THEE REEVEN NUE IMP PACTT OF AR RIZO ONA’’S TA AX EXPENDITTUR RES FISSCALL YEA AR 220166/20 017 PREPARED FOR R: THE GOV VERNOR A AND THE LEEGISLATUR RE BY: OFFICE OF ECONOMIC E C RESEARC CH & ANALLYSIS, ARIZZONA DEPA ARTMENT OF REVENUE NOVEEMBER 15,, 2017: PR RELIMINAR RY The following report on Arizona’s Tax Expenditures was prepared for the Governor and the Legislature in accordance with A.R.S. § 42‐1005. The preliminary 2017 report provides a broad range of information. The report contains sections for all taxes imposed by Arizona. However, the individual and corporate income tax sections contain data only on credits. If you have questions or comments regarding this report, please contact the Office of Economic Analysis at the Arizona Department of Revenue at (602) 716‐6924. SUMMARY ESTIMATED VALUE OF TAX EXPENDITURES12 FISCAL YEARS 2013‐2017 TAX TYPE AIRCRAFT LICENSE TAX EXPENDITURES AVIATION FUEL TAX EXPENDITURES BINGO TAX EXPENDITURES BOXING & MIXED MARTIAL ARTS TAX EXPENDITURES CORPORATE INCOME TAX 3 EXPENDITURES FIDUCIARY INCOME TAX EXPENDITURES FLIGHT PROPERTY TAX EXPENDITURES IN LIEU PROPERTY TAX EXPENDITURES INDIVIDUAL INCOME TAX 4 EXPENDITURES INSURANCE PREMIUM TAX EXPENDITURES JET FUEL EXCISE AND USE TAX EXPENDITURES LUXURY TAX EXPENDITURES 1 FY14 FY15 FY16 FY17 $5,509,385 $5,237,479 $4,985,055 $5,032,946 $7,818,845 55.35% $63,474 $200,361 $149,151 $162,479 $186,795 14.97% $66,983 $72,180 $70,960 $73,028 $54,015 ‐26.04% $780 $2,393 $3,330 $3,510 $2,340 ‐33.33% $531,539,700 $460,328,800 $132,899,546 $133,477,546 $126,692,388 ‐5.08% $16,238,279 $25,482,180 $32,067,130 $53,703,660 $57,633,493 7.32% $900,812 $1,160,836 $939,316 $2,536,654 $3,315,973 30.72% $0 $0 $0 $0 $0 NA $255,277,167 $2,233,441,000 $310,643,144 $375,651,568 $394,654,932 5.06% $205,251,402 $192,143,864 $242,399,848 $241,218,934 $253,031,965 4.90% $6,213,031 $5,131,667 $6,635,958 $6,164,499 $6,134,819 ‐0.48% $22,489,571 $23,095,734 $38,433,557 $14,597,098 $1,932,621 ‐86.76% Details for each tax type are included in the body of this report. Preliminary data is bold and in italics. 3 Corporate Income Tax Expenditure shown for FY13 and FY14 includes all Corporate Income Tax expenditures. 4 Individual Income Tax Expenditure shown for FY14 includes all Individual Income tax expenditures. 2 % change from FY16 FY13 TAX TYPE MOTOR CARRIER FEE EXPENDITURES MOTOR VEHICLE FUEL TAX EXPENDITURES PARI‐MUTUEL TAX EXPENDITURES PRIVATE CAR PROPERTY TAX EXPENDITURES PROPERTY TAX EXPENDITURES SEVERANCE TAX EXPENDITURES TRANSACTION PRIVILEGE AND USE TAX EXPENDITURES UNDERGROUND STORAGE TANK TAX EXPENDITURES UNEMPLOYMENT INSURANCE TAX EXPENDITURES USE FUEL TAX EXPENDITURES FY13 FY14 FY15 FY16 % change from FY16 FY17 NIA5 $146,508,936 $153,633,293 $157,993,764 $160,804,400 1.78% $9,250,359 $9,159,048 $10,974,015 $12,446,181 $11,759,017 ‐5.52% $4,126,236 $4,032,441 $4,016,340 $3,775,986 $2,105,316 ‐44.24% $408,268 $425,322 $312,407 $384,354 $494,754 28.72% $328,874,395 $359,909,184 $377,979,585 $403,693,834 $420,079,174 4.06% $29,829,000 $26,190,000 $24,862,000 $15,196,006 $18,377,156 20.93% $12,107,810,000 $12,611,204,000 $12,212,283,076 $12,262,397,152 $12,000,474,483 ‐2.14% NIA NIA NIA NIA NIA NIA NIA NIA NIA NIA NIA NIA $44,186,840 $45,526,448 $43,621,085 $45,731,318 $48,192,409 5.38% VEHICLE LICENSE TAX EXPENDITURES NIA NIA NIA NIA NIA WORKERS’ COMPENSATION PREMIUM LIEU TAX EXPENDITURES $5,195,458 $4,995,967 $1,809,939 $1,251,000 $5,596,060 TOTAL $13,573,231,140 $16,154,247,840 $13,598,718,735 $13,735,491,517 $13,519,340,955 5 No Information Available NIA 347.33% ‐1.57% FISCAL YEAR 2016/17 ARIZONA TAX EXPENDITURE REPORT EXECUTIVE SUMMARY FISCAL YEAR 2016/17 STATE TAX REVENUE COLLECTED6: $13,479,960,420 TOTAL FY 2016/17 TAX EXPENDITURE: $13,519,340,955 TAX EXPENDITURE AS A PERCENT OF TOTAL REVENUE: 50% The Arizona Tax Expenditure Report is a study prepared for the Governor and the Legislature by the Arizona Department of Revenue’s Office of Economic Research and Analysis. The report is prepared in accordance with A.R.S. § 42‐1005. Tax expenditures7 are provisions within the law designed to encourage certain kinds of activity or to aid taxpayers in certain categories. These provisions are generally known as exemptions, exclusions, deductions, subtractions, credits, and preferential rates. Such provisions result in a loss of tax revenues, thereby reducing the amount of revenues available for state (and, in some circumstances, local) programs. In effect, the fiscal impact of implementing tax expenditure would be similar to a direct expenditure of state funds. This report provides a list of tax expenditures and, whenever possible, details the approximate cost of exempting certain types of income, goods, services or property from its respective tax statutes. The purpose of this report is to provide a better understanding of impacts associated with existing tax exemptions, exclusions, deductions, subtractions and credits. There are sections on every tax imposed in Arizona. Each section contains statutory provisions for that specific tax type. The analysis includes an explanation of the provision as well as the approximate impacts of that provision where possible. Information in sections pertaining to tax types not administered by the Arizona Department of Revenue is submitted by the agency administering the tax. Any impact estimates presented are provided by that agency. ASSUMPTIONS This report does not contain any judgment regarding the merit, desirability, importance or usefulness of a tax expenditure. The Legislature and Governor determine the taxation environment they wish to create in Arizona and formulate law to create the corresponding policy. All tax expenditures were conscious public policy decisions at the time of enactment. 6 Total State Revenue Collected from the sources covered in this publication. A.R.S. § 42‐1005 defines tax expenditure as any “tax provision in state law which exempts, in whole or in part, any persons, income, goods, services or property from the impact of established taxes including deductions, subtractions, exclusions, exemptions, allowances and credits.” 7 The impacts associated with the specific provisions are the estimated impact of that provision based upon the information available for the stated fiscal or calendar year. There is no consideration of altered demand resulting from the tax expenditure. There is also no consideration of dynamic fiscal impacts resulting from a reduced tax. The summary page(s) at the end of each section provides a total value of the tax expenditure. This total value is a general guide and should not be used in isolation. In fact, the expenditures for a particular tax can often not be added to reach a total. The presence or absence of one expenditure for a tax type can directly affect the value of another expenditure for that same tax type. TOTAL TAX EXPENDITURE BY TAX TYPE The tables below display the total value of tax expenditures by each tax type and a 10‐year history of total tax expenditures. Preliminarily, in Fiscal Year 2016/17 the total value of tax expenditures was $13.5 million, a decline of 1.57% from the prior fiscal year. Transaction privilege tax accounted for nearly 89% of the tax expenditure, with property, individual income tax, insurance premium, and motor carrier tax accounting providing the next largest totals, in descending order. In total, these five tax types account for 97% of the tax expenditures estimated in this report. FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 8 Historical Total Tax Expenditures8 $11,193,942,089 $10,742,544,178 $12,282,375,164 $11,012,624,554 $12,563,504,386 $13,161,131,140 $13,874,859,840 $13,598,718,735 $13,735,491,517 $13,519,340,955 Year over year change 10.31% ‐4.03% 14.33% ‐10.34% 14.08% 4.76% 5.42% ‐2.0% 1.0% ‐1.57% Individual and Corporate Income Tax contain only Credit data for each year in this comparison. SUMMARY ESTIMATED VALUE OF TAX EXPENDITURES9 FISCAL YEAR 2016/17 TAX TYPE AIRCRAFT LICENSE TAX EXPENDITURES AVIATION FUEL TAX EXPENDITURES BINGO TAX EXPENDITURES BOXING & MIXED MARTIAL ARTS TAX EXPENDITURES CORPORATE INCOME TAX EXPENDITURES10 FIDUCIARY INCOME TAX EXPENDITURES FLIGHT PROPERTY TAX EXPENDITURES IN LIEU PROPERTY TAX EXPENDITURES INDIVIDUAL INCOME TAX EXPENDITURES11 INSURANCE PREMIUM TAX EXPENDITURES JET FUEL EXCISE AND USE TAX EXPENDITURES LUXURY TAX EXPENDITURES MOTOR CARRIER FEE EXPENDITURES MOTOR VEHICLE FUEL TAX EXPENDITURES PARI‐MUTUEL TAX EXPENDITURES PRIVATE CAR PROPERTY TAX EXPENDITURES PROPERTY TAX EXPENDITURES SEVERANCE TAX EXPENDITURES TRANSACTION PRIVILEGE AND USE TAX EXPENDITURES UNDERGROUND STORAGE TANK TAX EXPENDITURES UNEMPLOYMENT INSURANCE TAX EXPENDITURES USE FUEL TAX EXPENDITURES VEHICLE LICENSE TAX EXPENDITURES WORKERS’ COMPENSATION PREMIUM LIEU TAX EXPENDITURES TOTAL 9 VALUE OF FY17 EXPENDITURES $7,818,845 $186,795 $54,015 % change from FY16 55.35% 14.97% (26.04)% $2,340 $126,692,388 $57,633,493 $3,315,973 $0 $394,654,932 $253,031,965 $6,134,819 $1,932,621 $160,804,400 $11,759,017 $2,105,316 $494,754 $420,079,174 $18,377,156 (33.33)% (5.08)% 7.32% 30.72% NA 5.06% 4.90% (0.48)% (86.76)% 1.78% (5.52)% (44.24)% 28.72% 4.06% 20.93% $12,000,474,483 (2.14)% NIA12 NA NIA $48,192,409 NIA NA 5.38% NA $5,596,060 $13,519,340,955 347.33% (1.57)% Details for each tax type are included in the body of this report. Corporate Income Tax Expenditure shown here is Credit data for Tax Year 2015. The remainder of the Corporate Income Tax expenditures for FY17 will be included in the final version of this report. 11 Individual Income Tax Expenditure shown here is Credit data for Tax Year 2015. The remainder of the Individual Income Tax expenditures for FY17 will be included in the final version of this report. 12 No Information Available 10 TABLE OF CONTENTS EXECUTIVE SUMMARY ....................................................................................................... PREFACE AIRCRAFT LICENSE TAX EXPENDITURES ............................................................................... PAGE 1 AVIATION FUEL TAX EXPENDITURES .................................................................................... PAGE 4 BINGO TAX EXPENDITURES .................................................................................................. PAGE 6 BOXING & MIXED MARTIAL ARTS TAX EXPENDITURES ....................................................... PAGE 8 CORPORATE INCOME TAX EXPENDITURES .......................................................................... PAGE 9 FIDUCIARY INCOME TAX EXPENDITURES ........................................................................... PAGE 14 FLIGHT PROPERTY TAX EXPENDITURES ............................................................................. PAGE 21 IN LIEU PROPERTY TAX EXPENDITURES ............................................................................. PAGE 23 INDIVIDUAL INCOME TAX EXPENDITURES ......................................................................... PAGE 24 INSURANCE PREMIUM TAX EXPENDITURES ...................................................................... PAGE 31 JET FUEL EXCISE AND USE TAX EXPENDITURES ................................................................. PAGE 38 LUXURY TAX EXPENDITURES .............................................................................................. PAGE 40 MOTOR CARRIER FEE EXPENDITURES ................................................................................ PAGE 43 MOTOR VEHICLE FUEL TAX EXPENDITURES....................................................................... PAGE 48 PARI‐MUTUEL TAX EXPENDITURES .................................................................................... PAGE 50 PRIVATE CAR PROPERTY TAX EXPENDITURES .................................................................... PAGE 52 PROPERTY TAX EXPENDITURES .......................................................................................... PAGE 53 SEVERANCE TAX EXPENDITURES........................................................................................ PAGE 59 TRANSACTION PRIVILEGE AND USE TAX EXPENDITURES .................................................. PAGE 61 UNDERGROUND STORAGE TANK TAX EXPENDITURES .................................................... PAGE 102 UNEMPLOYMENT INSURANCE TAX EXPENDITURES ........................................................ PAGE 104 USE FUEL TAX EXPENDITURES.......................................................................................... PAGE 110 VEHICLE LICENSE TAX EXPENDITURES ............................................................................. PAGE 113 WORKERS’ COMPENSATION PREMIUM LIEU TAX EXPENDITURES .................................. PAGE 116 AIRCRAFT LICENSE TAX EXPENDITURES13 ‐ FISCAL YEAR 2016/17 TAX COLLECTED BY: Arizona Department of Transportation FISCAL YEAR 2016/17 TOTAL STATE REVENUE COLLECTED: $7,590,99914 TOTAL FY 2016/17 TAX EXPENDITURE: $7,818,845 TAX EXPENDITURE AS A PERCENT OF TOTAL REVENUE: 50.7% A license tax is imposed on aircraft operating in Arizona at the rate of 0.5% of the average fair market value of the particular make, model and year of the aircraft, but not less than $20. The proceeds from this tax are deposited into the state aviation fund. AIRCRAFT LICENSE TAX EXEMPTIONS A.R.S. § 28‐8322: Aircraft operated by an airline company and regularly scheduled for the primary purpose of carrying persons or property for hire in interstate, intrastate or international transportation are exempt from tax. Aircraft owned by a nonresident who bases the aircraft in this state for a period of not more than 90 days in any one calendar year, if the aircraft is not engaged in interstate commercial activity, is also exempt from tax. Calculating the tax value of these tax expenditures would require knowing the average fair market value of every aircraft carrying persons or property that stops at an airport in Arizona. Therefore, the value of this tax expenditure is not quantifiable. A.R.S. § 28‐8323: Aircraft owned and operated exclusively in the public service by the federal government, by Arizona or by any political subdivision of Arizona or by the civil air patrol is exempt from tax. The average fair market value of aircraft owned by the federal government and operated in Arizona is unknown. It is known that there were 86 aircraft owned by the Arizona Department of Transportation, the Arizona Department of Public Safety, various Arizona counties and cities and the civil air patrol in fiscal year 2016/17. The average fair market value of each aircraft is $783,439 which equates to a tax value of $356,862 for this tax expenditure. A.R.S. § 28‐8323B: Aircraft owned and held by a bona fide aircraft dealer solely for the purpose of sale, as long as these aircraft are registered within ten days of the dealer’s purchase date are exempt from tax. There were 27 aircraft of this type registered by bona fide aircraft dealers in Arizona in fiscal year 2016/17. The tax value of these aircraft was approximately $184,056. 13 Any figures presented for Aircraft License Tax Expenditures were provided by the Arizona Department of Transportation. 14 Source: 2017 Tax Handbook, Joint Legislative Budget Committee 1 Return to Table of Contents PREFERENTIAL TAX RATES A.R.S. § 28‐8336: The license tax rate for a nonresident who bases his aircraft in Arizona for more than 90 days but less than 210 days in a given calendar year, provided that the aircraft is not engaged in any intrastate commercial activity, is equal to 0.1% of the average fair market value of the particular make, model and year of aircraft. This tax rate is 20% of the tax rate imposed on resident‐owned aircraft. In fiscal year 2016/17, there were 94 nonresident aircraft based in Arizona. The total aircraft license tax paid by nonresidents falling into this category was $169,249. The value of this expenditure is calculated by multiplying this figure by four, yielding the foregone tax collections allowed by the preferential rate of $676,996. A.R.S. § 28‐8337: Aircraft in storage or being repaired are charged a license tax of $20. There are 402 aircraft which have been granted this license tax rate with a fair market value of $1,308,416,316. The tax value of this preferential license tax is $6,534,041 which is the total fair market value multiplied by 0.5% less $20 per aircraft. A.R.S. § 28‐8338: The annual license tax for a salvage aircraft that is in storage or that is being restored is $5. There are 13 aircraft registered under this provision. Assuming no market value for salvage aircraft, the tax value of this tax expenditure is the difference between the $20 minimum license tax imposed on all other aircraft and the $5 minimum license tax imposed on these aircraft, or $195. A.R.S. § 28‐8339: There is a $20 license tax for an antique, classic, warbird, glider, experimental, homebuilt or balloon aircraft. There are 4,031 aircraft registered in Arizona under this provision, with a total market value of $16.504 million. The tax value of this tax expenditure is the total market value multiplied by 0.5% less the $20 license tax paid per aircraft, or $0. A.R.S. §§ 28‐8340 and 28‐8341: Maintenance aircraft owned by a nonresident and manufacturer’s aircraft are required to pay an aircraft license tax of $20. There are 18 nonresident‐owned maintenance aircrafts and 4 manufacturer’s aircraft registered in Arizona with a total market value of $13,027,000. The tax value of this tax expenditure can be calculated by multiplying the total market value by 0.5% and subtracting the $20 per aircraft tax paid, or $69,695. 2 Return to Table of Contents SUMMARY OF AIRCRAFT LICENSE TAX EXPENDITURES – FISCAL YEAR 2016/17 AIRCRAFT LICENSE TAX EXEMPTIONS Aircraft operated for the primary purpose of carrying persons or property for hire Nonresident owned aircraft in Arizona for less than 90 days Aircraft owned by a government or by the civil air patrol Aircraft owned by an aircraft dealer for sale TOTAL VALUE OF AIRCRAFT LICENSE TAX EXPENDITURES NIA15 NIA $358,862 184,056 $542,918 PREFERENTIAL TAX RATES Preferential rate for nonresidents with aircraft in Arizona from 90 to 210 days Preferential rate for aircraft in storage or being repaired Preferential rate for salvage aircraft in storage or being repaired Preferential rate of antique, classic, warbird, etc. aircraft Preferential rate for maintenance and manufacturer’s aircraft TOTAL VALUE OF PREFERENTIAL TAX RATES TOTAL QUANTIFIABLE AIRCRAFT LICENSE TAX EXPENDITURES16 15 16 No Information Available. This amount represents foregone revenue to the state aviation fund. 3 Return to Table of Contents $676,996 6,534,041 195 0 64,695 $7,275,927 $7,818,845 AVIATION FUEL TAX EXPENDITURES17 ‐ FISCAL YEAR 2016/17 TAX COLLECTED BY: Arizona Department of Transportation FISCAL YEAR 2016/17 TOTAL STATE REVENUE COLLECTED: $306,78018 TOTAL FY 2016/17 TAX EXPENDITURE: $186,795 TAX EXPENDITURE AS A PERCENT OF TOTAL REVENUE: 37.8% An aviation fuel tax is imposed on every supplier for each gallon of aviation fuel processed, refined, manufactured, produced, blended or compounded in Arizona by the supplier or imported by the supplier, whether in the original package or container in which it was imported or otherwise. In order to qualify for exemptions on certain types of aviation fuel, the taxpayer must file for a refund. The fuel tax rate is 5¢ per gallon. Revenue from the aviation fuel tax is deposited in the Aviation Fund. AVIATION FUEL TAX EXEMPTIONS A.R.S. § 28‐5610: Aviation fuel moving in interstate or foreign commerce, not destined or diverted to a point within Arizona is exempt from aviation fuel tax. There is no requirement for reporting this information; therefore, the tax value of this exemption is unknown. A.R.S. § 28‐5610: Also exempt from aviation fuel tax is aviation fuel sold to the United States armed forces for use in ships or aircraft or for use outside of Arizona. The amount of aviation fuel purchased by the United States armed forces is not reported so the tax value is unknown. A.R.S. § 28‐5610A: Aviation fuel tax exported from Arizona is exempt from aviation fuel tax. The taxpayer must apply for a refund. If such fuel were subject to taxation in fiscal year 2016/17, an additional $186,576 in aviation fuel tax would have been received. A.R.S. § 28‐5611A: Although not listed as an exemption, a taxpayer may request a refund for aviation fuel for us in applying seeds, fertilizer or pesticides. Refunds made in fiscal year 2016/17 were $219 A.R.S. § 28‐5611A: Also listed as an exemption, a taxpayer may request a refund for losses of fuel due to fire, theft or other accident. No requests for refunds were made for this in fiscal year 2016/17. 17 Any figures presented for Aviation Fuel Tax Expenditures were provided by the Arizona Department of Transportation. 18 Source: 2017 Tax Handbook, Joint Legislative Budget Committee 4 Return to Table of Contents SUMMARY OF AVIATION FUEL TAX EXPENDITURES – FISCAL YEAR 2016/17 AVIATION FUEL TAX EXEMPTIONS AND OTHER REDUCTIONS Aviation fuel moving in interstate or foreign commerce Aviation fuel sold to the United States armed forces Exported aviation fuel Aviation fuel for use in applying seeds, fertilizer or pesticide Aviation fuel lost due to fire, theft or other accident TOTAL VALUE OF AVIATION FUEL TAX EXEMPTIONS TOTAL QUANTIFIABLE AVIATION FUEL TAX EXPENDITURES20 19 20 No Information Available. This amount represents foregone revenue to the state aviation fund. 5 Return to Table of Contents NIA19 NIA $186,576 219 0 $186,795 $186,795 BINGO TAX EXPENDITURES‐ FISCAL YEAR 2016/17 TAX COLLECTED BY: Arizona Department of Revenue FISCAL YEAR 2016/17 TOTAL STATE REVENUE COLLECTED: $486,66021 TOTAL FY 2016/17 TAX EXPENDITURE: $54,015 TAX EXPENDITURE AS A PERCENT OF TOTAL REVENUE: 10% The tax on state‐licensed bingo operations is based on a multi‐tiered licensing structure. There are three classes of bingo licenses, each of which has a different tax rate. Each class’ tax rate is based on bingo receipts. All bingo tax collections are deposited into the general fund. BINGO TAX EXEMPTIONS A.R.S. § 5‐414: Class A licensees (for whom gross receipts do not exceed $15,600 per year) are taxed at 2.5% of their adjusted gross receipts. Adjusted gross receipts equals gross receipts less the amount paid for prizes. Therefore, prize money is exempt from taxation for this class of bingo licensees. In fiscal year 2016/17, Class A licensees subtracted $2.16 million from gross receipts. At a 2.5% tax rate, the prize money represents $54,015 in forgone revenue. PREFERENTIAL TAX RATES Bingo receipts are taxed at one of three rates, dependent upon the level of gross receipts. Class A Class B Class C Gross receipts less than or equal to $15,600 Gross receipts $15,601 to $300,000 Gross receipts greater than $300,000 2.5% of adjusted gross receipts 1.5% of gross receipts 2.0% of gross receipts This is a preferential rate structure because different tax rates are imposed on similar taxpayers based on criteria set in statute. This preferential rate structure allows taxpayers with lower gross receipts to be taxed at a lower rate. The impact of taxing all bingo receipts at one of the three rates in use is possible but unrealistic. If a uniform rate were imposed, it is probable that the uniform rate would be an effective tax rate among all licensees, making the fiscal impact revenue neutral. Given that legislative action cannot be predicted, we will point out the preferential tax rate structure in law but will not attempt to attach a revenue impact. 21 Source: Department of Revenue Annual Report, FY 2017 6 Return to Table of Contents SUMMARY OF BINGO TAX EXPENDITURES FISCAL YEAR 2016/17 Exemption of prize money from taxation for Class A licensees TOTAL QUANTIFIABLE BINGO TAX EXPENDITURES22 22 These tax expenditures represent forgone revenue to the state general fund. 7 Return to Table of Contents $54,015 $54,015 BOXING AND MIXED MARTIAL ARTS TAX EXPENDITURES23 FISCAL YEAR 2016/17 TAX COLLECTED BY: Arizona Department of Racing FISCAL YEAR 2016/17 TOTAL STATE REVENUE COLLECTED: unknown TOTAL FY 2016/17 TAX EXPENDITURE: $2,340 TAX EXPENDITURE AS A PERCENT OF TOTAL REVENUE: NA Any person who promotes a boxing or mixed martial arts (MMA) contest in Arizona must pay a 4% tax on the gross receipts of such match or exhibition, after deduction of city, state and federal taxes. The tax is paid to the Department of Racing, which collects for the Arizona Boxing Commission. Gross receipts are defined as receipts from the face value of tickets sold. BOXING AND MMA TAX EXEMPTIONS A.R.S. § 5‐104.02A: Tickets issued as complimentary by the promoter of a boxing or MMA match are exempt from taxation as long as the number of complimentary tickets does not exceed 2% of the total number of tickets issued or 75 tickets, whichever is greater. During fiscal year 2016/17, 9 Boxing events and 17 Mixed Martial Arts events were held. At each event, up to 75 complimentary tickets were issued with an average price of $30 each. Had the value of the estimated 1,950 tickets been taxable, an additional $90 for each Boxing and MMA Event, $2,340 would have been received. SUMMARY OF BOXING AND MMA TAX EXPENDITURES – FISCAL YEAR 2016/17 Value of Tax on Complimentary tickets issued $2,340 TOTAL QUANTIFIABLE BOXING AND MMA TAX EXPENDITURES 23 $2,340 Any figures presented for Boxing and Mixed Martial Arts Tax Expenditures were provided by the Arizona Department of Gaming. 8 Return to Table of Contents CORPORATE INCOME TAX EXPENDITURES – FISCAL YEAR 2016/17 TAX COLLECTED BY: Arizona Department of Revenue FISCAL YEAR 2016/17 TOTAL STATE REVENUE COLLECTED: $368,136,76924 TOTAL FY 2016/17 TAX EXPENDITURE: $139,195,470 (Only credits are included in this preliminary report.) TAX EXPENDITURE AS A PERCENT OF TOTAL REVENUE: 38% With the exception of credits, no information is available on corporate income tax expenditures at this time. This publication will be updated as soon as the Corporate Income Tax Expenditures section is complete. CORPORATE INCOME TAX CREDITS A tax credit reduces corporate tax liability, as opposed to a subtraction which reduces taxable income. Most tax credits that currently exist in Arizona corporate tax law are nonrefundable; any credit amount greater than a firm’s tax liability will not be refunded. The unused credit, in most cases, can then be carried forward for use in future tax years. The following corporate credits were in effect in tax year 2015. A.R.S. § 43‐1161: Enterprise zone credits are income tax credits provided for non‐retail businesses located in an enterprise zone established under Arizona law who have a net increase in employment of qualified employees, as certified by the Arizona Commerce Authority. A maximum of $500 per each net new employee can be claimed in the first or partial year of employment. In the second year of continuous employment, a maximum of $1,000 per net new employee can be claimed. The limit in the third year of continuous employment is $1,500 per net new employee. A sunset date was set in statute of June 30, 2011. Carry forward is allowed for 5 years after that date. A.R.S. § 43‐1161: This statute now governs the new employment credit which is for net increases in qualified employment positions. To qualify for the credit, the taxpayer must invest at least $5 million in capital investment and create at least 25 new qualified positions in an Arizona city or town with a population of 50,000 or more, or invest at least $1 million in capital investment and create at least 5 new qualified positions in any other Arizona location. The amount of credit is determined and authorized by the Arizona Commerce Authority. A.R.S. § 43‐1162 and 43‐1076.01: These statutes govern the credit for businesses that enhance or sustain forest health, sustain or recover watershed or improve public safety or for training new qualified employment positions, as certified by the Arizona Commerce Authority. 24 Source: Department of Revenue Annual Report, FY 2017 9 Return to Table of Contents A.R.S. § 43‐1163 and 43‐1163.01: A nonrefundable, transferable credit is allowed for a motion picture production company that produces motion pictures completely or partially in Arizona and for the construction of an eligible infrastructure. The taxpayer must receive pre‐approval and post‐approval from the Arizona Commerce Authority. This credit had a repeal date of taxable years beginning from and after January 1, 2011 when enacted. The carry forward period available is 5 years. A.R.S. § 43‐1164: A credit is provided for installing one or more solar energy devices for commercial or industrial purposes in the taxpayer’s trade or business. The credit is 10% of the installed cost of the device, not to exceed $25,000 per taxpayer per building or $50,000 total in a year. This credit must be approved by the Arizona Commerce Authority. A.R.S. § 43‐1164.01: A refundable credit is allowed for expanding or locating qualified renewable energy operations in Arizona. The credit is up to 10% of the taxpayer’s total capital investment in Arizona if 1.5 new full‐time employment positions are created for each $500,000 of new capital investment for manufacturing operations or 1 new full‐time employment position is created for each $200,000 in capital investment for headquarters. For other qualifying renewable energy investment, the credit is 10% of $500,000 for each 1.5 new full‐ time employment positions created in manufacturing operations or 10% of $200,000 for each 1 full‐time employment position created for headquarters, neither of which can exceed 10% of the taxpayer’s total capital investment. Approval from the Arizona Commerce Authority is required. A.R.S. § 43‐1164.02: The solar liquid fuel research and development credit is for increased research activities related to solar liquid fuel. The credit is 40% of the excess of Arizona qualified research expenses over a base amount. A.R.S. § 43‐1164.03: A credit is allowed for production of electricity by a qualified energy generator that produces energy using solar light, solar heat, wind or biomass. Approval from the Arizona Department of Revenue is required to take the credit. No more than $20 million can be approved in a calendar year. A.R.S. § 43‐1164.04: A refundable credit is allowed for expanding or locating a new qualified facility in Arizona. A qualified facility is a facility that devotes at least 80% of the property and payroll at the facility to qualified manufacturing, qualified headquarters or qualified research. Approval from the Arizona Commerce Authority is required to take the credit. No more than $70 million (in conjunction with the renewable energy industry credit) can be approved in a calendar year and no more than $30 million per taxpayer. A.R.S. § 43‐1164.05: A credit is allowed for investment in new renewable energy facilities that produce energy for self‐consumption using renewable energy resources if the power will be used primarily for manufacturing or for international operations centers. Approval from the Arizona Department of Revenue is required to take the credit. No more than $10 million can be approved in a calendar year. 10 Return to Table of Contents A.R.S. § 43‐1167: The military reuse zone credit is a tax credit for net increases in employment by the taxpayer of full‐time employees working in a military reuse zone who are primarily engaged in manufacturing, assembling or fabricating aviation or aerospace products. The amount of the credit is determined by a dollar amount allowed for net new employee positions other than dislocated military base employees and by a dollar amount allowed for net new dislocated military base employee positions. A.R.S. § 43‐1167.01: A credit is allowed to each taxpayer whose employee is a member of the Arizona National Guard if the employee is placed on active duty. The amount of the credit is $1,000 for each employee placed on active duty. A.R.S. § 43‐1168: The research and development tax credit is calculated based on calculations done for the federal research and development tax credit. The amount of the credit is based on the excess of the qualified research expenses for the taxable year over a base amount. Beginning with tax year 2010, taxpayers employing fewer than 150 persons may have their research and development credit refunded, to the extent that it exceeds tax liability. Approval for the refundable credit by Arizona Commerce Authority is required. An additional credit for research payments made to a university under the jurisdiction of the Arizona Board of Regents, as certified by the Arizona Commerce Authority and the Department of Revenue. A.R.S. § 43‐1169: A tax credit is provided for expenses incurred in constructing a qualified environmental technology manufacturing, producing or processing facility. The amount of the credit is 10% of the amount spent during the taxable year to construct the facility. A.R.S. § 43‐1170: The pollution control device credit is a tax credit for expenses incurred to purchase real or personal property that is used in Arizona in the taxpayer’s trade or business to control or prevent pollution. The amount of the credit is the lesser of 10% of the purchase price or $500,000. A.R.S. § 43‐1170.01: A credit is allowed for expenses that a taxpayer (involved in the commercial production of livestock, livestock products or agricultural, horticultural, viticulturally or floricultural crops or products) incurs to purchase tangible personal property that is primarily used in the taxpayer’s trade or business in Arizona to control or prevent pollution. A.R.S. § 43‐1175: An income tax credit is allowed for net increases in qualified employment of recipients of temporary assistance for needy families who are Arizona residents. A maximum of $500 per each net new employee can be claimed in the first year of employment, $1,000 in the second year of employment and $1,500 in the third year. A.R.S. § 43‐1176: A credit is allowed for costs incurred in installing an electric vehicle recharge outlet and for solar hot water plumbing stub outs in one or more houses in Arizona constructed by the taxpayer. The amount of the credit is equal to the lesser of $75 or the installation cost for each stub out or recharge outlet in each separate house or dwelling unit. 11 Return to Table of Contents A.R.S. § 43‐1178: A credit is allowed for 30% of transaction privilege taxes paid on coal purchased in Arizona and consumed in generating electric power. A.R.S. § 43‐1181: The school site donation credit is for donation of real property and improvements to a school district or charter school for use as a school or a site for the construction of a school. The amount of the credit is 30% of the value of real property and improvements donated. A.R.S. § 43‐1182: A credit is allowed for installing or including in one or more houses or dwelling units in Arizona and constructed by the taxpayer, a water conservation plumbing stub out that collects all graywater sources that end at a plumbing stub out that is separate and distinct from the regular plumbing system. This credit had a repeal date of taxable years beginning from and after January 1, 2012 when enacted. The carry forward period available is five years. A.R.S. § 43‐1183: A credit is allowed for cash contributions to a school tuition organization, as approved by the Arizona Department of Revenue. A.R.S. § 43‐1184: A credit is allowed for cash contributions to a school tuition organization for scholarships to students with disabilities or displaced students, as approved by the Arizona Department of Revenue. A.R.S. § 43‐1185: An income tax credit is allowed for employers with at least two but no more than 50 employees that provide qualified health plans or contributions to health savings accounts for its employees who are Arizona residents. The credit amount is $360 for every employee who is enrolled in the qualified health insurance plan. When reviewing the credit data, it is important to mention two points. First, corporate tax information for a given tax year will change over time. Late returns are filed, corporations are audited, amended returns are filed, retroactive legislation is enacted, etc. Therefore, figures stated here will change over time and figures cited in previous years will not match what is presented here. Second, information cannot be revealed about certain credits claimed without breaching confidentiality. If less than three firms claim a credit or if one firm owns more than 90% of the total credit amount claimed or if providing statistics on one credit would result in confidential information being divulged about other credits, then that information cannot legally be released. Preliminary data for tax year 2015 is shown in the following table. For tax year 2015, corporations claimed 510 corporate income tax credits and used a total of $139.2 million in credits to offset taxes. Asterisks indicate instances in which release of information would breach confidentiality laws. 12 Return to Table of Contents TYPE OF CREDIT Enterprise zone New employment Healthy forest & workforce training Motion picture production & infrastructure Commercial & industrial solar energy Renewable energy industry Solar liquid fuel research & development Renewable energy production Qualified Facilities Renewable energy for self‐consumption Military reuse zone Employing National Guard members Research and development Refundable research and development Additional research and development for university research Environmental technology facility Pollution control device Agricultural pollution control equipment Employment of TANF recipients Solar hot water heater plumbing stub outs & electric vehicle recharge outlets Taxes paid for coal consumed in generating electrical power School site donation Water conservation plumbing stub outs Contributions to school tuition organizations for low‐ income students Contributions to school tuition organizations for disabled or displaced students Qualified health insurance plans TOTAL VALUE OF ALL CREDITS26 25 # OF CLAIMS 15 26 0 0 9 ** 0 8 ** 0 0 ** 341 1625 2015 $ $21,653 5,789,727 0 0 156,621 ** 0 9,076,262 ** 0 0 ** 87,161,368 4,165,768 ** ** 12 0 6 ** ** 471,669 0 64,619 0 0 4 642,803 0 0 0 0 69 23,012,323 11 1,278,990 0 510 0 $139,195,470 These taxpayers are already included in the research and development credit count. Figures for all credits are subject to change. The total value is for all credits, including those for which information cannot be divulged individually. 26 13 Return to Table of Contents FIDUCIARY INCOME TAX EXPENDITURES – FISCAL YEAR 2016/17 TAX COLLECTED BY: Arizona Department of Revenue FISCAL YEAR 2016/17 TOTAL STATE REVENUE COLLECTED: NA27 TOTAL FY 2016/17 TAX EXPENDITURE: $57,633,493 TAX EXPENDITURE AS A PERCENT OF TOTAL REVENUE: NA Arizona imposes fiduciary income tax on trusts and estates. The taxability of the income is determined by the residence of the fiduciary, beneficiary, or deceased taxpayer. For estates, the tax applies to the entire taxable income if the deceased taxpayer was an Arizona resident. The fiduciary or beneficiary residence is immaterial. In contract, for trusts, the tax applies to the entire taxable income when the fiduciary or beneficiary is an Arizona resident. Arizona taxable income is calculated beginning with federal taxable income. By conforming Arizona law to the Internal Revenue Code, subtractions allowed under federal law in calculating federal taxable income are allowed under Arizona law. From federal taxable income, certain additions, subtractions and exemptions are allowed to reach Arizona taxable income. After calculating tax liability, fiduciary taxpayers may reduce their tax liability by using a credit for taxes paid to other state or countries or a clean elections credit. Fiduciary income tax is deposited into the general fund. However, 15% of the tax is distributed to cities and towns two years after the year in which it was collected. For example, 15% of tax collected in fiscal year 2014/15 will be distributed to incorporated cities and towns in fiscal year 2016/17. Therefore, only 85% of the tax collected, or of the tax value of any expenditure, is actually available for the state’s use. This fact should be kept in mind when reviewing the reported tax value of the various subtractions, exemptions and credits. SUBTRACTIONS ALLOWED IN THE CALCULATION OF FEDERAL TAXABLE INCOME The starting point for calculating Arizona fiduciary income tax liability is federal taxable income as calculated on the federal form 1041 (U.S. Fiduciary Income Tax Return). The Arizona legislature must approve legislation to conform to the definition of federal taxable income each year. In conforming to the definition of federal taxable income, Arizona accepts the subtractions from gross income allowed by the federal government. These subtractions include:  27 Deduction for interest paid by the estate or trust on amounts borrowed by the estate or trust or on debt acquired by the estate or trust. This includes an investment interest (subject to limitations), qualified residence interest, and any interest payable on any unpaid portion of the estate tax attributable to the value of a reversionary or remained interest in property. Revenue from fiduciary income tax is included in the Individual Income Tax revenues. 14 Return to Table of Contents           Deductible taxes, including state income tax or state and local general sales tax; real property tax; and generation‐skipping transfer tax imposed on income distributions. Deductible fees paid to the fiduciary for administering the estate or trust during the tax year. Charitable deduction. Attorney, accountant and return preparer fees. Other deductions, such as amortizable bond premiums, casualty and theft losses, net operating loss deduction, up to 6% of the fiduciary’s share of qualified domestic production activities and the fiduciary’s share of amortization, depreciation and depletion not claimed elsewhere. Miscellaneous itemized deductions in excess of 2% AGI. Net operating loss deduction. Income distribution deduction. Estate tax deduction. $600 exemption for estates. $300 exemption for trusts in which all income must be distributed currently. $100 exemption for all other trusts. It is not possible to calculate the tax value of these subtractions. Information from the Internal Revenue Service would be required to determine the value and this information is not readily available. ARIZONA SUBTRACTIONS FROM FEDERAL TAXABLE INCOME The Arizona fiduciary income tax return lists the following specific items that can be subtracted from federal taxable income to reach adjusted gross income attributable to Arizona: A.R.S. § 43‐1332 (1): A negative Arizona fiduciary adjustment from another estate or trust is used if Schedule K‐1 indicates a negative difference between the federal and state distributable income. A.R.S. § 43‐1022 (4): Interest income received on U.S. obligations less any interest on indebtedness or other related expenses, and deducted in arriving at Arizona gross income, which were incurred or continued to purchase or carry such obligations. The remaining subtractions on the Arizona fiduciary tax form are entered in aggregate on the “other subtractions from federal taxable income” line. The following is a list of these: A.R.S. § 43‐1022 (2): Benefits, annuities and pensions totaling not more than $2,500 received from the any retirement system or plan established by federal law or the Arizona state retirement system and retirement plan, the corrections officer retirement plan, the public safety personnel retirement plan, the elected officials’ retirement plan, an optional retirement program established by the Arizona Board of Regents, an optional retirement program 15 Return to Table of Contents established by an Arizona community college district board, or a retirement plan established for employees of a county, city or town in Arizona. A.R.S. § 43‐1022 (15): The amounts authorized by A.R.S. § 43‐1027 for converting to qualified wood stoves, wood fireplaces or gas‐fired fireplaces. A.R.S. § 43‐1022 (16): The amount by which a net operating loss carryover or capital loss carryover allowable pursuant to § 43‐1029(F) exceeds the net operating loss carryover or capital loss carryover allowable pursuant to §1341(b)(5) of the IRC. A.R.S. § 43‐1022 (9): The portion of any wages or salaries paid or incurred by the taxpayer equal to the amount of the federal work opportunity credit, the empowerment zone employment credit, the credit for employer‐paid social security taxes on employee cash tips and the Indian employment credit that the taxpayer received under §§ 45A, 45B, 51(a) and 1396 of the IRC. A.R.S. § 43‐1022 (8): The amount allowed by A.R.S. § 43‐1025 for contributions of agricultural crops to charitable organizations. A.R.S. § 43‐1022 (19): The amount authorized by A.R.S. § 43‐1030 relating to holocaust survivors. A.R.S. § 43‐1022 (20): The amount of depreciation allowable per § 167(a) of the IRC calculated as if bonus depreciation for eligible properties had not been claimed for federal purposes. A.R.S. § 43‐1022 (21): For property sold or otherwise disposed of, a subtraction is allowed for the difference in basis for any asset for which federal bonus depreciation had been claimed. A.R.S. § 43‐1022 (3): When the estate or trust is the beneficiary of another estate or trust, the beneficiary’s share of the trust or estate income recognized under the IRC may be subtracted. A.R.S. § 43‐1022 (1): Exemptions are allowed for blind persons ($1,500), persons over 65 years of age ($2,100), dependents ($2,300), and qualifying ancestors that live with the taxpayer and require assistance with activities of daily living ($10,000). A.R.S. § 43‐1022 (5): The excess of a partner’s share of income required to be included under §702(a)(8) of the IRC over income required to be included under chapter 14, article 2 of title 43. A.R.S. § 43‐1022 (6): The excess of a partner’s share of partnership losses determined pursuant to chapter 14, article 2 of title 43 over losses allowable under §702(a)(8) of the IRC. A.R.S. § 43‐1022 (7): The amount by which the adjusted basis of all property which is held for the production of income and which is sold or otherwise disposed of during the taxable year, other than depreciable property used in a trade or business, computed pursuant to title 43 and the income tax act of 1954, as amended, exceeds the adjusted basis of such property computed pursuant to the IRC. A.R.S. § 43‐1022 (10): The amount of winnings less than $5,000 in a taxable year from any of the state lotteries. A.R.S. § 43‐1022 (11): The amount of mining exploration expenses determined pursuant to §617 of the IRC which have been deferred in a taxable year ending before January 1, 1990 and for which a subtraction has not been previously made. 16 Return to Table of Contents A.R.S. § 43‐1022 (12): The amount of Social Security and railroad retirement benefits included in federal taxable income. A.R.S. § 43‐1022 (13): To the extent not already excluded, compensation received for active service as a member of the U.S. armed forces for any month during any part of which the member service in a combat zone. A.R.S. § 43‐1022 (14): The amount of unreimbursed medical and hospital costs, adoption counseling, legal and agency fees and other nonrecurring costs of adoption not to exceed $3,000. A.R.S. § 43‐1022 (17): Any amount of qualified educational expenses distributed from a qualified state tuition program determined pursuant to §529 of the IRC and that is included in income. A.R.S. § 43‐1022 (18): Any item of income resulting from an installment sale that has been properly subjected to tax in another state in a previous year and is included in Arizona gross income in the current taxable year. A.R.S. § 43‐1022 (28): The amount of any net long‐term capital gain included in federal adjusted gross income that is derived from an investment in an asset acquired after December 31, 2011. The subtraction is equal to 10% of the total net long‐term capital gain for tax year 2013, 20% for tax year 2014 and 25% for tax year 2015 and thereafter. A.R.S. § 43‐1333: The income of the estate or trust which is to be distributed or credited during the year to any legatee, heir or beneficiary is allowed as a subtraction from federal taxable income. A.R.S. § 43‐1022 (23): The amount contributed to §529 college savings plans up to $750. A.R.S. § 43‐1022 (25): The amount of previously deferred discharge of indebtedness (DOI) included in gross income for the current year to the extent that the amount was previously added to Arizona income. A.R.S. § 43‐1022 (24): The amount of original issue discount (OID) not allowed to be deducted in computing federal taxable income under IRC § 108(i). A.R.S. § 43‐1022 (26): The net operating loss computed under § of the IRC in effect prior to enactment of special federal net operating loss rules per IRC § 172(b)(1)(H) for losses incurred during 2008 or 2009. In tax year 2015, subtractions on fiduciary tax returns were reported in combination with additions to fiduciary income on the front of the tax return. Therefore, information is only available on the value of subtractions not entirely offset by additions to fiduciary income for a total of $22,866,353. Subtractions for a percentage of any net long‐term capital gains from an investment in an asset acquired after December 31, 2011 would be reported on the front of the tax return for a total of $21,637,637. 17 Return to Table of Contents PREFERENTIAL TAX RATES Fiduciary income tax is calculated according to a graduated tax rate schedule, shown below: At Least But Less Than $0 $ 10,163 2.59% of taxable income $ 10,163 $ 25,406 2.88% of taxable income less $29 $ 25,406 $ 50,812 3.36% of taxable income less $151 $ 50,812 $ 152,434 4.24% of taxable income less $599 $ 152,434 And over 4.54% of taxable income less $1,056 This is a preferential rate structure because different tax rates are imposed on similar taxpayers based on criteria set in statute. Taxpayers with higher incomes are taxed at a higher rate. If a uniform rate were imposed, it is probable that the uniform rate would be an effective tax rate among all taxpayers, making the fiscal impact revenue neutral. Given that legislative action cannot be predicted, we will point out the preferential tax rate structure in law but will not attempt to attach a revenue impact. FIDUCIARY INCOME TAX CREDITS After fiduciary income tax liability is calculated, one credit can be subtracted. If the estate or trust is considered to be a resident of Arizona and also a resident of another state or country, the estate or trust will be allowed a tax credit against the Arizona income tax liability for taxes paid to the other state or country. In 2015, $13,383,570 was claimed as credit for taxes paid to other states or countries. This credit is a direct reduction to tax liability. SUMMARY OF FIDUCIARY INCOME TAX EXPENDITURES – TAX YEAR 2015 SUBTRACTIONS ALLOWED IN CALCULATION OF FEDERAL TAXABLE INCOME Deduction for interest paid Deductible taxes Deductible fiduciary fees Charitable deduction Attorney, accountant and return preparer fees Other miscellaneous deductions Net operating loss deduction Miscellaneous itemized deductions in excess of 2% of AGI 28 No Information Available. 18 Return to Table of Contents NIA28 NIA NIA NIA NIA NIA NIA NIA Income distribution deduction Estate tax deduction $600/$300/$100 estate or trust exemption TOTAL VALUE OF SUBTRACTIONS ALLOWING IN FEDERAL TAXABLE INCOME ARIZONA SUBTRACTIONS FROM FEDERAL TAXABLE INCOME Negative Arizona fiduciary adjustment from another estate or trust Interest income on U.S. obligations U.S./State pensions not over $2,500 Qualified wood stoves and fireplaces Excess operating loss carryover Certain federal credits Contribution of agricultural crops Holocaust survivors Recalculated Arizona depreciation Basis adjustment for property sold or disposed Federal income from other fiduciaries Exemptions for blind persons, persons over 65, dependents and qualifying ancestors Partner’s share of income Partner’s share of loss Sale of income‐producing property State lottery winnings Mining exploration expenses Social Security benefits Compensation for armed forces active service Adoption costs Qualified educational expenses Installment sale subject to tax in another state Percentage of total net long‐term capital gain from taxable assets acquired after December 31, 2011 Arizona distribution to beneficiaries Contributions to §529 college savings plan Previously deferred discharge of indebtedness Original issue discount Other subtractions TOTAL VALUE OF ARIZONA SUBTRACTIONS FROM FEDERAL TAXABLE INCOME 29 No Information Available 19 Return to Table of Contents NIA29 NIA NIA NIA NIA NIA NIA NIA NIA NIA NIA NIA NIA NIA NIA NIA NIA NIA NIA NIA NIA NIA NIA NIA NIA NIA $21,383,570 NIA NIA NIA NIA 22,866,353 $44,249,923 FIDUCIARY INCOME TAX CREDITS Taxes paid to other states or countries TOTAL VALUE OF FIDUCIARY INCOME TAX CREDITS TOTAL QUANTIFIABLE FIDUCIARY INCOME TAX EXPENDITURES30 30 $13,383,570 $13,383,570 $57,633,493 These expenditures represent forgone revenues to the state general fund and to the urban revenue sharing fund, which is distributed to incorporated cities and towns. 20 Return to Table of Contents FLIGHT PROPERTY TAX EXPENDITURES – FISCAL YEAR 2016/17 TAX COLLECTED BY: Arizona Department of Revenue FISCAL YEAR 2016/17 TOTAL STATE REVENUE COLLECTED: $10,313,71831 TOTAL FY 2016/17 TAX EXPENDITURE: $3,315,973 TAX EXPENDITURE AS A PERCENT OF TOTAL REVENUE: 24.3% Airline companies in Arizona pay a tax on flight property within the state. The taxable value, or net assessed value, of the flight property is determined by multiplying the full cash value by an assessment ratio. The tax rate applied to the net assessed value is the statewide average tax rate, which was 12.95% in tax year 2016. FLIGHT PROPERTY TAX EXEMPTIONS A.R.S § 42‐14254.C: Small flight property that is operated in this state in air commerce shall be valued at thirty per cent of its original cost less depreciation and additional allowed obsolescence. "Small flight property" means all airline company aircraft of the types that are used in this state, not permanently removed from operations, with a maximum passenger capacity of less than fifty‐six seats and a maximum payload capacity of less than eighteen thousand pounds. Had the taxable value been 100%, the state would have raised $368,187 more in fiscal year 2016/17. PREFERENTIAL ASSESSMENT RATIO A.R.S § 42‐14255: Arizona statute sets the assessment ratios to be used in determining the net assessed values of the various classes of property. These assessment ratios range from 18% to 5%. For flight property, the assessment ratio is equal to the ratios that the total net assessed valuation of all taxable property for primary and secondary tax purposes in class one and class six, paragraph 3 and personal property in class two bears to the total limited valuation used for primary tax purposes of such property. For tax year 2016 the assessment ratio used for flight property was 14%. This is considered a preferential assessment ratio because it is an average of the ratio is several other classes of property. If flight property had an assessment ratio equal to the highest assessment ratio imposed, 18%, tax collections would have increased by $2,947,786. 31 Source: Department of Revenue Annual Report, FY 2017 21 Return to Table of Contents SUMMARY OF FLIGHT PROPERTY TAX EXPENDITURES – TAX YEAR 2016/17 FLIGHT PROPERTY TAX EXEMPTION Tax value at 30% for small airplanes $368,187 FLIGHT PROPERTY PREFERENTIAL ASSESSMENT RATIO Preferential assessment ratio at 14% $2,947,786 TOTAL QUANTIFIABLE FLIGHT PROPERTY TAX EXPENDITURES 32 This amount represents foregone revenue to the state aviation fund. 22 Return to Table of Contents 32 $3,315,973 IN LIEU PROPERTY TAX EXPENDITURES – FISCAL YEAR 2016/17 TAX COLLECTED BY: County Treasurer’s Offices FISCAL YEAR 2016/17 TOTAL STATE REVENUE COLLECTED: NA TOTAL FY 2016/17 TAX EXPENDITURE: NIA TAX EXPENDITURE AS A PERCENT OF TOTAL REVENUE: NA Irrigation districts, power districts, electrical districts or agricultural improvement districts directly engaged in the sale of electric power or energy other than for irrigation purposes may elect to make voluntary contributions to Arizona and the political subdivisions thereof for property taxes. These districts are not legally liable for property taxes imposed by the state and the political subdivisions, so these voluntary contributions are known as in lieu property taxes. (However, per A.R.S. § 9‐432B, water may not be transported from remote municipal property by a city, town or political subdivision unless voluntary contributions have been paid.) The Department of Revenue determines the full cash value of the district electing to make in lieu property tax payments. The county assessor of each county where district electric facilities are located computes the gross contribution to be made. The district may subtract certain amounts from this gross contribution figure. IN LIEU PROPERTY TAX SUBTRACTIONS A.R.S. § 48‐242 (C)(1): A subtraction is allowed for the contribution related to that portion of the electric system related to pumping water. A.R.S. § 48‐242 (C)(2): A deduction of $10,000 is allowed from the gross contribution. A.R.S. § 48‐242 (C)(3): Certain taxes or assessments paid to any political subdivision during the preceding calendar year may be deducted from the gross contribution. A.R.S. § 48‐242 (C)(4): The annual average of the total water costs devoted to municipal use during the last three calendar years is deductible from the gross contribution. The effect of these subtractions from the gross contribution amount is that the district in question pays a certain percentage of the gross contributions. The primary contributor, Salt River Project, paid approximately 84.68% of the tax that would have been levied in fiscal year 2016/17 had they been legally bound to pay property tax. Given the repeal of the state rate, the dollar expenditure that previously appeared in this report is no longer applicable. However, because the exemptions filter through to the tax base at the local level, descriptions of the exemptions remain. 23 Return to Table of Contents INDIVIDUAL INCOME TAX EXPENDITURES – FISCAL YEAR 2016/17 TAX COLLECTED BY: Arizona Department of Revenue FISCAL YEAR 2016/17 TOTAL STATE REVENUE COLLECTED: $4,131,620,86133 TOTAL FY 2016/17 TAX EXPENDITURE: $394,654,932 for Individual, $57,633,496 for Fiduciary. (Only credits are included in this preliminary report.) TAX EXPENDITURE AS A PERCENT OF TOTAL REVENUE: 11% No information is available on individual income tax expenditures at this time. At the final printing of this publication, all data will be included. The individual income tax information in the final report will be made available through the 2015 Individual Income Tax Simulation Model. INDIVIDUAL INCOME TAX CREDITS A tax credit differs from an exemption, subtraction or deduction in that it directly reduces tax liability rather than taxable income. A $100 deduction, for example, would reduce tax liability by $4.54 at most ($100 time the maximum tax rate of 4.54%). On the other hand, a $100 credit reduces tax liability by the full $100. The first group of credits identified below is claimed on the front of the Arizona income tax return or, in the case of the property tax credit and the increased excise taxes paid credit, can be claimed on a separate form without filing an income tax return. A.R.S. § 43‐1072: The property tax credit program provides tax relief to the state’s low‐income elderly. Under this program, full‐year residents age 6 or older with a household income of less than $5,500 are eligible for credits ranging from $56 to $502. The property tax credit is refundable, meaning that those eligible for the credit receive money even if they had no income tax liability. A.R.S. § 43‐1072.01: A refundable credit is allowed against income tax to mitigate the increase in transaction privilege tax rates for education. To qualify, claimants must have federal adjusted gross income of $25,000 or less for married filing jointly or $12,500 or less for single filers. The credit shall not exceed $25 for each person who is a resident and for whom a personal or dependent exemption is allowed, with a maximum credit of $100 per household. A.R.S. § 43‐1073: Single and married filing separately filers with a federal adjusted gross of $10,000 or less, and married filing jointly filers with a federal adjusted gross income of $31,000 or less may claim the family tax credit. The amount of the credit is set at $40 per person in the 33 Source: Department of Revenue Annual Report, FY 2017 24 Return to Table of Contents household and is capped at $240 for married filing jointly and unmarried head of household filers, and $120 for single and married filing separately filers. Other credits are filed on a separate schedule and claimed on one line on the front of the income tax return. In many instances, the credit claimed exceeds the tax liability on the return. With credits that are non‐refundable, the unused portion of the credit is superfluous. (The excess, for most credits, can be carried forward to future years.) For this reason, in order to generate the true expenditure associated with credits, each credit claim must be reviewed. A.R.S. § 43‐1071: The majority of the credits claimed in terms of dollars and volume are for taxes paid to other states or countries. A.R.S. § 43‐1074: Enterprise zone credits are income tax credits provided for non‐retail businesses located in an enterprise zone established under Arizona law who have a net increase in employment of qualified employees, as certified by the Arizona Commerce Authority. A maximum of $500 per each net new employee can be claimed in the first or partial year of employment. In the second year of continuous employment, a maximum of $1,000 per net new employee can be claimed. The limit in the third year of continuous employment is $1,500 per net new employee. A sunset date was set in statute of June 30, 2011. Carry forward is allowed for 5 years after that date. A.R.S. § 43‐1074: This statute now governs the new employment credit which is for net increases in qualified employment positions. To qualify for the credit, the taxpayer must invest at least $5 million in capital investment and create at least 25 new qualified positions in an Arizona city or town with a population of 50,000 or more, or invest at least $1 million in capital investment and create at least 5 new qualified positions in any other Arizona location. The amount of credit is determined and authorized by the Arizona Commerce Authority. A.R.S. § 43‐1074.01: The research and development tax credit is calculated based on calculations done for the federal research and development tax credit. The amount of the credit is based on the excess of the qualified research expenses for the taxable year over a base amount. Beginning with tax year 2010, taxpayers employing fewer than 150 persons may have their research and development credit refunded, to the extent that it exceeds tax liability. Approval for the refundable credit by Arizona Commerce Authority is required. An additional credit for research payments made to a university under the jurisdiction of the Arizona Board of Regents, as certified by the Arizona Commerce Authority and the Department of Revenue. A.R.S. § 43‐1074.02: The credit for investments made in a qualified small business is based on a percentage of the investment amount and depends on the location or type of the qualified small business. The amount of credit is determined and authorized by the Arizona Department of Commerce. 25 Return to Table of Contents A.R.S. §§ 43‐1075 and 43‐1075.01: A nonrefundable, transferable credit is allowed for a motion picture production company that produces motion pictures completely or partially in Arizona and for the construction of an eligible infrastructure. The taxpayer must receive pre‐approval and post‐approval from the Arizona Commerce Authority. This credit had a repeal date of taxable years beginning from and after January 1, 2011 when enacted. The carry forward period available is five years. A.R.S. § 43‐1076: The recycling equipment credit was an income tax credit for businesses or individuals that acquire and place in service recycling equipment in the state. The credit was repealed for taxable years beginning from and after January 1, 2003 and only available to the extent that the taxpayer had unused carry forward from prior years. A.R.S. § 43‐1076 and 43‐1076.01: These statutes govern the credit for businesses that enhance or sustain forest health, sustain or recover watershed or improve public safety or for training new qualified employment positions, as certified by the Arizona Commerce Authority. A.R.S. § 43‐1079: The military reuse zone credit is a tax credit for net increases in employment by the taxpayer of full‐time employees working in a military reuse zone who are primarily engaged in manufacturing, assembling or fabricating aviation or aerospace products. The amount of the credit is determined by a dollar amount allowed for net new employee positions other than dislocated military base employees and by a dollar amount allowed for net new dislocated military base employee positions. A.R.S. § 43‐1079.01: A credit is allowed to each taxpayer whose employee is a member of the Arizona national guard if the employee is placed on active duty. The amount of the credit is $1,000 for each employee placed on active duty. A.R.S. § 43‐1080: A tax credit is provided for expenses incurred in constructing a qualified environmental technology manufacturing, producing or processing facility. The amount of the credit is 10% of the amount spent during the taxable year to construct the facility. A.R.S. § 43‐1081: The pollution control device credit is a tax credit for expenses incurred to purchase real or personal property that is used in Arizona in the taxpayer’s trade or business to control or prevent pollution. The amount of the credit is the lesser of 10% of the purchase price or $500,000. A.R.S. § 43‐1081.01: A credit is allowed for expenses that a taxpayer (involved in the commercial production of livestock, livestock products or agricultural, horticultural, viticultural or floricultural crops or products) incurs to purchase tangible personal property that is primarily used in the taxpayer’s trade or business in Arizona to control or prevent pollution. A.R.S. § 43‐1083: A solar energy credit is provided for an individual who installs a solar energy device in his or her residence in Arizona. The credit for buying or installing such a device is 25% of the cost, including installation, or $1,000, whichever is less. A.R.S. § 43‐1083.01: A refundable credit is allowed for expanding or locating qualified renewable energy operations in Arizona. The credit is up to 10% of the taxpayer’s total capital 26 Return to Table of Contents investment in Arizona if 1.5 new full‐time employment positions are created for each $500,000 of new capital investment for manufacturing operations or 1 new full‐time employment position is created for each $200,000 in capital investment for headquarters. For other qualifying renewable energy investment, the credit is 10% of $500,000 for each 1.5 new full‐ time employment positions created in manufacturing operations or 10% of $200,000 for each 1 full‐time employment position created for headquarters, neither of which can exceed 10% of the taxpayer’s total capital investment. Approval from the Arizona Commerce Authority is required. A.R.S. § 43‐1083.02: A credit is allowed for production of electricity by a qualified energy generator that produces energy using solar light, solar heat, wind or biomass. Approval from the Arizona Department of Revenue is required to take the credit. No more than $20 million can be approved in a calendar year. A.R.S. § 43‐1083.03: A refundable credit is allowed for expanding or locating a new qualified facility in Arizona. A qualified facility is a facility that devotes at least 80% of the property and payroll at the facility to qualified manufacturing, qualified headquarters or qualified research. Approval from the Arizona commerce Authority is required to take the credit. No more than $70 million (in conjunction with the renewable energy industry credit) can be approved in a calendar year and no more than $30 million per taxpayer. A.R.S. § 43‐1083.04: A credit is allowed for investment in new renewable energy facilities that produce energy for self‐consumption using renewable energy resources if the power will be used primarily for manufacturing or for international operations centers. Approval from the Arizona Department of Revenue is required to take the credit. No more than $10 million can be approved in a calendar year. A.R.S. § 43‐1084: A credit is allowed for expenses incurred by a taxpayer to purchase and install an agricultural water conservation system. The agricultural water conservation system must be primarily designed to substantially conserve water on land that is used to produce agricultural products, raise, harvest or grow tress, or sustain livestock. The amount of the credit is 75% of the qualifying expenses. A.R.S. § 43‐1085: A credit is provided for installing one or more solar energy devices for commercial or industrial purposes in the taxpayer’s trade or business. The credit is 10% of the installed cost of the device, not to exceed $25,000 per taxpayer per building or $50,000 total in a year. This credit must be approved by the Arizona Commerce Authority. A.R.S. § 43‐1085.01: The solar liquid fuel research and development credit is for increased research activities related to solar liquid fuel. The credit is 40% of the excess of Arizona qualified research expenses over a base amount. A.R.S. § 43‐1086: An income tax credit is available if a taxpayer makes cash donations to the Arizona Department of Veteran’s Services Military Family Relief Fund. There is a $1 million cap on donations. 27 Return to Table of Contents A.R.S. § 43‐1087: An income tax credit is allowed for net increases in qualified employment of recipients of temporary assistance for needy families who are Arizona residents. A maximum of $500 per each net new employee can be claimed in the first year of employment, $1,000 in the second year of employment and $1,500 in the third year. A.R.S. § 43‐1087.01: An income tax credit is allowed for employers with at least two but no more than 50 employees that provide qualified health plans or contributions to health savings accounts for its employees who are Arizona residents. The credit amount is $360 for every employee who is enrolled in the qualified health insurance plan. The credit set a repeal date of taxable years beginning from and after January 1, 2014 when enacted. A.R.S. § 43‐1088: A credit is allowed for the amount of voluntary cash contributions to a charitable organization that spends at least 50% of its budget on services to Arizona residents who received TANF benefits or low‐income Arizona residents (income of less than 150% of the federal poverty level). The credit amount is up to $400 for married filing jointly taxpayers and $200 for all other taxpayers. A.R.S. § 43‐1089: The private school tuition organization credit is allowed for cash contributions to a school tuition organizations up to $1,000 for married filing jointly filers and $500 for all other taxpayers. The credit amounts are adjusted annually for inflation. A.R.S. § 43‐1089.01: An income tax credit is allowed for the amount of fees paid to an Arizona public school for the support of extracurricular activities or character education. The credit is for up to $400 for married filing jointly taxpayers and $200 for all other taxpayers. A.R.S. § 43‐1089.02: The school site donation credit is for donation of real property and improvements to a school district or charter school for use as a school or a site for the construction of a school. The amount of the credit is 30% of the value of real property and improvements donated. A.R.S. § 43‐1089.03: The private school tuition organization “switcher” credit is allowed for cash contributions to a school tuition organization that exceed the original private school tuition organization credit (A.R.S. § 43‐1089). The amount of the credit is capped at $1,000 for married filing jointly filers and $500 for all other taxpayers. The credit amounts are adjusted annually for inflation. A.R.S. § 43‐1089.04: A credit is allowed for a pro rata share of cash contributions to a school tuition organization pursuant to § 43‐1183 (and § 43‐1184 for scholarships to students with disabilities or displaced students) based on the individual’s ownership in the S corporation. The aggregate contribution, as approved by the Arizona Department of Revenue, must be at least $5,000. A.R.S. § 43‐1090: A credit is allowed for costs incurred in installing an electric vehicle recharge outlet and for solar hot water plumbing stub outs in one or more houses in Arizona constructed by the taxpayer. The amount of the credit is equal to the lesser of $75 or the installation cost for each stub out or recharge outlet in each separate house or dwelling unit. 28 Return to Table of Contents A.R.S. § 43‐1090.01: A credit is allowed for installing a water conservation system in a taxpayer’s Arizona residence. The amount of the credit is 25% of the cost of the system not to exceed $1,000 for the same residence. This credit had a repeal date of taxable years beginning from and after January 1, 2012 when enacted. The carry forward period available is five years. Preliminary data for tax year 2015 is shown in the following table. Asterisks indicate instances in which release of information would breach confidentiality laws. TYPE OF CREDIT Property tax credit Credit for increased excise taxes paid Family tax credit Credit for taxes paid to other states or countries Enterprise zone credit New employment credit Research and development credit Refundable research and development credit Additional research and development for university research Investment in qualified small business credit Motion picture production and infrastructure credit Recycling equipment credit Healthy forest enterprise Healthy forest enterprise workforce training Military reuse zone credit Employing National Guard members credit Environmental technology credit Pollution control device credit Agricultural pollution control equipment credit Solar energy device credit Renewable energy industry credit Qualified Facilities Renewable energy for self‐consumption tax credit Renewable energy production tax credit Agricultural water conservation system credit Commercial and industrial solar energy credit Solar liquid fuel research & development credit Donations to the military family relief fund credit Employment of TANF recipients credit Qualified health insurance plans credit Contributions to qualifying charitable organizations credit 34 # OF CLAIMS 19,345 620,579 594,928 63,220 11 7 722 434 0 349 0 0 4 3 ** ** ** 7 4 7,961 0 0 0 5 126 123 0 3,118 ** 4 130,419 These taxpayers are already included in the research and development credit count. 29 Return to Table of Contents 2015 $ used $7,526,953 30,835,109 4,417,745 149,668,202 32,030 61,338 12,178,364 121,369 0 1,455,096 0 0 36 158 ** ** ** 29,041 18,342 4,166,795 0 0 0 241,707 2,150,572 465,781 0 980,331 ** 7,480 $36,796,635 TYPE OF CREDIT Private school tuition organization credit Private school tuition organization “switcher” credit Corporate contributions to school tuition organization Corporate contributions to school tuition organizations for disabled or displaced students Public school fees and contributions credit School site donation credit Solar hot water heater plumbing stub outs and electric vehicle recharge outlet credit Water conservation systems credit TOTAL VALUE OF ALL CREDITS35 35 # OF CLAIMS 92,554 41,532 129 2015 $ used $64,819,262 28,986,576 3,651,946 12 168,809 10 54,393 45,936,328 35,960 124 10,036 6 226 1,744,117 $394,654,932 Figures for all credits are subject to change. The total value is for all credits, including those for which information cannot be divulged individually. 30 Return to Table of Contents INSURANCE PREMIUM TAX EXPENDITURES36 ‐ FISCAL YEAR 2016/17 TAX COLLECTED BY: Arizona Department of Insurance FISCAL YEAR 2016/17 TOTAL STATE REVENUE COLLECTED: $541,768,49937 TOTAL FY 2016/17 TAX EXPENDITURE: $253,031,965 TAX EXPENDITURE AS A PERCENT OF TOTAL REVENUE: 31.8% Each admitted insurer doing business in the state is required to annually report its total direct premium income to the Arizona Department of Insurance. A.R.S. § 20‐224: Total direct premium income excludes “...applicable cancellations, returned premiums, the amount of reduction in or refund of premiums allowed to industrial life policyholders for payment of premiums direct to an office of the insurer, all policy dividends, refunds, savings coupons and other similar returns paid or credited to policyholders within this state and not reapplied as premiums for new, additional or extended insurance.” Direct premium income also excludes “considerations received on annuity contracts,” as well as the “unabsorbed portion of any premium deposit.” No information is available on the value of these exclusions from direct premium income because insurers are not required to report this information to the Department of Insurance. However, there is data available for “considerations received on annuity contracts.” Insurance companies (excluding fraternal benefit societies) reported $4.6 billion in these considerations which, if taxed at a two‐percent rate, would have resulted in $92.3 million in revenues to the state in fiscal year 2016/17. A.R.S. §§ 20‐674(b), 20‐692(b): Insurers subject to Guaranty Fund assessments may offset their premium tax liabilities “in the amount of 20% of the assessment for the year of assessment and 20% of the assessment in each of the succeeding four years.” Because insurers have not been assessed by either of the Insurance Guaranty Funds for over five years, no credits emanating from Guaranty Fund assessments were available to offset calendar year 2016 premium tax liabilities (and thus, Fiscal Year 2016/17 tax revenues). Assessments however are likely to be levied in Calendar Year 2017. A.R.S. § 20‐167(D): Domestic life and disability insurers that pay their certificate of authority renewal fees are eligible for credits against their insurance premium taxes. Insurers are not able to receive a refund for, or carry forward, any unused credit. For Calendar Year 2016, insurers reduced their tax liabilities by a total of $3.7 thousand. During 2017, Arizona enacted legislation repealing this credit; therefore 2016 was the last calendar year for this tax expenditure. 36 37 All information presented on the insurance premium tax was provided by the Arizona Department of Insurance. Source: 2017 Tax Handbook, Joint Legislative Budget Committee 31 Return to Table of Contents ARS § 20‐224.03: Allows a credit to a taxpayer that makes a required level of capital investment in Arizona and that has a minimum number of qualified employment positions (full‐time employees for which the employer pays at least 65% of health benefit costs and to whom the employer pays at least the median wage by county computed by the Arizona Commerce Authority). A qualifying employer is permitted a tax credit of $3,000 for each qualified employment position for each of three years of continuous employment. For Calendar Year 2016, insurers used this credit to reduce their tax liabilities by an aggregate of $5.5 million. ARS § 20‐224.04: A credit is provided to insurers that have offices established in military reuse zones and that meet other requirements. No insurer has claimed the military reuse zone credit since its inception. During 2017, Arizona enacted legislation repealing this credit therefore, 2016 was the last Calendar Year for the tax expenditure. A.R.S. §§ 20‐224.06, 20‐224.07: A tax credit is allowed for insurers that make voluntary contributions to school tuition organizations and exclude the credits from the retaliation calculation prescribed by ARS § 20‐230, described later. Insurers reduced their Calendar year 2016 taxes by $26.7 million. A.R.S. §§ 20‐224.05, 43‐210: A tax credit is allowed to an insurer that issues health insurance coverage to individuals and small businesses who are certified by the Department of Revenue as meeting prescribed qualifications. The Act requires the Department of Revenue to limit certifications such that the aggregate credits to which insurers will be entitled shall not exceed $5 million. An insurer is owed a tax refund or tax credit carry‐forward for unused credit issued pursuant to the Act. In the aggregate, insurers reduced their calendar year 2016 tax liability by $4.6 million with health insurance coverage credits. The tax rates prescribed in ARS § 20‐224 that apply to life insurance premiums and non‐fire property and casualty premiums will change from 2% to the following: For premiums written in 2016, 1.95%; in 2017, 1.90%, in 2018, 1.85%; in 2019, 1.80%, in 2020, 1.75%; in 2021 and after, 1.70%. [Laws 2016, Ch. 358 (HB 2002)]. The revenue reduction will be mitigated by some increase in retaliation due pursuant to ARS § 20‐230 from foreign insurers whose domiciles charge Arizona‐domiciled insurers taxes, fees and other obligations that exceed the taxes, fees and obligations that Arizona imposes upon those foreign insurers. During Calendar Year 2016, insurers transacted $10.2 billion in premium subject to the tax rate that changed from 2% to 1.95%. Had the tax rate remained at 2% Arizona would have received $5.1 million in additional tax revenue. However, as earlier noted, retaliation revenue increased as a result of the decrease in Arizona’s tax rate, mitigating the impact of the tax rate decrease. A.R.S. § 20‐416: Surplus lines insurers do not remit ordinary premium tax. Instead, surplus lines brokers are responsible for remitting premium taxes collected from insureds when coverage is placed in the surplus lines market. The tax rate is 3% of gross premiums and fees less certain prescribed statutory reductions. 32 Return to Table of Contents A.R.S. § 20‐416: Surplus lines brokers are not required to collect and remit insurance premium tax on “...reinsurance, ocean marine and foreign trade insurance, insurance on subjects located, resident or to be performed wholly outside this state, insurance on vehicles or aircraft owned and principally garaged outside this state, or insurance on property or operations of railroads engaged in interstate commerce.” A.R.S. § 20‐420(A): Surplus lines tax is not imposed on coverage provided to federally recognized Native American governments in accordance with Attorney General Opinion I95‐13 (R95‐11). Surplus lines tax is not imposed on coverage provided to the State of Arizona pursuant to ARS § 41‐621(F), which exempts the Department of Administration from the provisions of Title 20, Chapter 2, Article 5 ‐‐ the Article that, in part, imposes the surplus lines tax. Excluding reinsurance and insurance on extra‐state risks (which are excluded from taxation for admitted insurers), surplus line brokers reported $3.9 million in premiums exempted from premium taxes due in Fiscal Year 2016/17. The tax on these premiums would have been $412.3 thousand if they were taxed at the 3% rate at which non‐exempt surplus lines premiums are taxed. Under some circumstances, surplus lines brokers may not be required to report tax‐ exempt premium; therefore, the total impact is not known. Beginning August 6, 2016 (which affects taxes due beginning in FY 2017), fees charged by an insurance producer in connection with the transaction of surplus lines insurance will not be subject to tax. [Laws 2016, Ch. 38 (HB 2149)]. A.R.S. § 20‐224(B): Insurers are required to pay a 2.2% tax on fire insurance premiums “... except that the tax on fire insurance premiums on property located in [qualified locations including] incorporated cities or towns that procure the services of private fire companies....” is 0.66%. The State Treasurer apportions eighty‐five percent of fire insurance premium taxes to fire districts and municipalities for the retirement plans of firefighters [ARS §§ 20‐224(C), 9‐951, 9‐952, 9‐972]. The remaining 15% of fire insurance premium taxes are deposited with the General Fund (ARS § 20‐227). In calendar year 2016, insurers wrote $3.1 million of taxable fire insurance premium for risks in qualified locations resulting in $20.5 thousand in insurance premium tax paid during fiscal year 2016/17 for those risks. If risks in qualified locations were subject to the 2.2% tax rate applied to other fire insurance premiums, insurers would have paid $68.2 thousand in fiscal year 2016/17, a difference of $47.7 thousand. The effect of the tax rate difference may be mitigated by the retaliation calculation required by ARS § 20‐230, described later. Title 20, Chapter 4, Article 14: Arizona law does not impose a premium tax on captive insurers licensed. All other states that license captive insurers impose an insurance premium tax. The Director of Insurance has discretion over the license fees and renewal fees imposed upon captive insurers, and those fees are higher than the fees for other types of insurers licensed in Arizona and the fees captive insurers pay in some other states. Other states tax captive insurer 33 Return to Table of Contents premiums at lower tax rates than other types of insurer premiums but tax nationwide premiums (rather than just intra‐state premiums). The other states tax insurance and reinsurance (rather than only insurance). Vermont was one of the first states to license captive insurers and it has the most captive insurers licensed of any state. In total, Arizona captive insurers reported $6.6 billion in premiums exempted from calendar year 2016 premium tax. If Arizona applied Vermont’s captive insurance tax structure, Arizona would have collected $3.9 million in captive insurance premium tax. During fiscal year 2016/17, the Department collected $0.6 million in license renewal fees from captive insurers. If Arizona replaced its $5,500 captive insurer renewal fee with Vermont’s $500 captive insurer renewal fee and adopted Vermont’s captive insurance premium tax structure, Arizona would have collected an additional $3.3 million. A.R.S. § 20‐837: The premium tax for non‐profit hospital, medical, dental and optometric service corporations does not apply to “any coverage concerning which the corporation’s relationship is as administrative or fiscal agent for national, state or municipal government or any political subdivision body thereof and such tax shall not apply with respect to any premiums received from funds of national, state or municipal government or any political subdivision or body thereof.”. The total of exempted net premiums in calendar year 2016 was $225.4 million and if the State were able to apply the 2% tax rate, the State would have collected $4.5 million in additional premium taxes in fiscal year 2016/17. 42 U.S.C. § 1395w‐24(g): “The Medicare Prescription Drug Improvement and Modernization Act of 2003” prohibits states from taxing Medicare Advantage premiums. In calendar year 2016, insurers reported a total of $3.9 billion subject to this preemption. If those premiums were subject to the Arizona 2% tax rate, the state would have collected $79.0 million in fiscal year 2016/17. 5 U.S.C. §§ 8714 and 8909(f): Life and health insurance premiums paid by the Federal Employee Health Benefits Fund are exempt from taxation by the states. In calendar year 2016, the FEHB Fund paid $668.1 million to provide life and health coverage for Federal employees in Arizona. If Arizona were able to tax those premiums at a 2% rate, the state would have collected $13.4 million in fiscal year 2016/17. 7 U.S.C. § 1511: Premiums for farm owners’ multiperil coverage reinsured by the Federal Crop Insurance Corporation are exempt from state insurance premium taxation. In calendar year 2016, insurers collected $85.0 million in premiums reinsured by the FCIC which, if taxed at a 1.95% rate, would have resulted in an additional $1.7 million and being collected in fiscal year 2016/17. ARS § 20‐2304(J): Small group health insurance policies written by accountable health plans from insurance premium tax are exempt. During Calendar Year 2016, insurers received $660.9 million in premiums for health benefits plans issued to small employers by accountable health 34 Return to Table of Contents plans. Had the 2% tax rate applied, an additional $13.2 million would have been deposited to the General Fund in fiscal year 2016/17. ARS § 20‐883: Fraternal benefit societies qualified under ARS § 20‐893 are exempted from insurance premium taxes (and from other state, county, district, municipal and school taxes). Fraternal benefit society premiums exempted from tax totaled $167.1 million for calendar year 2016. Had these premiums been subject to a 1.95% tax rate, the State would have collected $3.2 million more in fiscal year 2016/17. ARS § 20‐230: The Department of Insurance is required to impose on foreign and alien insurers the same taxes, fees, fines, penalties, licenses, deposit and other obligations that the laws of their domicile impose on Arizona insurers doing business in their state or country. Because the amount of retaliatory tax that foreign and alien insurers pay relies on the tax rates, fees, assessments, credits, etc. in the insurers’ states of domicile, no method exists to calculate the exact effect Arizona would realize if the foregoing qualifications and exemptions of insurance premium taxes were not in place. Additionally, retaliation is extremely difficult to calculate because of differences in the ways that states tax each type of insurers or each class of insurance, and the variety of additional fees, credits and other obligations that apply to insurers in each state. Therefore, the tax expenditure estimates exclude the possible consequential effects on the retaliation calculation. It is fair to say, however, that retaliation revenues could fall if Arizona imposed additional taxes or fees, or eliminated tax credits that were part of the retaliation calculation. And conversely, with the implementation of tax rate reductions instituted pursuant to Laws 2016, Ch. 358 (HB 2002), and retaliation revenues increase. SUMMARY OF INSURANCE PREMIUM TAX EXPENDITURES FISCAL YEAR 2016/17 SUBTRACTIONS FROM TOTAL PREMIUM INCOME: Applicable cancellations Returned premiums Reduction or refund for direct payment of industrial life insurance Policy dividends Refunds Savings coupons Other similar returns paid or credited to policyholders not reapplied as premiums Considerations received on annuity contracts (excludes tax expenditures relating to considerations received by fraternal benefit societies) 38 No Information Available 35 Return to Table of Contents NIA38 NIA NIA NIA NIA NIA NIA $92,318,897 NIA39 $92,318,897 Unabsorbed portion of any premium debt TOTAL VALUE OF SUBTRACTIONS AVAILABLE TAX CREDITS: Insurance guaranty fund assessment tax credit Domestic life and disability insurer tax credit Qualified jobs tax credit Enterprise zone and military reuse zone tax credits School tuition organization contributions credits Health insurance certificates for qualified persons TOTAL VALUE OF CREDITS $0 3,689 5,529,000 0 26,723,951 4,609,642 $36,866,282 DECREASING TAX RATES Tax rate reduction applicable to life and non‐fire property and casualty premiums (starts in FY 2017) $5,090,473 EXEMPTIONS FOR SURPLUS LINE INSURANCE: Ocean marine and foreign trade insurance Insurance on property or operations of railroads engaged in interstate commerce Insurance on federally reorganized Native American governments Insurance on the State of Arizona Subtotal – insurance premiums exempt from taxation Fees charged by insurance producers in connection with transactions TOTAL EXEMPTIONS FOR SURPLUS LINES INSURANCE NIA NIA NIA NIA $412,335 NIA $412,335 PREFERENTIAL RATE ON QUALIFIED FIRE INSURANCE: Preferential rate $47,749 ABSENCE OF CAPTIVE INSURANCE PREMIUM TAX Absence of tax 39 $3,309,299 No Information Available 36 Return to Table of Contents GOVERNMENT PROGRAM EXEMPTIONS: Hospital, medical, dental and optometric service corporation premiums paid by federal, state and municipal governments Medicare Advantage Plan premiums Life and health insurance premiums paid by the Federal Employee Health Benefits Fund Premiums for coverage reinsured by the Federal Crop Insurance Corporation Accountable health plan group health insurance to small employers Exempt fraternal benefit societies – annuities Exempt fraternal benefit societies – other than annuities TOTAL VALUE OF GOVERNMENT PROGRAM EXEMPTIONS $4,507,473 78,982,910 13,361,352 1,657,328 13,218,450 2,092,277 1,167,140 $114,986,930 TOTAL QUANTIFIABLE INSURANCE PREMIUM TAX EXPENDITURES40 $253,031,965 40 This amount represents foregone revenue to the state general fund. 37 Return to Table of Contents JET FUEL EXCISE AND USE TAX EXPENDITURES – FISCAL YEAR 2016/17 TAX COLLECTED BY: Arizona Department of Revenue FISCAL YEAR 2016/17 TOTAL STATE REVENUE COLLECTED: $4,270,83041 TOTAL FY 2016/17 TAX EXPENDITURE: $6,134,819 TAX EXPENDITURE AS A PERCENT OF TOTAL REVENUE: 59% Arizona imposes a tax of 3.05¢ per gallon on the first ten million gallons of jet fuel sold. Jet fuel is defined as being expressly manufactured and blended for operating jet or turbine powered aircraft. The jet fuel use tax rate is also a 3.05¢ per gallon and is levied on the first ten million gallons of jet fuel stored, used or consumed. The use tax applies to purchasers who originally purchased jet fuel for resale but instead used or consumed the jet fuel and on which excise tax has not been paid. The excise tax does not apply to the sale or use of jet fuel that has already been taxed by another state unless the tax imposed by another state is less than Arizona’s tax rate. The difference between Arizona’s rate and the rate of the other state is what will be levied and collected. PREFERENTIAL JET FUEL TAX RATES Amounts of jet fuel sold over ten million gallons are not subject to the excise or use tax. Fiscal year 1993/94 was the last year that amounts over ten million gallons were taxed. In that year, 179.4 million gallons were taxed at the over ten million gallon tax rate of 1.05¢ per gallon. Using the same growth rate that has been experienced with jet fuel of less than ten million gallons, an additional $6.1 million could have been generated in fiscal year 2016/17 if sales of jet fuel over ten million gallons were taxed at 3.05¢ per gallon. JET FUEL TAX EXEMPTIONS A.R.S. § 42‐5354: Jet fuel sold to commercial airlines and used on flights that originate in Arizona and whose first outbound destination is outside of the United States is exempt from the jet fuel excise tax. Information is not available on this tax exemption. 41 Source: Department of Revenue Annual Report, FY 2017 38 Return to Table of Contents SUMMARY OF JET FUEL EXCISE AND USE TAX EXPENDITURES FISCAL YEAR 2016/17 PREFERENTIAL TAX RATES: Jet fuel over 10 million gallons $6,134,819 JET FUEL EXEMPTIONS International flights which originated within the state NIA42 TOTAL QUANTIFIABLE JET FUEL EXCISE AND USE TAX EXPENDITURES43 $6,134,819 42 43 No Information Available This amount represents foregone revenue to the state general fund, counties and incorporate cities and towns. 39 Return to Table of Contents LUXURY TAX EXPENDITURES – FISCAL YEAR 2016/17 TAX COLLECTED BY: Arizona Department of Revenue FISCAL YEAR 2016/17 TOTAL STATE REVENUE COLLECTED: $384,728,93944 TOTAL FY 2016/17 TAX EXPENDITURE: $1,932,621 TAX EXPENDITURE AS A PERCENT OF TOTAL REVENUE: 0.5% Luxury tax collected by the Arizona Department of Revenue totaled $415.9 million for fiscal year 2016/17. Luxury tax revenues go to the state general fund, the Tobacco Tax and Health Care Fund, the Tobacco Products Tax Fund, the Drug Treatment and Education Fund, the Department of Corrections, Smoke Free AZ and the Early Childhood Development and Health Fund. ALCOHOL TAXED AT A PREFERENTIAL RATE Current Arizona law (A.R.S. §42‐3052) provides for liquor to be taxed at four different rates: (1) spirituous liquor at the rate of $3.00 per gallon; (2) on each container of vinous liquor, except cider, of which the alcoholic content is not greater than 24% by volume, at the rate of $0.84 per gallon (3) on each container of vinous liquor of which the alcoholic content is greater than 24% by volume45, containing eight ounces or less, $0.25; and (4) on each gallon of malt liquor or cider, $0.16. This is a preferential rate structure because different tax rates are imposed on similar taxpayers based on criteria set in statute. The impact of taxing all alcohol at the same rate is possible but unrealistic. If a uniform rate were imposed, it is probable that the uniform rate would be an effective tax rate among all types of alcohol. Given that legislative action cannot be predicted, we will point out the preferential tax rate structure in law but will not attempt to attach a revenue impact. EXEMPTIONS FOR TOBACCO PRODUCTS Several exemptions from luxury tax on tobacco products are allowed. A.R.S. § 42‐3052.06: Tobacco powder or tobacco products used exclusively for agricultural or horticultural purposes and unfit for human consumption are exempt from taxation. Since this is exempt from taxation, the Arizona Department of Revenue does not require this figure to be reported. Therefore, no tax value of this tax expenditure is available. 44 45 Source: Department of Revenue Annual Report, FY 2017 The department has received no tax collections for this liquor type. 40 Return to Table of Contents A.R.S. §42‐3206: Discounts on cigarette stamps are allowed. The luxury tax on cigarettes is in the form of a stamp affixed to the cigarette package, which is obtained from the Department of Revenue at the following rates:   96% of face value of stamp for first $36,000 worth of stamps. 97% of face value of stamp for second $36,000 worth of stamps.  98% of face value of stamp for additional stamps up to $165,000 in any month by a distributor. In addition, if the distributor purchases more than $165,000 worth of stamps, then the effective rate for all stamps purchased, including the first $72,000, will be 98% of face value. No information is available concerning the potential revenue increase if all stamps were purchased at face value. A.R.S. §§ 42‐3209 (A) and 42‐3008 (A)(2): A distributor may return unused tobacco product stamps for a refund. Luxury tax is also refunded if the cigarettes become unfit for sale due to breakage or spoilage. Most often, staleness is the reason for refund. If the state considered this to be a hazard of doing business and disallowed such refunds, and additional $1.9 million in fiscal year 2016/17 luxury revenues would have resulted. A.R.S. § 42‐3008A: If proof is provided that cigarettes for which the stamps were purchased were exported from the state, luxury tax may be refunded. No information is available on the value of this exemption. EXEMPTIONS FOR LIQUOR A.R.S. §§ 42‐3001.10A, 3001.13 and 3001.14C: Liquids containing less than 1/2% alcohol by volume are exempt from luxury tax. Since reporting is not required by this group of taxpayers, there is no available information on potential luxury tax collections. A.R.S. §§ 42‐3001.10B, 3001.13 and 3001.14C: Taxable liquors do not include medicines that are unsuitable for beverage purposes. No information is available on medicine, which includes liquor and is unsuitable for beverage purposes. A.R.S. §42‐3008A: Luxury tax is refunded if (1) proof is provided that the liquor for which the stamps were purchased was exported from the state and (2) if the liquor becomes unfit for sale due to breakage or spoilage. No information is available on liquor for which stamps were purchased and were then exported from the state. Liquor unfit for sale due to breakage or spoilage includes beer or wine which has exceeded its shelf life of three to six months and containers damaged in such a way that the product's quality is uncertain. No information is available on destruction under this provision for fiscal year 2016/17. 41 Return to Table of Contents SUMMARY OF LUXURY TAX EXPENDITURES – FISCAL YEAR 2016/17 PREFERENTIAL TAX RATES: NIA46 Preferential rates on alcohol TOBACCO PRODUCT EXEMPTIONS AND REFUNDS: Tobacco powder or products used exclusively for agricultural or horticultural purposes and unfit for human consumption Discounts Breakage or spoilage Exported from state after cigarette stamps purchased TOTAL VALUE OF TOBACCO PRODUCT EXEMPTIONS AND REFUNDS NIA NIA $1,932,621 NIA $1,932,621 LIQUOR EXEMPTIONS AND REFUNDS: Liquids containing less than ½% alcohol by volume Liquor contained in medicines, unsuitable for beverage purposes Liquor exported from state after stamps were purchased. Breakage or spoilage refunds TOTAL VALUE OF TOBACCO PRODUCT EXEMPTIONS AND REFUNDS TOTAL QUANTIFIABLE LUXURY TAX EXPENDITURES47 46 NIA NIA NIA NIA NIA $1,932,621 No Information Available. This amount represents foregone revenue to the state general fund, various Department of Corrections funds, the Tobacco Tax and Health Care Fund, the Tobacco Products Tax Fund, the Drug Treatment and Education Fund, Smoke Free AZ and the Early Childhood Development and Health Fund. 47 42 Return to Table of Contents MOTOR CARRIER FEE TAX EXPENDITURES48 – FISCAL YEAR 2016/17 TAX COLLECTED BY: Arizona Department of Transportation FISCAL YEAR 2016/17 TOTAL STATE REVENUE COLLECTED: $42,090,75449 TOTAL FY 2016/17 TAX EXPENDITURE: $160,804,400 TAX EXPENDITURE AS A PERCENT OF TOTAL REVENUE: 79.3% Motor carriers are responsible for the following fees: motor carrier fee, commercial registration fee, gross weight fee, highway use fee, title fee and registration fee. Receipts from these fees go into the Highway User Revenue Fund and are distributed to the Department of Public Safety, Economic Strength Fund, state highway fund, counties and incorporated cities and towns. The basic motor carrier fee is set at amounts ranging from $64 to $800. The fees are flat amounts based on gross vehicle weight. The vehicle weight for this schedule ranges from 12,001 pounds to 80,000 pounds. During fiscal year 2016/17, Arizona‐based carriers paid $19.9 million in motor carrier fees. PREFERENTIAL VEHICLE FEE RATES A.R.S. § 28‐5493(A): Lightweight motor vehicles with a declared gross weight of 12,000 or fewer pounds pay a flat rate of $64 per vehicle. Persons who pay the light motor vehicle fee are exempt from any transaction privilege tax or any similar tax imposed by any taxing authority in this state on transactions involving transporting for hire persons, freight or property. The value of this expenditure is currently unavailable. A.R.S. § 28‐5855: A reduced motor carrier fee of 7/10 of the full rate is applied against motor vehicles that pre‐qualified for the reduced motor carrier fee with the department and travel under the following conditions: 45% or more of the mileage reported is either (1) without a load; (2) with equipment which makes a motor vehicle ready for the road, (3) with restraining equipment which makes the load safe, (4) with equipment normally carried with the motor vehicle and used for load or unloading, (5) with empty containers and boxes being returned to the point of shipment, or (6) with commodities or goods being returned to the point of shipment as a result of damage, spoilage, misfills, consignee rejections, or consignee returns. The value of this expenditure is unavailable. A.R.S. § 28‐5856: A reduced motor carrier fee of 7/10 of the full rate is applied against motor vehicles weighing 26,000 pounds or more. To qualify, the vehicle must begin and end its trip at the same point without adding to its load any items other than those listed in the previous 48 Figures presented for Motor Carrier Fee Tax Expenditures were provided by the Arizona Department of Transportation. 49 Source: 2017 Tax Handbook, Joint Legislative Budget Committee 43 Return to Table of Contents paragraph and at the midway point of a qualifying trip; the load is less than 45% of the full load capacity of the vehicle. The tax value of this information is unavailable. A.R.S. § 28‐5857: A reduced motor carrier fee of 7/10 of the full rate applies to motor vehicles or lightweight motor vehicles if the vehicle is used only for transporting agricultural products. Agricultural products are crops, livestock, machinery or supplies used or produced in farming operations or products, crops or livestock in their unmanufactured or unprocessed states. The value of this expenditure is unavailable. EXEMPT VEHICLES A.R.S. § 28‐5853: The following vehicles are exempt from the motor carrier fee:  School bus  A motor vehicle used in the production of (a) motion pictures, including films to be shown in theaters and on television, (b) industrial, training and educational films, (c) commercials for television, (d) video discs, and (e) videotapes.  Alternate vehicles when the vehicle is propelled by an alternate fuel and is a school bus or a motor vehicle used in the production of the items listed above.  Church vehicles when used in religious associations or institutions.  Leased school bus.  Non‐profit school vehicles not used or held for profit. No information is available on the impact of these exemptions. A.R.S. § 28‐5432(C): The following motor vehicles are exempt from the Commercial Registration Fee as a result of the weight fee exemption established for certain circumstances:  Religious vehicles operated by non‐profit religious institutions and used exclusively for the transportation of property produced and distributed for charitable purposes.  Non‐profit school vehicles if used exclusively for transportation of pupils in connection with school curriculum, training of pupils or transportation of property for charitable purposes without compensation.  Non‐profit organization vehicles which can present a form approved by the director of the division of emergency management.  Vehicles owned and operated by a foreign government, a consul or any other official representative of a foreign government, by the United States, by a state or political subdivision of a state or by an Indian tribal government.  A motor vehicle that is privately owned and operated exclusively as a school bus pursuant to a contract with a school district. No information is available on the impact of these exemptions. 44 Return to Table of Contents GROSS WEIGHT FEE The gross weight fee is set at amounts ranging from $7.50 to $918, dependent upon vehicle weight. The vehicle weight for this schedule ranges from up to 8,000 pounds to 80,000 pounds. Vehicles in excess of 80,000 pounds are subject to special permits. Total gross weight fee collections for Arizona‐based vehicles during fiscal year 2016/17 were $33.9 million. A $4 commercial registration fee is added to the gross weight fee for each registered vehicle. Commercial registration fees collected for Arizona‐based vehicles during fiscal year 2016/17 are not available. A.R.S. § 28‐5436: If a motor vehicle is used for seasonal agricultural work, the annual fee will be reduced by 1/12th for each month the vehicle is not in use. The reduced fee is for a period of at least 90 days but less than a full year. The value of this expenditure is currently unavailable. A.R.S. § 28‐5432: If a privately owned school bus is temporarily operated for purposes other than providing transportation of children to and from school, the owner must pay 1/10th of the annual gross weight fee. The value of this expenditure is currently unavailable. A.R.S. § 28‐5432(C): The following motor vehicles, trailers and semitrailers are exempt from the gross weight fee:  Motor vehicles, trailers or semitrailers owned and operated by non‐profit religious institutions and used exclusively for the transportation of property produced and distributed for charitable purposes.  Motor vehicles, trailers or semitrailers owned and operated by non‐profit schools which are recognized as being tax exempt by the federal or state government if used exclusively for transportation of pupils in connection with school curriculum, training of pupils or transportation of property for charitable purposes without compensation.  Motor vehicles, trailers and semitrailers owned by a non‐profit organization which can present a form approved by the director of the division of emergency management.  A vehicle owned and operated by a foreign government, a consul or any other official representative of a foreign government, by the United States, by a state or political subdivision of a state or by an Indian tribal government.  A motor vehicle that is privately owned and operated exclusively as a school bus pursuant to a contract with a school district. No information is available on the impact of these exemptions. HIGHWAY USE FEES The highway use fee is set at amounts ranging from $50 to $2,217, depending upon vehicle weight and age. Vehicle weight for this schedule ranges from 0 to 80,000 pounds. Highway use fees collected for Arizona‐based vehicles totaled $5.1 million during fiscal year 2016/17. Vehicles in excess of 80,000 pounds are subject to special permits. 45 Return to Table of Contents A.R.S. § 28‐5471: If the model year of the vehicle is 1978 or older, the use fee schedule is lower, ranging from $50 to $1,095. The value of this expenditure is unknown. A.R.S. § 28‐5473(D): A farm vehicle that is issued a farm vehicle license plate is exempt from highway use fees. No information is available on this tax exemption. FOREIGN BASED CARRIERS Due to reporting practices, the Department of Transportation is unable to split out foreign based motor carrier fee collections. However, the total amount received from both of these carriers in fiscal year 2016/17 was $101.9 million. This amount includes registration fees, motor carrier fees, gross weight fees and highway use fees prorated for miles driven in Arizona. The values of these expenditures are also unavailable. SUMMARY OF MOTOR CARRIER FEE TAX EXPENDITURES – FISCAL YEAR 2016/17 MOTOR CARRIER PREFERENTIAL FEES: Same motor carrier fees for all Arizona‐based vehicles Reduced motor carrier fee for lighter loads Reduced motor carrier fee for trips starting and ending at the same point with a lighter load midway Reduced motor carrier fee for agricultural loads Commercial Registration Fee TOTAL VALUE OF MOTOR CARRIER PREFERENTIAL FEES $19,948,741 NIA50 NIA NIA NIA $19,948,741 GROSS WEIGHT PREFERENTIAL FEES: Same gross weight fees for all Arizona‐based vehicles Reduced gross weight fee for seasonal agricultural vehicles Reduced gross weight fee for privately owned school buses TOTAL VALUE OF GROSS WEIGHT PREFERENTIAL FEES $33,919,178 NIA NIA $33,919,178 HIGHWAY USE PREFERENTIAL FEES: Same use fees for all Arizona‐based vehicles 50 $5,072,989 No Information Available 46 Return to Table of Contents VEHICLE FEE EXEMPTIONS: Motor carriers owned by religious institutions and used for charitable purposes Motor carriers owned by nonprofit schools Motor carriers owned by non‐profit organizations with a division of emergency maintenance form Motor carriers owned by governments Farm vehicles TOTAL VALUE OF VEHICLE FEE EXEMPTIONS NIA51 NIA NIA NIA NIA NIA FOREIGN BASED CARRIERS: Same fees for all Arizona‐based vehicles $101,863,492 TOTAL QUANTIFIABLE MOTOR CARRIER FEE EXPENDITURES52 51 $160,804,400 No Information Available This amount represents foregone revenue to the state highway fund, counties and incorporated cities and towns. 52 47 Return to Table of Contents MOTOR VEHICLE FUEL TAX EXPENDITURES53 – FISCAL YEAR 2016/17 TAX COLLECTED BY: Arizona Department of Transportation FISCAL YEAR 2016/17 TOTAL STATE REVENUE COLLECTED: $527,157,899 54 TOTAL FY 2016/17 TAX EXPENDITURE: $11,759,017 TAX EXPENDITURE AS A PERCENT OF TOTAL REVENUE: 2% There is a tax of 18¢ per gallon on each gallon of motor vehicle fuel possessed, refined, manufactured, produced, blended or compounded by the supplier or imported by the supplier, whether in the original package or container in which it was imported or otherwise. All suppliers are required to pay tax on all fuel received. During fiscal year 2016/17, motor vehicle fuel tax collected from licensed suppliers was $526.5 million. The proceeds of this tax go into the Highway User Revenue Fund, the off‐ highway vehicle recreation fund and the state lake improvement fund. The Highway User Revenue Fund revenues are distributed to the Department of Public Safety, Economic Strength Fund, state highway fund, counties and incorporate cities and towns. EXEMPTIONS FROM THE MOTOR VEHICLE FUEL TAX In order to qualify for an exemption, the taxpayer must file for a refund. A.R.S. § 28‐5610 (A)(1) and (2): Motor vehicle fuel purchased in Arizona, for which proof of export is available and either exported by a supplier or sold by a supplier to a distributor for immediate export is exempt from motor vehicle fuel tax. Requests for refunds against import liability in the amount of $9.3 million were received in fiscal year 2016/17. A.R.S. § 28‐5610 (A)(3): Motor vehicle fuel that is sold within an Indian Reservation to an enrolled member of the Indian tribe is excluded from taxation. The total amount refunded for this provision during fiscal year 2016/17 was $1 million. A.R.S. § 28‐5610(A)(4): Motor vehicle fuel used solely and exclusively as fuel to operate a motor vehicle on highways in this state if the motor vehicle is leased to or owned by and is being operated for the sole benefit of an Indian tribe for governmental purposes only. No information is available on this tax expenditure. A.R.S. § 28‐5611 (A)(4): Anyone who purchases motor vehicle fuel and loses such fuel due to fire, theft or other accident may request a refund for the tax paid on this fuel. No refunds of this type were requested for fiscal year 2016/17. 53 All information presented for Motor Vehicle Fuel Tax Expenditures was provided by the Arizona Department of Transportation. 54 Source: 2017 Tax Handbook, Joint Legislative Budget Committee 48 Return to Table of Contents A.R.S. § 28‐5610 (A)(5): Motor vehicle fuel moving in interstate or foreign commerce, not destined or diverted to a point within this state is exempt from the motor vehicle fuel tax. No information is available on this tax expenditure. A.R.S. § 28‐5610 (A)(6): Motor vehicle fuel sold to the United States or an instrumentality or agency of the United States is exempt from the motor vehicle fuel tax. During fiscal year 2016/17, $1.3 million was refunded for this exemption. A.R.S. § 28‐5611 (A): A person who purchases and uses motor vehicle fuel other than in motor vehicles upon the highways of Arizona, and other than in watercraft upon the waterways in Arizona, and other than in motor vehicles operating on a transportation facility or toll road shall be repaid the motor vehicle fuel tax paid. In fiscal year 2016/17, $69,314 in motor vehicle fuel tax was refunded based on this exemption. SUMMARY OF MOTOR VEHICLE FUEL TAX EXPENDITURES FISCAL YEAR 2016/17 MOTOR VEHICLE FUEL TAX EXEMPTIONS: Motor vehicle fuel purchased for export Motor vehicle fuel sold to Native Americans on reservations Motor vehicle fuel for motor vehicles leased to or owned by and operated for the sole benefit of a Native American tribe for governmental purposes Motor vehicle fuel lost due to fire, theft or other accident Motor vehicle fuel moving in interstate or foreign commerce Motor vehicle fuel sold to the United States or an instrumentality or agency of the United State Motor vehicle fuel used other than in motor vehicles, watercraft and motor vehicles operating on a transportation facility or toll road TOTAL VALUE OF MOTOR VEHICLE FUEL TAX EXPENDITURES $9,280,893 1,073,818 NIA55 0 NIA 1,334,992 69,314 $11,759,017 TOTAL QUANTIFIABLE MOTOR VEHICLE FUEL TAX EXPENDITURES56 $11,759,017 55 No Information Available. This amount represents foregone revenue to the state highway fund, the off‐highway vehicle recreation fund, the state lake improvement fund, counties and incorporated cities and towns. 56 49 Return to Table of Contents PARI‐MUTUEL TAX EXPENDITURES57 – FISCAL YEAR 2016/17 TAX COLLECTED BY: Arizona Department of Gaming FISCAL YEAR 2016/17 TOTAL STATE REVENUE COLLECTED: $134,356 58 TOTAL FY 2016/17 TAX EXPENDITURE: $2,105,316 TAX EXPENDITURE AS A PERCENT OF TOTAL REVENUE: 94% HORSE OR HARNESS RACING PREFERENTIAL RATES A.R.S. § 5‐111 (D): For horse or harness races, the state receives 2% of the gross amount of the first $1 million wagered on live races in pari‐mutuel pools and 5% of the gross amount exceed $1 million. If the state received 5% of all dollars wagered in horse or harness live races, the state would have received an additional $252,672 in fiscal year 2016/17. PARI‐MUTUEL TAX EXEMPTIONS A.R.S. § 5‐111 (D): Moneys handled in a pari‐mutuel pool for wagering on simulcasts of out‐of‐ state horse or harness races are exempt from tax. The state share of the pari‐mutuel tax was reduced by $2,021,481 in fiscal year 2016/17 due to this exemption. A.R.S. § 5‐111 (E): Any county fair racing association may have one race meeting each year. All such racing meetings are exempt from the state tax on horse or harness live racing. If county fair racing meetings were not exempt from the tax, the state would have received an additional $65,077 in pari‐mutuel revenues during fiscal year 2016/17. A.R.S. § 5‐111 (F): Moneys from charity racing days are exempt from state tax. Taxation of these events would have raised an additional $7,541 in pari‐mutuel revenues during fiscal year 2016/17. A.R.S. § 5‐111.03.A: The percentage paid to the state for greyhound racing and for horse or harness racing shall be reduced by 1% of the total amount wagered in counties with a population of 500,000 or more and by 2% in all other counties for those permittee’s who make capital improvements to existing race tracks. There were no operational tracks that used the capital improvements tax credit in fiscal year 2016/17. A.R.S. § 5‐111.I: The percentage decrease in pari‐mutuel wagering between the base year and the previous fiscal year determines a permittee’s eligibility for a hardship tax credit. The state share of the pari‐mutuel tax for greyhound racing and for horse or harness racing was reduced by the amount equal to the amount of the hardship tax credit. The state share of the pari‐ mutuel tax was reduced by $11,217 in hardship tax credits in fiscal year 2016/17. 57 All information presented for Pari‐Mutuel Tax Expenditures was provided by the Arizona Department of Gaming/Racing Division. 58 Source: 2017 Tax Handbook, Joint Legislative Budget Committee 50 Return to Table of Contents SUMMARY OF PARI‐MUTUEL TAX EXPENDITURES – FISCAL YEAR 2016/17 HORSE OR HARNESS RACING PREFERENTIAL TAX RATES: Preferential rates on horse or harness racing $252,672 PARI‐MUTUEL TAX EXEMPTIONS: Reduction in pari‐mutuel tax on simulcast out‐of‐state races County fair racing association meetings Charity racing days Reduction in pari‐mutuel tax for capital improvements to race tracks Reduction in pari‐mutuel tax for hardship tax credit TOTAL VALUE OF PARI‐MUTUEL TAX EXEMPTIONS TOTAL QUANTIFIABLE PARI‐MUTUEL TAX EXPENDITURES59 59 These expenditures represent foregone revenues to the Racing Regulation Fund. 51 Return to Table of Contents $2,021,481 65,077 7,541 0 11,217 $2,105,316 $2,105,316 PRIVATE CAR PROPERTY TAX EXPENDITURES – FISCAL YEAR 2016/17 TAX COLLECTED BY: Arizona Department of Revenue FISCAL YEAR 2016/17 TOTAL STATE REVENUE COLLECTED: 1,726,458 60 TOTAL FY 2016/17 TAX EXPENDITURE: $494,754 TAX EXPENDITURE AS A PERCENT OF TOTAL REVENUE: 22.3% Businesses which operate furnish or lease railroad cars to be used for transporting or accommodating persons or freight over railroad lines not owned, leased or operated by the business are subject to a private car property tax in Arizona. The taxable value, or net assessed value, of the private car property is determined by multiplying the full cash value of the property by an assessment ratio. The tax rate that is applied to the net assessed value is equal to the average primary and secondary property tax rates in the taxing districts of the state, which was $12.95 in 2016. A.R.S. § 42‐14308: Arizona statutes set out the assessment ratios to be used in determining the net assessed values of the various classes of property. These assessment ratios range from 18% to 5%. For private car property, the assessment ratio is equal to the ratio which the total net assessed valuation of all taxable property in class 1, class 6 paragraph 3 and personal property in class 2 bears to the total full cash value of such property. For tax year 2016, the assessment ratio used for private car property was 14%. This is considered to be a preferential assessment ratio because it is an average of the assessment ratios in several other classes of property. If private car property had an assessment ratio equal to the highest assessment ratio imposed, 18%, tax collections would have increased by $494,754. SUMMARY OF PRIVATE CAR PROPERTY TAX EXPENDITURES FISCAL YEAR 2016/17 PREFERENTIAL ASSESSMENT RATIO: Preferential assessment ratio for private cars at 18% $494,754 TOTAL QUANTIFIABLE PRIVATE CAR PROPERTY TAX EXPENDITURES61 $494,754 60 61 Source: Department of Revenue Annual Report, FY 2017 This amount represents forgone revenue to the state general fund. 52 Return to Table of Contents PROPERTY TAX EXPENDITURES – FISCAL YEAR 2016/17 TAX COLLECTED BY: County Treasurers’ Offices FISCAL YEAR 2016/17 TOTAL STATE REVENUE COLLECTED: $062 TOTAL FY 2016/17 TAX EXPENDITURE: $420,079,174 TAX EXPENDITURE AS A PERCENT OF TOTAL REVENUE: NA The property tax system in Arizona has many components. These components are intertwined, making it difficult to address the impact of tax expenditures on one component in isolation. The state no longer levies a property tax per $100 of net assessed value on primary values, so state revenues are affected by exemptions from property tax in three ways. First, basic state aid, or a basic level of funding for education per student statewide, is provided through the state, the county and school districts. The school district's responsibility is determined by multiplying a uniform tax rate by assessed valuation. If this amount is less than the basic level of funding, additional revenues are received from the state, funded by the education equalization rate which is currently $0.4875 per $100 of assessed value. If education equalization revenues cannot bring the school district to its basic level of funding, the state provides the balance of the basic state aid. Therefore, exemptions reduce the property tax base, which may increase the state's portion of basic state aid funding. The second method concerns the taxation of homeowner property. Frequently, if a political subdivision sees a decline in property values, the tax rate imposed by that subdivision increases so that a consistent revenue stream is provided from the property tax. The same is true if the political subdivision sees its taxable base decrease through exemptions from the property tax. Through a program called additional state aid (commonly known as homeowner's rebate), the state pays 47.190% of a homeowner's school district tax bill, up to $600. If a homeowner's school taxes increase due to higher tax rates, the state will be required to pay a larger amount of money. Finally, the state pays that part of a homeowner's primary tax bill that exceeds 1% of the limited property value. Higher tax rates could mean a larger state payment. PROPERTY TAX EXEMPTIONS Article IX of the Arizona Constitution exempts:  Property owned by widows and widowers subject to limitations.  Property owned by disabled persons, subject to limitations.  All federal, state, county and municipal property.  Property of educational, charitable and religious associations or institutions not used or held for profit.  Household goods owned by the user and used solely for noncommercial purposes. 62 The State no longer levies a property tax. 53 Return to Table of Contents  Stocks of raw or finished materials, unassembled parts, work in process or finished products constituting the inventory of a retailer or wholesaler located within the state and principally engaged in the resale of such materials, parts or products, whether or not for resale to the ultimate consumer. There are also exemptions from property taxation that are listed in the Arizona Revised Statutes. A.R.S. § 42‐11104 (A): Libraries, colleges, school buildings and other buildings used for education, with furniture, libraries and equipment, and the lands appurtenant to and used with such buildings, as long as they are used for the purpose of education and not used or held for profit. A.R.S. § 42‐11104 (B): Property and buildings leased from a school district or a community college district pursuant to a lease or lease‐purchase agreement. A.R.S. § 42‐11104 (C): Property and buildings, including land, improvements, furniture and equipment, owned by a nonprofit organization recognized under section 501(c)(3) of the IRC and that operates as a charter school pursuant to section 15‐183. A.R.S. § 42‐11105 (A): Hospitals for relief of the indigent or afflicted, appurtenant land and their fixtures and equipment to such buildings, as long as they are not used or held for profit. A.R.S. § 42‐11105 (B): Property used for operation of a health care institution which provides medical, nursing or health‐related services to handicapped persons or persons 62 years of age or older and which is not used or held for profit. A.R.S. § 42‐11105 (C): Property used for qualifying community health care centers which is not used or held for profit. A.R.S. § 42‐11105 (D): Property owned by a health care provider, recognized under section 501(c)(3) of the IRC and organized as a nonprofit corporation if the property is used to provide health care services and not used or held for profit. A.R.S. § 42‐11106 (1): Property used for the operation of a residential apartment housing facility which is not used or held for profit, is structured for handicapped persons or persons 62 years of age or older, located adjacent to a property exempted from taxation and which is owned and operated by the same persons or associations as such other adjacent property. A.R.S. § 42‐11106 (2): Property used for the operation of a residential apartment housing facility which is not used or held for profit, which is structured for handicapped persons or persons 62 years of age or older and for which a subsidy or payment is given by federal, state or local government or by nonprofit organizations in a substantial amount in relation to the amount given or the total annual operating expenses to pay for principal, interest and operating expenses as long as that organization was not created or operating for the primary purpose of providing the subsidy or payment. 54 Return to Table of Contents A.R.S. § 42‐11107: Property of charitable institutions for relief of the indigent or afflicted, including the lands appurtenant to such property, with fixtures, equipment and other reasonably required property, as long as such institutions and property are not held or used for profit. A.R.S. § 42‐11108: Grounds and buildings owned by agricultural societies, as long as they are used for those purposes only, and not used or held for profit. A.R.S. § 42‐11109 (A): Property or buildings used or held primarily for religious worship, including furniture and equipment, and the land and improvements appurtenant to and used with such buildings, as long as the property is not used or held for profit. A.R.S. § 42‐11110: Cemeteries set apart and used for interring the dead, except such portions that are used or held for profit. A.R.S. § 42‐11111: Property of widows, widowers and disabled persons subject to specified conditions and limitations. A.R.S. § 42‐11112: Observatories maintained for astronomical research and education for the public welfare, together with all property used in the work or maintenance of observatories, including property held in trust, as long as the observatories and other property are used for such purposes only and not used or held for profit. A.R.S. § 42‐11113: Grounds and buildings belonging to societies for the prevention of cruelty to animals and for sheltering, caring for and controlling animals, as long as the grounds and buildings are used for those purposes only and not held or used for profit. A.R.S. § 42‐11114 (A): Property held by a charitable organization for transfer to this state or a political subdivision of this state to be used as parkland if no rent or valuable consideration is received by the charitable organization. A.R.S. § 42‐11115: Property held by a charitable organization to preserve and protect scientific, biological, geological, paleontological, natural or archaeological resources. A.R.S. § 42‐11116: Property of musical, dramatic, dance and community art groups, botanical gardens, museums and zoos as long as the property is used for those purposes and not used or held for profit. A.R.S. § 42‐11117: Property belonging to a volunteer fire department if the property is used exclusively for fire suppression and prevention activities and neither used nor occupied by or for the benefit of any person. A.R.S. § 42‐11118 (A): Property that is owned by a volunteer nonprofit organization that is operated exclusively to promote social welfare and provide community quasi‐governmental services in an unincorporated area of a county. A.R.S. § 42‐11119: Property that is owned by a volunteer nonprofit organization, used exclusively for the purpose of performing roadway cleanup and beautification on a gratuitous basis, not used or held for profit and not used or occupied by or for the benefit of any person. 55 Return to Table of Contents A.R.S. § 42‐11120: Property that is owned by a U.S. Veterans' Organization that qualifies as a charitable organization and is recognized under either section 501(C)(3) or 501(C)(19) of the IRC if the property is used predominantly for those purposes and not used or held for profit. A.R.S. § 42‐11121: Property that is not used or held for profit and is owned by a community service organization the mission of which is to serve a population that includes persons who are indigent or afflicted and that qualifies as a charitable organization and is recognized under §501(C)(3) of the IRC if the organization is primarily engaged in delivering services on that property consisting of fitness programs, camping programs, health and recreation services, youth programs, child care, senior citizen programs, individual and family counseling, employment and training programs, services for individuals with disabilities, meals, feeding programs and disaster relief. A.R.S. § 42‐11122: A commodity that is consigned for resale in a warehouse in this state in or from which the commodity is deliverable on a contract for future delivery subject to the rules of a commodity market regulated by the U.S. commodity futures trading commission . A.R.S. § 42‐11123: Animal and poultry feed, including salts, vitamins and other additives, for animal or poultry consumption. A.R.S. § 42‐11125: Stocks of row or unfinished materials, unassembled parts, work in progress or finished products constituting the inventory of a retailer, wholesaler or manufacturer located in this state and principally engaged in reselling the materials, parts or products. A.R.S. § 42‐11126: Livestock and poultry as defined in section 3‐1201, aquatic animals defined in section 3‐2901, and colonies of bees. A.R.S. § 42‐11127: Commercial and agricultural personal property subject to specified conditions and limitations. A.R.S. § 42‐11128 (A) and (B): Personal property moving through Arizona or consigned to a warehouse in Arizona from a point outside Arizona for storage or assembly in transit to a final destination outside this state is considered property‐in‐transit or futures contract property. A.R.S. § 42‐11129: Property that is owned by a fraternal society or organization that is devoted exclusively to religious, charitable, scientific, literary, educational or fraternal purposes and if no portion of the property is used for the sale of food or beverages to the general public or the consumption of alcoholic beverages by nonmembers or is used or held for profit. A.R.S. § 42‐11130: Property that is owned by an organization whose mission is to provide supplemental financial support to public libraries, that qualifies as a charitable organization and that is not used or held for profit. A.R.S. § 42‐11131: Property owned and operated by a federally recognized Indian tribe or its tribally designated housing authority subject to the following requirements: (1) that it is used exclusively for the charitable purpose of providing low‐income rental housing and related facilities for the use of Indians; (2) that it is not used or held for profit; (3) no part of the earnings of the housing authority may “inure to the benefit of any private shareholder or 56 Return to Table of Contents individual”; and (4) the housing was designed and constructed using federal financial assistance pursuant to the Native American Housing Assistance and Self‐Determination Act, or using tribal monies. An Indian tribe or tribal housing authority may make voluntary contributions in lieu of property taxes to a county, city, town, school district or other political subdivision for providing services, improvements or facilities for the benefit of a low‐income housing project owned and operated by the tribe or housing authority. A.R.S. § 42‐11132(A): Property, buildings and fixtures that are leased to a not‐for‐profit charter school and that are used for educational instruction in any grade or program through grade 12 shall be Class Nine. A.R.S. § 42‐11132(B): Property, buildings and fixtures that are owned by an educational, a religious or a charitable organization, institution or association if the property is used for educational instruction in any grade or program through grade twelve. A.R.S. § 42‐11132.01(B): Property, buildings and fixtures that are owned by an educational, religious or charitable organization, institution or association, that are leased to a nonprofit church, religious assembly or religious institution and that are primarily used for religious worship are exempt from taxation. A.R.S. § 42‐11133(A): Property used exclusively for rental housing and related facilities if the property is not used or held for profit; is owned and operated by, or a wholly owned subsidiary of, a charitable fund, foundation or corporation, including a limited partnership; the acquisition, rehabilitation, development or operation of the property is financed with tax exempt mortgage review bonds or general obligation bonds or is financed by local, state or federal loans or grants; the rents do not exceed those prescribed by deed restrictions or regulatory agreements; the owner of the property is eligible for and receives tax credits for low‐income housing established under §42 of the IRC; the property is used as an assisted living facility for low‐ income elderly residents; and the facility does not exceed 200 residents. A.R.S. § 48‐3472 (A): Property owned or used by special taxing districts for the purpose of irrigation water delivery shall be exempt from taxation when used for district purposes. 2016 ADDITIONAL STATE AID TO EDUCATION Pursuant to A.R.S. § 15‐972, a report indicating the amount of additional State Aid to Education is prepared each year. This additional aid is the amount referred to as the "Homeowner's Rebate." (The state pays 47.190% of a homeowner's school district tax bill, up to $600.) The summary at the end of this section shows the Additional State Aid to Education tax roll that was billed in 2016, including additional amounts that were billed for legal class 3 property on the personal property tax roll. 57 Return to Table of Contents ADDITIONAL STATE AID TO EDUCATION County County Total Apache $504,593 Cochise 7,277,172 Coconino 7,941,265 Gila 2,961,422 Graham 1,337,379 Greenlee 102,607 La Paz 183,327 Maricopa 259,768,406 Mohave 10,834,571 Navajo 3,040,917 Pima 80,838,549 Pinal 19,819,924 Santa Cruz 2,086,367 Yavapai 15,839,382 Yuma 7,543,296 Total $420,079,174 SUMMARY OF PROPERTY TAX EXPENDITURES – TAX YEAR 2016 ADDITIONAL STATE AID TO EDUCATION: Additional state aid to education $420,079,174 TOTAL QUANTIFIABLE PROPERTY TAX EXPENDITURES63 63 This amount represents foregone revenue to the state general fund. 58 Return to Table of Contents $420,079,174 SEVERANCE TAX EXPENDITURES – FISCAL YEAR 2016/17 TAX COLLECTED BY: Arizona Department of Revenue FISCAL YEAR 2016/17 TOTAL STATE REVENUE COLLECTED: $18,377,15664 TOTAL FY 2016/17 TAX EXPENDITURE: $18,377,156 TAX EXPENDITURE AS A PERCENT OF TOTAL REVENUE: 50% Persons engage in the business of mining or timbering in Arizona are subject to a severance tax. Mining severance is taxed at the rate of 2.5% (A.R.S. § 42‐5202(C)) and is levied upon the net severance base. The net severance base is defined as 50% of the difference between the gross value of production and the production costs (A.R.S. § 42‐5204). The timber severance tax was levied on the timber products derived from timbering activity (A.R.S. § 42‐5202 (D)) through October 31, 2006. Beginning November 1, 2006 the timber severance tax was repealed. Total mining and timbering severance tax collections in fiscal year 2016/17 totaled $18.4 million. PREFERENTIAL SEVERANCE TAX RATES Until October 31, 2006 timber severance was taxed depending on the type of timber product. The tax rate for ponderosa pine timber products was $2.13 per thousand board feet and the tax rate for all species except ponderosa pine was $1.51 per thousand board feet. The tax rate for all other species except ponderosa pine is a preferential rate over the ponderosa pine rate. During fiscal 2016/17, no tax was received for timber severance. SEVERANCE TAX CREDITS A.R.S. § 42‐5017 (A): A credit is allowed against severance tax imposed for accounting and reporting expenses incurred by the taxpayer. The credit equals 1% of the amount of tax due, not to exceed $10,000 in any calendar year. In fiscal year 2016/17, information about the value of the severance tax accounting credit was unavailable. MINING SEVERANCE TAX EXCLUSIONS A.R.S. § 42‐5204: The net severance base is 50% of the difference between the gross value of production and the production costs Both the 50% factor and the value of production costs are exclusions from severance taxation. Taxing the net severance base at 100% would have generated an additional $18.4 million in fiscal year 2016/17. The tax value of the production costs is unknown 64 Source: Department of Revenue Annual Report, FY 2017 59 Return to Table of Contents SUMMARY OF SEVERANCE TAX EXPENDITURES – FISCAL YEAR 2016/17 PREFERENTIAL SEVERANCE TAX RATES: Preferential timber severance tax rate for other timber products $0 SEVERANCE TAX CREDITS: NIA65 Accounting credit SEVERANCE TAX CREDITS: 50% factor Production costs TOTAL VALUE OF SEVERANCE TAX EXEMPTIONS TOTAL QUANTIFIABLE SEVERANCE TAX EXPENDITURES66 65 66 $18,377,156 NIA $18,377,156 $18,377,156 No Information Available. This amount represents foregone revenue to the state general fund, counties and incorporated cities and towns. 60 Return to Table of Contents TRANSA ACTION PRIVILEGE P E AND USSE TAX EX XPENDITU URES FISCAL YEAR Y 20116/17 TAX CO OLLECTED BY: B Arizona Departm ment of Revvenue FISCAL YEAR Y 2016 6/17 TOTA AL STATE REVENUE R C COLLECTED D: $5,773,0 026,53967 TOTAL FY F 2016/17 TAX EXP PENDITUREE: $12,000,,474,483 VENUE: 688% TAX EXP PENDITUR RE AS A PER RCENT OF TOTAL REV Total T numb ber of TPT deduction ns has grow wn from 1 in 1952 2 to 345 in 2016 Transaction privilege e and use tax t (TPT) gro oss collectioons in fiscall year 2016//17 totaled $5.8 billion. Of O that amo ount, $1.3 billion was disstributed too the countiees and citiess. The remaaining $4.5 billio on was depo osited into th he state gen neral fund. This repo ort provides information n about som me of the pr eferential taax rates, creedits, exemp ptions and deductions from m Transactio on Privilege and Use Taax using both data from m taxpayerss and 67 Source: Department of o Revenue Ann nual Report, FYY 2017 61 Return to Table of Contents outside data. In total, the quantifiable exemptions discussed in this report represent potential tax collections of $12 billion. Lost revenues due to preferential tax rates, e.g., those items taxed at a rate below 5%, total $453 million while credits totaled $16.5 million. The estimated value of the services portion of exemptions is $5.2 billion, while the estimated tax value of deductions is $6.3 billion. With regard to TPT deductions, DOR has transitioned from accepting deductions under a miscellaneous category to requiring specific deduction codes to be used for each statutory exemption. The process began in 2015 with additional validations added throughout FY16 and into FY17. As a result, taxpayer behavior has changed, providing DOR with a more complete picture of the value of the deductions taken. Compliance has improved, reducing the value of undefined deductions, which had been significant in the past. The added validations in addition to increased scrutiny are expected to reduce the opportunities for taxpayers to take invalid deductions in the future. The Proposition 301 ‐ Education Tax, collected $671 million at the 0.6% rate. While the two taxes are collected on roughly the same tax base, the Proposition 301 monies are dedicated to Education related funds. We continue to present the value of exemptions at the 5% rate. The effect of these exemptions on Proposition 301 can be estimated by taking 12% of the amounts shown later in this section. For fiscal year 2016/17, the value of the exemptions on the Proposition 301 Education funds was $1.4 billion. PREFERENTIAL TRANSACTION PRIVILEGE TAX RATES In most categories, sales in Arizona are taxed at a 5% rate. Two categories of taxable activities, however, are currently taxed at a lower rate. These activities and the corresponding tax rates are as follows: TAXABLE ACTIVITIES CODE 2 Non‐Metal Mining, Oil & Gas Production 13 Commercial Lease68 RATE 3.125% 0% If the activities in these categories had been taxed at a 5% rate in fiscal year 2016/17, additional transaction privilege tax of $453 million would have been collected. TRANSACTION PRIVILEGE AND USE TAX CREDIT A.R.S. § 42‐5017: A credit is allowed against transaction privilege tax imposed for accounting and reporting expenses incurred by the taxpayer. The credit equals 1% of the amount of tax 68 The tax rate for this class changed to 0% from 1.0% effective July 1, 1997. 62 Return to Table of Contents due, not to exceed $10,000 in any calendar year. In fiscal year 2016/17, the value of the accounting credit equaled $16.5 million. TRANSACTION PRIVILEGE AND USE TAX EXEMPTIONS Certain types of income or sales by businesses are exempt from transaction privilege and use tax. Some of these businesses have taxable sales as well as exempt sales; some have no taxable sales at all. In the case of those businesses that have both taxable and exempt sales, there is some information on the value of the exemption. Those businesses that only have exempt sales generally do not file transaction privilege tax returns; therefore, no figures are reported for the value of the exempt business. They may, however be captured in the analysis covering the value of Services. Beginning in calendar 2015 the Department began using a specific deduction code for each deduction from transaction privilege tax. During 2016 and 2017 the Department began validating deduction usage at the time returns were filed. The following information lists all exemptions identified in the Arizona Revised Statutes, whether information was available on the tax value of the exemption or not. A.R.S. § 42‐5061 (A)(1) and (A)(2): The primary type of business exempt from transaction privilege tax in Arizona is the business of providing a service. The U.S. Census Bureau provides information about the value of services in Arizona through the Economic Census. The 2012 Economic Census Service is the basis for the following analysis of the tax value of some services. Please note that some portion of the value of these services may already be taxable. For example the sale of hair shampoo products at a Beauty Salon is taxable but the service of cutting and styling hair is not. The receipts reported in the Economic Census would include both the retail sale of products and the provision of the service. No attempt has been made to determine the non‐taxable portion of the receipts. The list of services in this report is a sample of services and is not intended to be a comprehensive list. The categories shown are defined by the Census Bureau, not by the preparers of this report. For a complete look at the service industry in Arizona, refer to the several reports comprising the 2007 Economic Census of Arizona, available at the U.S. Census Bureau website, www.census.gov . Several major categories as defined by the U.S. Census Bureau are shown in the sample of services: (1) professional, scientific and technical; (2) health care; (3) administrative and business support; (4) personal care; (5) educational; (6) finance and (7) other services. Examples of each of these service categories are listed at the end of this section. A summary of 63 Return to Table of Contents potential transaction privilege tax revenue from the Sample of Services in these major categories is as follows69: Professional, Scientific and Technical Health Care Administrative and Business Support Personal Care Educational Finance Other Services $1,063,107,452 $2,078,542,301 $735,253,787 $81,974,155 $65,324,280 $933,205,532 $265,907,886 Total transaction privilege tax revenue available from these businesses is $5.4 billion. Although the estimate of potential tax collections provided here does not include estimates for all services, the majority have been captured. A.R.S. § 42‐5061 (V) (3): (Deduction Code 503) The business of selling tangible personal property at wholesale, by definition, is not taxable. During fiscal year 2016/17, wholesale trade was estimated to be $105 billion. If taxed at a 5% rate, collections from this category would be $5.3 billion. Another measure of this type of activity is the deduction for sales for resale. In fiscal year 2016/17 it is estimated that businesses deducted $70.7 billion for sales for resale. At 5%, these transactions would have generated $3.5 billion. A.R.S. §§ 42‐5001 (5) and 5001 (6): (Deduction Codes 708 and 711) The transaction privilege and use tax is levied upon the gross income or the gross proceeds of sales. Gross proceeds of sales do not include cash discounts allowed. The value of merchandise traded in on the purchase of new merchandise when the trade‐in allowance is deducted from the sales price of the new merchandise before completion of the sale is exempt. In fiscal 2016/17 it is estimated that businesses deducted $736 million for this purpose. Had those sales been taxable they would have generated $36.8 million in tax at the 5% rate. A.R.S. §§ 42‐5002 (2): (Deduction Code 549) Services rendered in addition to selling tangible personal property at retail are not subject to transaction privilege tax. In fiscal year 2016/17 it is estimated that businesses deducted $3.9 billion from their gross sales for this purpose. At 5%, these transactions would have generated $199 million. (Deduction Code 570) Business activity for Enrolled Native American or Tribal entity that occurs on a Reservation is exempt from transaction privilege tax. In fiscal 2016/17 it is estimated that businesses deducted $247 million for this purpose. Had those transactions been taxable they would have generated $12.3 million at a 5% rate. 69 This summary is not intended to be a comprehensive analysis of potential transaction privilege tax revenue for services. Some portion of the value of these services may already be taxable. 64 Return to Table of Contents (Deduction Code 716) Sales of Postage stamps at face value are not subject to transaction privilege tax. No information is available on the value of this tax expenditure for fiscal 2016/17. (Deduction Code 777) Sales to foreign diplomats holding a valid US Department of State card authorizing the purchase are not subject to transaction privilege tax. No information is available on the value of this tax expenditure for fiscal 2016/17. A.R.S. § 42‐5061 (A)(3): (Deduction Code 542) Sales of warranty or service contracts are exempt from transaction privilege tax. In fiscal year 2016/17 it is estimated that businesses deducted $479 million for such contracts. Taxing these contracts at a 5% rate would have resulted in collections of $24 million. A.R.S. §§ 42‐5061 (A)(4), 42‐5074 (B)(6), 42‐5159 (A)(15)(a): (Deduction Code 725) Sales of tangible personal property by any nonprofit organization and operated exclusively for charitable purposes and recognized by the department and the United States Internal Revenue Service as such a nonprofit organization for charitable purposes are exempt from transaction privilege and use tax. In fiscal 2016/17 businesses took an estimated $9.4 million in deductions for this purpose. At a 5% rate these transactions would have generated $470,600 in tax. A.R.S. §§ 42‐5061(A)(5): (Deduction Code 507) Sales to persons engaged in business classified under the restaurant classification of articles used for food, drink or condiment are not subject to transaction privilege tax. In fiscal year 2016/17 it is estimated that businesses deducted $24.3 million for such contracts. Had those transactions been taxable they would have generated $1.2 million in tax at a 5% rate. A.R.S. § 42‐5061 (A)(7): (There is no deduction code for this deduction) The sale of stocks and bonds is not subject to transaction privilege tax in Arizona. No information is available on this tax expenditure. A.R.S. §§ 42‐5061 (A)(8), 42‐5159 (A)(16): (Deduction Code 536) Items required by prescription, such as prescription drugs and medical oxygen, are exempt from transaction privilege tax. In fiscal year 2016/17 it is estimated that businesses took $12.8 billion in deductions for prescriptions and medical oxygen. Had these purchases been taxed at a rate of 5%, collections would be $642 million. A.R.S. §§ 42‐5061 (A)(9), 42‐5159 (A)(17): (Deduction Code 559) Prosthetic appliances prescribed or recommended by a physician, dentist or other professional are exempt from transaction privilege tax. In fiscal year 2016/17 it is estimated that deductions of $257 million were taken for these items. Had they been taxed, collections would have been $12.9 million. A.R.S. §§ 42‐5061 (A)(10), 42‐5159 (A)(18): (Deduction Code 533) Insulin, syringes, and glucose test strips are exempt from transaction privilege tax. In fiscal year 2016/17 it is estimated that deductions of $1.4 million were taken for these items. Had they been taxed, collections would have been $68,200. A.R.S. §§ 42‐5061 (A)(11), 42‐5159 (A)(19): (Deduction Code 590) Prescription eyeglasses or contact lenses are exempt from transaction privilege tax. In fiscal year 2016/17 it is estimated 65 Return to Table of Contents that deductions of $67 million were taken for these items. Had they been taxed, collections would have been $3.4 million. A.R.S. §§ 42‐5061 (A)(12), 42‐5159 (A)(20): (Deduction Code 594) Hearing aids as defined in section 36‐1901 are exempt from transaction privilege tax. In fiscal year 2016/17 it is estimated that deductions of $19.6 million were taken for these items. Had they been taxed, collections would have been $979,300. A.R.S. §§ 42‐5061 (A)(13), 42‐5159 (A)(21): (Deduction Code 526) Some durable medical equipment is exempt from transaction privilege tax. In fiscal year 2016/17 it is estimated that deductions of $470 million were taken for these items. Had they been taxed, collections would have been $23.5 million. A.R.S. § 42‐ 1 (A)(14): (Deduction Code 541. This deduction was revised during fiscal 2014/15) Sales of motor vehicles to nonresidents of Arizona for use outside Arizona if the dealer ships or delivers the motor vehicle outside of the state are exempt from transaction privilege tax. It is estimated that in fiscal 2016/17 a total of $792 million was deducted for this purpose. Were these transactions taxable, an additional $39.6 million would have been collected. A.R.S. §§ 42‐5061 (A)(15 and 16), 42‐5159 (A)(22 and 23): (Deduction Codes 506 and 513) Food for home consumption was exempted from transaction privilege and use tax effective July 1980. This includes items purchased with food stamps. In fiscal 2016/17 it is estimated that deductions of $7.2 billion were taken for these items. A 5% tax on these would have brought in $359 million in additional revenues. A.R.S. §§ 42‐5061 (A)(17), 42‐5159 (A)(28): (Deduction Code 505) Textbooks sold by any bookstore that are required by any state university or community college are not subject to the transaction privilege or use tax. Deductions estimated to be $48.5 million were taken for this exemption in fiscal 2016/17. At a rate of 5%, these deductions would have generated $2.4 million had they been taxable. A.R.S. §§ 42‐5061 (A)(18), 42‐5159 (A)(24): (Deduction Code 568) Meals provided to employees of restaurants are exempt from transaction privilege and use taxation. No information is available on the value of this tax expenditure for fiscal 2016/17. A.R.S. §§ 42‐5061 (A)(19), 42‐5159 (A)(26): (Deduction Code 569) No transaction privilege or use tax is applied to food, drink or condiment purchased for school lunches. In fiscal 2016/17 it is estimated that businesses deducted $61.2 million for this purpose. At a 5% tax rate this would have generated $3.1 million. A.R.S. §§ 42‐5061 (A)(20), 42‐5159 (A)(27): (Deduction Code 521) Arizona lottery ticket sales, amounting to $852 million in fiscal year 2016/17, are not taxable. Additional tax collections of $42.6 million would have been received if the sales were taxed at a 5% rate. A.R.S. § 42‐5061 (A)(21): (Deduction Codes 567 and 601) The sale of precious metal bullion and monetized bullion to the ultimate consumer is exempt from transaction privilege tax. Precious metal bullion is defined as precious metal, including gold, silver, platinum, etc., which 66 Return to Table of Contents has been smelted or refined so that its value depends on its contents and not on its form. Monetized bullion means coins and other forms of money which are manufactured from gold, silver, etc., and which have been used as a medium of exchange. In fiscal 2016/17 businesses took an estimated $59 million in deductions for this purpose. Had these transactions been taxable they would have generated $2.9 in tax at a 5% rate. A.R.S. § 42‐5061 (A)(22): (Deduction Code 515) The sale of vehicle fuel and aviation fuel which are subject to another tax are exempt from transaction privilege tax. In fiscal year 2016/17, deductions of $3.4 billion were taken. Had they been taxed at 5%, $171.9 million would have been collected. A.R.S. § 42‐5061 (A)(23): (Deduction Code 571) The sale of tangible personal property to a person engaged in the business of leasing or renting such property under the personal property rental classification if the property is to be leased or rented by such person is not subject to transaction privilege tax. In fiscal year 2016/17, it is estimated that deductions of $29.9 million were taken. At a 5% tax rate they would have generated $1.5 million in tax. A.R.S. § 42‐5061 (A)(24): (Deduction Code 504) The sale of tangible personal property in interstate or foreign commerce if prohibited from being so taxed by the Constitution of the United States or the constitution of this state. In fiscal year 2016/2017 estimated deductions of $5.2 billion were taken for this purpose. Had these transactions been taxable at the 5% rate $259 million in taxes would have been generated. A.R.S. §§ 42‐5061 (A)(25)(a, b, c, d), 42‐5063(C)(3), 42‐5065 (B)(2), 42‐5066 (B)(3), 42‐5067 (B)(2), 42‐5074 (B)(8), 42‐5159 (A)(13)(a, b ,c, d, e, j): (Deduction Codes 545, 546, 572, and 574) Tangible personal property sold to a qualifying hospital or a qualifying health care organization used by the organization solely to provide health and medical related educational and charitable services and tangible personal property sold to or purchased by qualifying community health centers and health care organizations are exempt from transaction privilege and use tax. In fiscal year 2016/17 deductions of an estimated $894 million were taken for these exemptions. Had they been taxed at 5%, $44.7 million would have been collected. A.R.S. §§ 42‐5061 (A)(25)(e), 42‐5159 (A)(13)(k): (Deduction Code 544) Sales of tangible personal property to a nonprofit charitable organization that regularly serves meals to the needy and indigent on a continuing basis at no cost is exempt from the transaction privilege and use tax. During fiscal 2016/17, businesses deducted an estimated $16.5 million for this exemption. At 5%, this would have raised $823,500 had it been taxable. A.R.S. §§ 42‐5061 (A)(25)(f), 42‐5159 (A)(13)(m), 42‐5075(B)(12): (Deduction Code 573) Sales of tangible personal property to a nonprofit charitable organization that provides residential apartment housing for low income persons over 62 years of age in a facility that qualifies for a federal housing subsidy, is exempt from the transaction privilege and use tax. The gross proceeds of sales from a contract for construction of a residential apartment housing facility that qualifies for a federal housing subsidy for low income persons over 62 years of age and that is owned by a 67 Return to Table of Contents nonprofit charitable organization is exempt from the prime contracting classification of transaction privilege tax. No information is available on the value of this tax expenditure for fiscal 2016/17. A.R.S. § 42‐5061 (A)(25)(g): (Deduction Code 699) Tangible personal property sold to a qualifying health sciences educational institution as defined in 42‐5001 is exempt from the transaction privilege tax. No information is available on the value of this tax expenditure for fiscal 2016/17. A.R.S. §§ 42‐5061 (A)(26), 42‐5065 (A)(2), 42‐5159 (A)(29): (Deduction Code 602) No transaction privilege or use tax is charged on magazines or other periodicals or other publications by this state to encourage tourist travel. Arizona Highways magazine is the primary publication of this type. No information is available on the value of this exemption for fiscal 2016/17. A.R.S. §§ 42‐5061 (A)(27)(a), 42‐5061 (A)(51), 42‐5072(B), 42‐5075(B)(6), 42‐5159(A)(13)(g), 42‐ 5159 (A)(47) and ACRR R15‐5‐1839: (Deduction Codes 552 and 589) Sales of articles to a contractor with a transaction privilege tax license for incorporation or fabrication under a construction contract or used in environmental response or remediation activities. In fiscal year 2016/17, an estimated $150 million was taken for these deductions. Had they been taxed at 5%, $7.5 million would have been collected. A.R.S. §§ 42‐5061 (A)(27)(B), 42‐5072(B), 42‐5159(A)(13)(h): (Deduction Code 584) Tangible personal property sold to a person that is not subject to tax under 42‐5075 and that has been provided a copy of a certificate under section 42‐5009 (L) if the property sold is incorporated or fabricated by the person into the real property, structure, project, development or improvement described in the certificate. In fiscal year 2016/17, an estimated $2.9 million was taken for this deduction. Had these transactions been taxable they would have generated $147,000 in tax at a 5% rate. A.R.S. § 42‐5061 (A)(28)(a): (Deduction Code 580) The sale of a motor vehicle is exempt from transaction privilege tax if the buyer is a nonresident of this state and the state of residence does not allow a corresponding use tax exemption and if the nonresident has secured a special thirty‐day nonresident vehicle registration, the transaction is not taxable. In fiscal 2016/17 an estimated $1.1 million was deducted for this exemption. Had these transactions been taxable an additional $54,200 would have been collected. A.R.S. § 42‐5061 (A)(28)(b): (Deduction Code 530) The sale of a motor vehicle is exempt from transaction privilege tax if the buyer is an enrolled member of an Indian tribe who resides on the Indian reservation established for that tribe, no tax can be imposed. In fiscal 2016/17 an estimated total of $29 million was deducted for this exemption. An additional $1.4 million would have been collected at the 5% rate. A.R.S. §§ 42‐5061 (A)(29), 42‐5159 (A)(13)(f): (Deduction Code 575) Tangible personal property purchased or leased by a nonprofit charitable organization that engages in and uses such property 68 Return to Table of Contents exclusively for training, job placement or rehabilitation programs or testing for mentally or physically handicapped persons is exempt from the transaction privilege and use tax. In fiscal 2016/17 businesses deducted an estimated $1.4 million for this purpose. Had these transactions been taxable, they would have generated $69,600 in tax at a 5% rate. A.R.S. §§ 42‐5061 (A)(30 and 32), 42‐5073 (A)(5 and 6), 42‐5074 (B)(4 and 5), 42‐5159 (A)(15)(b and c): (Deduction Codes 762, 763) Tangible personal property sold and sales under the amusement and restaurant classifications by a nonprofit organization if the organization is associated with a major league baseball team or a national touring professional golf association is not subject to transaction privilege or use tax. Similar qualified organizations which sponsor or operate a rodeo featuring primarily farm and ranch animals are also exempt from the transaction privilege and use tax. In fiscal 2016/17 businesses deducted an estimated $4.1 million for this purpose. Had these transactions been taxable, they would have generated $208,700 in tax at a 5% rate. A.R.S. §§ 42‐5061 (A)(31), 42‐5159 (A)(14): (Deduction Code 583) Sales of commodities, as defined by title 7 United States Code § 2, that are consigned for resale in a warehouse in or from which the commodity is deliverable on a contract for future delivery subject to the rules of a commodity market are exempt from transaction privilege and use tax. In fiscal 2016/17 businesses deducted an estimated $2.6 million for this purpose. Had these transactions been taxable, they would have generated $131,500 in tax at a 5% rate. A.R.S. §§ 42‐5061 (A)(33), 42‐5159 (A)(9): (Deduction Code 537) There is no transaction privilege or use tax on the sale of seeds, seedlings, roots, bulbs, cuttings and other propogative material to persons who uses those items to commercially produce agricultural, horticultural, viticultural or floricultural crops in Arizona. In fiscal year 2016/17 an estimated $33 million was deducted for this exemption. Had it been taxable, $1.7 million would have been collected. A.R.S. §§ 42‐5061 (A)(34), 42‐5159 (A)(34): (Deduction Code 525) Machinery, equipment and certain supplies used to assist the physically or developmentally disabled or those persons with head injuries are exempt from transaction privilege and use tax. In fiscal year 2016/17, an estimated $61.5 million was deducted for this exemption. Had it been taxable, $3.1 million would have been collected. A.R.S. §§ 42‐5061 (A)(35), 42‐5063 (B)(2) 42‐5159 (A)(33): (Deduction Code 509) Sales of natural gas or liquefied petroleum gas used to propel a motor vehicle are exempt from transaction privilege and use tax. In fiscal year 2016/17 an estimated $34.7 million was deducted for this exemption. Had it been taxed at the 5% rate, an additional $1.7 million would have been received. A.R.S. §§ 42‐5061 (A)(36), 42‐5159 (A)(30): (Deduction Code 586) Paper machine clothing sold to a paper manufacturer and directly used or consumed in paper manufacturing is exempt from transaction privilege and use tax. No information is available for this expenditure for fiscal 2016/17. 69 Return to Table of Contents A.R.S. §§ 42‐5061 (D), 42‐5063 (C)(4) (Deduction Code 607) The gross proceeds of sales or gross income derived from sales of machinery, equipment, utility product, materials and other tangible personal property used directly to construct a qualified environmental technology manufacturing, producing or processing facility are deducted from transaction privilege tax base. Use tax does not apply to the storage, use or consumption in Arizona of machinery, equipment, materials or other tangible personal property if use directly to construct a qualified environmental technology manufacturing, producing or processing facility. In fiscal 2016/17 businesses deducted an estimated $1.5 million for this purpose. Had these transactions been taxable, they would have generated $73,000 in tax at a 5% rate. A.R.S. §§ 42‐5061 (A)(37), 42‐5159 (A)(31): (Deduction Code 511) Sales of coal, petroleum, coke, natural gas, virgin fuel oil and electricity to an environmental technology manufacturer, producer or processor and that are directly used or consumed in the generation or provision of on‐site power or energy are exempt from transaction privilege and use tax. In fiscal 2016/17 businesses deducted an estimated $15.8 million for this purpose. Had those transactions been taxable they would have generated $788,750 in tax at a 5% rate. A.R.S. §§ 42‐5061 (A)(38), 42‐5159 (A)(35): (Deduction Code 510) Sales of liquid, solid or gaseous chemicals used in manufacturing, processing, fabricating, mining, refining, metallurgical operations or research and development are exempt from transaction privilege and use tax if the chemicals are used for the purpose of causing or permitting a chemical or physical change to occur in the materials as a part of the production process. In fiscal year 2016/17 an estimated $173 million was deducted for this exemption. At a rate of 5% $8.7 million would have been collected. A.R.S. §§ 42‐5061 (A)(40), 42‐5074 (B)(9), 42‐5159 (A)(36): (Deduction Code 514) Under the retail classification and the restaurant classification, sales of food, drink or condiment for consumption within the premises of any jail or prison or any other institution under the jurisdiction of the county sheriff, DOC, DPS, or DYTR are exempt from transaction privilege and use tax. During fiscal year 2016/17 $8 million was estimated to be deducted for this exemption. Had this been taxed at 5%, $400,700 would have been collected. A.R.S. §§ 42‐5061 (A)(41), 42‐5159 (A)(37): (Deduction Code 528) Motor vehicles and any repair and tangible personal property that becomes a part of the motor vehicles sold to a licensed motor carrier subject to a fee under title 28, chapter 9, article 6 who lease or rent the property are not subject to transaction privilege or use tax. In fiscal year 2016/17 an estimated $88.1 million was deducted for this exemption. Had it been taxable, $4.4 million would have been collected. A.R.S. § 42‐5061 (A)(42), 42‐5159(A)(8): (Deduction Code 520) Sales of livestock and poultry feed, salts, vitamins for livestock or poultry consumption, not including fertilizers, herbicides and insecticides, sold to persons engaged in producing livestock, poultry or products are exempt from 70 Return to Table of Contents transaction privilege tax. In fiscal year 2016/17 an estimated $158 million was deducted for this exemption. Had it been taxable, $7.9 million would have been collected. A.R.S. §§ 42‐5061 (A)(43), 42‐5159 (A)(7): (Deduction code 516) There is no transaction privilege or use tax on the sale or purchase of implants used as growth promotants and injectable medicines for livestock and poultry owned by persons engaged in producing or feeding livestock or poultry. No information is available on the value of this tax expenditure for fiscal 2016/17. A.R.S. § 42‐5061 (A)(44): (Deduction Code 529) Sales of motor vehicles at auction to nonresidents of this state for use outside this state if the vehicles are shipped or delivered outside of the state are exempt from the transaction privilege tax. During fiscal 2016/17 an estimated total of $115 million was deducted for this exemption. Were these transactions taxable, an additional $5.7 million would have been collected. A.R.S. §§ 42‐5061 (A)(45), 42‐5159 (A)(13)(l): (Deduction Codes 534 and 566) Transaction privilege and use tax does not apply to sales of tangible personal property to persons engaged in business under the transient lodging classification if the property is personal hygiene products or articles used for drink or condiment, except alcoholic beverages, which are furnished to and to be consumed by the transient during his occupancy. In fiscal 2016/17 businesses deducted an estimated $190 thousand for this purpose. Had those transactions been taxable they would have generated $9,500. A.R.S. §§ 42‐5061 (A)(46), 42‐5159 (A)(42), 42‐5063 (B)(3): (Deduction Code 587) Sales or purchases of alternative fuel to a used oil fuel burner who is permitted under §49‐426 or §49‐ 480 to burn used oil or used oil fuel are exempt from transaction privilege and use tax. No information is available on this tax expenditure for fiscal 2016/17. A.R.S. §§ 42‐5061 (A)(47), 42‐5159 (A)(12): (Deduction Code 519) Printed, photographic, electronic or digital media materials for use in libraries funded with public moneys in Arizona, are exempt from transaction privilege and use tax. In fiscal 2016/17 businesses deducted an estimated $6.3 million for this purpose. Had those transactions been taxable they would have generated $319,400. A.R.S. §§ 42‐5061 (A)(48), 42‐5074 (C), 42‐5159 (A)(43): (Deduction Code 512) Under the retail classification and the restaurant classification, tangible personal property sold to or purchased by a commercial airline that consist of food, beverages and condiments and accessories used for serving, if the items are provided without additional charge, are exempt from transaction privilege and use tax. In fiscal 2016/17 businesses deducted an estimated $3.8 million for this purpose. Had those transactions been taxable they would have generated $192,200 in tax. A.R.S. §§ 42‐5061 (A)(49), 42‐5159 (A)(44): (Deduction Code 592) Sales of new alternative fuel vehicles, as defined in A.R.S. §43‐1086, if the vehicle was manufactured as a diesel fuel vehicle and converted to operate on alternative fuel, and equipment that is installed in a conventional 71 Return to Table of Contents diesel fuel motor vehicle to convert the vehicle to operate on an alternative fuel. Information is not available on this expenditure for fiscal 2016/17. A.R.S. § 42‐5061 (A)(50): (Deduction Code 588) Sales of any spirituous, vinous or malt liquor by a person that is licensed in this state as a wholesaler by the Arizona Department of Liquor Licenses and control. No information is available on the value of this tax expenditure for fiscal 2016/17. A.R.S. § 42‐5061 (A)(52), 42‐5159(A)(48), 42‐5073(A)(9): (Deduction Code 764) Sales of tangible personal property by a nonprofit organization if the organization produces, organizes or promotes cultural or civic related festivals or events and no part of the organization’s net earnings inures to the benefit of any private shareholder or individual. In fiscal 2016/17 businesses deducted an estimated $7.2 million for this purpose. Had the transactions been taxable at a 5% rate, they would have generated $361,000 in tax. A.R.S. § 42‐5061 (A)(53), 42‐5159(A)(50), 42‐5064(A)(2): (Deduction Code 596) Application services that are designed to assess or test student learning or to promote curriculum design or enhancement purchased by or for any school district, charter school, community college or state university. In fiscal 2016/17 businesses deducted an estimated $2.4 million for this purpose. Had the transactions been taxable at a 5% rate, they would have generated $122,000 in tax. A.R.S. § 42‐5061 (A)(54), 42‐5159(A)(51): (Deduction Code 598) Sales of motor vehicle fuel and use fuel to a healthy forest business for off‐road use in harvesting, processing or transporting forest products is exempt from transaction privilege tax. No information is available on the value of this tax expenditure for fiscal 2016/17. A.R.S. § 42‐5061 (A)(55), 42‐5159(A)(52): (Deduction Code 603) Sales of repair parts installed in equipment used directly by a healthy forest business in harvesting, processing or transporting forest products removed from qualify projects are exempt from tax. In fiscal 2016/17 businesses deducted an estimated $32.5 million for this purpose. Had the transactions been taxable at a 5% rate, they would have generated $1.6 million in tax. A.R.S. § 42‐5061 (A)(56), 42‐5159(A)(53), 42‐5063(B)(5): (Deduction Code 604) Sales or other transfers of renewable energy credits or any other unit created to track energy derived from renewable energy resources is exempt. In fiscal 2016/17 businesses deducted an estimated $4.9 million for this purpose. Had the transactions been taxable at a 5% rate, they would have generated $243,800 in tax. A.R.S. § 42‐5061 (A)(57); 42‐5159 (A) (54) (Deduction Code 565) Computer data center equipment purchased by the owner, operator or qualified colocation tenant of the computer data center or an authorized agent of the owner, operator or qualified colocation tenant during the qualification period for use in a computer data center that is certified by the Arizona commerce authority under section 41‐1519. In fiscal 2016/17 businesses deducted an 72 Return to Table of Contents estimated $7.2 million for this purpose. Had the transactions been taxable at a 5% rate, they would have generated $359,600 in tax. A.R.S. § 42‐5061 (A)(58) (Deduction Code 582) Sales of orthodontic devices dispensed by a dental professional who is licensed under title 32, chapter 11 to a patient as part of the practice of dentistry. No information is available on the value of this tax expenditure for fiscal 2016/17. A.R.S. § 42‐5061 (A)(59): (Deduction Code 712) Sales of tangible personal property incorporated or fabricated into a project described in 42‐5075(O) that is located within the exterior boundaries of an Indian reservation for which the owner of the project is an Indian tribe or an affiliated Indian. In fiscal 2016/17 businesses deducted an estimated $8.4 million for this purpose. Had the transactions been taxable at a 5% rate, they would have generated $418,200 in tax. A.R.S. § 42‐5061 (A)(60): (Deduction Code 773) Sales of works of fine art, as defined in section 44‐1771, at an art auction or gallery in this state to nonresidents of this state for use outside this state if the vendor ships or delivers the work of fine art to a destination outside this state. In fiscal year 2016/17 businesses deducted an estimated $4.2 million for this purpose. Had the transactions been taxed at the 5% rate, they would have generated $211,000. A.R.S. §§ 42‐5061 (B)(1), 42‐5159 (B)(1): (Deduction Code 522) Machinery or equipment used directly in manufacturing, processing, fabricating, job printing, refining or metallurgical operations is not subject to transaction privilege or use tax. During fiscal 2016/17 an estimated $585 million was deducted for this exemption. A 5% tax on this machinery would have brought in $29.2 million in additional revenues. A.R.S. §§ 42‐5061 (B)(2 and 10), 42‐5159 (B)(2 and 10): (Deduction Codes 523 and 579) Sales of machinery or equipment used in mining directly in the process of extracting ores or minerals from the earth for commercial purposes and sales of machinery or equipment used in drilling for or extracting oil or gas from the earth are not taxed. During fiscal 2016/17 an estimated $295 million was deducted for this exemption. A 5% tax on this machinery would have brought in $14.8 million in additional revenues. A.R.S. §§ 42‐5061 (B)(3), 42‐5159 (B)(3): (Deduction Code 539) Tangible personal property sold to persons engaged in business under the telecommunications classification, consisting of central office switching equipment, switchboards, private branch exchange equipment, microwave radio equipment and carrier equipment including optical fiber, coaxial cable and other transmission media which are components of carrier systems are exempt from the transaction privilege and use tax. In fiscal 2016/17 businesses deducted an estimated $12.3 million for this purpose. Had the transactions been taxable they would have generated $612,900 in tax at the 5% rate. A.R.S. §§ 42‐5061 (B)(4), 42‐5159 (B)(4): (Deduction Code 524) Machinery, equipment or transmission lines used directly in producing or transmitting electrical power, but not including distribution is exempt from the transaction privilege and use tax. Transformers and control equipment used in transmission substation sites are included in this exemption. During fiscal 73 Return to Table of Contents 2016/17 $79.6 million was estimated to have been deducted for this exemption. Had this been taxable, an additional $4 million would have been collected. A.R.S. §§ 42‐5061 (B)(5), 42‐5159 (B)(5): (Deduction Code 605) Neat animals, horses, asses, sheep, swine or goats used or to be used as breeding or production stock are not subject to the transaction privilege or use tax. During fiscal 2016/17 businesses deducted an estimated $3.8 million for this purpose. At a 5% rate, this would have generated $188,100 in tax. A.R.S. §§ 42‐5061 (B)(6), 42‐5159 (B)(6): (Deduction Code 535) There is no transaction privilege or use tax on pipes or valves four inches in diameter or larger used to transport oil, natural gas, artificial gas, water or coal slurry. In fiscal 2016/17 $11.5 million was estimated to have been deducted for this exemption. Had this been taxable, $577,450 would have been collected. A.R.S. §§ 42‐5061 (B)(7), 42‐5159 (B)(7): (Deduction Code 508) Aircraft, navigational and communication instruments sold to (a) a person holding a federal certificate of public convenience and necessity or foreign air carrier permit for air transportation in intrastate, interstate or foreign commerce, (b) any foreign government for use outside of Arizona, or (c) nonresidents who will not use such property in Arizona other than in removing such property from Arizona are not subject to the transaction privilege and use tax. During fiscal 2016/17 it was estimated that $210 million was deducted for this exemption. Had it been taxable, $10.5 million would have been collected. A.R.S. §§ 42‐5061 (B)(8), 42‐5159 (B)(8): (Deduction Code 532) Machinery, tools, equipment and related supplies used or consumed directly in repairing, remodeling or maintaining aircraft, aircraft engines or aircraft component parts by or on behalf of a certified or licensed carrier of persons or property are exempt from tax. In fiscal 2016/17 businesses deducted an estimated $6.1 million for this purpose. Had the transactions been taxable they would have generated $305,350 in tax at a 5% rate. A.R.S. §§ 42‐5061 (B)(9), 42‐5159 (B)(9): (Deduction Code 576) Railroad rolling stock, rails, ties and signal control equipment used directly to transport persons or property in intrastate or interstate transportation for hire is exempt from the transaction privilege and use tax. In fiscal 2016/17 businesses deducted an estimated $1.9 million for this purpose. Had the transactions been taxable they would have generated $93,000 in tax. A.R.S. §§ 42‐5061 (B)(11), 42‐5159 (B)(11): (Deduction Code 606) Transaction privilege and use tax do not apply to sales of buses or other urban mass transit vehicles which are used directly to transport persons or property for hire or pursuant to a governmentally adopted and controlled urban mass transportation program and which are sold to bus companies holding a federal certificate of convenience and necessity. No information is available on the value of this tax expenditure for fiscal 2016/17. A.R.S. §§ 42‐5061 (B)(12), 42‐5075 (B)(2), 42‐5159 (B)(12): (Deduction Code 581) Groundwater measuring devices and their installation required under A.R.S. §45‐604 are exempt from 74 Return to Table of Contents transaction privilege and use tax. No information is available on the value of these devices for fiscal 2016/17. A.R.S. §§ 42‐5061 (B)(13), 42‐5159 (B)(13): (Deduction Code 585) New machinery and equipment (never sold at retail pursuant to leases or rentals which do not total two years or more) used for commercial production of agricultural, horticultural, viticultural and floricultural crops in Arizona are exempt from transaction privilege and use tax. This equipment consists of tractors, tractor‐drawn implements, self‐powered implements and drip irrigation lines. In fiscal 2016/17 businesses deducted an estimated $65.5 million for this purpose. Had the transactions been taxable they would have generated $3.3 million in tax at a 5% rate. A.R.S. §§ 42‐5061 (B)(14), 42‐5159 (B)(14): (Deduction Code 553) Transaction privilege and use tax does not apply to sales of machinery or equipment used in research and development. Research and development means basic and applied research in the sciences and engineering, and designing, developing or testing prototypes, processes or new products, including research and development of computer software that is embedded in or an integral part of the prototype or new product or that is required for machinery or equipment to function effectively. In fiscal 2016/17 an estimated total of $45.7 million was deducted for this exemption. At a rate of 5%, the value of the exemption is $2.3 million. A.R.S. §§ 42‐5061 (B)(15), 42‐5159 (B)(15), 42‐5064 (B)(4): (Deduction Code 591) Tangible personal property used by any direct broadcast satellite television or data transmission service or facility to receive, store, convert, produce, generate, decode, encode, control or transmit telecommunications information is exempt from transaction privilege and use tax. The broadcast satellite television or data transmission service or facility must operate within federal regulations. Sales of services by direct broadcast satellite television services that operate within federal regulation are not taxable under the telecommunications classification. No information is available on the value of this tax expenditure for fiscal 2016/17. A.R.S. §§ 42‐5061 (B)(16), 42‐5159 (B)(16), 42‐5075 (B)(11): (Deduction Code 595) Clean rooms that are used for manufacturing, processing, fabrication or research and development of semiconductor products are exempt from transaction privilege and use taxes. This includes the integrated systems, fixtures, piping, movable partitions, lighting and property that is necessary for control of the clean room. The income derived from the installation, assembly, repair or maintenance of the clean rooms is also exempt from taxation under the contracting classification. In fiscal 2016/17 businesses deducted an estimated $26 million for this purpose. Had the transactions been taxable they would have generated $1.3 million in tax at a 5% rate. A.R.S. §§ 42‐5061 (B)(17), 42‐5159 (B)(17): (Deduction Code 577) Machinery and equipment used directly in the feeding of poultry, the environmental control of housing for poultry, the movement of eggs within a production and packaging facility or the sorting or cooling of eggs. No information is available on the value of this tax expenditure for fiscal 2016/17. 75 Return to Table of Contents A.R.S. §§ 42‐5061 (B)(18), 42‐5159 (B)(18): (Deduction Code 597) Machinery or equipment, including related structural components, that is employed in connection with manufacturing, processing, fabricating, job printing, refining, mining, natural gas pipelines, metallurgical operations, telecommunications, producing or transmitting electricity or research and development and that is used directly to meet or exceed rules or regulations adopted by the federal energy regulatory commission, the United States Environmental Protection Agency, the United States Nuclear Regulatory Commission, the Arizona Department of Environmental Quality or a political subdivision of this state to prevent monitor, control or reduce land, water or air pollution. No information is available on the value of this tax expenditure for fiscal 2016/17. A.R.S. §§ 42‐5061 (B)(19), 42‐5159 (B)(19): (Deduction Code 599) Machinery and equipment that are sold to a person engaged in the commercial production of livestock, livestock products or agricultural, horticultural, viticultural or floricultural crops or products in this state and that are used directly and primarily to prevent, monitor, control or reduce air, water or land pollution. No information is available on the value of this tax expenditure for fiscal 2016/17. A.R.S. §§ 42‐5061 (B)(20), 42‐5159 (B)(20): (Deduction Code 578) Machinery or equipment that enables a television station to originate and broadcast or to receive and broadcast digital television signals and that was purchased to facilitate compliance with the telecommunications act of 1996. No information is available on the value of this tax expenditure for fiscal 2016/17. A.R.S. § 42‐5061 (B)(21): (Deduction Code 554) Qualifying equipment purchased by a qualifying business for harvesting or the initial processing of qualifying forest products removed as part of the Healthy Forests program are exempt from transaction privilege and use tax. No information is available on the value of this tax expenditure for fiscal 2016/17. A.R.S. § 42‐5061 (E): (Deduction Code 609) The portion of the sales price of heavy trucks and trailers that reflect the federal luxury excise tax are exempt from transaction privilege tax. No information is available on the value of this tax expenditure for fiscal 2016/17. A.R.S. § 42‐5061 (D), 42‐5071(A)(5), 42‐5075(B)(5): (Deduction Code 607) The gross proceeds of sales or gross income derived from sales of machinery, equipment, materials and other tangible personal property used directly and predominantly to construct a qualified environmental technology manufacturing, producing or processing facility as described in A.R.S. §41‐1514.02. In fiscal 2016/17 businesses deducted an estimated $1.5 million for this purpose. Had the transactions been taxable they would have generated $73,000 in tax. A.R.S. § 42‐5061 (I)(1), 42‐5071(B)(2)(c): (Deduction Code 547) Sales made directly to the United States government or its departments or agencies by a manufacturer, modifier, assembler or repairer are not subject to transaction privilege tax. In fiscal year 2016/17 businesses deducted an estimated $626 million for this deduction. Had the transactions been taxable they would have generated $31 million in tax. 76 Return to Table of Contents A.R.S. § 42‐5061 (I)(2), 42‐5061(I)(4), 42‐5072(B): (Deduction Code 543) Sales made directly to a manufacturer, modifier, assembler or repairer if such sales are of any ingredient or component part of products sold directly to the United States government or its departments or agencies by the manufacturer, modifier assembler or repairer are not subject to the transaction privilege tax. In fiscal year 2016/17 businesses deducted an estimated $92.3 million for this deduction. Had the transactions been taxable they would have generated $4.6 million in tax. A.R.S. § 42‐5061 (I)(3), 42‐5159(A)(39): (Deduction Code 611) Overhead materials or other tangible personal property that is used in performing contract between the United States government and a manufacturer, modifier, assembler or repairer, including property used in performing a subcontract with a government contractor to which title passes to the government under the terms of the contract or subcontract are not subject to transaction privilege tax. In fiscal year 2016/17 businesses deducted an estimated $9.4 million for this deduction. Had the transactions been taxable they would have generated $471,000 in tax. A.R.S. § 42‐5061 (J): (Deduction Code 548) 50% of the gross proceeds from any sale of tangible personal property made directly to the United States government is not subject to transaction privilege tax. In fiscal year 2016/17 businesses deducted an estimated $112.7 million for this deduction. Had the transactions been taxable they would have generated $5.6 million in tax. A.R.S. § 42‐5061 (L)(1 and 2): (Deduction Codes 501 and 613) The gross proceeds of sales or gross income derived from a manufacturer’s cash rebate on the sales price of a motor vehicle if the buyer assigns the buyer’s right in the rebate to the retailer; or the waste tire disposal fee imposed pursuant to A.R.S. §44‐1302. No data is available on the tax value of the waste tire disposal fee. During fiscal 2016/17 an estimated $294 million was deducted for the manufacturer’s cash rebate. At a rate of 5%, the tax value of this exemption is $14.7 million. A.R.S. §§ 42‐5061 (M), 42‐5075 (B)(13): (Deduction Code 538) Sales of solar energy devices and the contractor’s retail cost of a solar energy device that the contractor supplied and installed are to be deducted from the tax base, but the deduction is not to exceed $5,000 for each device. In fiscal 2016/17 an estimated total of $639 million was deducted for this exemption. At a rate of 5%, the value of the exemption is $32 million. A.R.S. §§ 42‐5061 (N): (Deduction Code 614) Sales of wireless telecommunication equipment to a person who holds the equipment for sale or transfer to a customer as an inducement to enter into or continue a contract for telecommunications services taxable under A.R.S. §42‐ 5064 is considered a sale for resale under the transaction privilege and use taxes. In addition, the gross proceeds of sales or gross income do not include the sales commissions received as a result of a customer entering or continuing a contract. In fiscal 2016/17 businesses deducted an estimated $1.5 million. Had the transactions been taxable they would have generated $75,700 in tax. 77 Return to Table of Contents A.R.S. § 42‐5061 (U): (Deduction Code 531) For the sale of a motor vehicle to a nonresident of Arizona, the tax base for the sale takes into consideration the tax rate that is charged by the other state and reduces the tax base so that the amount of transaction privilege tax paid is equal to the amount that would be imposed by the other state. In fiscal 2016/17 an estimated total of $48.4 million was deducted for this exemption. Had the transactions been taxable they would have generated $2.4 million in tax. A.R.S. § 42‐5062 (A)(1)(a and b): (Deduction Code 715) Transporting for hire persons, freight or property by motor carriers or light motor vehicles subject to a fee under title 28 is not subject to transaction privilege tax. In fiscal 2016/17 businesses deducted an estimated $14 million for this deduction. At a 5% rate these transactions would have generated $702,000. A.R.S. § 42‐5062 (A)(1)(c and d): (Deduction Code 772) Transporting for hire persons, freight or property by transportation network companies subject to a fee prescribed pursuant to section 28‐9552. Transportation network company drivers on transactions involving transportation network services as defined in section 28‐9551. No information is available on the tax value of this exemption. A.R.S. § 42‐5062 (A)(1)(e and f): (Deduction Code 778) Transporting for hire persons, freight or property by vehicle for hire companies that are issued permits pursuant to section 28‐9503 or vehicle for hire drivers operating under a company permit issued pursuant to section 28‐9503 on transactions involving vehicle for hire services. In fiscal 2016/17 businesses deducted an estimated $1.6 million for this deduction. At a 5% rate these transactions would have generated $82,000. A.R.S. § 42‐5061 (A)(2): (Deduction Code 615) Transporting for hire persons traveling in air commerce by aircraft is not subject to transaction privilege tax if taxation of the business is preempted by federal law. In fiscal 2016/17 businesses deducted an estimated $40.5 for this deduction. Had the transactions been taxable they would have generated $2 million in tax. A.R.S. § 42‐5062 (A)(3): (No deduction code for this exemption) Ambulances or ambulance services provided under Title 48 or certified pursuant to Title 36, chapter 21.1 or provided by a city or town in a county with a population of less than 150,000 is not subject to taxation under the transporting classification of the transaction privilege tax. No information is available about the value of this exemption. A.R.S. § 42‐5062 (A)(4): (No deduction code for this exemptions) The transporting classification of the transaction privilege tax excludes public transportation services for the dial‐a‐ride programs and special needs transportation services. No information is available on the tax value of this exemption. A.R.S. § 42‐5062 (A)(5): (Deduction Code 616) The transporting classification of the transaction privilege tax also excludes transporting freight or property for hire by a railroad operating exclusively in this state if the transportation comprises a portion of a single shipment of freight or property, involving more than one railroad, either from a point in this state to a point outside 78 Return to Table of Contents this state or from a point outside this state to a point in this state. In fiscal 2016/17 businesses deducted an estimated $21 million for this purpose. Had the transactions been taxable they would have generated $1.1 million in tax. A.R.S. § 42‐5062 (A)(6): (No deduction code for this exemption) The transporting classification of the transaction privilege tax does not apply to arranging transportation as a convenience or service the business is not otherwise engaged in the business of transporting persons, freight or property for hire. No information is available on the tax value of this exemption. A.R.S. § 42‐5062 (B)(1): (Deduction Code 620) The gross proceeds of sales or gross income derived from transporting for hire persons, freight or property by a railroad pursuant to a contract with another railroad is exempt from transaction privilege tax if the other railroad has already paid the transaction privilege tax on the transporting of goods. No information is available for this expenditure for fiscal 2016/17. A.R.S. § 42‐5062 (B)(2), 42‐5070(C), 42‐5073(B)(5)(a): (Deduction Code 640) The gross proceeds of sales or gross income derived from business activity that is properly included in any other business classification and that is taxable to the person engaged in that classification is not subject to transaction privilege tax under these sections. In fiscal 2016/17 businesses deducted an estimated $4.9 million for this deduction. Had these transactions been taxable they would have generated $245,700 at a 5% rate. A.R.S. § 42‐5062 (B)(3), 42‐5073(B)(5)(b): (Deduction Code 612) The gross proceeds of sales or gross income derived from a business activity that is arranged by the person that is subject to tax and who is not taxable to the person conducting the activity due to an exclusion, exemption or deduction is not subject to transaction privilege tax under these sections. In fiscal year 2016/17 businesses deducted an estimated $14.9 million for this deduction. Had these transactions been taxable they would have generated $747,000 in tax. A.R.S. § 42‐5061 (B)(4), 42‐5073(B)(5)(c): (Deduction Code 702) The gross proceeds of sales or gross income derived from business activity that is arranged by a person who is subject to tax and that is taxable to another person who conducts the activity is not subject to transaction privilege tax under these sections. In fiscal year 2016/17 businesses deducted an estimated $2 million for this deduction. Had these transactions been taxable they would have generated $99,500. A.R.S. § 42‐5062 (B)(5): (Deduction Code 625) The gross proceeds of sales or gross income derived from transporting fertilizer by a railroad from a point in this state to another point in this state is exempt from transaction privilege tax if the other railroad has already paid the transaction privilege tax on the transporting of goods. No data is available on the tax value of this exemption. A.R.S. § 42‐5063 (B)(4): (Deduction Code 617) Sales of ancillary services, electric distribution services, electric generation services, electric transmission services and other services that are related to providing electricity to a retail electric customer who is located outside this state for 79 Return to Table of Contents use outside this state if the electricity is delivered to a point of sale outside this state. No data is available on the tax value of this exemption. A.R.S. § 42‐5063 (B)(6), 42‐5064(A)(3), 42‐5069(C)(17), 42‐5071(A)(9): (Deduction Code 759) The leasing or renting of space to make attachments to utility poles is exempt from transaction privilege tax. No information is available on the value of this tax expenditure for fiscal 2016/17. A.R.S. § 42‐5063 (C)(5): (Deduction Code 618) The portion of gross proceeds of sales attributable to transfers of electricity by any retail electric customer owning a solar photovoltaic energy generating system to an electric distribution system if the electricity transferred is generated by the customer’s system is exempt from transaction privilege tax. No data is available on the tax value of this exemption in fiscal 2016/17. A.R.S. §§ 42‐5063 (C)(1), 42‐5159 (F)(1): (Deduction Code 621) Revenues received by a municipally owned utility in the form of fees charged to persons constructing residential, commercial or industrial developments or connecting residential, commercial or industrial developments to a municipal utility system if the fees are segregated and used only for capital expansion, system enlargement or debt service of the utility system are excluded from the taxable base under the utilities classification of transaction privilege tax. In fiscal 2016/17 businesses deducted an estimated $6 million for this purpose. Had the transactions been taxable they would have generated $298,200 in tax at a 5% rate. A.R.S. §§ 42‐5063 (C)(2), 42‐5159 (F)(2): (Deduction Code 626) Revenues received by any person owning a utility system in the form of reimbursement or contribution compensation for property and equipment installed to provide utility access to, on or across the land of an actual utility consumer if the property and equipment become the property of the utility are excluded from the taxable base under the utilities classification of the transaction privilege tax. No information is available on the value of this tax expenditure for fiscal 2016/17. ACRR R15‐5‐2014: Interstate sales of electricity, natural gas and water are exempt from transaction privilege tax. Information is not available for this expenditure at this time. A.R.S. § 42‐5064, 42‐5064(C)(5): (Deduction Code 643) Income from interstate telecommunication services is not taxable under the telecommunications classification of transaction privilege tax. In fiscal 2016/17 businesses deducted an estimated $18 million for this purpose. Had the transactions been taxable they would have generated $900,500 million in tax at a 5% rate. A.R.S. § 42‐5064 (A)(1): (No deduction code assigned) Sales of intrastate telecommunications services by a cable television system or by a microwave television transmission system that transmits television programming to multiple subscribers are not subject to transaction privilege tax. No data is available on the tax value of this exemption. A.R.S. § 42‐5064 (A)(2, 42‐5064(C)(4)): (Deduction Code 517) Sales of internet access services to subscribers and customers. In fiscal 2016/17 businesses deducted an estimated $26.8 million 80 Return to Table of Contents for this purpose. Had the transactions been taxable they would have generated $1.3 million in tax at a 5% rate. A.R.S. § 42‐5064 (B)(1): (Deduction Code 619) A direct broadcast satellite television or data transmission service that operates pursuant to 47 Code of Federal Regulations part 25 for use in its direct broadcast satellite television or data transmission operation by a facility described in 42‐5061(B)(15)(b) is not subject to transaction privilege tax. No information is available on the value of this tax expenditure for fiscal 2016/17. A.R.S. § 42‐5064 (B)(2 and 3): (Deduction Codes 641 and 627) End user common line charges and carrier access charges established by federal communications regulations are exempt from transaction privilege tax. In fiscal 2016/17 businesses deducted an estimated $4.4 million for this purpose. Had the transactions been taxable they would have generated $219,250 in tax at a 5% rate. A.R.S. § 42‐5064 (B)(4): (Deduction Code 633) Sales of direct broadcast satellite television services pursuant to 47 Code of Federal Regulations parts 25 and 100 by a direct broadcast satellite television service that operates pursuant to 47 Code of Federal Regulations parts 25 and 100. Data is not releasable for deductions made for this purpose in fiscal 2016/17. A.R.S. § 42‐5064 (B)(5): (Deduction Code 649) Telecommunications services purchased with a prepaid calling card, or a prepaid authorization number are exempt from transaction privilege tax. No data is available on the tax value of this exemption in fiscal 2016/17. A.R.S. § 42‐5065 (A)(1): (No deduction code exists for this exemption) The gross proceeds from manufacturing or publishing books are exempt from transaction privilege tax. No data is available on the tax value of this exemption. A.R.S. § 42‐5065 (B)(1): (Deduction Code 628) The gross income derived from advertising is excluded from the tax base for the publication classification under transaction privilege tax. The value of this deduction is included in the Services section under the Advertising, Public Relations category. A.R.S. § 42‐5066 (B)(1): (Deduction Code 630) The gross proceeds of sales to a person in Arizona who has a transaction privilege tax license and who distributes printing, engraving, embossing or copying without consideration in connection with the publication of a newspaper or magazine are not included in the taxable base under the job printing classification of the transaction privilege tax. No information is available on the value of this tax expenditure for fiscal 2016/17. A.R.S. § 42‐5066 (B)(2): (Deduction Code 637) Sales of job printing, engraving, embossing, and copying for use outside the state if the materials are shipped or delivered out of the state, regardless of where title to the materials passes or their free on board point are exempt from the job printing classification. In fiscal 2016/17 businesses deducted an estimated $25.7 million for this purpose. Had these transactions been taxable they would have generated $1.3 million in tax at a 5% rate. 81 Return to Table of Contents A.R.S. § 42‐5066 (B)(4): (Deduction Code 561) Sales of postage and freight except that the amount deducted shall not exceed the actual postage and freight expense that is paid to the United States postal service or a commercial delivery service are exempt from the job printing classification. During fiscal 2016/17 an estimated $14 million was deducted from transaction privilege tax returns. At a tax rate of 5%, $700,000 would have been collected. A.R.S. § 42‐5070 (B)(2): (Deduction Code 629) Leasing or renting a mobile home or house trailer at a fixed location for more than a 29 day period. During fiscal 2016/17 an estimated $26.5 million was deducted for this purpose. At a rate of 5% this would have generated $1.3 million. A.R.S. § 42‐5070 (B)(3): (Deduction Code 636) Leasing or renting four or fewer rooms of an owner‐occupied residential home, furnishing no more than a breakfast meal, with no more than 50% average annual occupancy rate is not subject to the transaction privilege tax under the transient lodging classification. No information is available on the value of this exemption in fiscal 2016/17. A.R.S. § 42‐5070 (D)(1): (Deduction Code 704) Activities that are not limited to transients and that would not be taxable if engaged in by a person not subject to tax under the transient lodging classification are not subject to transaction privilege tax. In fiscal 2016/17 businesses deducted an estimated $21.7 million for this purpose. Had these been taxable they would have generated $1.1 million in tax at a 5% rate. A.R.S. § 42‐5070 (D)(2): (Deduction Code 701) Activities that are not limited to transients and that would not be taxable if engaged in by a person subject to taxation under the Transporting or Amusement classifications due to an exclusion, exemption or deduction are not subject to transaction privilege tax. No information is available on the value of this exemption in fiscal 2016/17. A.R.S. § 42‐5070 (D)(3): (Deduction Code 648) Commissions paid to a person that is engaged in transient lodging business by a person providing services or property to the customers of the person engaging in the transient lodging business are not subject to transaction privilege tax. No information is available on the value of this exemption in fiscal 2016/17. A.R.S. § 42‐5070 (F): (Deduction Code 718) Obtaining lodging space or the use of lodging space for more than 29 days is not subject to transaction privilege tax. In fiscal 2016/17 businesses deducted $13.1 million for this purpose. Had these been taxable they would have generated $655,350 at a 5% rate. A.R.S. § 42‐5071 (A)(1): (Deduction Code 784) Leasing or renting films, tapes or slides used by theaters or movies, which are engaged in business under the amusement classification, or use by television stations or radio stations is not subject to the transaction privilege tax under the personal property rental classification. No information is available on the value of this exemption. 82 Return to Table of Contents A.R.S. §§ 42‐5071 (A)(2), 42‐5073 (A)(3): (Deduction Code 785) Events sponsored by the Arizona Coliseum and Exposition Center Board are not subject to transaction privilege tax. Information about this exemption is not available. A.R.S. § 42‐5071 (A)(3): (Deduction Code 631) Leasing or renting tangible personal property by a parent corporation to a subsidiary corporation or by a subsidiary corporation to another subsidiary of the same parent corporation if taxes were paid on the initial sale of the tangible personal property are not subject to transaction privilege tax. In fiscal 2016/17 businesses deducted $7.2 million for this purpose. Had these been taxable at a 5% rate, they would have generated $359,400. A.R.S. § 42‐5071 (A)(4): (Deduction Code 786) Operating coin operated washing, drying and dry cleaning machines or coin operated car washing machines at establishments for the use of such machines are not subject to transaction privilege tax. No information is available on the value of this tax expenditure for fiscal 2016/17. A.R.S. § 42‐5071 (A)(6): (Deduction Code 787) Leasing or renting aircraft, flight simulators or similar training equipment to students or staff by nonprofit, accredited educational institutions that offer associate or bachelor’s degrees in aviation or aerospace related fields. No information is available on the value of this tax expenditure for fiscal 2016/17. A.R.S. § 42‐5071 (A)(7): (Deduction Code 651) Leasing or renting photographs, transparencies or other creative works used by this state on internet web sites, in magazines or in other publications that encourage tourism. No information is available on the value of this tax expenditure for fiscal 2016/17. A.R.S. § 42‐5071 (A)(8): (There is no deduction code for this exemption) Leasing or renting certified ignition interlock devices installed pursuant to the requirements prescribed by section 28‐1461. No data is available on the value of this exemption. A.R.S. § 42‐5071 (A)(10): (Deduction Code 774) Leasing or renting billboards that are designed, intended or used to advertise or inform and that are visible from any street, road or other highway. No data is available on the value of this exemption. A.R.S. § 42‐5071 (B)(1): (Deduction Code 656) Reimbursements by a lessee to the lessor of a motor vehicle for payments by the lessor of the applicable fees and taxes to the extent that such amounts are separately identified as fees and taxes and are billed to the lessee are not subject to transaction privilege tax. In fiscal 2016/17 businesses deducted $1.5 million for this purpose. At a 5% rate this would have generated $73,800. A.R.S. § 42‐5071 (B)(4): (Deduction Code 660) Leasing or renting a motor vehicle subject to and on which the fee has been paid under title 28 is not subject to transaction privilege tax. In fiscal 2016/17 businesses deducted $71.4 million for this purpose. At a 5% rate this would have generated $3.6 million A.R.S. § 42‐5071 (B)(5): (Deduction Code 556) Amounts received by a motor vehicle dealer for the first month of a lease payment if the lease and the lease payment for the first month of the 83 Return to Table of Contents lease are transferred to a third party leasing company are deducted from the tax base. During fiscal 2016/17 an estimated $11.4 million was deducted from transaction privilege tax returns. At a tax rate of 5%, $571,800 would have been collected. A.R.S. § 42‐5071 (D): (Deduction Code 680) The gross proceeds of sales or gross income from the lease or rental of a motor vehicle does not include any amount attributable to the car rental surcharge under 5‐839, 28‐5810 or 48‐4234. No information is available on the value of this tax expenditure for fiscal 2016/17. A.R.S. § 42‐5072 (C): (Deduction Code 652) Freight charges included in the sales price of any nonmetalliferous mineral product are subtracted from the taxable base under the mining classification of the transaction privilege tax. No information is available on the value of this tax expenditure for fiscal 2016/17. A.R.S. § 42‐5072 (E): (Deduction Code 658) Process costs included in the sales price of any nonmetalliferous mineral product are subtracted from the taxable base under the mining classification of the transaction privilege tax when the product is shipped out of state. In fiscal 2016/17 businesses deducted $16.7 million for this purpose. Had this been taxable it would have generated $836,000 at a 5% rate. A.R.S. § 42‐5073 (A)(2) (Deduction Code 657) Private or group instructional activities including performing arts, martial arts, gymnastics and aerobic instruction are not subject to transaction privilege tax. In fiscal 2016/17 businesses deducted $15.5 million for this purpose. At a 5% rate this would have generated $775,000. A.R.S. § 42‐5073 (B)(1): (Deduction Code 527) The gross proceeds of sales or gross income derived from membership fees, which provide for the right to use a health or fitness establishment or a private recreational establishment for 28 days or more are exempt from transaction privilege tax. In fiscal 2016/17 businesses deducted $62.7 million for this purpose. At a 5% rate this would have generated $3.1 million. A.R.S. § 42‐5073 (A)(4): (There is no deduction code for this exemption) A musical, dramatic or dance group or a botanical garden, museum or zoo that qualified as a nonprofit charitable organization is exempt from transaction privilege tax under the amusements classification. Information about this exemption is not available. A.R.S. § 42‐5073 (A)(7): (There is no deduction code for this exemption.) Sales of admissions to intercollegiate football contests if the contests are operated by a nonprofit organization are exempt from transaction privilege tax. Information about this exemption is not available. A.R.S. § 42‐5073 (A)(8): (There is no deduction code for this exemption)Fees and assessments received by a homeowners organization from members or guests of members are not taxable under the amusement classification. The value of this exemption is not available. A.R.S. § 42‐5073 (A)(10): Arranging an amusement activity as a service to a person’s customers if that person is not otherwise engaged in the business of operating or conduction an 84 Return to Table of Contents amusement is not taxable under the Amusements classification. The value of this exemption is not available. A.R.S. § 42‐5073 (B)(2): (Deduction Code 661) All of the amounts received in a pari‐mutel pool are exempt from transaction privilege tax. In fiscal 2016/17 businesses deducted $7.7 million for this purpose. This would have generated $386,000 in tax at a 5% rate. A.R.S. § 42‐5073 (B)(3): (Deduction Code 666) The gross proceeds of sales or gross income derived from membership fees that provide for the right to use a transient lodging recreational establishment for 28 days or more are not subject to transaction privilege tax. In fiscal 2016/17 businesses deducted $5.4 million for this purpose. At a 5% rate, this would have generated $269,250. A.R.S. § 42‐5073 (B)(4): (Deduction Code 670) The gross proceeds of sales or gross income derived from sales under the transient lodging classification for amusement sales to another person are not subject to the transient lodging transaction privilege tax. In fiscal 2016/17 businesses deducted $3.6 million for this purpose. At a 5% rate this would have generated $182,000. A.R.S. § 42‐5073 (B)(6)(b): (Deduction Code 735) The gross proceeds of sales or gross income derived from entry fees paid by participants for events that are operated or conducted by nonprofit organizations that are exempt from taxation under section 501(c)(3) of the internal revenue code and of which no part of the organization's net earnings inures to the benefit of any private shareholder or individual, if the event consists of a run, walk, swim or bicycle ride or a similar event, or any combination of these events. No information is available regarding usage of this deduction in fiscal 2016/17. A.R.S § 42‐5074 (Deduction Code 724) Gratuities distributed 100% to servers or service employees are not subject to transaction privilege tax under the Restaurant classification. In fiscal 2016/17 businesses deducted an estimated $4.2 million for this purpose. Had the transactions been taxable they would have generated $210,000 in tax at a 5% rate. A.R.S. § 42‐5074 (B)(2): (Deduction Code 744) Under the restaurant classification of transaction privilege tax, sales by a congressionally chartered veterans organization of food or drink prepared for consumption on the premises leased, owned or maintained by the organization are exempt from tax. In fiscal 2016/17 businesses deducted $1 million for this purpose. At a 5% rate this would have generated $50,850. A.R.S. § 42‐5074 (B)(3): (There is no deduction code for this exemption) Sales by churches, fraternal benefit societies and other nonprofit organizations which do not regularly engage or continue in the restaurant business for the purpose of fund raising are exempt from transaction privilege tax. No information is available on the value of this tax expenditure. A.R.S. § 42‐5074 (B)(11) and 42‐5159(A)(49): (Deduction Code 662) Food sales to a school district or charter school by a restaurant are exempt from transaction privilege tax. No information is available on the value of this exemption in fiscal 2016/17. 85 Return to Table of Contents (Deduction Code 681) Prime Contracting income from out of state projects is not subject to transaction privilege tax. In fiscal 2016/17 businesses deducted an estimated $151 million for this purpose. Had these been taxable they would have generated $7.6 million in tax at a 5% rate. A.R.S. § 42‐5075 (A) (Deduction Code 562) The sale of a used manufactured building is not taxable Prime Contracting. In fiscal 2016/17 an estimated $1.4 million was deducted for this purpose. Had these been taxable they would have generated $72,400 in tax at a 5% rate. A.R.S. § 42‐5075 (A) (Deduction Code 668) Sales for resale to another manufactured building dealer are not subject to transaction privilege tax. In fiscal 2016/17 businesses deducted an estimated $2.4 million for this purpose. Had the transactions been taxable they would have generated $120,000 in tax at a 5% rate. A.R.S. § 42‐5075 (B) (Deduction Code 502) While income from prime contracting is taxable, the wages and salaries paid for any labor employed in construction are not taxable. In order to accomplish this, the transaction privilege tax is imposed on 65% of the gross proceeds. During fiscal 2016/17 an estimated $3 billion was deducted for the 35% deduction. Had this been taxable they would have generated $151 million in tax at the 5% rate. A.R.S. § 42‐5075 (B)(8): (Deduction Codes 608, 622, 623, 624, 632, 635, 639, 644, 645, 646, 653, 654, 665, 672, 674, 675, 676, 677, 678, 679, 685, 697, 706, 799) The gross proceeds or sales or gross income attributable to the purchase of machinery, equipment or other tangible personal property is exempt or deductible from other transaction privilege tax classifications is also exempt from Prime Contracting. In fiscal 2016/17 businesses deducted an estimated $295.5 million for these purposes. At a 5% rate these would have generated $14.8 million in tax. A.R.S. § 42‐5075(B)(1): (Deduction Code 518) The sale price of land included in the income from prime contracting is not subject to transaction privilege tax. In fiscal 2016/17 an estimated $334 million was deducted for this purpose. At a 5% rate these would have generated $16.7 million in tax. A.R.S. § 42‐5075(B)(3): (Deduction Code 663) The sale price of furniture, furnishings, fixtures, appliances and attachments that are not incorporated as component parts of or attached to a manufactured building or the setup site. The sale of such items may be subject to the taxes imposed under other transaction privilege tax classifications. No information is available on the value of these deductions. A.R.S. § 42‐5075 (B)(4): (Deduction Code 667) The gross proceeds of sales or gross income received from a contract entered into for the construction, alteration, repair, addition, subtraction, improvement, movement, wrecking or demolition of any building, highway, road, railroad, excavation or other structure, project, development or improvement located in a military reuse zone for a manufacturer, assembler or fabricator of aviation or aerospace products 86 Return to Table of Contents is exempt from transaction privilege tax under the prime contracting classification. No information is available for this exemption. A.R.S. § 42‐5075 (B)(7): (Deduction Code 600) The gross proceeds of sales that are from a contract entered into for the installation, assembly, repair or maintenance of machinery or other tangible personal property that is deducted under the retail classification A.R.S. §42‐ 5061B and that does not become permanently attached to the structure or project is exempt from the prime contracting classification of transaction privilege tax. In fiscal 2016/17 businesses deducted an estimated $37 million for this purpose. Had the transactions been taxable they would have generated $1.9 million in taxes at a 5% rate. A.R.S. § 42‐5075 (B)(9): (Deduction Code 683) Income from a contract for the construction of an environmentally controlled facility for the raising of poultry for the production of eggs and the sorting, cooling and packaging of eggs is exempt from the prime contracting classification of transaction privilege tax. In fiscal 2016/17 businesses deducted an estimated $35.5 million for this purpose. Had the transactions been taxable they would have generated $1.8 million in taxes at a 5% rate. A.R.S. § 42‐5075 (B)(14): (Deduction Code 698) Income from a contract entered into for the construction of a launch site, as defined in 14 Code of Federal Regulations section 401.5. No information about this expenditure is available. A.R.S. § 42‐5075 (B)(15): (Deduction Code 673) Income from a contract entered into for the construction of a domestic violence shelter that is owned and operated by a nonprofit charitable organization. No information about this expenditure is available. A.R.S. § 42‐5075 (B)(16): (Deduction Code 686) Gross proceeds of sales or gross income derived from contracts to perform post‐construction treatment of real property for termite and general pest control, including wood destroying organisms. In fiscal 2016/17 businesses deducted an estimated $3.4 million for this purpose. Had the transactions been taxable they would have generated $170,000 in tax. A.R.S. § 42‐5075 (B)(17): (Deduction Code 696) Gross proceeds of sales or gross income derived from contracts to build certain state university research infrastructure projects. No information is available on the value of this tax exemption. A.R.S. § 42‐5075 (B)(18): (Deduction Code 555) Gross proceeds of sales or gross income received from a contract for the construction of any building, or other structure, project, development or improvement owned a by a qualified Healthy Forest business. In fiscal 2016/17 businesses deducted an estimated $1.2 million for this purpose. At a 5% rate, this would have generated $59,000. A.R.S. § 42‐5075 (B)(19): (Deduction Code 560) Any amount of the gross proceeds of sales or gross income from a contract that constitutes development or impact fees paid to the state or a local government to offset governmental costs of providing public infrastructure, public safety and other public services to a development. In fiscal year 2016/17, $27.3 million was estimated 87 Return to Table of Contents to be deducted for this exemption. At a 5% state rate, this would have generated $1.4 million in tax. A.R.S. § 42‐5075 (B)(20): (Deduction Code 719) The gross proceeds of sales or gross income derived from a contract entered into for the construction of a mixed waste processing facility that is located on a municipal solid waste landfill and that is constructed for the purpose of recycling solid waste or producing renewable energy from landfill waste is not subject to transaction privilege tax. No information is available on the value of this tax exemption for fiscal 2016/17. A.R.S. § 42‐5075 (D): (Deduction Code 550) Subcontractors or others who perform modification activities are not subject to tax if they can demonstrate that the job was within the control of a prime contractor or contractors or a dealership of manufactured buildings and that the prime contractor or dealership is liable for the tax on the gross income, gross proceeds of sales or gross receipts attributable to the job and from with the subcontractors or others were paid. In fiscal 2016/17 businesses deducted an estimated $6.2 billion for this purpose, the equivalent of $308 million in tax. These activities, by definition, are subject to tax by another taxpayer. A.R.S. § 42‐5075 (I): (Deduction Code 689) The gross proceeds of sales or gross income derived from a contract for lawn maintenance services are not subject to tax if the contract does not include landscaping activities. In fiscal 2016/17 businesses deducted an estimated $25.9 million for this purpose. At a 5% tax rate this would have generated $1.3 million in tax. A.R.S. § 42‐5075 (K): (Deduction Code 557) The portion of gross proceeds of sales or gross income attributable to the actual direct costs of providing architectural or engineering services that are incorporated in a contact is not subject to tax under the prime contracting classification. In fiscal 2016/17 businesses deducted an estimated $60.5 million for this purpose. At a 5% rate this would have generated $3 million in tax. A.R.S. § 42‐5075 (M)(3): (Deduction Code 694) Sales of manufactured buildings that are delivered to a setup site that is outside this state are not subject to transaction privilege tax. No information is available on the value of this tax exemption for fiscal 2016/17. A.R.S. § 42‐5075 (N): (Deduction Code 690) The gross proceeds of sales or gross income attributable to a written contract for design phase services or professional services, executed before modification begins and with terms, conditions and pricing of all these services separated stated in the contract from those for construction phase services, is not subject to tax under Prime Contracting. In fiscal 2016/17 businesses deducted an estimated $84.9 million for this purpose. Had this been taxable it would have generated $4.2 million in tax. A.R.S. § 42‐5075 (O): (Deduction Code 500) The gross proceeds of sales or gross income derived from a contract with the owner of real property or improvements to real property for the maintenance, repair, replacement or alteration of existing property is not subject to tax under the Prime Contracting classification. Deductions taken in fiscal 2016/17 were $2.6 billion for this purpose. At a 5% rate this would have generated $129.5 million in tax. 88 Return to Table of Contents A.R.S. § 42‐5159 (A)(2): (Deduction Code 684) Tangible personal property the sale or use of which has already been subjected to an excise tax at a rate equal to or exceeding the tax imposed by this article under the laws of another state of the United States is not subject to transaction privilege tax. For excise taxes imposed by another state is at a rate less than the tax imposed by Arizona, the tax imposed by Arizona is reduced by the amount of the tax already imposed by the other state. Data is not releasable for the value of this deduction in fiscal 2016/17. A.R.S. § 42‐5159 (A)(4): (Deduction Code 687) Tangible personal property that directly enters into and becomes an ingredient or component part of any manufactured, fabricated or processed article, substance or commodity for sale in the regular course of business is not subject to transaction privilege tax. In fiscal 2016/17 businesses deducted an estimated $39 million for this purpose. Had this been taxable it would have generated $1.9 million in tax. A.R.S. § 42‐5159 (A)(10): (Deduction Code 693) Use tax does not apply for tangible personal property not exceeding $200 in any one month purchased by an individual at retail outside the continental limits of the United States for personal use and enjoyment. No data is available on the value of this exemption. A.R.S. § 42‐5159 (A)(11): (Deduction Code 688) Advertising supplements that are intended for sale with newspapers published in this state and that have already been subjected to an excise tax under the laws of another state in the United States that equals or exceeds the tax imposed by this article is not subject to transaction privilege tax. No data is available on the value of this exemption. A.R.S. § 42‐5159 (A)(13)(i): (Deduction Code 695) Tangible personal property purchased by a nonprofit charitable organization that has qualified under section 501(c)(3) of the internal revenue code if the property is purchased from the parent or an affiliate organization that is located outside this state is not subject to transaction privilege tax. In fiscal 2016/17 businesses deducted $5.3 million for this purpose. A tax rate of 5% would have generated $263,000. A.R.S. § 42‐5159 (A)(32): (Deduction Code 703) Motor vehicles that are removed from inventory and are provided to charitable or educational institutions or state universities or their affiliated organizations are exempt from use tax. In fiscal 2016/17 businesses deducted an estimated $1.4 million. At a rate of 5%, $71,000 would have been generated. A.R.S. § 42‐5159 (A)(38): (Deduction Code 705) Use tax does not apply to tangible personal property that is or directly enters into and becomes an ingredient or part of cards used as prescription plan identification cards. Information is not available on this in fiscal 2016/17. A.R.S. § 42‐5159 (A)(45): (Deduction Code 563) Use tax does not apply to liquefied natural gas used to fuel compressor equipment. No information is available on the value of this tax expenditure for fiscal 2016/17. A.R.S. § 42‐5159 (A)(46): (Deduction Code 707) Tangible personal property purchased to be incorporated or installed as part of environmental response or remediation activities under 89 Return to Table of Contents prime contracting is not subject to transaction privilege tax. In fiscal 2016/17 businesses deducted $9.9 million for this purpose. At a 5% tax rate this would have generated $494,000 in tax. A.R.S. § 42‐5159 (D)(2): (Deduction Code 709) The purchase price of electricity bought by a retail electric customer from a utility is not subject to use tax if the transaction was subject to tax under the utilities classification. In fiscal 2016/17 businesses deducted an estimated $1.4 million for this purpose. Had the transactions been taxable they would have generated $72,000 in tax at a 5% rate. A.R.S. § 42‐5159 (G)(1), 42‐5063(C)(6): (Deduction Code 710) Purchases of electricity or natural gas by a business that is principally engaged in manufacturing or smelting operations and that uses at lease fifty‐one percent of the electricity or natural gas in the manufacturing or smelting operations are not subject to use tax. In fiscal 2016/17 businesses deducted $70.3 million for this purpose. At a 5% tax rate this would have generated $3.5 million in tax. A.R.S. § 42‐5159 (G)(2), 42‐5063(C)(7): (Deduction Code 783) Purchases of electricity or natural gas by a business that operates an international operations center in this state and that is certified by the Arizona Commerce Authority pursuant to section 41‐1520 is not subject to use tax . Information is not available on this exemption for fiscal 2016/17. A.R.S. § 42‐5167: (Deduction Code 692) Sales by an out of state vendor to a Direct Pay permit holder are not subject to use tax. In fiscal 2016/17 businesses deducted $12.2 million for this purpose. At a 5% rate it would have generated $607,500. A.R.S. § 42‐5402(B): (Deduction Code 564) The seller of a prepaid wireless telecommunications product is allowed to retain three percent of the amount of tax collected before remitting the tax to the department. In fiscal 2016/17 businesses deducted $4.3 million for this purpose. Had this been taxable it would have generated $212,900 in tax. A.R.S. § 42‐6004(A)(11): (Deduction Code 634) Leasing real property between affiliated companies, businesses, persons or reciprocal insurers. In fiscal 2016/17 businesses deducted $80.7 million for this purpose. Had this been taxable it would have generated $4 million in tax. R15‐5‐1503: (Deduction Code 593) Gross receipts from leasing or renting tangible personal property are not taxable if the property is shipped or delivered outside of the state and intended, at the inception of the lease, for use exclusively outside of the state. In fiscal 2016/17 businesses deducted $60.3 million for this purpose. Had this been taxable it would have generated $3 million in tax. 90 Return to Table of Contents FISCAL YEAR 2016/17 PREFERENTIAL TAX RATES: Nonmetalliferous Mining; Oil and Gas Production Commercial lease TOTAL VALUE OF PREFERENTIAL TAX RATES $2,637,144 450,251,228 $452,888,372 CREDITS: Accounting credit $16,479,702 TRANSACTION PRIVILEGE AND USE TAX EXEMPTIONS – SAMPLE OF SERVICES: PROFESSIONAL, SCIENTIFIC AND TECHNICAL SERVICES: Legal Accounting, Tax Preparation, Bookkeeping and Payroll Services Architectural and Engineering Specialized Design Services Computer System Design and Related Services Management Consulting Services Environmental Consulting Services Other Scientific and Technical Consulting Services Scientific Research and Development Advertising, Public Relations and Technical Services Other Professional, Scientific and Technical Services TOTAL VALUE OF PROFESSIONAL, SCIENTIFIC AND TECHNICAL SERVICES $184,949,223 81,993,339 205,679,207 12,873,361 284,519,381 107,054,409 9,700,940 17,369,860 46,873,302 41,250,693 70,843,738 $1,063,107,452 HEALTH CARE SERVICES: Physicians Dentists Chiropractors Optometrists Mental Health Practitioners Physical, Occupational and Speech Therapists All Other Health Practitioners Outpatient Care Centers Medical and Diagnostic Labs Home Health Services Other Ambulatory Health Services General Medical and Surgical Hospitals Nursing Care Facilities Residential Intellectual and Developmental Disability, Mental Health, and Substance Abuse Facilities 91 Return to Table of Contents $454,003,981 121,940,571 13,660,269 11,338,735 6,943,804 24,065,921 14,897,793 122,253,858 58,450,857 54,382,600 94,655,882 810,136,127 62,878,536 33,910,494 Continuing Care Retirement Facilities and Assisted Living Facilities Other Residential Care Facilities Individual and Family Services Community Food and Housing, and Emergency and Other Relief Services Child Day Care Services TOTAL VALUE OF HEALTH CARE SERVICES 57,652,614 6,600,124 75,064,061 33,590,485 22,115,587 $2,078,542,301 ADMINISTRATIVE AND BUSINESS SUPPORT SERVICES: Office Administrative Facilities Support Employment Services Business Support Travel Arrangement and Reservation Investigation and Security Services to Building and Dwellings Other Support Services Waste Collection Waste Treatment and Disposal Remediation and other waste management services TOTAL VALUE OF ADMINISTRATIVE AND BUSINESS SUPPORT SERVICES $46,958,355 33,297,755 225,508,901 83,895,484 69,912,676 53,885,290 124,150,050 33,962,508 38,976,255 9,395,018 15,311,495 $735,253,787 PERSONAL CARE SERVICES: Barber Beauty Salons Nail Salons Diet and Weight Reducing Centers Other Personal Care Death Care Services Personal and Laundry Services Pet Care (not Veterinary) Photofinishing Parking lot/Garages Other Personal Services TOTAL VALUE OF PERSONAL SERVICES $558,193 18,696,033 3,198,040 2,347,883 5,404,798 9,295,402 23,049,258 3,502,621 847,143 11,030,718 4,044,066 $81,974,155 EDUCATIONAL SERVICES: Business School/Computer/Management Training Technical and Trade Schools Other Schools and Instruction Education Support Services TOTAL VALUE OF EDUCATIONAL SERVICES FINANCIAL SERVICES: 92 Return to Table of Contents $9,374,095 31,760,003 14,746,356 9,443,827 $65,324,280 Credit Unions Sales Financing Mortgage and Nonmortgage Loan Brokers Financial Transaction Processing and Clearing Other Activities Related to Credit Intermediation Securities Brokerage Portfolio Management Investment Advice Other Financial Investment Activities TOTAL VALUE OF FINANCIAL SERVICES $43,600,655 94,694,891 9,830,807 65,465,417 14,145,203 116,773,873 47,378,391 35,553,156 505,763,137 $933,205,532 OTHER SERVICES: Automotive Repair and Maintenance Electronic and Precision Repair and Maintenance Commercial, Industrial Machinery Repair and Maintenance Personal and Household Goods Repair and Maintenance Religious, Grantmaking, Civic, Professional and similar Organizations TOTAL VALUE OF OTHER SERVICES 105,280,207 13,577,059 27,600,549 5,634,071 113,816,000 $265,907,886 TRANSACTION PRIVILEGE AND USE TAX EXEMPTIONS – ALL OTHER: Wholesale trade (503) Cash discounts (708) Trade‐ins (711) Services provided by a retailer (549) Business activity on a Reservation for a Enrolled Native American or Tribal entity (570) Sale of postage stamps at face value (716) Sales to Foreign diplomats (777) Sale of warranty or service contracts (542) Sale of tangible personal property by a nonprofit organization (725) Sale of an aircraft sold to a carrier, government or nonresident (507) Sale of stocks and bonds (no deduction code) Prescription drugs and medical oxygen (536) Prosthetic appliances (559) Insulin, insulin syringe and glucose test strips (533) Prescription eyeglasses and contact lenses (590) Hearing aids (594) Durable medical equipment (526) Sales to nonresidents for use outside Arizona if the property is shipped or delivered outside the state (541) Food for home consumption (506 and 513) 70 No Information Available. 93 Return to Table of Contents $3,533,905,095 11,873,190 24,933,751 198,812,231 12,335,085 NIA70 NIA 23,944,620 470,642 1,212,693 NIA 641,606,275 12,869,392 68,214 3,372,063 979,317 23,505,387 39,596,526 359,337,787 Textbooks that are required by any state university or community college (505) Meals provided to Employee of restaurants (568) Food used in school lunches (569) Sale of Arizona lottery tickets (521) Precious metal bullion and monetized bullion (567 and 601) Sales of vehicle fuel and aviation fuel (515) Tangible personal property sold to Personal property leasing business to lease (571) Tangible personal property sold in interstate or foreign commerce (504) Tangible personal property sold to a qualifying hospital or a qualifying health care organization or sold to or purchased by qualifying community health centers and health care organizations (545, 546, 572, 574) Tangible personal property sold to a nonprofit organization which regularly serves meals to the needy and indigent (544) Tangible personal property sold to a nonprofit organization which provides housing for low‐income persons over 62 years of age (573) Tangible personal property sold to Qualifying Health Sciences Educational Institution (699) Magazines or other periodicals or publications to encourage tourist travel (602) Sale of articles to a contractor for incorporation or fabrication under a contract or for environmental response or remediation (552 and 589) Tangible personal property sold to a Subcontractor for incorporation into a Prime Contracting project (584) Exempt motor vehicle sales for certain nonresidents (580) Exempt motor vehicle sales for Native Americans (530) Tangible personal property purchased by a nonprofit charitable organization that uses such property for training, etc., for mentally or physically handicapped persons (575) Tangible personal property sold by a nonprofit organization associated with a major league baseball team or a national touring professional golf association (762) Tangible personal property sold by a nonprofit organization associated with a rodeo featuring primarily farm and ranch animals (763) Sales of commodities under futures contracts consigned to a warehouse for resale (583) Seeds, seedlings, etc., to commercially produce agricultural, horticultural, viticultural or floricultural crops in Arizona (537) 71 No Information Available. 94 Return to Table of Contents $2,425,927 NIA71 3,057,815 42,603,325 2,950,100 171,927,497 1,497,109 259,431,738 44,696,146 823,513 NIA NIA NIA 7,484,674 147,050 54,202 1,443,975 69,629 206,496 NIA 131,530 1,652,809 Machinery, equipment and certain supplies used to assist the physically or developmentally disabled or those persons with head injuries (525) Sales of natural gas or liquefied petroleum gas used to propel a vehicle (509) Paper machine clothing used or consumed in paper manufacturing (586) Machinery, equipment, utility product, materials and other tangible personal property used to construct a qualified environmental technology facility (607) Sales of coal, petroleum, coke, natural gas, virgin fuel oil and electricity to an environmental technology facility (511) Sales of liquid, solid or gaseous chemicals used in manufacturing, processing, fabricating, mining, refining, metallurgical operations or research or development (510) Sales of food or drink consumed on the premises of a jail or prison (514) Motor vehicles and any tangible personal property or repair that becomes a part of the motor vehicles sold to a licensed motor operator that lease or rent the property (528) Livestock, poultry feed, salts, vitamins for livestock or poultry consumption (520) Sale or purchase of implants used as growth promotants and injectable medicine (516) Sales of motor vehicles at auction to nonresidents of Arizona for use outside Arizona (529) Personal hygiene products which are furnished to and to be consumed by hotel occupants (534 and 566) Sales or purchases of alternative fuel to a used oil fuel burner (587) Printed, photographic, electronic or digital media materials for use in publicly funded libraries (519) Tangible personal property consisting of food, beverages and condiments sold to or purchase by a commercial airline (512) Sale of new alternative fuel vehicles and conversion equipment (592) Sale of spirituous, vinous or malt liquor by a liquor wholesaler (588) Tangible personal property by a nonprofit that produces, organizes or promotes cultural or civic related festivals (764) Application services designed to assess or test student learning (596) Sale of motor vehicle fuel and use fuel to a Healthy Forest business (598) Sale of repair parts in equipment used by a Healthy Forest business (603) Sales or transfer of renewable energy credits (604) Sales of computer data equipment for use in a certified computer data center (565) 72 No Information Available. 95 Return to Table of Contents $3,077,315 1,736,766 NIA72 73,018 788,748 8,662,075 400,663 4,403,902 7,880,314 NIA 5,732,040 NIA NIA 317,390 192,228 NIA NIA 361,077 121,940 NIA 1,623,844 243,861 359,585 Sales of orthodontic devices dispensed by a dental professional (582) Property sold to a Contractor for a MRRA project on an Indian Reservation (712) Works of fine art sold to nonresidents and used outside of the state (773) Machinery or equipment used directly in manufacturing, processing, fabricating, job printing, refining or metallurgical operations (522) Sale of machinery or equipment used in mining and in drilling for or extracting oil or gas from the earth (523 and 579) Certain equipment used in the telecommunications industry (539) Machinery, equipment or transmission lines used directly in producing or transmitting electrical power (524) Neat animals, horses, asses, sheep, swine or goats used or to be used as breeding or production stock (605) Pipes or valves 4” in diameter used to transport oil, natural gas, artificial gas, water or coal slurry (535) Certain aircraft, navigational and communication instruments (508) Machinery, tools, equipment used in repairing, remodeling or maintaining aircraft, aircraft engines or aircraft component parts (532) Railroad rolling stock, rails, ties and signal control equipment used to transport persons or property for hire (576) Buses or other urban mass transit vehicles used to transport persons for hire or pursuant to a governmentally adopted and controlled urban mass transportation program (606) Certain groundwater measuring devices and their installation (581) New machinery and equipment used for commercial production of agricultural, horticultural, viticultural and floricultural crops (585) Machinery or equipment used in research and development (553) Tangible personal property used by an direct broadcast satellite television or data transmission service or facility (591) Clean rooms used for manufacturing, processing, fabrication or research and development (595) Machinery or equipment for poultry and egg production (577) NIA73 $418,229 210,637 29,230,895 14,761,624 612,884 3,981,890 188,135 577,449 10,493,195 305,337 92,959 NIA NIA 554,545 2,285,303 NIA 1,299,175 NIA Machinery and equipment used by agriculture to prevent, monitor, control or reduce pollution (597) Machinery and equipment to prevent pollution for farming and ranching (599) Digital television machinery and equipment purchases for compliance with the Telecommunications Act of 1996 (578) Machinery and equipment sold or rented to a healthy forest certified business (554) 73 No Information Available. 96 Return to Table of Contents NIA NIA NIA NIA Federal luxury excise tax on heaving trucks and trailers (609) Sales made to the U S Government by a manufacturer, modifier, assembler or repairer (547) Sales of component parts made to a manufacturer, modifier, assembler or repairer for sale to the U S Government (543) Sales of overhead materials used in a contract between the U S Government and a manufacturer, modifier, assembler or repairer (611) 50% of retail sales made to U S Government; 100% of Use Tax (548) Gross income from motor vehicle manufacturer’s cash rebates if assigned to the retailer (501) Gross income derived from the waste tire disposal fee (613) Sales of solar energy devices (538) Sales of wireless telecommunication equipment as an inducement to enter into or continue a contract for telecommunication services or sales commissions received (614) Sales of motor vehicle to a nonresident from a state with a lower tax rate (531) Transportation by vehicles subject to fees paid to MVD (715) Transportation network company’s income or fees or driver’s income (772) Vehicle for hire company’s income or driver’s income (778) Transportation of persons by air if taxation is prohibited by Federal Law (615) Ambulances or ambulance services (no deduction code) Public transportation services for dial‐a‐ride programs and special needs transportation services (no deduction code) Gross proceeds for transporting freight or property by an exclusively Arizona railroad for portions of single shipments involving other railroads (616) Gross proceeds for arranging transportation as a convenience or service to a customer if the business is not engaged in the transportation business (no deduction code) Gross proceeds of sales or gross income derived from transporting for hire persons, freight or property by a railroad pursuant to a contract with another railroad (620) Sales taxed under another business code (640) Sales of transportation or amusement activities arranged by another business that is exempt (612) Sales of transportation or amusement activities arranged and taxed by another (702) 74 No Information Available. 97 Return to Table of Contents NIA74 $31,319,600 4,614,918 470,597 5,638,580 14,628,023 76,652 31,949,970 75,714 2,418,947 702,304 NIA 82,126 2,027,354 NIA NIA 1,053,167 NIA NIA 245,738 746,779 99,543 Gross proceeds of sales or gross income derived from transporting fertilizer by a railroad from a point in Arizona to another point in Arizona (625) Sales of electric services to a retail electric customer who is located outside Arizona for Delivery and use outside Arizona (617) Rental of space on utility poles (759) Sales from transfer of electricity by a retail electric customer to an electric distribution system (618) Development fees charged by a municipally owned utility (621) Revenue received by any person owning a utility system in the form of reimbursement or compensation for property and equipment installed to provide utility access to, on or across land of any actual utility consumer (626) Interstate sales of electricity, natural gas and water Interstate telecommunications services (643) Sales of intrastate telecommunications services by a cable television system or by a microwave television transmission system (no deduction code) Sales of internet access services (517) Sales of intrastate telecommunications services to a direct broadcast satellite television or data transmission service (619) End‐user common line charges and carrier access charges established by federal communications regulations (641 and 627) Sales of direct broadcast satellite television services (633) Telecommunications services purchased with a prepaid calling card (649) Manufacturing or publishing books (no deduction code) Gross income of publications derived from advertising (628) Sales to a person distributing printing, engraving, embossing or copying without consideration in connection with the publication of a newspaper or magazine (630) Sales of job printing, engraving, embossing and copying for use outside Arizona if the materials are shipped or delivered out of the state (637) Sales of postage and freight (561) Leasing a mobile home for more than 29 days (629) Leasing or renting 4 or fewer rooms of an owner‐occupied residence bed and breakfast with less than 50% average annual occupancy (636) Transient lodging sales or activities that are exempt (704) Transient lodging sales or activities that are exempt under the Amusement or Transporting classifications (701) 75 76 No Information Available. Data Not Releasable. 98 Return to Table of Contents NIA75 NIA NIA NIA $298,216 NIA NIA 900,539 NIA 1,341,207 NIA 219,273 DNR76 NIA NIA Included in services NIA 1,284,907 700,004 1,326,094 NIA 1,087,197 NIA Commissions paid in the Transient Lodging classification (648) Transient lodging sales for lodging for more than thirty days (718) Leasing films, tapes or slides used by theaters or movies or used by television stations or radio stations (784) Amusement activities sponsored by the Arizona exposition and state fair board (785) Lease of tangible personal property by a parent to a subsidiary or by a subsidiary to another subsidiary (631) Operating coin‐operated washing, drying and dry cleaning machines or car washing machines (786) Leasing or renting aircraft or training equipment by a nonprofit school offering aviation and aerospace degrees (787) Leasing or renting photographs, transparencies, etc. used by Arizona on the internet, in magazines or other publications encouraging tourism (651) Leasing for billboards that are visible from any street (774) Leasing or renting certified ignition interlock devices (no deduction code) Vehicle registration fee reimbursements (656) Leasing or renting a motor vehicle if the motor carrier fee has been paid (660) Amounts received by a motor vehicle dealer for the 1st month of a lease payment if the lease is transferred to a third party (556) Car rental surcharge charges (680) Freight charges relating to nonmetalliferous mineral products (652) Process cost on nonmetalliferous mineral products shipped out of state (658) Private or group instructional activities (657) Monthly membership fees (527) Musical, dramatic or dance groups or a botanical garden, museum or zoo that qualifies as a nonprofit charitable organization (no deduction code) Sales of admissions to intercollegiate football contests (no deduction code) Fees and assessments received by a homeowners organization (no deduction code) Arranging an amusement activity as a service to a person’s customers (no deduction code) Pari‐mutuel and purse monies (661) Transient Lodging recreational establishment membership fees (666) Sale to transient lodging business for resale (670) Entry fees for 501c3 organizations’ run, walk, swim, ride, or similar events (735) 77 No Information Available. 99 Return to Table of Contents NIA77 $655,359 NIA NIA 359,401 NIA NIA NIA NIA NIA 73,818 3,570,708 571,776 NIA NIA 836,039 775,386 3,136,162 NIA NIA NIA NIA 386,190 269,245 181,750 NIA Gratuities distributed to servers or service employees (724) Sales by Congressionally‐chartered veterans organization of food or drink (744) Sales by churches, fraternal benefit societies and other nonprofit organizations which don’t regularly engage or continue in the restaurant business for the purpose of fund raising (no deduction code) Restaurant sales to a school district (662) Prime Contracting income from out of state projects (681) Sale of used manufactured buildings (562) Sale for resale to another manufactured building dealer (668) 35% Deduction from Prime Contracting Base (502) Purchase by a Prime Contractor of machinery, equipment or other tangible personal property by a that is exempt under another classification (608, 622, 623, 624, 632, 635, 639, 644, 645, 646, 653, 654, 665, 672, 674, 675, 676, 677, 678, 679, 685, 697, 706, 799) Land Deduction (518) Furniture and Appliances not incorporated into a Manufactured building (663) Contracting in a military reuse zone for a manufacturer, assembler or fabricator of aviation or aerospace products (667) Gross proceeds of sales from a contract to install, assemble, repair or maintain machinery that does not become permanently attached (600) Income from contracts for construction of facilities for raising egg producing poultry or the production and packaging of eggs (683) Income from contracts for construction of a launch site (698) Income from contracts for construction of a domestic violence shelter (673) Gross proceeds from contracts to perform post‐construction treatment of real property for termite and general pest control (686) Gross proceeds from contracts to certain state university research infrastructure projects (696) Gross proceeds from construction contracts for healthy forest business (555) Gross proceeds from development or impact fees (560) Gross proceeds from construction of a mixed waste processing facility located on a municipal solid waste landfill (719) Subcontracting income (550) Lawn maintenance services (689) Cost of architectural or engineering service (557) Manufactured building delivered out of state (694) Construction Design phase or professional services (690) 78 No Information Available. 100 Return to Table of Contents $210,023 50,848 NIA78 NIA 7,568,979 72,386 119,639 151,465,573 14,776,257 16,696,837 NIA NIA 1,851,366 1,774,779 NIA NIA 169,746 NIA 58,872 1,364,316 NIA 308,212,610 1,297,246 3,025,567 NIA 4,245,179 Maintenance, repair, replace or alteration contract with a property owner (500) Credit for tax paid to an equivalent jurisdiction (684) Component parts for a manufactured product for resale (687) Tangible personal property not exceeding $200 purchased by an individual at retail outside the continental U.S. – USE TAX ONLY (693) Advertising Supplements (688) Tangible personal property purchased by a nonprofit charitable organization from the parent or affiliate organization located out of state – USE TAX ONLY (695) Motor vehicles removed from inventory and provided to charitable or educational institutions or state universities or their affiliated organization – USE TAX ONLY (703) Tangible personal property which directly enters into or becomes an ingredient or part of cards used as prescription plan identification cards – USE TAX ONLY (705) Liquefied natural gas used to fuel compressor equipment – USE TAX ONLY (563) Tangible personal property exempt under the Utility classification (707) Purchase price of electricity bought by a retail electric customer from a utility when tax is paid under utility classification (709) Purchase price of electricity or natural gas by a manufacturer or smelting operations (710) Purchase price of electricity or natural gas by a business that operates an international operations center that is certified by the Arizona Commerce Authority (783) Sales to Direct Pay permit holder (692) 3% of tax collected for 911 tax on prepaid wireless products (564) Leasing between affiliated companies (634) Rentals of personal property shipped & used exclusively out‐of‐state (593) TOTAL VALUE OF ALL OTHER TRANSACTION PRIVILEGE AND USE TAX EXEMPTIONS $129,494,024 DNR79 1,950,367 NIA80 NIA 263,182 71,006 NIA NIA 494,089 72,355 3,515,812 NIA 607,555 212,875 4,037,211 3,015,359 $6,307,791,03681 TOTAL QUANTIFIABLE TRANSACTION PRIVILEGE AND USE TAX EXPENDITURES82 $12,000,474,483 Value of exemptions from the Proposition 301 – Education Tax 79 $1,440,056,938 Data Not Releasable. No Information Available. 81 Includes the value of exemptions that were not releasable. 82 This amount represents foregone revenue to the state general fund, counties and incorporated cities and towns. 80 101 Return to Table of Contents UNDERGROUND STORAGE TANK TAX EXPENDITURES83 FISCAL YEAR 2016/17 TAX COLLECTED BY: Arizona Department of Environmental Quality FISCAL YEAR 2016/17 TOTAL STATE REVENUE COLLECTED: $30,302,03684 TOTAL FY 2016/17 TAX EXPENDITURE: NIA TAX EXPENDITURE AS A PERCENT OF TOTAL REVENUE: NA An underground storage tank tax is imposed by A.R.S. § 49‐1031. For purposes of this tax, it is presumed until proven differently that all regulated substances which are motor vehicle fuel, aviation fuel and diesel and which are refined, manufactured, produced, compounded or blended in Arizona, or imported into the state, will be place in an underground storage tank from which the fuel is dispensed to users who consume the fuel and do not further distribute it. The tax is levied at the rate of 1¢ per gallon of regulated substance. Revenue from this tax is deposited into the Arizona Department of Environmental Quality Assurance Account, used for corrective action projects. UNDERGROUND STORAGE TANK TAX EXEMPTIONS A.R.S. § 49‐1031 (C): This tax does not apply to underground storage tanks operated by the United States or Arizona and its agencies. Currently, there are 81 federal tanks in use with an average tank capacity of 16,134 gallons. There are 67 state tanks currently in use with an average tank capacity of 10,993 gallons. The Department of Environmental Quality does not require the owners/operators of these tanks to report the total number of times they are refueled. Therefore, there is no information on the tax value of this tax expenditure. A.R.S. § 49‐1031 (C): Underground storage tanks used for the purpose of storing, handling or distributing naphtha‐type jet fuel or kerosene‐type jet fuel are exempt from the underground storage tank tax. Currently, there are 100 of these jet fuel tanks in use with an average tank capacity of 18,255 gallons. As with the underground storage tanks owned by the federal government and the state of Arizona, the owner/operators of these types of underground storage tanks are not required to report the number of times their tanks are refueled. Due to the lack of information, there is no way to calculate the impact of this tax expenditure. A.R.S. § 49‐1031: Above‐ground storage tanks are not subject to this tax. The owners/operators of these types of tanks are not required to register their tanks with the Department of Environmental Quality nor with the State Fire Marshal. Municipalities regulate these types of tanks in their own city. Thus, due to the lack of information, it is not possible to determine the impact. 83 Any information for Underground Storage Tank Tax Expenditures was provided by the Arizona Department of Environmental Quality. 84 Source: 2017 Tax Handbook, Joint Legislative Budget Committee 102 Return to Table of Contents SUMMARY OF UNDERGROUND STORAGE TANK TAX EXPENDITURES FISCAL YEAR 2016/17 UNDERGROUND STORAGE TANK TAX EXEMPTIONS: Underground storage tanks operated by the U.S. or Arizona Tanks used for Naphtha‐type or kerosene‐type jet fuel Above‐ground storage tanks TOTAL VALUE OF VEHICLE FEE EXEMPTIONS NIA85 NIA NIA NIA TOTAL QUANTIFIABLE UNDERGROUND STORAGE TANK TAX EXPENDITURES86 NIA 85 86 No Information Available. This amount represents foregone revenue to the ADEQ Assurance Account. 103 Return to Table of Contents UNEMPLOYMENT INSURANCE TAX EXPENDITURES87 FISCAL YEAR 2016/17 TAX COLLECTED BY: Arizona Department of Economic Security FISCAL YEAR 2016/17 TOTAL STATE REVENUE COLLECTED: $479,203,08488 TOTAL FY 2016/17 TAX EXPENDITURE: NIA TAX EXPENDITURE AS A PERCENT OF TOTAL REVENUE: NA Unemployment insurance taxes are paid by liable employers on the first $7,000 in gross wages they pay to each of their employees during the calendar year. UNEMPLOYMENT INSURANCE TAX EXEMPTIONS A.R.S. § 23‐622: The following are exemptions from the definition of taxable wages:  That part of the remuneration in excess of $7,000 paid in a calendar year to an individual by an employer with respect to employment during the calendar year, unless that part of the excess remuneration is subject to a tax, under federal law, against which credit may be taken for contributions required to be paid into a state unemployment fund by employers subject to the federal law.  The amount of any payment, including monies paid by an employer for insurance or annuities, made to or on behalf of an employee or his/her dependents under a plan or system established by an employer which makes provision for the employees generally on account of sickness or accident disability, medical or hospitalization expenses in connection with sickness or accident disability or death.  The payment by an employer, without deduction from the remuneration of the employee, of the tax imposed upon an employee under §3101 of the IRC relating to federal insurance contributions with respect to remuneration paid to an employee for domestic service in a private home or for agricultural labor.  Any payment on account of sickness or accident disability, or medical or hospitalization expenses in connection with sickness or accident disability, made by an employing unit to an employee after the expiration of six calendar months following the last calendar month in which the employee worked for such employing unit.  Any payment made to an employee or his/her beneficiary: (1) from or to a trust described in §401(a) of the IRC relating to qualified pension, profit sharing and stock bonus plans which tax‐exempt under §501(a) of the IRC; (2) under or to an annuity plan which is a plan described in §403(a) of the IRC; 87 Any information for Unemployment Insurance Tax Expenditures was provided by the Arizona Department of Economic Security. 88 Source: 2017 Tax Handbook, Joint Legislative Budget Committee 104 Return to Table of Contents (3) under a simplified employee pension as defined in §408(k)(1) of the IRC other than contributions described in §408(k)(6) of the IRC; (4) under or to an annuity contract described in §403(b) of the IRC; (5) under or to an exempt governmental deferred compensation plan; as defined in §3121(v)(3) of the IRC; (6) to supplement pension benefits under a plan or trust described in this paragraph to take into account some portion of the increase in the cost of living since retirement; (7) or under a cafeteria plan within the meaning of §125 of the IRC if such a payment would not be treated as wages without regard to such plan.  Remuneration paid in any medium other than cash to an employee for service not in the course of the employing unit's trade or business.  Remuneration paid for agricultural labor performed in any medium other than cash.  Any tip, gratuity or service charge received by an employee, with certain exceptions.  Remuneration which the individual receives for drill, training or other national guard or reserve activity which occurs on not more than one weekend per month.  Remuneration paid to an employee if at the time of the payment it is reasonable to believe that a corresponding deduction is allowable under §217 of the IRC relating to moving expenses.  Any contribution, payment or service provided by an employer which may be excluded from gross income under §120 of the IRC.  Any payment made or benefit furnished to an employee if it is reasonable to believe that the employee will be able to exclude the payment or benefit from income under §127, relating to educational assistance, or §129, relating to dependent care assistance, of the IRC.  The value of meals or lodging furnished by the employer if reasonable to believe that the employee will be able to exclude these items from income under §119 of the IRC.  Any payment made by an employer to a survivor or the estate of a former employee after the calendar year in which the employee died.  Any benefit provided to an employee if reasonable to believe that the employee will exclude the benefit from income under §74(c) relating to employee achievement awards, §117 relating to qualified scholarships or §132 relating to certain fringe benefits of the IRC. A.R.S. § 26‐613.01 (A) and (B): An employee is an individual who performs services for an employing unit and who is subject to the direction, rule or control of the employing unit as to both the method of performing the services and the result to be accomplished. This definition does not include:  An individual who performs services as an independent contractor, business person, agent or consultant, or in a capacity characteristic of an independent profession, trade, skill or occupation. 105 Return to Table of Contents  An individual subject to the direction, rule, control or subject to the right of direction, rule or control of an employing unit solely because of a provision of law regulating the employing unit.  An individual or class of workers whose services have been exempted by the Internal Revenue Service from Federal Unemployment Tax.  An individual whose services the employing unit demonstrates are performed in the same manner as a similarly situated class of workers whose services have been exempted by the Internal Revenue Service from Federal Unemployment Tax.  An individual or class of workers that have previously been found not to be employees in prior audits by the department, but have currently been found to be employees due to prior audit errors, will not be treated as employees by the department for any previous time, but the employer will be required to begin reporting those workers during the next quarter. A.R.S. § 23‐615 (6)(d): Employment means any service of whatever nature performed by an employee for an employer. The following services are excluded from this definition of employment:  Services performed in the employ of a church or convention or association of churches, or an organization operated primarily for religious purposes and which is operated, supervised, controlled or principally supported by a church or convention or association of churches.  Services performed by a duly ordained, commissioned, or licensed minister of a church in the exercise of his or her ministry; or by a member of a religious order in the exercise of duties required by such order.  Services performed in the employ of a governmental entity by an elected official, member of the legislature or judiciary of this state or a political subdivision, in the exercise of his or her duties.  Services performed in the employ of a governmental entity as a member of the state National Guard or Air National Guard.  Services performed in the employ of a governmental entity as an employee on a temporary basis in case of a fire, storm, snow, earthquake, flood or similar emergency.  Services in the employ of a governmental entity in a position which is designated pursuant to state law as a major non tenured policy‐making or advisory position, or a policy‐ making or advisory position of which the duties ordinarily do not require more than 8 hours per week.  Services performed by impaired individuals who cannot be readily absorbed into the competitive labor market in a facility conducted for the purpose of providing a program of rehabilitation for such individuals. 106 Return to Table of Contents  Services performed by an individual in an unemployment work relief or work training program financed in part or in whole by a governmental entity.  Services performed by an inmate of a custodial or penal institution. A.R.S. § 23‐617: Types of exempt employment are as follows:  Agricultural labor unless 10 or more individuals were employed for some portion of a day in 20 different weeks in a calendar year, or total cash wages of $20,000 or more were paid in a calendar quarter.  Domestic service in a private home, local college club or local chapter of a college fraternity or sorority, unless total cash wages of $1,000 or more were paid in a calendar quarter.  Service performed on or in connection with a vessel or aircraft not an American vessel or American aircraft, if the employee is employed on or in connection with such vessel or aircraft when outside the United States.  Service performed by an individual in the employ of his/her children or spouse, and service performed by an individual under the age of 21 in the employ of a parent.  Service performed in the employ of another state, or any political subdivision of another state, or an instrumentality of one or more thereof which is wholly owned by one or more other states or political subdivisions and which exercises only governmental functions, and service performed in the employ of any political subdivision of this or any other state to the extent the instrumentality, with respect to such service, is exempt under the U.S. Constitution from tax imposed by §3301 of the IRC.  Service with respect to which unemployment compensation is payable under an unemployment compensation established by an act of Congress.  Service performed in a calendar quarter in the employ of an organization exempt from income tax under §501(a) or §521 of the IRC, if the remuneration for the services is less than $50.  Service performed in the employ of a school, college or university, if the service is performed by a student enrolled and regularly attending classes at the school, college or university, or by the spouse of such a student.  Service performed in the employ of a corporation, community chest fund or foundation, organized and operated exclusively for religious, charitable, scientific, testing for public safety, literary, or educational purposes, or for the prevention of cruelty to children or animals, no part of the net earnings of which inures to the benefit of a private shareholder or individual and with further qualifications.  Services performed by a student nurse in the employ of a hospital or a nurses' training school by an individual enrolled and regularly attending classes, and service performed as 107 Return to Table of Contents an intern in the employ of a hospital by an individual who has completed a four years' course in a medical school.  Service performed by an individual for an employing unit as an insurance agent, if paid solely by commission.  Service performed by an individual under the age of 18 in the delivery or distribution of newspapers or shopping news, with qualifications.  Service performed by an individual for an employing unit as a licensed real estate broker or licensed cemetery broker or a licensed real estate salesman or licensed cemetery salesman, if paid solely by commission.  Service performed in the employ of a foreign government including service as a consular or other officer or employee or a non‐diplomatic representative.  Service performed in the employ of an instrumentality wholly owned by a foreign government if certain qualifications are met.  Service covered by an arrangement between the department and agency charged with the administration of any other state or federal unemployment compensation law pursuant to which all services performed by an individual for an employing unit is deemed to be performed entirely within such agency's state.  Casual labor not in the course of the employer's trade or business.  Service performed by an individual for an employing unit as a securities salesman, if paid solely by commission.  Service performed in the employ of a hospital if such service is performed by a patient of the hospital.  Service performed by individuals solely to the extent that the compensation includes commissions, overrides or profits realized on sales primarily resulting from the in‐person solicitation of orders for or making sales of consumer goods in the home.  Services performed by an individual for an employing unit in the preparation of tax returns and related schedules and documents if all such services are performed for remuneration solely by way of commission. There is no requirement for reporting wages or remuneration for the exemptions mentioned above, therefore, no information is available on the value of these tax expenditures. 108 Return to Table of Contents SUMMARY OF UNEMPLOYMENT INSURANCE TAX EXPENDITURES FISCAL YEAR 2016/17 UNEMPLOYMENT INSURANCE TAX EXEMPTIONS: Exemptions from the definition of taxable wages Exemptions from the definition of employee Exemptions from the definition of employment TOTAL VALUE OF UNEMPLOYMENT INSURANCE TAX EXEMPTIONS NIA89 NIA NIA NIA TOTAL QUANTIFIABLE UNEMPLOYMENT INSURANCE TAX EXPENDITURES90 NIA 89 90 No Information Available. These expenditures represent forgone revenues to the state unemployment insurance fund. 109 Return to Table of Contents USE FUEL TAX EXPENDITURES91 – FISCAL YEAR 2016/17 TAX COLLECTED BY: Arizona Department of Transportation FISCAL YEAR 2016/17 TOTAL STATE REVENUE COLLECTED: $201,696,62392 TOTAL FY 2016/17 TAX EXPENDITURE: $48,192,409 TAX EXPENDITURE AS A PERCENT OF TOTAL REVENUE: 19.3% Arizona has a two‐tiered use fuel (diesel fuel) tax rate. There is a use fuel tax rate of 26¢ per gallon on use fuel used in the propulsion of a use class motor vehicle on any highway within Arizona (A.R.S, § 28‐5060 (B)(2)), with the exception of clean burning use fuel, and a use fuel tax rate of 18¢ per gallon of use fuel used in the propulsion of a light class motor vehicle or exempt use class motor vehicle (A.R.S. § 28‐5606 (B)(1)). A tax of 26¢ is collected by licensed suppliers. During fiscal year 2016/17, total use fuel tax collected was $247.63 million. The primary source of revenue is from licensed suppliers. The proceeds of this tax go into the Highway User Revenue Fund and are distributed to the Department of Public Safety, Economic Strength Fund, state highway fund, counties, and incorporated cities and towns. PREFERENTIAL USE FUEL TAX RATES A.R.S. § 28‐5614: For purposes of convenience the use fuel sold to light class motor vehicles and exempt use class motor vehicles by vendors is charged the 18¢ per gallon. Subsequently a vendor may request a refund for the 8¢ differential for the sales to light class motor vehicles and exempt use class motor vehicles. The amount of refunds issued for fiscal year 2016/17 was $16.2 million. Liquid use fuel, used for export purposes is taxed at a $0.26 per gallon rate. The amount refunded for this type of use fuel during fiscal year 2016/17 was $2.2 million. A.R.S. § 28‐5728: There is a $0.02 per gallon credit for all use fuel purchased in Arizona and used outside of the state. The total amount refunded for this type of purchase during fiscal year 2016/17 was $217,700. A.R.S. § 28‐5606: Fuel used on use class motor vehicles used to transport forest products in compliance with § 41‐1516 is taxed at $0.13 per gallon. This tax is perfected by the approved companies filing a refund request. Refunds for fiscal year 2016/17 were $32,549. 91 92 Any information for Use Fuel Tax Expenditures was provided by the Arizona Department of Transportation. Source: 2017 Tax Handbook, Joint Legislative Budget Committee 110 Return to Table of Contents EXEMPTIONS TO THE USE FUEL TAX A.R.S. § 28‐5610 (A)(8)(a and b): Dyed diesel sold for Off‐Highway uses, Farm tractors and implements of husbandry designed primarily for or used in agricultural operations and only incidentally operated or moved upon a highway are exempt from use fuel tax. Road rollers or vehicles which are designed and used primarily for grading, paving, earth moving and other construction work on highways and which are not designed or used primarily for transportation of persons or property and which are incidentally operated or moved over the highway are also exempt from use fuel tax. Refunds granted for these types of exemptions together totaled $10.6 million in fiscal year 2016/17. A.R.S. § 28‐5610 (A)(7): Taxable use fuel that has been accidently contaminated so as to be unsalable as highway fuel as proved by proper documentation is exempt. No refunds of this type were requested for fiscal year 2016/17. A.R.S. § 28‐5610 (A)(3): Liquid use fuel sold within an Indian reservation to an enrolled member of the tribe is excluded from taxation. The total amount refunded for this provision during fiscal year 2016/17 was $81,502. A.R.S. § 28‐5610 (A)(4): Use fuel used solely and exclusively as fuel to operate a motor vehicle on highways in Arizona when the motor vehicle is leased or owned by an Indian tribe and being operated for the sole benefit of an Indian tribe and used only for governmental purposes. No information is available on this tax expenditure. A.R.S. § 28‐5610 (A)(6): Use fuel sold to the United States or an instrumentality or agency of the United States is exempt from the motor vehicle fuel tax. During fiscal year 2016/17, $244,562 was refunded for this exemption. A.R.S. § 28‐5751: Each supplier that properly remits use fuel tax may retain 4/10 of 1% of the tax imposed to cover the costs of administration of the tax. This amount would have been collected by the state if this provision were not in effect. The value of this provision for fiscal year 2016/17 is $1.7 million. A.R.S. § 28‐5708 (A)(2): All clean burning fuels are no longer taxed. Since taxpayers who consume alternative fuels are not required to report their use information to the department, no information is available on this exemption. A.R.S. § 28‐5703 (B)(1): International Fuel Tax Agreement (IFTA) tax distributed to other states for fiscal year 2016/17 is $16.9 million. 111 Return to Table of Contents SUMMARY OF USE FUEL TAX EXPENDITURES – FISCAL YEAR 2016/17 USE FUEL PREFERENTIAL TAX RATES: Light class and exempt vehicles use rate Liquid use fuel used for export Fuel purchased in Arizona and used outside the state Fuel used to transfer forest products TOTAL VALUE OF USE FUEL TAX PREFERENTIAL TAX RATES $16,209,000 2,244,982 217,692 32,549 $18,704,223 USE FUEL TAX EXEMPTIONS: Farm tractors, implements of husbandry or vehicles designed and used for grading, paving, earth moving and other construction Native American refunds Administration exemption for use fuel suppliers Exemption for clean burning fuels Use fuel sold to the United States or an instrumentality or agency of the United States IFTA tax distribution to other states TOTAL VALUE OF USE FUEL TAX PREFERENTIAL TAX RATES TOTAL QUANTIFIABLE USE FUEL TAX EXPENDITURES94 93 94 $10,559,902 81,502 1,750,956 NIA93 244,562 16,851,264 $29,488,186 $48,192,409 No Information Available. This amount represents foregone revenue to the state highway fund, counties and incorporate cities and towns. 112 Return to Table of Contents VEHICLE LICENSE TAX EXPENDITURES95 – FISCAL YEAR 2016/17 TAX COLLECTED BY: Arizona Department of Transportation FISCAL YEAR 2016/17 TOTAL STATE REVENUE COLLECTED: $939,766,75896 TOTAL FY 2016/17 TAX EXPENDITURE: NIA TAX EXPENDITURE AS A PERCENT OF TOTAL REVENUE: NA Arizona imposes a vehicle license tax at the rate of $2.95 for each $100 in vehicle value during the first 12 months of life of the vehicle. During the succeeding periods, the tax rate is $3.04. The vehicle value is set at 60% of the manufacturer's base retail price in the first year and declines by 16.25% each year thereafter. The minimum vehicle license tax is $10. The proceeds of this tax are distributed to the state highway fund, counties, incorporated cities and towns and the state general fund. PREFERENTIAL VEHICLE LICENSE TAX RATES A.R.S. §§ 28‐5804, 28‐5806, 28‐5805: Three classes of motor vehicles pay lower vehicle license tax rates. Privately owned motor vehicles which are exclusively operated as a school bus, privately owned ambulances and fire fighting vehicles, and motor vehicles powered by alternative fuels have a vehicle value in the first year of 1% of the manufacturer's base retail price. The minimum tax for these vehicles is $5.00. The information on this tax expenditure is not available at this time. EXEMPT MOTOR VEHICLES Any vehicle, which is not required to be registered in Arizona, is not required to pay a vehicle license tax. Vehicles which are exempt from registration are:  A.R.S. § 28‐2153 (D)(1): Farm tractors  A.R.S. § 28‐2153 (D)(2): Trailers used solely in the operation of a farm for transporting unprocessed fiber or forage products of a farm or any implement of husbandry designed primarily for or used in agricultural operations and only incidentally operated or moved upon a highway  A.R.S. § 28‐2153 (D)(3): Road rollers or road machinery, including power sweepers, temporarily operating or moved upon the highway  A.R.S. § 28‐2153 (D)(4): Vehicles operated by an owner under special provisions relating to lienholders, manufacturers, dealers and nonresidents  A.R.S. § 28‐2153 (D)(5): Motorized or nonmotorized equipment designed primarily for and used in mining operations and only incidentally operated or moved on a highway  A.R.S. § 28‐2153 (D)(6): A motor vehicle towed by a tow truck which has been registered 95 96 Any information for Use Fuel Tax Expenditures was provided by the Arizona Department of Transportation. Source: 2017 Tax Handbook, Joint Legislative Budget Committee 113 Return to Table of Contents  A.R.S. § 28‐2153 (D)(7): A golf cart or other motor vehicle used in the operation of a golf            course and only incidentally operated or moved on a highway A.R.S. § 28‐2153 (D)(8): Wheeled equipment, such as compressors, forklifts, portable cement mixers, tow dollies, tar pots, water trailers, welders, etc. Arizona Constitution, Article 9, Section 2: A vehicle in the name and owned by a government agency such as the Federal, State, County or Municipalities Arizona Constitution, Article 9, Section 2: A vehicle that is the property of educational, charitable and religious associations or institutions not used or held for profit Arizona Constitution, Article 9, Section 2: A school vehicle that is the property of educational, charitable and religious associations not used or held for profit. Arizona Constitution, Article 20, Section 5: A vehicle owned by an enrolled member of a Native America tribe who resides on the reservation Arizona Constitution, Article 9, Section 2: A vehicle owned by a widow or widower A.R.S. § 28‐5802: A vehicle that is acquired by financial aid from the Veteran’s Administration and that is owned by a veteran. A.R.S. § 28‐5802: A vehicle owned by a 100% disabled veteran Soldiers and Sailors Civil Relief Act of 1940: A vehicle owned by a nonresident military member or officer of Public Health Service A.R.S. § 28‐5811: An Arizona resident who is a member of the U.S. armed forces, including a National Guard or Reserve Unit who is deployed in support of a worldwide contingency operation may register a newly acquired vehicle or renew the registration of a motor vehicle for one year without payment of registration and vehicle license tax fees. A.R.S. § 28‐5803 (A): A vehicle owned by a recipient of public monies as a disabled individual under Title 16 of the Social Security Act. 114 Return to Table of Contents SUMMARY OF VEHICLE LICENSE TAX EXPENDITURES – FISCAL YEAR 2016/17 VEHICLE LICENSE PREFERENTIAL TAX RATES: School buses Ambulances and fire fighting vehicles Motor vehicles operated by alternative fuel TOTAL VALUE OF VEHICLE LICENSE TAX PREFERENTIAL TAX RATES NIA97 NIA NIA NIA VEHICLE LICENSE TAX EXEMPT MOTOR VEHICLES: Farm tractors Trailers used solely in the operation of a farm for transporting the unprocessed fiber or forage products of a farm o any implement of husbandry designed primarily for or used in agriculture Road rollers or road machinery Any owner permitted to operate a vehicle under special provisions relating to lienholders, manufacturers, dealers and nonresidents Motorized or nonmotorized equipment designed primarily for and used in mining operations Motor vehicles being towed by a truck Golf carts or other motor vehicles on a golf course Wheeled equipment Vehicles purchased by Native Americans residing on the reservation Vehicles owned by a government or by a nonprofit organization with a form approved by the division of emergency management Vehicles owned by certain veterans Vehicles owned by disabled individuals TOTAL VALUE OF VEHICLE LICENSE TAX EXEMPT VEHICLES NIA NIA NIA NIA TOTAL QUANTIFIABLE VEHICLE LICENSE TAX EXPENDITURES98 NIA 97 NIA NIA NIA NIA NIA NIA NIA NIA NIA No Information Available. This amount represents foregone revenue to the state highway fund, the state general fund, counties and corporate cities and towns. 98 115 Return to Table of Contents WORKERS’ COMPENSATION PREMIUM LIEU TAX EXPENDITURES99 CALENDAR YEAR 2016 TAX COLLECTED BY: Arizona Industrial Commission FISCAL YEAR 2016/17 TOTAL STATE REVENUE COLLECTED: $17,561,482100 TOTAL FY 2016/17 TAX EXPENDITURE: $5,596,060 TAX EXPENDITURE AS A PERCENT OF TOTAL REVENUE: 24.2% Workers’ compensation premiums are taxed at a rate up to 1.50% on all premiums collected during the calendar year. WORKERS’ COMPENSATION PREMIUM LIEU TAX DEDUCTIONS A.R.S. § 23‐961 (J): Certain deductions are allowed from total premiums. These deductions are for applicable cancellations, returned premiums, and policy dividends or refunds paid or credited to policyholders within Arizona and not reapplied as premiums for new, additional or extended insurance. During calendar year 2016 the deductions from premiums totaled $4,616,644 and returns of tax overpayments by the Industrial Commission totaled $979,416. SUMMARY OF WORKERS’ COMPENSATION PREMIUM LIEU TAX EXPENDITURES CALENDAR YEAR 2016 WORKERS’ COMPENSATION PREMIUM LIEU TAX DEDUCTIONS: Certain deductions $5,596,060 TOTAL QUANTIFIABLE WORKERS’ COMPENSATION PREMIUM LIEU TAX EXPENDITURES101 $5,596,060 99 Any information presented for Workers’ Compensation Premium Lieu Tax Expenditures were provided by the Industrial Commission of Arizona. 100 Calendar year 2016 collections as shown in the 2017 Tax Handbook produced by the Joint Legislative Budget Committee. 101 This amount represents foregone revenue to the administrative and special funds of the Industrial Commission. 116 Return to Table of Contents