Arizona – Recently Enacted Exemptions

SALT Report 2996 – The Arizona Department of Revenue released a publication that provides a summary of recently enacted legislation.  The following are descriptions of transaction privilege tax and use tax exemptions that have been, or will be, enacted in 2013.

HB 2259 – Orthodontic Devices

Orthodontic devices dispensed to a patient by a licensed dental professional are exempt from the retail classification of the transaction privilege tax and the municipal transaction privilege taxes.  This exemption is retroactive to taxable periods beginning October 1, 2007.

HB 2267 – Public Consignment Dealer

Public consignment auction dealers are required to submit a valid exemption certificate to the Department of Revenue in order to establish that they are entitled to the TPT deduction for auction sales of motor vehicles to nonresidents for use outside Arizona.

This Bill also allows the Department to disclose confidential information to the Department of Transportation to facilitate the administration of statutorily imposed penalties.

HB 2324 – Leases Between Affiliated Companies

Leases of real property between “affiliated companies, businesses, or persons” are exempt from the commercial lease classification of the TPT.  To qualify, the lessor must own at least 80% interest in the lessee, or the lessee must own at least 80 % interest in the lessor, or an affiliated entity or unrelated person must own at least 80% interest in both, or the lease of real property must be by a “reciprocal insurer.”

Additionally, the Bill states that municipalities and special taxing districts may not levy a transaction privilege tax or use tax on the gross income derived from the lease of real property between affiliated companies, businesses or persons, or by a reciprocal insurer.

HB 2336 – Retail Classification and Cash Equivalents

The sale of “cash equivalents” is exempt from the retail classification of the TPT. Cash equivalents are defined as items or intangibles through which a specific value in money is purchased in advance.  This includes gift cards, vouchers, traveler’s checks, and money orders.  However, the gross proceeds from sales or income derived from the redemption of a cash equivalent used to pay for taxable goods or services are subject to TPT.

This exemption is retroactive to tax period beginning January 1, 1999.  Therefore, taxpayers can apply for a refund of TPT. The total amount of TPT that can be refunded is limited to an aggregate cap of $10,000.  All claims must be submitted by December 31, 2013.

HB 2535 – Independent Functional Utility

Retroactive to tax periods beginning July 1, 1997, the deduction for prime contracting activity under the retail classification of the TPT is amended to reflect that the deduction now applies to the gross receipts from activities on tangible property that are deductible from the retail TPT, or exempt from use tax, and the property has “independent functional utility.”

Previously, the deduction only applied to the gross receipts from activities on tangible personal property that were either deductible from retail TPT, or exempt from use tax, and did not become a “permanent attachment” to real property.

Taxpayers are permitted to apply for a refund of TPT based on the retroactive application of this exemption. The total amount of TPT that will be refunded is limited to an aggregate cap of $10,000.  All claims for refund must be submitted by December 31, 2013.

For Further Information

Arizona Department of Revenue – 2013 Legislative Summaries