR has a website that companies subscribe to and use daily. This website provides a list of everything that can be bought or sold in the U.S. It provides simple answers to whether buying or selling these items is taxable (subject to a sales tax or other tax), and it provides all the legal authority to support these tax answers.

TTR likes to keep things simple and fun, which is why it has great people who provide help to clients on any support questions they have about transaction tax issues.

Please visit TTR on the web at www.ttrus.com or call 866.578.8193.

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