SALT Report 2983 – The Arizona Department of Revenue released a publication that provides a brief summary of legislation that was recently enacted by House Bill 2111.
Prime Contracting Changes
The TPT prime contracting classification has been modified to exempt contracts with a property owner for the maintenance, repair, or replacement of existing property. Contracts that are not subject to TPT cannot include modification activities. Therefore, if a non-taxable contract includes modification activities, it will become taxable. Additionally, transactions that involve tangible personal property that is sold to a service contractor for an exempt project are taxable.
The Department will issue project specific exemption certificates that qualified contractors can use to purchase tangible personal property without paying tax. To qualify for the certificate, the contractor may not work directly for the owner of the real property, may only use the exemption certificate for material that will be incorporated into a taxable construction project, may not have a delinquent tax balance, and must provide documentation to the Department showing that it meets these conditions.
The prime contracting exemption for preconstruction services has been modified so that the terms, conditions, and pricing for design phase or professional services must only be separately stated from those for construction phase services in the contract. Previously, this language had to be provided in two separate contracts. Lastly, the Owner Builder Sales classification has been repealed.
Requires the Department and each city and town that levies TPT to enter into an agreement to provide a unified licensing, collection, and auditing program. The agreement must include denial criteria for city and town requests to audit multi-jurisdictional taxpayers.
The legislation provides that all TPT audits must be conducted in accordance with the Department’s manual and performed by a DOR certified auditor. All state, city, and third party auditors must be trained in accordance with DOR policies. In most cases, DOR auditors will conduct all audits of multi-jurisdiction taxpayers and, cities and towns may audit single-jurisdiction taxpayers or any other taxpayer authorized by the DOR. All audits must include every taxing jurisdiction, regardless of who conducts the audit.
The gross receipts from retail sales are sourced to the seller’s business location if the seller receives the order at a business location in Arizona. Or, they are sourced to the purchaser’s location in Arizona if the seller receives the order at a business location outside of Arizona.
Gross receipts from leasing or renting tangible personal property are sourced to the lessor’s business location if the lessor has a business location in Arizona. Or, they are sourced to the lessee’s address if the lessor does not have a business location in Arizona.
The exemption for sales of tangible personal property to a non-resident of Arizona if the property is shipped or delivered to the purchaser outside Arizona for use outside the state has been modified to reflect that it now only applies to sales of motor vehicles.
The exemption for sales of tangible personal property shipped directly to a destination outside of the United States for use in a foreign country is repealed.
The provisions in House Bill 2111 are effective January 1, 2015.
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