ARIZONA DEPARTMENT OF REVENUE 1600 WEST MONROE - PHOENIX, ARIZONA 85007-2650 JANE DEE HULL GOVERNOR MARK W. KILLIAN DIRECTOR November 15, 2002 Governor Jane Dee Hull Office of the Governor 1700 W. Washington Street State Capitol, 9 th Floor Phoenix, Arizona 85007 The Honorable Governor Hull and the Taxpayers of Arizona: "…Fair administration, firm enforcement, and prompt and courteous service…." This brief quote from our mission statement accurately reflects the collective character of the Arizona Department of Revenue. With this annual report, we hope to illustrate how those simple tenets are continually exemplified within the Department. This last year, the Department redoubled its efforts to make our mission a reality. Technological advancements and reorganization have culminated in a more responsible and satisfied staff. By supplying personnel with better tools and with a departmental structure more conducive to an empowered workforce, we have dismantled barriers to communication, efficiency, and speed of response. I credit the entire staff of DOR with these enhancements. Most of the substantive progress of the Department over the last fiscal year has been a result of employee suggestions or direct involvement. It has been a truly rewarding experience observing a staff so intent on participating in shaping their agency and in serving the taxpayers. And the more I see the agency becoming a team of responsible individuals who are truly aware of their duty to the public trust, the more I'm sure the Department is in good hands. We hope you enjoy reading our Annual Report. If you have any questions, concerns, or comments, please feel free to contact me. Sincerely, Mark W. Killian OTHER LOCATIONS: Tucson Government Mall – 400 W. CONGRESS - TUCSON East Valley – 3191 N. WASHINGTON STREET - CHANDLER North Valley – 2902 W. AGUA FRIA FREEWAY - PHOENIX DEPARTMENT OF REVENUE 2002 ANNUAL REPORT TABLE OF CONTENTS A Message from the Director, Page Two DEPARTMENT ORGANIZATION Directory, Page Three Organization Chart, Page Four The Year In Review, Page Five OVERVIEW OF THE DEPARTMENT Collections, Page Seven Customer Service, Page Eight Director's Office, Page Ten Income Audit, Page Thirteen Information Technology, Page Fifteen Process Administration, Page Sixteen Property Tax, Page Nineteen Transaction Privilege Tax, Page Twenty One ARIZONA'S TAXES Revenue Summary (Table 1), Page Twenty Three Net Revenue to State General Fund (Table 2), Page Twenty Four Gross Collections of Audit Assessments and Delinquent Tax (Table 3), Page Twenty Five Transaction Privilege, Use and Severance Tax, Page Twenty Six Income Tax, Page Fifty One Property Tax, Page Sixty Three OTHER SOURCES OF REVENUE Bingo, Page Seventy One Estate Tax, Page Seventy Three Luxury tax, Page Seventy Five Unclaimed Property, Page Seventy Seven Escheated Estates, Page Seventy Seven Waste Tire Fee, Page Seventy Nine Legislative Summary Bills & Tax Related Resolutions, Page Eighty One ARIZONA DEPARTMENT OF REVENUE 2002 ANNUAL REPORT 1 DIRECTOR MARK W. KILLIAN (602) 542-3572 Deputy Director Cindy Kappler (520) 628-6359 Deputy Director Jeffrey Grant (602) 542-3572 COLLECTIONS TEAM LEADERS JEFF CAVINESS BOB HOMMEL RENEE JORDAN (602) 542-5673 INFORMATION TECHNOLOGY JANE F. HUFF (602) 542-3141 CUSTOMER SERVICE MARQUETTA WHITE (602) 542-2076 INCOME A UDIT TEAM LEADERS TOM WATERS DONNA MCCUIN (602) 542-3345 LEGAL SERVICES SHARON SEEDALL STEPHEN SHIFFRIN (602) 542-3572 LEGISLATIVE SERVICES JEFF KROS (602) 542-3572 GEORGANNA MEYER (602) 542-4641 PROPERTY TAX TEAM LEADERS E D LEYBA CHERYL MURRAY—LEYBA (602) 542-3529 PROCESS A DMINISTRATION TEAM LEADERS WILLIAM M. AVERY SALLY E SCARCEGA LORI GASPER TOM MACCONNEL BETTY A. MARTZ MARY K. MCGRADY TOM E. PINER TAMMY L. PHELAN (602) 542-4643 / (602) 542-3141 HEARING OFFICE JONATHAN HADLEY (602) 542-4641 STRATEGIC MANAGEMENT LYNETTE STATES (602) 542-3141 TRANSACTION PRIVILEGE TAX VINCENT PEREZ (602) 542-4656 1600 West Monroe, Phoenix 2902 West Agua Fria Freeway, Phoenix 3191 North Washington, Chandler 400 West Congress, Tucson Internet Address: www.revenue.state.az.us ARIZONA DEPARTMENT OF REVENUE 2002 ANNUAL REPORT 3 DEPARTMENT ORGANIZATION DIRECTOR DEPUTY DIRECTOR DIRECTOR’S OFFICE OF TAX POLICY & LEGAL SUPPORT ♦Criminal & Civil Investigations ♦Office of Tax Policy & Legal Support DEPUTY DIRECTOR ♦Collections Function ♦Customer Service Function ♦Income Audit Function ♦Property Tax Function ♦Transaction Privilege Tax DIRECTOR’S EXECUTIVE STAFF ♦Executive Assistant to the Director ♦General Counsel ♦Internal Auditor ♦Taxpayer Assistance Office/ Problem Resolution Officer ♦Information Technology Function ♦Process Administration Function ♦Budget Office ♦Human Resources ♦Legislative Liaison ♦Economic Research & Analysis ♦Quality Executive ♦Staff & Organizational ♦Change Management ♦Hearing Office Development OFFICE OF THE CHIEF TAX ADVOCATE ♦Contested Audit Resolution ♦Corporate Appeals ♦Individual Income Appeals ♦Legal Support COLLECTIONS PROPERTY TAXATION INCOME AUDIT TRANSACTION PRIVILEGE TAX CUSTOMER SERVICE PROCESSING ADMINISTRATION INFORMATION TECHNOLOGY SELF MANAGED TEAM SELF MANAGED TEAM SELF MANAGED TEAM FUNCTION EXECUTIVE FUNCTION EXECUTIVE SELF MANAGED TEAM FUNCTION EXECUTIVE/ CIO DEBT SETOFF ASSESSMENT STANDARDS & EQUALIZATION CORPORATE INCOME TAX AUDIT TPT AUDIT COMMUNITY OUTREACH & EDUCATION PROPERTY VALUATION INDIVIDUAL INCOME TAX AUDIT TPT CITY AUDIT PROGRAM TAXPAYER INFORMATION & ASSISTANCE SUPPORT SERVICES LICENSE & REGISTRATION AND COMPLIANCE FIELD COLLECTIONS OFFICE COLLECTIONS TECHNICAL COMPLIANCE SERVICES BANKRUPTCY ALTERNATIVE FUELS LEGAL SUPPORT COMPTROLLER’S OFFICE BUSINESS TAX PROCESSING APPLICATION SERVICES PURCHASING INCOME TAX PROCESSING COMPUTER OPERATIONS FACILITIES/ WAREHOUSE ELECTRONIC FILINGS SPECIAL SERVICES CUSTOMER SYSTEM SUPPORT NEW TECHNOLOGY TECHNICAL SERVICES UNCLAIMED PROPERTY SPECIAL TAXES BINGO ESTATE TAX TOBACCO ARIZONA DEPARTMENT OF REVENUE 2002 ANNUAL REPORT 4 FY 2002 HIGHLIGHTS COLLECTIONS SECTION REMAINS PRODUCTIVE ! In spite of continued high vacancy rates, the Collections Function succeeded in collecting a combined $247,170,014 which was 6% more than they collected in FY 2001. ! In addition, the call center in Office Collections maintained excellent customer service levels for all incoming calls by answering 98% of them within 30 seconds. Customer Service Levels Continued to Improve ! The completion of AZ-Taxes for Small Business marked a milestone in electronic services. This is an interactive program available both on our Web Site and on CD that educates businesses and guides owners through preparation of a variety of tax returns. ! Participation in Outreach and Taxpayer Education events increased by 39%. ! License Compliance automated the state fair process by using laptops and printers to complete a fillable TPT-1 form. Revenue collected from the 2001 State Fair increased 22% over the 2000 State Fair. Millions of Dollars and Returns Processed ! During the 2001 tax-filing season, more than two million (2,276,537) individual income tax returns were processed, generating in excess of 1.5 million refunds. More than 620,995 documents required the reconciliation of data based on the Department’s computer generated information. ! The Incoming Mail Unit processed nearly 3.7 million letters and flats during the fiscal year plus the 4.2 million Personal Income, Withholding, and Transaction Privilege Tax returns produced. During the peak season, this unit ran two shifts with over 95 temporary and 17 permanent employees. With the help of three mail-opening machines, they opened approximately 60,000 pieces of mail daily. Teamwork also played an important part during peak time. The Incoming Mail staff worked with volunteers from other sections of the Department towards a common goal of opening and processing mail to get refunds to taxpayers quicker and improve the Department’s overall customer service. ! The Remittance Processing Unit deposited more than $3.8 billion dollars and processed 2.9 million documents. Due to the teamwork of all sections in the function and additional resources such as updating the J&B Software in our TMSimage program, working overtime and utilizing temporary employees, the FY 2002 year-end closed smoothly. ! The Data Input Unit keyed over 2.1 million documents this year. The unit kept its primary emphasis on keying business tax returns this year by outsourcing the bulk of the Individual Income Tax documents. The implementation of 2D bar code technology on the Arizona Form 140 reduced the burden of keying the balance of the income returns. This technology allows ARIZONA DEPARTMENT OF REVENUE 2002 ANNUAL REPORT 5 FY 2001 HIGHLIGHTS CONTINUED an average batch of 75 returns to be scanned in 11 minutes, vs. 1.5 hours of keying time. We were able to scan approximately 110,000 returns this season. This successful program will be expanded in the coming year. ! The Out Going Mail Team processed over 3.5 million pieces of mail, not including the county property tax forms. During the last year, postage costs were reduced through elimination of withholding A1QRT, A1WP and reduction in the number of TPT mail outs. E-Government Services Expanded ! During FY 2002, 486,514 Arizona Individual Income returns were filed electronically. This represents an 18.5% increase over the prior year. In FY 2002, more than 205,000 taxpayers received their refund via direct deposit. This is the second year we offered this convenience. The number of tax professionals participating in the e-file program exceeded 1,650. ! The Electronic Funds Transfer Unit electronically processed approximately $4.641 billion during FY 2002. This is an increase of $192.6 million more than in FY 2001 or 4.3 %. The unit also processed 321,393 payments in FY 2002, an increase of 10.4% from the prior year. In FY 2002 the unit processed 57.8% of business tax dollars received at the DOR and 13.1 % of the business tax transactions. The Comptroller's Office returned 10,603 warrants to taxpayers that had been returned to the Department for a better address. Transaction Privilege Tax Productivity Improved ! Fiscal year 2002 was a very productive year for the Transaction Privilege Tax section as shown by the 2,754 audits that were completed for a total of $26,453,913.64. ! The Audit section realized total revenues of $ 14,030,611 The shining accomplishment for the Section was the fact that 1,888 new taxpayers were licensed. This was a record high for the Section and constitutes a 100% increase over the prior year. ARIZONA DEPARTMENT OF REVENUE 2002 ANNUAL REPORT 6 OVERVIEW OF THE DEPARTMENT FUNCTION ACTIVITIES COLLECTIONS FUNCTION OFFICE COLLECTIONS After the Accounts Receivable system has completed the prescribed billing cycle, cases are referred to Office Collections. Delinquents (business accounts with returns that have not been filed) are also worked in this section. Here, collectors attempt to reach account resolution via the telephone and with targeted mailings. The section uses a Predictive Dialer System (PDS) to dial the phone on accounts prioritized for work. This system automatically brings up computer screens of the account on calls made and routes them to the first available collector. Office Collections also uses an Automatic Call Distribution (ACD) system to process and handle incoming calls. This system has an Interactive Voice Response (IVR) module that provides automated responses for some basic collections questions such as account balances. The section operates from 8:00 a.m. to 6:00 p.m. Monday through Thursday and from 8:00 a.m. to 5:00 p.m. on Fridays. Office Collectors can request liens and levies be filed and can negotiate installment payment plans. If they are not able to resolve a case, it is referred to Field Collections or Bankruptcy / Litigation for further action. FIELD COLLECTIONS If an Office Collector determines that a case cannot be resolved by phone and that a field (onsite) approach is warranted, the case is referred to the Field Collections section. Field collectors are assigned a territory (by ZIP code) and are responsible for all types of tax cases (income, business, withholding, etc.) in their territory. Field collectors use a combination of telephone and field visits to effect closure. In addition to recommending lien and levy action, field collectors may subpoena records, work Offers in Compromise, recommend seizures and write off cases if they are determined to be uncollectible. The objective in Field Collections is to reach closure in the least intrusive manner. Seizure actions are only used as a last resort after all other more reasonable actions have failed. The Collections Function Liaison section is responsible for all other non-mainstream collection activities. These include cases referred to an outside collection agency in addition to handling disputed audit accounts, insufficient funds check collections, lien processing, case adjustments, Letters of Good Standing, levies on Department of Administration vendors, levies on contractor and insurance bonds and internal systems training. The Department uses an outside collection agency to work the smaller dollar accounts in state and to work out-of-state accounts that cannot be resolved in the other collections sections. BANKRUPTCY AND LITIGATION Bankruptcy and Litigation services a growing population of individual and business tax accounts that have filed for protection under the bankruptcy code. Cases are routed here at any time during the collection process when a case is identified as having filed bankruptcy. This section is responsible for identifying all cases which involve bankruptcy filings, seeing that appropriate claims are filed and following up on actions being taken by the bankruptcy court relative to these accounts. In addition to processing bankruptcies, the section refers cases to the Attorney General’s Office that may require legal action to effect closure as well as processing Offers in Compromise. ARIZONA DEPARTMENT OF REVENUE 2002 ANNUAL REPORT 7 D EBT SET-OFF Debt Set-Off serves other state agencies by offsetting tax refunds to reduce debts to other state agencies and the courts. This program includes: qualifying agencies and courts for program participation, notifying agency participants and taxpayers when matches are made, monitoring status of and validating claims, finalizing matches, resolving discrepancies and generating payments to agencies and/or releases to taxpayers. REVENUES FOR THE THREE COLLECTIONS FUNCTION UNITS (FY 2002) Office Collections………...……..$ 88,820,707 Field Collections…...……………$ 39,704,958 Bankruptcy/Litigation…….….…$ 18,011,195 Debt Setoff......………………….$ 108,664 Unassigned……………………...$100,524,490 (TCS figures are included in Bankruptcy and Litigation figures. The Unassigned figures are dollars collected that are not associated with a Collector ID.) HIGHLIGHTS IN FY 2002 ♦ In spite of continued high vacancy rates, the Collections Function succeeded in collecting a combined $247,170,014 which was 6% more than they collected in FY 2001-2002. ♦ At the same time, they worked to reduce the turn around time for processing Offers in Compromise to at or below 60 days. A total of 269 Offers were reviewed this year with 78% of them completed within 60 days of receipt. ♦ In addition, the call center in Office Collections maintained excellent customer service levels for all incoming calls by answering 98% of them within 30 seconds. CUSTOMER SERVICE FUNCTION COMMUNITY OUTREACH AND EDUCATION Community Out Reach and Education (CORE) 8 provides the Department’s outreach and educational programs for taxpayers and practitioners. CORE’s primary goal is to promote voluntary compliance with tax laws through taxpayer education. The staff develops and presents workshops and seminars, as well as participating in trade shows throughout the state. The programs focus on support for the small business community, but services and assistance are also directed toward personal income tax. Many projects are developed in partnership with the IRS, other federal, state, and local agencies and organizations as well as the Small Business Administration and related associations. LEGAL SUPPORT This group is responsible for providing consultation on legal issues for operating units and technical legal correspondence. They are also responsible for form design for the Department, and for creating and maintaining informational publications on a wide variety of tax issues, the TaxNews (tax practitioner newsletter) and the ReveNews (employee newsletter). LICENSE AND REGISTRATION The License and Registration section processes applications for transaction privilege tax, use tax, severance tax, and withholding tax. The unit issues transaction privilege tax licenses for contract cities that participate in the state tax collection program. They also administer the contractor-bonding program which affects some new contracting businesses and delinquent taxpayers. The section oversees a database of licenses and continually collects and updates taxpayer records. They provide assistance to the public through dissemination of general license information. The section handles distribution of tax forms, the sale of tobacco stamps and cashiering services for customers at each of the agency’s offices. The License Compliance group within the section performs research to identify noncomplying businesses and brings them into ARIZONA DEPARTMENT OF REVENUE 2002 ANNUAL REPORT compliance. They provide education on licensing statutes and regulations to assist taxpayers in complying with the tax laws. ♦ Participation in Outreach and Taxpayer Education events was increased by 39%. ♦ Partnered with a wide range of entities including the Internal Revenue Service, Maricopa County, Cities of Phoenix, Surprise, Avondale, Flagstaff, Tucson, Mesa and Yuma. CORE expanded outreach services for the public and educational opportunities for businesses. ♦ Answered over 900 technical tax letters with 90% answered within 30 calendar days. ♦ Created a new brochure, The Law and Your Taxes, to address misconceptions regarding the tax system in AZ. ♦ Redesigned the Informational Publications & TaxNews homepages on the Internet. ♦ Worked with twenty-nine software vendors to provide AZ forms to their customers with over 90 forms offered. ♦ Upgrading our cashiering system resulted in faster processing time of payments made at satellite offices and has eliminated hundreds of staff hours previously required. For the year, cashiering over 92,000 documents and $190 million in payments were handled in our walk-in offices. ♦ License Compliance automated the state fair process by using laptops and printers to complete a fillable TPT-1 form. Revenue collected from the 2001 State Fair increased 22% over the 2000 State Fair. ♦ As a result of visiting the local bonding authorities, the monthly average of taxpayer bonds increased from 308 for FY01 to 335 for FY02. ♦ The Bingo group visited 94% of all Class B & C licensees, well over their goal of 90%. Increased oversight has provided support to SPECIAL TAXES This group is made up of Estate Tax, Luxury Taxes, and the Bingo section. The Bingo section issues licenses and conducts audit examinations of Bingo operators. The staff investigates complaints and violations of Bingo laws, as well as conducting workshops and consultations with licensees. The Estate Tax unit conducts audits and processes all estate tax returns. The Luxury Tax staff administers tax for liquor and tobacco, including licensing for tobacco wholesalers and processing of associated tax returns. The unit also supports the Office of the Attorney General in administration of the Tobacco Master Settlement Agreement. UNCLAIMED PROPERTY The Unclaimed Property program is administered for the purpose of returning to rightful owners abandoned property in the form of goods and money such as the contents of safe deposit boxes, insurance policy premiums, deposits in banks and security deposits, unclaimed gift certificates or layaways, and uncashed checks. The staff attempts to locate the property owner and processes claims in order to return the property to owners. They also facilitate the submission of property from businesses that hold the property. HIGHLIGHTS IN FY 2002 ♦ The completion of AZ-Taxes for Small Business marked a milestone in electronic services. This is an interactive program available both on our Web Site and on CD that educates businesses and guides owners through preparation of a variety of tax returns. ARIZONA DEPARTMENT OF REVENUE 2002 ANNUAL REPORT 9 improved with an average turnaround of 49 days, compared to 51 days in FY01. bingo operations and assists the non-profit organizations that are funded by bingo games and has improved the accuracy of filing. The Bingo section pursued investigations that have resulted in two successful criminal prosecutions. ♦ The number of Luxury Tax audits doubled over the previous year with six completed in FY02. Assessments during this period decreased from $318,820 in FY01 to $123,283 in FY02. ♦ ♦ The estate tax unit improved operations by reducing the processing days from a high of 102 days to 20 days during the year. ♦ By using the DOR website to notify the public about the elimination of the Form 74 (Report of Personal Representative of Decedent) we increased awareness and reduced the number of telephone calls regarding the form. Staff training was advanced with the establishment of regular consultation from Tax Analysts in our Legal Support team. This has been successful in keeping phone agents up to date on matters of taxability and legislative issues. ♦ Cross training of staff was initiated to expand knowledge and productivity among phone agents and those employees who handle taxpayer correspondence. ♦ ♦ FAQ’s (Frequently Asked Questions) database was developed for fiduciary tax issues. More FAQ’s are in development. ♦ New on-line forms were developed to improve the transmission of information between phone agents and others within the agency. Service on Unclaimed Property claims ♦ 10 ♦ Unclaimed property collections increased by $10.7 million to a total of $48.7 million. ♦ The number of audits completed increased by 16% over FY01. DIRECTOR 'S FUNCTION D IRECTOR’S OFFICE The Director, responsible for the operation and control of the entire Department, ensures that the administration and collection of taxes are performed effectively, efficiently and in a fair manner. Additionally, the Director ensures that the Department provides the best possible customer service. The Director has several direct reports including two Deputy Directors who assist in the day-today operations of the agency and serve as Acting Director when the Director is absent. The responsibilities of the Deputy Directors are divided into the Tax Administration Team and the Planning and Support Team. The Tax Administration Team is responsible for the day-to-day operations of the basic tax administration functions of Customer Service, Collections, Property Tax Administration, Income Audit and Transaction Privilege Tax. The Planning and Support Team is responsible for support services such as Information Technology and Process Administration functions, Change Management, Human Resources, Hearing Office, Staff Organization and Development, Budget, Legislative Services and Office of Economic Research and Analysis. The Deputy Directors also serve on the Leadership Team with the function executives and administrators to oversee resource allocation and policy determination and planning. Other direct-reports to the Director include: ARIZONA DEPARTMENT OF REVENUE 2002 ANNUAL REPORT Other direct-reports to the Director include: ! the Problem Resolution Officer who acts as an advocate for taxpayers and expedites resolution of complex problems and situations; ! the Internal Auditor who reviews internal processes and procedures used by the Department to ensure that they are secure and effective; ! the Chief Tax Policy Officer who oversees the legal support of the Department; ! the Chief Tax Advocate who provides legal support to the Director and representation to audit and property tax functions, and ! General Counsel who provides the Director with legal advice on tax and administrative matters, reviews appeals to the Director from Hearing Office decisions and writes Final Orders of the Director regarding appeals, and drafts and reviews proposed legislation, contracts and intergovernmental agreements. TAX POLICY AND LEGAL SUPPORT The Chief Tax Policy Officer oversees the Director's Office of Tax Policy & Legal Support, consisting of Criminal & Civil Investigations and the Office of Tax Policy, and provides coordinated policy and legal support for the Department. Criminal & Civil Investigations is comprised of the Tobacco Enforcement, Criminal Investigations & Internal Investigations units of the Department. The Tobacco Enforcement unit enforces the tobacco luxury taxes by educating retailers and wholesale operations, inspecting premises for compliance with stamping requirements and monitoring compliance with tax laws. It also seizes luxury tax contraband and auctions seized products to properly licensed businesses to recover tax revenues. The Criminal Investigations unit handles criminal investigations of tax evasion, improper or fraudulent tax activity and other related issues. Internal Investigations investigates allegations of misconduct by Department employees and vendors. The Office of Tax Policy reviews, analyzes, develops and disseminates information regarding the Department’s interpretation of state tax laws. The unit responds to technical and complex tax inquiries, issues private taxpayer rulings, reviews and analyzes legislation, develops and promulgates administrative rules, and assists the Department in tax law administration. OFFICE OF TAX A DVOCACY The Chief Tax Advocate oversees the Office of Tax Advocacy, which provides legal and interpretative support, and case resolution and advocacy for the audit and property tax functions in the Department. The office also acts as liaison to the Attorney General’s Tax Section and coordinates the defense of tax litigation with the Attorney General. The Office of Tax Advocacy provides additional support to the Director on an as-needed basis, including services in the area of protecting taxpayer confidentiality and privacy. The Office consists of Contested Audit Resolution, the Corporate Income Tax Appeals, the Individual Income Tax Appeals and the Legal and Interpretative Support Team. The Contested Audit Resolution unit is headed by the Deputy Chief Tax Advocate and assists the Transaction Privilege Tax Audit Function with case refinement and resolution services as well as advocating the TPT Function positions in cases before the State Office of Administrative Hearings, the Department’s Hearing Office and the Director. The unit, primarily through the Chief Transaction Privilege Tax Counsel, also provides interpretative advice to the TPT Function. The Deputy Chief Tax Advocate also acts as the Disclosure Officer for the Department. ARIZONA DEPARTMENT OF REVENUE 2002 ANNUAL REPORT 11 Department. The Corporate and Individual Income Tax Appeals unit’s review cases from the income audit sections and provide case refinement, resolution and advocacy services for those cases including representation before the Department’s Hearing Office and the Director. The unit also provides interpretive advice to the income audit staff. The Legal and Interpretative Support Team is headed by the Chief Income Tax Counsel and provides legal and interpretative advice to both the Corporate and Individual Income Tax Audit units. The team also provides advocacy support and services to the Income Tax audit units. The Chief Income Tax Counsel also acts as the leader of the privacy team and as e-commerce counsel. OFFICE OF ECONOMIC RESEARCH AND A NALYSIS The Office of Economic Research & Analysis provides technical services to the Department, the legislature and the executive offices, evaluating proposals regarding changes to any of the taxes administered by the Department. The unit provides staff support to the Economic Estimates Commission, Debt Oversight Commission and Property Tax Oversight Commission. It maintains the income tax simulation models and prepares annual and ad hoc reports on tax revenue expenditures, bonding capacities and other tax revenue issues. CHANGE MANAGEMENT This unit is responsible for coordinating the Department's efforts for change management. It includes staff that functions as the Department's project managers for the Business Reengineering and Integrated Tax System (BRITS) project. For the BRITS project, the Change Management unit has drafted subject matter experts from across the Department to implement the BRITS project. The unit will continue to draft expert employees to work with the selected vendor in 12 the implementation phase over the next five years. The Budget Resource & Planning unit is responsible for monitoring current year expenditures against the approved budget, coordinating preparation of the Department's biennial budget and providing staff and operating budget information and analysis to the Leadership Team. The Office for Quality unit coordinates the strategic planning efforts of the Department and an agency-wide quality program patterned after the Malcomb Baldrige self-assessment process. The Staff & Organizational Development unit (SODS) provides the centralized training for the Department. It is supplemented by specialized training within functional areas and on-the-jobtraining (OJT). The unit has a self-managed team of trainers whose role is to develop in-house training for key activities such as using tax systems, ethics, supervisory training and confidentiality. The unit offers both self-study classes and classroom training and coordinates with the Department of Administration training program. HIGHLIGHTS IN FY 2002 ♦ The biggest single activity of the Director’s Function was the on-going effort to select a vendor for our BRITS project. ♦ The Director’s Office for Quality oversaw our continued efforts to coordinate the objectives, goals and performance measures. The Quality Office provided training to 60 facilitators who then worked with their colleagues in all the sections and units to develop annual goals and performance measures. ♦ In late August of 2001, the Arizona Supreme ARIZONA DEPARTMENT OF REVENUE 2002 ANNUAL REPORT Court established a new precedent when it authorized a class action lawsuit against the State for refund of taxes paid under a statute that violated the U.S. Constitution. This decision authorized the creation of a class of potential refund recipients estimated to amount to 600,000 to 700,000 persons who may be entitled to refunds for up to four years each. The Chief Tax Advocate has been designated to lead the Department’s efforts to develop a program to respond to this decision. Since that time considerable effort has been devoted, to designing a refund program that would be consistent with the Court’s decision and to working with the Attorney General’s Chief Tax Counsel and the attorneys for the class in trying to structure a settlement of this complex lawsuit. As of the end of the fiscal year, those negotiations had brought the parties close to a settlement. INCOME AUDIT FUNCTION The Income Tax Audit Function continues to be managed by 2 Administrators, one each from Individual Audit and Corporate Audit. This team is responsible for management of personnel and other resources in the function as well as participation on the Leadership Team. In order that scarce resources are wisely used, a team was established to determine what efficiencies could be found by consolidating some activities and eliminating redundancies. These endeavors became even more important because of the effect that the Ladewig case and budget cuts had on staffing levels. The Function continued to support BRITS, the Department’s reengineering project, during the latest fiscal year. The function provided any needed personnel or material to assist the Change Management Team with preparations for the implementation of the project. As required by the project, IA stands ready to provide subject matter experts to the BRITS process to insure that our business partner has the best available talent for this important work. This fiscal year saw increasing involvement of employees in the Strategic Planning process. Using Department wide objectives, employee groups developed strategies that supported these objectives. In-house trained facilitators assisted these employee groups in developing the strategies and keeping the groups focused on what needed to be measured and metrics for evaluating performance. Monthly meetings were held to discuss progress and evaluate the effectiveness of the strategies in support of the objectives. Because agency management views the Strategic Plan as a living document needing continuous improvement, plans are already under way to make next years Plan even better, with more employee involvement and more precise metrics. Customer service continues to be an essential component of the Function’s goals and customer surveys are a vital source of customer information. Service delivery is so important that it is one of the things measured by both Individual and Corporate Audit as indicators of effectiveness. Ratings and comments by our taxpayers are also used in the employee evaluation process. During the Fiscal Year, both Sections sent out a total of 20,224 surveys. On a scale of 1 to 5 (5 being excellent), scores averaged 4.47 (weighted), a 2% improvement over FY01. Improved survey scores is one indicator of the effectiveness of decentralizing the management structure of Individual Audit. Pushing decision making down to the lowest level possible has improved the speed and effectiveness of service. Empowering employees in this way increases staff productivity and employee satisfaction. During this year of serious budget constraints we were required to look for ways to streamline ARIZONA DEPARTMENT OF REVENUE 2002 ANNUAL REPORT 13 processes and eliminate duplication of efforts. We took the opportunity to centralize the process whereby data was accumulated and input into the strategic plan document. We worked together to develop a PowerPoint presentation so that we could fulfill our goal of presenting to our employees monthly updates of the goal. timelier and more accurate assessments and this program improves audits in both of these areas. A related project called computer-assisted audits (CAA) is on the drawing board. This program assists the auditor in decision making by using preprogrammed coding to automatically enter data into the assessment system. This saves auditor time and allows increased analysis time by audit staff. It also insures that the correct codes and amounts are keyed into the system. A new audit program, started in the East Valley Office, involves the review of Schedule C’s from the federal return. Preliminary work shows that this could be a very productive program as well. ITA also asked for and received training from the IRS on auditing Schedule A’s. This training not only improved auditor expertise in this area but also improved the development team’s ability to program for audit select. ITA is also moving forward with the on-line audit procedure manual that allows auditors to quickly access reference and procedural material. This on-line manual is very popular with staff and we are continuing to put material into it. HIGHLIGHTS IN FY 2002 CORPORATE AUDIT ♦ CITA experienced a ripple effect from the September 11 terrorist attacks. Management and auditors were extremely cognizant of the need to insure the safety of our travelers and a number of trips were postponed until the second half of the fiscal year or the next fiscal year. We worked delicately and compassionately with those taxpayers affected by the attacks until such a time that we were all ready to resume business as usual. The end of the fiscal year was filled with some of those rescheduled field appointments with business activities returning to some degree of normalcy. Working in partnership with Transaction Privilege Tax, we added to the Department’s Internet site the ability for entities to come forward in our voluntary disclosure program. The voluntary disclosure program allows companies to come forward by providing a detailed written description of their past activities. The site provides all the information necessary to make it easier for taxpayers to come forward. ♦ INDIVIDUAL INCOME A UDIT ♦ The computer generated audit (CGA) project was completed during the fiscal year and testing is underway. This project scans taxpayer returns, looking for errors using algorithms designed by the audit development team. The program then initiates the assessment process. Our taxpayer surveys indicated a desire for 14 ♦ The ITA pass-through entity program passed the $1 million mark during the Fiscal Year in assessments. With nearly $725,000 collected, this is by far the most efficient audit program in ITA. This audit program looks at Partnership, Sub-S, and LLC returns to identify areas of non-compliance both at the entity level and at the individual level. To further increase the success of this program, ITA recently requested an enhancement to the information we get from IRS to include K-1 data for payers and payees with Arizona addresses. In cooperation with the Information Technology function, ITA will process downloads that will identify those not filing on pass-through income that is attributable to Arizona. This program has been very successful in other states in ARIZONA DEPARTMENT OF REVENUE 2002 ANNUAL REPORT identifying income not being reported or paid. ITA expects a similar result in Arizona. ♦ ITA auditor productivity continued to increase during the fiscal year. Despite hardships associated with hiring freezes and productive personnel going to the Alt Fuel and Ladewig projects, audit assessment dollars remained at the same level as FY01. Because of the fewer number of auditors though, assessments dollars per auditor increased nearly 40% to $460,438. The number of audits per auditor increased by 8% to nearly 2,000 per auditor. Both of these increases can be attributed to better audit select, improved inventory management, and just plain hard work. Overall, the audit production goal was exceed by 239 units. INFORMATION TECHNOLOGY FUNCTION STRATEGIC MANAGEMENT SERVICES Strategic Management Services (SMS), working with the Government Information Technology Agency (GITA), conducts research to create/ update policies, procedures, and standards, which will improve services to the individual Functions of DOR. In the past year the unit has participated in preparing Governor’s Shared Technology White Paper. SMS has completed the mapping of the core business processes of the function, Disaster Recovery/Business Continuity Plans, and the 3-Year IT Strategic Plan. At the senior management level, the unit tracks and reports on all major projects throughout the agency. SMS is assisting in the development of Enterprise Architecture Projects as well as preparing for the BRITS Project. A PPLICATION D EVELOPMENT TEAM (ADT) Traditionally, application development was staffed and operated out of Information Technology (IT). As projects were developed, appropriate additional staff was added to project teams out of the user areas. But the focal point was IT. This focus occurred because the technical application development skills were within IT. Today, the technical application skills are not only in IT, but also in our user areas. To take advantage of these expanded skill sets, the Application Development Team (ADT) was created. The Application Development Team (ADT) is a virtual team utilizing resources from both the Information Technology and user areas to make modifications and enhancements to our applications. CUSTOMER SUPPORT Customer Support is part of the Applications Development Team (ADT). The Customer Support section reviews and monitors all Information Technology Requests (ITR) related to mainframe operations, tests changes and performs quality control functions on selected system output. Customer Support interacts with users to perform system and business function analysis related to changes in DOR's systems. Customer Support also coordinates between various user groups in the DOR and Information Technology support staff to maintain the mainframe security access system for all users. A PPLICATION SERVICES Applications Services is part of the Applications Development Team (ADT). Application Services plans, designs, develops, implements, maintains, supports and enhances mainframe and client server applications. The section also provides 24/7 on call support. Future Department direction includes the re-engineering of legacy tax systems to support new technologies. D ATA CENTER SUPPORT Data Center Support is comprised of Computer Operations, Production Control, Technical Support and Data Base Management. This team functions as the liaison to ADOA for mainframe processing. All processing relating to ADOR is scheduled and monitored by the Computer ARIZONA DEPARTMENT OF REVENUE 2002 ANNUAL REPORT 15 Operations staff. The Production Control group is responsible for tape management and offsite storage of disaster recovery data. The Technical Support section provides the first line of support for all mainframe related issues. This group also leads projects that require joint communications between ADOA and ADOR and the mainframe security systems. The Data Base management group supports and maintains the client server data bases and the mainframe data bases. This section is responsible for all data base system software on the mainframe. They provide the first line of support for all data base issues. ENTERPRISE N ETWORK SUPPORT Enterprise Network Support is responsible for the research, analysis and implementations of new technologies as they apply to business needs. The goal of this section is to include the support and management of the LAN/Wan to ensure 99.80% of system availability to internal and external customers. The Server, Communication, and Customer Support groups are responsible for supporting four remote sites, and 1200 LAN customers. In addition, this staff is responsible for implementing all new hardware and software. ♦ Reorganized process Administration Division ♦ Implemented the IT Ambassador Program to enhance our customer service. IT Staff members regularly visit user areas to provide in person customer support. ♦ Completed 201 ITRs (Information Technology Requests) to implement enhancements to our applications. ♦ Implemented a Strategic Plan Database Application. ♦ Developed and implemented a new Debt Setoff application (with the Courts coming online). ♦ Developed and implemented 2D Bar Code application. ♦ Implemented Year-end Income and corporate tax changes. ♦ Report Elimination of unnecessary reports ♦ Mapped the core business processes of the function ♦ Disaster Recovery/Business Continuity Plan ♦ Completed the 3-Year IT Strategic Plan ♦ Implemented UPS system on LAN ♦ Implemented Virtual Private Network ♦ Redesigned the Intranet to GITA standards HIGHLIGHTS IN FY 2002 Implemented significant portions of our Ready The Organization projects. These projects are intended to enhance our internal practices as well as our external customer relationships so that we will be in a strong position to support future efforts to reengineer our legacy systems. ♦ ♦ Updated Cashier System to scan technology. ♦ Implemented SAN (Storage Area Network) ♦ Expanded help desk staff hours to improve customer service 16 ARIZONA DEPARTMENT OF REVENUE 2002 ANNUAL REPORT PROCESS ADMINISTRATION FUNCTION ORGANIZATION The mission of the Process Administration Function is to provide quality service and perform timely and accurate processing of taxes for Arizona taxpayers. The function consists of the following sections: COMPTROLLER The Comptroller is responsible for providing financial services for the Department. This includes the reconciliation and reporting of tax dollars deposited to the State’s financial institution, the processing of accounts payable invoices, travel services including employee reimbursement, fixed asset inventory services and refund warrant management. The Accounts Receivable Unit is responsible for processing new receivable and adjustment transactions for the four major tax types, the timely reconciliation of the system, NSF check processing, and credit balance management. The Remittance Processing Unit is responsible for recording and depositing tax payments that are not processed through the Cashier system. ELECTRONIC FUNDS TRANSFER UNIT The Electronic Funds Transfer Unit is responsible for the management of the program for receiving taxpayer payments electronically for the business tax types (TPT, Withholding and Corporate). FACILITIES /RECORDS MANAGEMENT Facilities Management is responsible for coordinating DOR facility maintenance and remodeling at the Department's five locations; receiving all goods and supplies purchased by DOR; security system maintenance and repairs; and issuance of DOR identification cards and building access. Central Supply is also part of the Facilities Management section with distribution of office supplies and internal forms. Records Management maintains and provides access to tax returns and License applications with the Department. The Micro-graphics section microfilms income tax, corporate tax and other miscellaneous documents. They also duplicate the information for distribution to different Department sites. PURCHASING Purchasing is responsible for contracting and purchasing all goods and services required by DOR. This includes furniture and supplies, and printing of tax forms, tax booklets, business cards and envelopes. Purchasing is also responsible for contract management, vendor performance and compliance. MAIL SERVICES Mail Services is divided into two units: Incoming Mail is responsible for the receipt, sorting and delivery of all tax documents, payments and correspondence received by the agency. Outgoing Mail is responsible for mailing all tax documents, billing, correspondence, and tax change notices, audit and collection notices to taxpayers. INDIVIDUAL INCOME TAX PROCESSING Individual Income Tax Processing is divided into four units: Refund/Research, Document Processing, Data Entry and Error Resolution. These units are responsible for issuing income tax refunds, preparing documents and revenue to be keyed and resolving discrepancies between the taxpayer’s calculations and the Department’s computerized calculations. Data Input is responsible for keying all tax returns and documents into the agency’s various computer systems. BUSINESS TAX PROCESSING Business Tax Processing is divided into three units: Transaction Privilege Tax, Withholding Tax and Corporate Income Tax. Each of these units is responsible for the preparation of documents and revenue, issuing credits/refunds as appropriate and resolving discrepancies between the taxpayer’s calculations and the Department’s calculations. ARIZONA DEPARTMENT OF REVENUE 2002 ANNUAL REPORT 17 Highlights In FY 2002 graphics Section received 4.0 million individual documents for microfilming. During the 2001 tax-filing season, more than two million (2,276,537) individual income tax returns were processed, generating in excess of 1.5 million refunds. More than 620,995 documents required the reconciliation of data based on the Department’s computer generated information. ♦ ♦ Refund turn-around time averaged 18.01 days. ♦ The total number of Corporate Income Tax documents processed was 216,739 of which 109,196 were returns. The Corporate Income Tax refunds issued exceeded $165 million. ♦ The total number of Transaction Privilege, Use and Severance Tax documents processed exceeded 1.39 million, of which 1.26 million were returns. The Electronic Funds Transfer (EFT) system for Transaction Privilege Tax (started in early 1998) has exceeded our expectations. The $2.7 billion received is 55% of all TPT revenues collected. The total number of Withholding Tax Documents processed exceeded 1.9 million, of which 370,884 were returns. This year 3,416 employers filed Withholding returns annually and we expect this number to grow as the tax practitioners and small businesses take advantage of this annual program. ♦ ♦ The Accounts Receivable Unit continued its high level of service in processing maintenance items in less than 24 hours of receipt on items of maintenance with only a 3/10 of 1% error rate. ♦ The Records Management unit continues to improved production while maintaining quality. The Records Maintenance Section has received approximately 25,000 new license applications and has had 42,000 requests for taxpayer documents. The Micro- 18 ♦ The Incoming Mail Unit processed nearly 3.7 million letters and flats during the fiscal year plus the 4.2 million Personal Income, Withholding, and Transaction Privilege Tax returns this mail produced. During the peak season, this unit ran two shifts with over 95 temporary and 17 permanent employees. With the help of three mail-opening machines, they opened approx. 60,000 pieces of mail daily. Teamwork also plays an important part during peak time. Incoming Mail staff worked with volunteers from other sections of the Department towards a common goal of opening and processing mail to get refunds to taxpayers quicker and improve the Department’s overall customer service. ♦ The Remittance Processing Unit deposited more than $3.8 billion and processed 2.9 million documents. Due to the teamwork of all sections in the function and additional resources such as updating the J&B Software in our TMSimage program, working overtime and utilizing temporary employees, the FY02 year-end closed smoothly. ♦ The Data Input unit keyed over 2.1 million documents this year. The unit kept its primary emphasis on keying business tax returns this year by outsourcing the bulk of the Individual Income Tax documents. The burden of keying the balance of the Income returns was reduced by the implementation of 2D bar code technology on the Arizona Form 140. This technology allows an average batch of 75 returns to be scanned in 11 minutes, vs. 1.5 hours of keying time. We were able to scan approximately 110,000 returns this season. This successful program will be expanded in the coming year. ♦ The Out Going Mail Team processed over 3.5 million pieces of mail, not including the ARIZONA DEPARTMENT OF REVENUE 2002 ANNUAL REPORT county property tax forms. During the last year, postage costs were reduced through elimination of withholding A1QRT, A1WP and reduction in the number of TPT mail outs. 13.1% of the business tax transactions. The Comptroller's Office returned 10,603 warrants to taxpayers that had been returned to the Department for a better address. ♦ ♦ ♦ ♦ Fiscal year 2000 – 2001, we purchased a CAD program that would assist the facilities staff in updating building floor plans as well as allowing us to develop new floor plans. Before the CAD program, the staff members would draw each new modular office then forward the drawing to a vendor to have the existing floor plans modified. Since the CAD program has been purchased and installed the Facilities staff have saved over 1000 work hours and $45,000 in design fees. In fiscal year 2001 – 2002 the Facilities staff purchased a printer that would accommodate the printing of building floor plans. This printer has saved over 100 work hours of going from one area to another to print a floor plan that was not easily read. Now we can print floor plans to 1/8 scale that allow ease of readability. We will have 1 additional staff member trained on the operation of the CAD system by the end of fiscal year 2003. With the additional staff trained, we will be able to work more efficiently. 486,514 Arizona Individual Income returns were filed electronically in FY02. This represents an 18.5% increase over the prior year. More than 205,923 taxpayers received their refund via direct deposit. This is the second year we offered this convenience. The number of tax professionals participating in the e-file program exceeded 1,650. The Electronic Funds Transfer Unit electronically processed approximately $4.641 billion during FY02. This is an increase of $192.6 million more than in FY01 or 4.3 %. The unit also processed 321,393 payments in FY02 an increase of 10.4% from the prior year. In FY02 the unit electronicly processed 57.8% of business tax dollars received and The Purchasing Unit issued 2,256 purchase orders with an average order time of 1.54 days. PROPERTY TAX FUNCTION VALUATION SECTION The Valuation Section consists of four teams: the Centrally Valued Properties Unit, the Locally Assessed Properties Unit, the Personal Property Group and the Construction Cost Group. The Centrally Valued Properties Unit annually determines the full cash value of all utilities, railroads, mines and other complex or geographically-dispersed properties (see page 65 for a list of the industries valued by the Department). Values determined by this unit for such properties are transmitted to the appropriate county assessors for the county tax roll. The Locally Assessed Properties Unit oversees and ensures the application of uniform appraisal methods and techniques used by the county assessors to determine the value of property. The unit also presents technical workshops to county assessors and provides an appraiser/ assessor certification program for appraisal staff. The Personal Property Group oversees the development and application of personal property procedures and manuals and provides technical workshops to county personnel. The Construction Cost Group maintains existing component costs for the computerized construction cost system and annually reviews market and location adjustments in each county. The group also provides training for county appraisers on the use of the construction cost system. ARIZONA DEPARTMENT OF REVENUE 2002 ANNUAL REPORT 19 TECHNICAL SYSTEMS AND SUPPORT SECTION The Technical Systems and Support Section consists of three teams: the CIS and Valuation Review Unit, the CAMA/GIS Unit and the Manuals and Forms Group. The CIS & Valuation Review unit consists of two groups: the Central Information Services group (CIS) and the Valuation Review group. The CIS group develops and coordinates the information processing services necessary to support property tax administration for 13 Arizona Counties. The support services provided to the client counties include management of automated systems used in the maintenance of assessment and tax rolls, the preparation of valuation abstracts, property tax notices of value and statements of taxes due. The group is also responsible for the statewide administration of the additional state aid to education homeowner rebate program for Arizona school districts and levy limit calculations for client counties, cities/ towns and community college districts. The Manuals and Forms group responsibilities include the annual compilation and updating of manuals and guidelines; annual review of forms prescribed for use in the administration of the property tax system; annual review of legislative enactments and changes to existing property tax statutes; and annual preparation of the "Title 42 Extract of Property Tax Statutes". This extract includes all property tax statutes and related statutes from other titles affecting the property tax system. HIGHLIGHTS IN FY 2002 ♦ The CAMA Unit assisted the Navajo County Assessor’s office with a valuation review of properties affected by the Rodeo-Chediski fire. ♦ The CIS Unit in conjunction with the Information Technology Function completed the communication portion of the Client County Virtual Private Network. The VPN system has increased response time and laid the foundation for the implementation of the Client County Information System. Significant progress was also made towards completion of the PT50+ Real Time Update Project which will take many of the secured property system updates currently done at night and put them on-line, in real-time. ♦ The Valuation Review Unit automated the method of incorporating property sales affidavit information into the sales database eliminating the need to key over 100,000 documents a year. ♦ The Construction Cost Unit developed a new Shopping Center Economic Obsolescence and Depreciation Table for qualifying shopping centers valued under ARV 4213201-06. ♦ The Locally Assessed Property Unit is conducting research in preparation for The Valuation Review group is responsible for annually measuring county assessors' performance for compliance with established full cash/market value standards. The group conducts sales ratio studies throughout the yearly valuation cycle to assist counties in complying with valuation standards. COMPUTER ASSISSTED MASS A PPRAISAL/ GEOGRAPHIC INFORMATION SYSTEMS The CAMA/GIS unit assists the county assessors with maintaining and updating a standardized cadastral mapping system (CAD). The unit prepares tax area code maps that depict boundaries of taxing jurisdictions authorized to levy property taxes. In addition, they develop sales-based models for residential properties and maintain and assist County Assessors with the Land Valuation System and the Sales Tracking System. 20 ARIZONA DEPARTMENT OF REVENUE 2002 ANNUAL REPORT ♦ issuing two new guidelines for use by the County Assessors. The guidelines pertain to timeshare properties and commercial industrial properties located in enterprise zones. job training emphasized, the results were very positive. There is still additional training to be accomplished, but the Section looks forward to having a seasoned crew for the upcoming fiscal year. The Training and Certification Team taught 24 appraisal courses with an average attendance of 18 students per course. The Team also administered five certification examinations. Forty-one Level One and 10 Level Two students were certified. PROGRAM INFORMATION GROUP The Program Information Group had many accomplishments this year and continues to excel by ensuring minimal downtime in the various operations and programs of the TPT Function. The Group has also continued to maintain and upgrade the ATC program used by the Field Auditors. The main upgrades include faster program processing and the ability to automatically import reporting histories. The group continues to provide support to the TPT staff in maintaining critical programs necessary to continue with existing projects. TRANSACTION PRIVILEGE TAX FUNCTION FIELD A UDIT SECTION Without losing emphasis on customer service, the Field Audit Section exceeded their goals and objectives. Based on audit surveys, over 97% of the audits were completed in a fair, accurate, timely and expeditious manner. Furthermore, the surveys indicated that the Field Auditors were thorough in explaining their audit approach and theory, in part due to the use of opening and closing interviews. Very importantly the survey responses also showed that more than 96% of the time the Field Auditors were courteous and professional. REFUND SECTION The Refund Section is responsible for analyzing and processing taxpayer refund requests. While responding to a changing environment, and law changes, the refund section re-engineered its processes by developing better monitoring and tracking systems and streamlined procedures. The Section continued to excel in good customer service while processing twice as many claims this year than in any previous year. A UDIT SELECT SECTION The Audit Select Section’s primary focus is audit research and selection. The Section continues towards this through the staff’s hard work and dedication to the job. The Audit Select Section has also been working with the Program Information Group on a data warehouse project. The Section also assists in the conversion of SIC codes to NAICS codes and continues to provide assistance to the 12 non-program cities in coordinating joint audits with the Department of Revenue. A DMINISTRATIVE SUPPORT UNIT Fiscal year 2002 was a banner year for the Administrative Support Unit. With fewer employees than the preceding fiscal year, the Unit is also responsible for retrieving and delivering incoming mail and reports to the Function’s employees. When asked or needed the staff also assists others to ensure all daily duties are completed. D ESK A UDIT SECTION This past fiscal year was a year of rebuilding for the Desk Audit crew. Half of the staff were recent hires and had minimum experience. Despite this lack of experience, and with on-the- ARIZONA DEPARTMENT OF REVENUE 2002 ANNUAL REPORT 21 HIGHLIGHTS IN FY2002 ♦ In fiscal year 2002, 2,754 audits that were completed for a total of $26,453,913.64. ♦ The Refund Section processed 2,254 refund claims granting $33 million and denying over $9 million ♦ The Desk Audit section realized total revenues of $14,030,611. The shining accomplishment for the Section was the fact that 1,888 new taxpayers were licensed. This was a record high for the Section and constitutes a 100% increase over the prior year. ♦ The Program Information Group developed: a new audit protest database and successfully converted all existing records; new letter templates for both the Field and Desk 22 Auditors that are more readily accessible; a database to handle the volumes of information for Audit Select; and, a new SQL database consisting of approximately 60 million historical records. ♦ The Administrative Support Unit timely and accurately processed the 2,754 audits, which includes manually writing the necessary maintenance reports to put the information into DOR’s system. The Unit also manually wrote up approximately 572 pieces of amended maintenance to correct billings. ARIZONA DEPARTMENT OF REVENUE 2002 ANNUAL REPORT ARIZONA 'S TAXES The Department collected $8.9 billion in revenue For fiscal year 2002 96% of collections Were attributable to the Income Tax and Transaction Privilege Tax. TABLE 1 REVENUE SUMMARY GROSS REVENUE COLLECTED FISCAL YEAR 1997-98 THOUGH FISCAL YEAR 2001-02 SOURCE TRANSACTION PRIVILEGE USE AND SEVERANCE TAX Distribution Base Nonshared Portion Use Tax Education Tax Undistributed Estimated Transaction Privilege Tax Other State Revenue County and City Collections Subtotal INCOME TAX Withholding Individual Corporate Subtotal LUXURY TAX Spirituous Liquor Vinous Liquor Malt Liquor Tobacco - All Types (1) Licensing Subtotal ESTATE TAX Estate Unclaimed Property Escheated Estate and Unclaimed Dividends Subtotal OTHER REVENUES Bingo Flight Property Tax Private Car Tax Nuclear Plan Assessment Waste Tire Subtotal DEPARTMENT TOTAL State Property Tax (2) TOTAL (3) FY1997-98 $1,015,306,840 1,875,579,736 136,868,591 ----- FY1998-99 $1,089,625,165 (4) 2,042,232,511 (4) 148,043,174 (4) ----- FY1999-00 $1,195,140,016 2,230,332,220 176,566,264 ----- FY2000-01 $1,248,485,639 2,356,788,664 196,887,927 100,682 (5) FY2001-02 $1,246,773,262 2,379,509,616 162,751,987 439,004,543 5,262,078 17,094,298 510,665,036 11,668,636 18,352,045 541,562,578 12,392,607 18,254,373 654,131,327 1,894,841 21,123,487 721,459,433 28,766,081 32,971,582 766,018,836 $3,560,776,579 $3,851,484,109 $4,286,816,807 $4,546,740,674 $5,055,795,907 1,863,292,013 669,323,279 630,836,596 2,072,018,474 765,853,606 643,230,321 2,259,201,907 826,789,215 637,765,231 2,363,693,852 858,775,963 678,002,658 2,309,340,885 705,843,394 512,257,476 $3,163,451,888 $3,481,102,401 $3,723,756,353 $3,900,472,473 $3,527,441,755 18,787,775 7,893,100 19,463,378 169,316,629 7,100 19,648,670 7,969,428 20,534,013 166,288,764 7,175 20,587,605 9,026,326 21,309,231 162,896,049 7,175 21,327,540 8,477,493 21,602,321 160,694,260 8,600 21,574,744 9,035,156 22,031,467 161,754,302 5,250 $215,467,982 $214,448,050 $213,826,386 $212,110,214 $214,400,920 64,490,574 20,770,144 89,087,575 21,315,542 85,238,335 31,415,063 76,921,666 38,020,547 81,892,657 48,681,438 124,335 309,305 201,612 654,400 252,786 $85,385,053 $110,712,421 $116,855,010 $115,596,613 $130,826,881 750,970 15,165,878 1,494,821 880,824 5,125,561 717,830 14,856,910 1,441,440 926,814 5,476,881 677,036 13,418,771 1,476,728 945,935 5,674,452 634,384 13,387,179 1,349,685 924,778 6,346,629 629,680 13,056,694 1,509,625 940,611 6,392,637 $23,418,054 $23,419,875 $22,192,921 $22,642,655 $22,529,247 $7,048,499,556 $7,681,166,856 $8,363,447,477 $8,797,562,629 $8,950,994,710 37,957,273 10,069,191 24,686,866 22,552,932 18,454,625 $7,086,456,829 $7,691,236,047 $8,388,134,343 $8,820,115,561 $8,969,449,335 (1) Figures represent gross tobacco revenue less administrative expenses. (2) Property Tax is collected and deposited in the state general fund by counties. This figure includes deposits to the General Fund derived from the minimum Qualifying Tax Rate and taxes collected within Unorganized School Districts. (3) All revenues collected by the Department of Revenue, including those which are refunded or distributed, and State Property Tax. (4) Corrected figures. (5) Education tax became effective on June 1, 2001. For additional detail on the current year revenue, please refer to the appropriate section within this Annual Report. Figures may not add to total due to rounding. TABLE 2 NET REVENUE TO STATE GENERAL FUND FISCAL YEAR 1997-98 THROUGH FISCAL YEAR 2001-02 FY1997-98 FY1998-99 FY1999-00 FY2000-01 FY2001-02 $2,817,525,828 $2,982,824,755 $2,972,274,262 SOURCE Transaction Privilege, Use, and Severance Tax Undistributed Estimated Transaction Privilege Tax $2,362,627,656 $2,566,087,404 (3) 5,262,078 11,668,636 12,392,607 1,894,841 28,766,081 Income Tax 2,099,332,295 2,302,706,944 2,434,799,495 2,445,472,944 2,011,052,550 Luxury Tax 64,429,625 64,770,498 65,436,145 65,568,793 66,069,587 Estate Tax/ Unclaimed Property 65,269,787 89,334,610 84,725,503 78,961,539 88,298,138 750,970 717,830 677,036 634,384 629,680 1,494,821 1,441,440 1,476,728 1,349,685 1,509,625 880,824 926,814 945,935 924,778 940,611 Flight Property Tax (2) 7,582,939 7,367,078 6,709,385 6,693,590 6,528,347 Department Total $4,607,630,996 $5,045,021,253 $5,424,688,662 $5,584,325,308 $5,176,068,883 37,957,273 10,069,191 24,686,866 22,552,932 18,454,625 $4,645,588,269 $5,055,090,444 $5,449,375,528 $5,606,878,240 $5,194,523,508 Bingo Private Car Tax Nuclear Plan Assessment State Property Tax (1) TOTAL (1) Property Tax is not collected by the Department of Revenue and, therefore, is not reflected in this chart. It is collected by the Counties for distribution to local taxing authories. The "state property tax" referenced above is the only portion of the property tax that is deposited in the state general fund. It is derived from the minimum qualifying tax rate. (2) Beginning with FY98, 50% of all Flight Property Tax revenues were deposited into the General Fund. (3) Corrected figure. Figures may not add to total due to rounding. TABLE 3 GROSS COLLECTIONS OF AUDIT ASSESSMENTS AND DELINQUENT TAX FISCAL YEAR 2000-01 AND FISCAL YEAR 2001-02 FY2000-01 FY2001-02 % CHANGE $90,281,036 $6,176,200 $59,929,966 $1,360,262 -33.6% -78.0% $96,457,236 (3) $61,290,228 -36.5% TOTAL BILLINGS $181,828,894 (3) $147,046,075 -19.1% TOTAL DELINQUENT TAX COLLECTIONS $169,126,938 $272,698,314 61.2% TOTAL UNADJUSTED ENFORCEMENT COLLECTIONS $447,413,068 (3) $481,034,617 7.5% ($88,491,768) ($67,733,729) 23.5% $358,921,300 $413,300,888 15.2% $19,271,321 $18,991,988 -1.4% AUDIT COLLECTIONS Assessment Collections (Gross) Miscellaneous Taxes (Net of Credit) TOTAL AUDIT UNIT COLLECTIONS ADJUSTMENTS (1) Duplication, Credit Audits and Other Adjustments As Reported TOTAL ADJUSTED ENFORCEMENT COLLECTIONS (2) REFUND DENIALS (1) Audits resulting in credit adjustments are subtracted to produce an actual figure representing the net gain to the state from the Taxation and Transaction Privilege Tax Divisions' efforts. (2) Actual amounts resulting from the Department's enforcement effort. (3) Corrected figures TRANSACTION PRIVILEGE, USE AND SEVERANCE TAX MAJOR FEATURES Arizona’s transaction privilege, use and severance taxes are imposed on the privilege of transacting business in the state. The rates range from 1% (cities) to 5.6% depending on the type of business, with most rates at 5.6% (Refer to Table 5). Approximately 178,000 accounts collectively remitted gross revenues exceeding $4.5 billion during the 2002 fiscal year for transaction privilege, use and severance tax revenues (Refer to Table 4). SEVERANCE TAX A severance tax is imposed in lieu of a transaction privilege tax on the businesses of mining metalliferous mineral and severing timber. The severance rates are 2.5% on mining metalliferous minerals, $2.13 per thousand board feet (Ponderosa) and $1.51 per thousand board feet (other) on timbering, (Refer to Table 5). D ISTRIBUTION The total of transaction privilege and rental occupancy taxes creates a tax base that is divided into two parts, distribution base and non-shared. The distribution base portion is divided among municipalities (25%), counties (40.51%), and the state general fund (34.49%). The non-shared portion is deposited directly to the state general fund (Refer to Tables 7 and 8). Beginning with November 1999 returns, mining severance collections are fully distributed to municipalities (38.16%) and counties (61.84%). Mining severance returns for prior periods are distributed in the same manner as transaction privilege tax. Use tax is deposited only to the state general fund. USE TAX A 5% use tax is imposed on the purchase price of tangible personal property when a transaction privilege or sales tax equal to or greater than the Arizona rate was not paid. A use tax collection responsibility is imposed on retailers whose activities in the state are insufficient to require them to pay transaction privilege tax but are nonetheless substantial enough to fall outside the protective umbrella of the United States Constitutional provision governing interstate commerce. Firms without nexus may also voluntarily collect use tax for the benefit of their customers. MUNICIPAL PRIVILEGE AND USE TAX DOR collects transaction privilege and use tax for 75 Arizona cities and towns at no charge to the municipalities. This is a service to the cities and to the taxpaying community who are therefore able to combine their reporting requirements on a single form and payment to a single governmental entity. Weekly distribution checks are processed after the Department collects the local taxes (Refer to Tables 26 and 27). Effective with the enactment of Laws 2000, Chapter 297, DOR also conducts multi-jurisdictional audits with and for all other cities in Arizona. COUNTY TAX AND SURCHARGE COLLECTION Of the 15 counties in Arizona, 14 levy some type of county tax or surcharge (Refer to Table 4). These taxes or surcharges are collected by the DOR. The rental car surcharge is imposed only in Maricopa and Pima Counties. A tax on hotels located in unincorporated areas of the county is levied in Pima county. Of the 14 counties with statutory authority to impose an excise tax, all 14 do so. By statute, Maricopa County may not impose an excise tax. Although subject to voter approval, any county may levy a transportation excise tax or road tax. Only three counties, Gila, Maricopa, and Pinal, do so. The three other types of county excise tax options are a hospital tax, a jail tax, and a stadium tax. Currently, no county imposes a hospital tax, although Gila County had one in the past. La Paz, Yuma, Coconino, and Maricopa counties have a jail tax. ARIZONA DEPARTMENT OF REVENUE 2002 ANNUAL REPORT TABLE 4 GROSS TRANSACTION PRIVILEGE, USE AND SEVERANCE TAX COLLECTIONS FISCAL YEAR 1997-98 THROUGH FISCAL YEAR 2001-02 SOURCE FY1997-98 FY1998-99 Distribution Base Nonshared Use Tax $1,015,306,840 1,875,579,736 136,868,591 $1,089,625,165 2,042,232,511 148,043,174 SUBTOTAL $3,027,755,167 $3,279,900,850 Education Tax (9) Undistributed Estimated 911 Wireline/Excise Tax Telecommunications Devices Poison Control Fund 911 Wireless Service Municipal Water Environmentally Hazardous Products (2) Waste Tire Accounts Receivable Collections Less Collection Fees GROSS STATE COLLECTIONS ----5,262,078 7,652,326 4,908,914 1,815,626 722,736 (1) 1,891,072 784 105,094 (2,255) $3,050,111,543 (5) (5) (5) FY1999-00 FY2000-01 FY2001-02 $1,195,140,016 2,230,332,220 176,566,264 $1,248,485,639 2,356,788,664 196,887,927 $1,246,773,262 2,379,509,616 162,751,987 $3,602,038,500 $3,802,162,230 $3,789,034,865 ----11,668,636 8,084,729 5,158,289 1,907,860 1,181,481 1,957,725 536 ----12,392,607 7,846,057 4,960,224 1,834,603 1,507,573 2,081,879 980 100,682 1,894,841 9,201,049 5,514,542 2,039,625 2,136,015 2,120,483 5,909 62,946 (1,521) 25,739 (2,682) 109,948 (4,084) $3,309,921,530 $3,632,685,479 (1) 439,004,543 28,766,081 14,998,348 6,395,057 2,365,295 6,928,990 2,213,435 14 71,330 (888) $3,825,281,241 $4,289,777,071 280,950,442 2,495,830 5,396,445 1,377,083 189,838 903,381 5,698,660 8,793,909 5,486,442 2,617,971 509 2,718,050 1,192,075 562,389 885,465 885,694 267,563,343 145,148 98,372,053 4,446,472 4,993,912 6,763,454 6,965,671 2,114,505 10,799,358 4,294,368 7,665,873 7,653,390 7,582,374 16,504,732 Municipal Privilege Tax Pima County Hotel Tax Maricopa County Rental Car Surcharge Pima County Rental Car Surcharge Pima County R.V. Surcharge Apache County Excise Tax Cochise County Excise Tax Coconino County Excise Tax Coconino County Jail Tax Gila County Excise Tax Gila County Hospital Tax (3) Gila County Transportation Graham County Excise Tax Greenlee County Excise Tax La Paz County Excise Tax La Paz County Jail Tax Maricopa County Road Tax Maricopa County Stadium Tax (4) Maricopa County Jail Tax Mohave County Excise Tax Navajo County Excise Tax Pinal County Excise Tax Pinal County Road Tax Santa Cruz County Excise Tax Yavapai County Excise Tax Yavapai County Jail Tax (6) Yuma County Excise Tax Yuma County Jail Tax Yuma County Capitol Projects Tax (7) Tourism/Sports Authority (8) 180,932,433 2,378,163 5,376,877 1,384,659 182,205 (1) 582,718 4,058,429 7,742,012 4,121,136 2,357,618 3,054 2,396,123 1,128,771 632,440 691,178 692,383 209,263,453 50,550,929 --------3,964,486 5,076,787 5,232,966 1,725,137 7,696,746 ----6,252,408 6,241,927 --------- 202,218,016 2,437,787 5,405,493 1,388,744 218,359 638,649 4,311,066 8,085,596 4,793,744 2,350,334 7,003 2,423,201 1,172,236 546,749 777,423 776,444 229,470,201 437,677 34,290,683 (1) ----4,372,839 5,698,428 6,072,244 1,847,305 8,565,735 ----6,638,969 6,617,655 --------- 230,976,587 2,625,508 5,734,678 1,476,750 212,849 1,862,479 4,853,891 8,876,866 5,261,397 2,311,624 92 2,377,944 1,188,238 563,020 806,441 807,563 248,595,990 150,336 91,054,451 1,608,620 (1) 4,655,169 6,149,485 6,575,202 1,918,653 9,571,900 ----6,965,025 6,950,571 --------- 257,706,985 2,823,410 5,636,907 1,557,354 197,598 1,130,977 5,123,754 9,054,404 5,358,317 2,596,028 38,499 2,612,288 1,206,320 645,168 820,780 821,969 264,722,440 280,370 97,603,200 4,114,594 4,831,327 6,492,013 6,750,294 2,092,940 10,054,989 3,627,698 7,417,302 7,412,145 3,150,273 5,579,087 COUNTY AND CITY COLLECTIONS 510,665,036 541,562,578 654,131,327 721,459,433 766,018,836 TOTAL DEPARTMENT OF REVENUE RECEIPTS $3,560,776,579 $3,851,484,108 $4,286,816,806 $4,546,740,674 $5,055,795,907 (1) The tax was in place for only a portion of the first fiscal year. This figure does not represent a full year's collection. (2) Environmentally Hazardous Products was repealed September 1, 1992. All amounts received are for prior tax periods. (3) Gila County Hospital Tax ended effective March 31, 1993. (4) Maricopa County Stadium Tax ended effective December 1, 1997. (5) Corrected Figure. (6) Yavapai County Jail Tax began on July 1, 2000 (7) Yuma County Capitol Projects Tax Began on January 1, 2001 (8) Tourism/Sports Authority Tax became effective March 1, 2001. (9) Education Tax became effective on June, 1, 2001. (1) (1) TABLE 5 STATE TRANSACTION PRIVILEGE, USE AND SEVERANCE TAX RATES FISCAL YEAR 2001-02 TAXABLE ACTIVITIES 1. Transporting and Towing 2. Nonmetalliferous Mining, Oil and Gas Production 4. Utilities 5. Communications 6. Railroads and Aircraft 7/8. Private Car/Pipelines 9. Publishing 10. Printing 11. Restaurants and Bars 12. Amusements 14. Personal Property Rentals 15. Contracting (1) 17. Retail 19. Mining Severance 21. Timbering Severance - Ponderosa (per thousand board feet) 22. Timbering Severance - Other (per thousand board feet) 25. Hotel/Motel Tax 28. Rental Occupancy Tax 29/30. Use and Use Inventory Tax 47. Membership Camping 49. Jet Fuel (per gallon) 51. Jet Fuel Use ( per gallon) DISTRIBUTION BASE NONSHARED EDUCATION TOTAL TAX 1.0% 4.0% 0.6% 5.6% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 2.0% 2.0% 2.0% 1.0% 2.0% 2.5% $1.704 2.125% 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% 3.0% 3.0% 3.0% 4.0% 3.0% 0.0% $0.426 0.0% 0.6% 0.6% 0.6% 0.6% 0.6% 0.6% 0.6% 0.6% 0.6% 0.6% 0.6% 0.0% $0 3.125% 5.6% 5.6% 5.6% 5.6% 5.6% 5.6% 5.6% 5.6% 5.6% 5.6% 5.6% 2.5% $2.13 $1.208 $0.302 $0 $1.51 2.75% 2.0% 0.0% 2.0% $0.0122 $0 2.75% 1.0% 5.0% 3.0% $0.0183 $0.0305 0.0% 0.0% 0.6% 0.6% $0 $0 5.5% 3.0% 5.6% 5.6% $0.0305 $0.0305 (1) Most Contracting activity is covered under class 15, at a 5.6% total tax rate. Other classes at lower rates exist. TABLE 6 NET TAXABLE SALES BY TRANSACTION PRIVILEGE, USE AND SEVERANCE TAX CLASSIFICATIONS (1) FISCAL YEAR 1997-98 THROUGH FISCAL YEAR 2001-02 CLASSIFICATION Transportation and Towing Mining, Oil & Gas Mining Severance Timber Severance (4) Utilities Communications Railroads and Aircraft Private Car and Pipelines Publishing Job Printing Local Advertising (2) Restaurants and Bars Amusements Commercial Lease (5) Personal Property Rentals Contracting Feed Wholesale (3) Retail Hotel/Motel Rental Occupancy Tax Use Tax Membership Camping Agriculture Equipment (7) TOTAL FY1997-98 $64,281,736 190,472,916 1,082,898,418 (781) 4,923,557,931 1,919,236,806 % OF TOTAL 0.11 0.31 1.77 (0.00) (6) 8.05 3.14 FY1998-99 $58,302,201 204,730,724 749,256,686 (439) 5,066,644,493 2,153,027,806 % OF TOTAL 0.09 0.31 1.14 (0.00) (6) 7.72 3.28 $56,620,330 193,933,697 481,582,634 0 5,268,207,981 2,453,093,781 0.08 0.27 0.66 0.00 (6) 7.27 3.39 $85,910,143 224,834,096 168,695,209 0 5,814,282,521 2,870,088,870 0.11 0.30 0.22 0.00 (6) 7.65 3.78 $57,567,191 208,310,010 (4,263,622) 766,360 5,919,273,137 2,945,681,407 0.08 0.28 (0.01) 0.00 (6) 7.83 3.90 15,556,192 119,042,396 418,739,698 (1,614) 5,476,712,938 680,140,832 (133,063,779) 0.02 0.18 0.64 (0.00) (6) 8.34 1.04 (0.20) 5,612,007 112,357,871 418,677,603 27,476 5,976,371,272 758,823,163 659,198,999 0.01 0.16 0.58 0.00 (6) 8.25 1.05 0.91 15,485,669 124,462,488 402,933,841 0 6,300,820,165 760,837,607 182,691,438 0.02 0.16 0.53 0.00 (6) 8.29 1.00 0.24 7,134,188 82,843,214 351,141,961 0 6,428,712,331 743,800,365 36,912,605 0.01 0.11 0.46 0.00 (6) 8.51 0.98 0.05 3,170,337,708 10,021,561,060 269,821 32,964,475,378 1,679,514,834 3,930,929 2,951,224,001 1,682,321 ----$65,638,141,764 4.83 15.27 0.00 (6) 50.22 2.56 0.01 4.50 0.00 (6) 3,412,995,935 10,847,157,383 382,271 36,403,861,655 1,818,473,902 3,733,808 3,514,612,988 1,411,253 ----$72,420,021,798 4.71 14.98 0.00 (6) 50.27 2.51 0.01 4.85 0.00 (6) 3,658,549,237 11,250,537,683 (41,648) 38,282,337,115 1,871,008,576 4,896,781 3,922,952,933 2,420,361 1,212,738 $75,997,661,442 4.81 14.80 (0.00) (6) 50.37 2.46 0.01 5.16 0.00 (6) 0.00 (6) 100.00 3,607,518,815 11,820,596,498 (1,806,235) 38,432,859,974 1,659,760,985 5,967,630 3,240,459,960 2,741,146 2,106,425 $75,586,873,240 4.77 15.64 (0.00) (6) 50.85 2.20 0.01 4.29 0.00 (6) 0.00 (6) 100.00 (1) Net taxable sales are based upon tax receipts. (2) Local advertising was phased out on January 1, 1986. (3) Feed Wholesale dropped to 0% effective July 17, 1994 and was repealed effective October 1, 1994. (4) Effective July 13, 1995 the tax rate on Timber Severance was changed to a dollar amount per 1,000 board feet. Timber Severance includes only sales subject to the repealed rate. (5) Commercial Lease rate dropped to 0% effective July 1, 1997. (6) Percent of total is less than 0.01%. (7) Agriculture Equipment was phased out July 1, 1988 and is not a current business classification. Figures may not add to total due to rounding. 38,788,894 % OF TOTAL 0.02 0.18 0.66 0.00 8.33 1.10 0.63 100.00 0.07 FY2001-02 12,773,763 110,592,575 405,093,470 0 5,095,503,749 672,756,982 386,199,867 100.00 52,745,618 % OF TOTAL 36,057,579 100.00 0.05 FY2000-01 0.06 4.76 14.00 (0.01) 49.80 2.63 0.01 4.46 0.00 (6) 32,885,789 % OF TOTAL 36,688,382 2,909,345,629 8,568,022,267 (6,707,034) 30,469,141,007 1,609,506,373 4,211,147 2,729,476,046 1,621,718 ----$61,184,672,966 0.05 FY1999-00 0.05 TABLE 7 TRANSACTION PRIVILEGE, USE AND SEVERANCE TAX COLLECTIONS BY CLASS (1) FISCAL YEAR 2001-02 CLASSIFICATION Transporting and Towing Nonmetal Mining, Oil and Gas Mining Severance Timbering Severance Timbering Severance - Ponderosa Timbering Severance - Other Utilities Communications Railroads and Aircraft Private Car and Pipelines Publishing Printing Restaurants and Bars Amusements Commercial Lease (3) Rentals of Personal Property Contracting Feed Wholesale (2) Retail Hotel/Motel Rental Occupancy Tax Use Tax License Fees Membership Camping Jet Fuel Tax Jet Fuel Use Tax Non Sufficient Funds Telecommunications Service Assistance Miscellaneous Fees Agriculture Equipment (4) Utility Credit/Reimbursement TOTAL DISTRIBUTION BASE NONSHARED TOTAL COLLECTIONS $575,672 2,083,100 (85,598) 9,196 718 1,114 59,192,731 29,456,814 387,889 71,342 828,432 3,511,419 128,574,246 14,876,008 303,101 72,150,374 118,205,962 (4,518) 768,614,485 45,643,489 119,358 0 0 54,823 2,259,054 0 0 (55,948) 0 0 0 $1,246,773,262 $2,302,688 4,426,588 (20,993) 2,299 180 278 236,770,926 117,827,256 1,551,556 285,368 3,313,728 14,045,679 192,861,370 22,314,011 271,413 108,225,567 472,823,862 (3,954) 1,153,028,514 45,643,365 59,670 162,022,998 475,424 82,234 3,388,581 728,989 36,558 (223,793) 20 21,064 157 $2,542,261,603 $2,878,360 6,509,688 (106,591) 11,495 897 1,392 295,963,657 147,284,070 1,939,445 356,709 4,142,161 17,557,098 321,435,616 37,190,018 574,514 180,375,941 591,029,823 (8,471) 1,921,642,999 91,286,854 179,029 162,022,998 475,424 137,057 5,647,634 728,989 36,558 (279,742) 20 21,064 157 $3,789,034,865 (1) Does not reflect the balance of undistributed estimated payments at the end of FY02. (2) Feed Wholesale dropped to 0% effective July 17, 1994 and was repealed effective October 1, 1994. (3) Commercial Lease rate dropped to 0% effective July 1, 1997. (4) Agriculture Equipment was phased out July 1, 1988 and is not a current business classification. Figures may not add to total due to rounding. TABLE 8 DISTRIBUTION OF TRANSACTION PRIVILEGE, USE AND SEVERANCE TAX COLLECTIONS FISCAL YEAR 2001-02 Net Regular to State General Fund Net Estimated Payments to General Fund Net to Cities Net to Counties Net to Education Fund 911 Wireline/Excise, 911 Wireless, Telecommunications Devices, Poison Control Fund, Municipal Water and Environmentally Hazardous Products, and Waste Tire Accounts Receivable Collections Less Collection Fees $2,972,274,262 28,766,081 311,693,101 505,067,501 439,004,543 32,972,469 TOTAL GROSS COLLECTIONS $4,289,777,071 (888) ADDITIONAL DISTRIBUTION FROM TRANSACTION PRIVILEGE, USE AND SEVERANCE TAX COLLECTIONS FISCAL YEAR 2001-02 Office of Tourism Phoenix International Raceway School Facilities Board Tourism and Sports Authority Tribal Community Colleges Urban In-Lieu Figures may not add total due to rounding. $10,739,453 $416,667 $382,000,000 $694,080 $1,750,000 $645,322 TABLE 9 TRANSACTION PRIVILEGE, USE AND SEVERANCE TAX COLLECTIONS (1) IN APACHE COUNTY FOR THE PERIOD BEGINNING JULY 1, 2001 AND ENDING JUNE 30, 2002 TAXABLE ACTIVITIES AND BUSINESS CLASSIFICATIONS Utilities Communications Publishing Restaurants and Bars Amusements Rentals of Personal Property Contracting (All) Retail Hotel/Motel Other Taxable Activities TOTAL CALCULATED NET TAXABLE INCOME % CHANGE FROM FY2000-01 COLLECTIONS $9,625,070 12,147,459 453,177 8,865,661 397,249 -20.0% -1.6% 1.7% -6.6% 50.6% $481,254 607,373 22,659 443,283 19,862 3,269,901 73,088,110 57,726,056 10,298,568 35,859,777 6.1% 28.4% -23.1% -15.1% -79.9% 163,495 3,654,406 2,886,303 566,421 1,730,942 $211,731,029 -41.2% $10,575,998 NUMBER OF ACCOUNTS FISCAL YEAR 1999-00 THROUGH FISCAL YEAR 2001-02 TAXABLE ACTIVITIES AND BUSINESS CLASSIFICATIONS Utilities Communications Publishing Restaurants and Bars Amusements Rentals of Personal Property Contracting (All) Retail Hotel/Motel Other Taxable Activities TOTAL FY1999-00 FY2000-01 FY2001-02 25 85 13 70 11 27 94 15 67 10 25 111 14 63 12 179 279 1,027 54 489 195 307 1,010 57 530 182 321 987 63 488 2,232 2,312 2,266 (1) License fees, Jet Fuel, Jet Fuel Use, Timber Severance Ponderosa/Other, NSF, Seizure/Sales Fees, Telecommunications Service Assistance, Subpoena Fees and Utilities Credit are not included. Figures may not add to total due to rounding. TABLE 10 TRANSACTION PRIVILEGE, USE AND SEVERANCE TAX COLLECTIONS (1) IN COCHISE COUNTY FOR THE PERIOD BEGINNING JULY 1, 2001 AND ENDING JUNE 30, 2002 TAXABLE ACTIVITIES AND BUSINESS CLASSIFICATIONS CALCULATED NET TAXABLE INCOME % CHANGE FROM FY2000-01 COLLECTIONS $117,280,077 50,464,932 1,883,882 1,884,218 89,315,314 5,992,093 1.1% 0.4% 12.1% 16.4% 6.7% -2.1% $5,864,004 2,523,247 94,194 94,211 4,465,766 299,605 21,251,331 147,696,531 597,497,254 24,601,914 68,342,989 1.7% 5.1% 5.3% -3.1% -10.7% 1,062,567 7,384,827 29,874,863 1,353,105 3,387,901 $1,126,210,536 3.3% $56,404,288 Utilities Communications Publishing Printing/Advertising Restaurants and Bars Amusements Rentals of Personal Property Contracting (All) Retail Hotel/Motel Other Taxable Activities TOTAL NUMBER OF ACCOUNTS FISCAL YEAR 1999-00 THROUGH FISCAL YEAR 2001-02 TAXABLE ACTIVITIES AND BUSINESS CLASSIFICATIONS Utilities Communications Publishing Printing/Advertising Restaurants and Bars Amusements Rentals of Personal Property Contracting (All) Retail Hotel/Motel Other Taxable Activities TOTAL FY1999-00 FY2000-01 FY2001-02 48 133 21 27 341 79 49 166 18 27 347 69 48 181 19 25 346 70 418 753 3,238 138 845 439 804 3,193 141 862 421 796 3,107 140 886 6,041 6,115 6,039 (1) License fees, Jet Fuel, Jet Fuel Use, Timber Severance Ponderosa/Other, NSF, Seizure/Sales Fees, Telecommunications Service Assistance, Subpoena Fees and Utilities Credit are not included. Figures may not add to total due to rounding. TABLE 11 TRANSACTION PRIVILEGE, USE AND SEVERANCE TAX COLLECTIONS (1) IN COCONINO COUNTY FOR THE PERIOD BEGINNING JULY 1, 2001 AND ENDING JUNE 30, 2002 TAXABLE ACTIVITIES AND CALCULATED NET % CHANGE BUSINESS CLASSIFICATIONS TAXABLE INCOME FROM FY2000-01 Non Metal Mining/Mining Severance Utilities $3,816,104 51.7% (2) COLLECTIONS $119,253 120,664,563 5.5% 6,033,228 65,516,782 -0.2% 3,275,839 3,356,620 5.0% 167,831 Printing/Advertising 2,967,240 -13.3% 148,362 Restaurants and Bars 242,195,096 -0.2% 12,109,755 Amusements (11,511,220) N/A (575,561) 54,290,507 0.3% 2,714,525 Contracting (All) 256,042,190 1.6% 12,802,109 Retail 853,357,687 3.1% 42,667,884 Hotel/Motel 164,159,208 -6.8% 9,028,756 76,075,862 -7.2% 3,793,982 $1,830,930,638 -1.3% $92,285,964 Communications Publishing Rentals of Personal Property Other Taxable Activities TOTAL NUMBER OF ACCOUNTS FISCAL YEAR 1999-00 THROUGH FISCAL YEAR 2001-02 TAXABLE ACTIVITIES AND BUSINESS CLASSIFICATIONS FY1999-00 FY2000-01 FY2001-02 Non Metal Mining/Mining Severance 15 16 17 Utilities 39 47 40 169 184 215 39 32 32 Communications Publishing Printing/Advertising 41 36 33 Restaurants and Bars 426 423 426 95 93 98 550 531 542 Contracting (All) 1,350 1,354 1,459 Retail 3,810 3,828 3,771 239 248 251 1,128 1,152 1,172 7,901 7,944 8,056 Amusements Rentals of Personal Property Hotel/Motel Other Taxable Activities TOTAL (1) License fees, Jet Fuel, Jet Fuel Use, Timber Severance Ponderosa/Other, NSF, Seizure/Sales Fees, Telecommunications, Service Assistance, Subpoena Fees and Utilities Credit are not included. (2) Increase due to unusual activity. Figures may not add to total due to rounding. TABLE 12 TRANSACTION PRIVILEGE, USE AND SEVERANCE TAX COLLECTIONS (1) IN GILA COUNTY FOR THE PERIOD BEGINNING JULY 1, 2001 AND ENDING JUNE 30, 2002 TAXABLE ACTIVITIES AND BUSINESS CLASSIFICATIONS CALCULATED NET TAXABLE INCOME % CHANGE FROM FY2000-01 COLLECTIONS $83,601,380 34,324,266 1,051,605 707,358 46,500,034 1,897,577 -4.0% 34.6% 3.3% 20.5% 4.1% 16.0% $4,180,069 1,716,213 52,580 35,368 2,325,002 94,879 12,560,184 90,717,870 236,377,403 10,459,151 23,637,793 -5.1% 2.3% 3.4% -11.7% 13.7% 628,009 4,535,894 11,818,870 575,253 1,054,901 $541,834,622 3.4% $27,017,038 Utilities Communications Publishing Printing/Advertising Restaurants and Bars Amusements Rentals of Personal Property Contracting (All) Retail Hotel/Motel Other Taxable Activities TOTAL NUMBER OF ACCOUNTS FISCAL YEAR 1999-00 THROUGH FISCAL YEAR 2001-02 TAXABLE ACTIVITIES AND BUSINESS CLASSIFICATIONS Utilities Communications Publishing Printing/Advertising Restaurants and Bars Amusements Rentals of Personal Property Contracting (All) Retail Hotel/Motel Other Taxable Activities TOTAL FY1999-00 FY2000-01 FY2001-02 33 124 15 16 165 43 36 135 19 15 164 40 36 164 14 14 167 37 289 711 1,809 68 576 286 696 1,818 66 572 280 710 1,812 67 598 3,849 3,847 3,899 (1) License fees, Jet Fuel, Jet Fuel Use, Timber Severance Ponderosa/Other, NSF, Seizure/Sales Fees, Telecommunications Service Assistance, Subpoena Fees and Utilities Credit are not included. Figures may not add to total due to rounding. TABLE 13 TRANSACTION PRIVILEGE, USE AND SEVERANCE TAX COLLECTIONS (1) IN GRAHAM COUNTY FOR THE PERIOD BEGINNING JULY 1, 2001 AND ENDING JUNE 30, 2002 TAXABLE ACTIVITIES AND BUSINESS CLASSIFICATIONS Communications Restaurants and Bars Rentals of Personal Property Contracting (All) Retail Other Taxable Activities TOTAL CALCULATED NET TAXABLE INCOME % CHANGE FROM FY2000-01 COLLECTIONS $10,964,074 16,214,002 -7.5% -4.2% $548,204 810,700 6,941,527 40,468,223 132,562,336 37,808,767 1.2% 46.6% -5.7% -23.9% 347,076 2,023,411 6,628,117 1,904,159 $244,958,929 -3.4% $12,261,667 NUMBER OF ACCOUNTS FISCAL YEAR 1999-00 THROUGH FISCAL YEAR 2001-02 TAXABLE ACTIVITIES AND BUSINESS CLASSIFICATIONS Communications Restaurants and Bars Rentals of Personal Property Contracting (All) Retail Other Taxable Activities TOTAL FY1999-00 FY2000-01 FY2002-03 87 71 103 74 110 67 182 228 996 443 177 215 999 453 170 197 974 491 2,007 2,021 2,009 (1) License fees, Jet Fuel, Jet Fuel Use, Timber Severance Ponderosa/Other, NSF, Seizure/Sales Fees, Telecommunications Service Assistance, Subpoena Fees and Utilities Credit are not included. Figures may not add to total due to rounding. TABLE 14 TRANSACTION PRIVILEGE, USE AND SEVERANCE TAX COLLECTIONS (1) IN GREENLEE COUNTY FOR THE PERIOD BEGINNING JULY 1, 2001 AND ENDING JUNE 30, 2002 TAXABLE ACTIVITIES AND BUSINESS CLASSIFICATIONS Communications Restaurants and Bars Rentals of Personal Property Contracting (All) Retail Other Taxable Activities TOTAL CALCULATED NET TAXABLE INCOME % CHANGE FROM FY2000-01 COLLECTIONS $3,427,170 2,735,862 -14.0% -18.8% $171,358 136,793 663,721 12,074,225 54,854,616 62,154,515 -29.0% 29.8% -8.4% -62.9% 33,186 603,711 2,742,731 2,659,585 $135,910,108 -44.6% $6,347,365 NUMBER OF ACCOUNTS FISCAL YEAR 1999-00 THROUGH FISCAL YEAR 2001-02 TAXABLE ACTIVITIES AND BUSINESS CLASSIFICATIONS Communications Restaurants and Bars Rentals of Personal Property Contracting (All) Retail Other Taxable Activities TOTAL FY1999-00 FY2000-01 FY2001-02 52 23 69 22 69 23 82 68 373 193 88 82 375 230 79 78 363 203 791 866 815 (1) License fees, Jet Fuel, Jet Fuel Use, Timber Severance Ponderosa/Other, NSF, Seizure/Sales Fees, Telecommunications Service Assistance, Subpoena Fees and Utilities Credit are not included. Figures may not add to total due to rounding. TABLE 15 TRANSACTION PRIVILEGE, USE AND SEVERANCE TAX COLLECTIONS (1) IN LA PAZ COUNTY FOR THE PERIOD BEGINNING JULY 1, 2001 AND ENDING JUNE 30, 2002 TAXABLE ACTIVITIES AND BUSINESS CLASSIFICATIONS Utilities Communications Publishing Restaurants and Bars Amusements Rentals of Personal Property Contracting (All) Retail Hotel/Motel Other Taxable Activities CALCULATED NET TAXABLE INCOME % CHANGE FROM FY2000-01 COLLECTIONS $17,576,249 5,462,360 485,309 22,035,866 316,772 13.8% 31.1% 7.2% -6.2% -41.4% $878,812 273,118 24,265 1,101,793 15,839 22.5% 1.6% 8.4% 5.8% 358.1% (2) 248,905 1,055,588 4,753,848 292,066 883,093 4,978,099 21,111,760 95,076,962 5,310,296 17,708,790 TOTAL $190,062,464 14.8% $9,527,328 NUMBER OF ACCOUNTS FISCAL YEAR 1999-00 THROUGH FISCAL YEAR 2001-02 TAXABLE ACTIVITIES AND BUSINESS CLASSIFICATIONS Utilities Communications Publishing Restaurants and Bars Amusements Rentals of Personal Property Contracting (All) Retail Hotel/Motel Other Taxable Activities TOTAL FY1999-00 FY2000-01 FY2001-02 18 91 13 102 15 21 94 12 91 17 22 100 11 97 13 200 212 1,865 55 447 191 217 1,806 59 394 174 225 1,787 58 387 3,018 2,902 2,874 (1) License fees, Jet Fuel, Jet Fuel Use, Timber Severance Ponderosa/Other, NSF, Seizure/Sales Fees, Telecommunications Service Assistance, Subpoena Fees and Utilities Credit are not included. (2) Increase due to unusual activity in FY 02. Figures may not add to total due to rounding. TABLE 16 TRANSACTION PRIVILEGE,USE AND SEVERANCE TAX COLLECTIONS (1) IN MARICOPA COUNTY FOR THE PERIOD BEGINNING JULY 1, 2001 AND ENDING JUNE 30, 2002 TAXABLE ACTIVITIES AND BUSINESS CLASSIFICATIONS Non Metal Mining/Mining Severance Utilities Communications Publishing Printing/Advertising Restaurants and Bars Amusements Rentals of Personal Property Contracting (All) Retail Hotel/Motel Other Taxable Activities TOTAL CALCULATED NET TAXABLE INCOME % CHANGE FROM FY2000-01 COLLECTIONS $40,423,852 3,684,640,251 1,979,154,446 45,136,947 280,788,123 4,327,397,867 594,851,658 -18.8% 3.2% -0.5% -47.5% -14.4% 1.5% 4.6% $1,262,663 184,232,013 98,957,722 2,256,847 14,039,406 216,369,893 29,742,583 2,819,301,684 8,163,380,357 26,168,729,464 986,195,425 2,526,220,932 -2.3% 5.5% -0.5% -13.5% -22.6% 140,965,084 408,169,018 1,308,436,473 54,240,748 125,126,682 $51,616,221,006 -1.1% $2,583,799,133 NUMBER OF ACCOUNTS FISCAL YEAR 1999-00 THROUGH FISCAL YEAR 2001-02 TAXABLE ACTIVITIES AND BUSINESS CLASSIFICATIONS Non Metal Mining/Mining Severance Utilities Communications Publishing Printing/Advertising Restaurants and Bars Amusements Rentals of Personal Property Contracting (All) Retail Hotel/Motel Other Taxable Activities TOTAL FY1999-00 FY2000-01 FY2001-02 57 146 589 360 1,022 5,213 740 55 136 624 322 956 5,239 706 52 157 640 295 970 5,443 695 2,950 11,576 43,693 606 10,910 2,925 11,773 43,250 619 10,938 2,913 12,177 43,087 625 10,713 77,862 77,543 77,767 (1) License fees, Jet Fuel, Jet Fuel Use, Timber Severance Ponderosa/Other, NSF, Seizure/Sales Fees, Telecommunications Service Assistance, Subpoena Fees and Utilities Credit are not included. Figures may not add to total due to rounding. TABLE 17 TRANSACTION PRIVILEGE, USE AND SEVERANCE TAX COLLECTIONS (1) IN MOHAVE COUNTY FOR THE PERIOD BEGINNING JULY 1, 2001 AND ENDING JUNE 30, 2002 TAXABLE ACTIVITIES AND BUSINESS CLASSIFICATIONS Utilities Communications Publishing Printing/Advertising Restaurants and Bars Amusements Rentals of Personal Property Contracting (All) Retail Hotel/Motel Other Taxable Activities CALCULATED NET TAXABLE INCOME % CHANGE FROM FY2000-01 COLLECTIONS $175,433,261 59,353,778 2,367,141 4,289,293 148,589,696 14,189,288 10.3% 13.8% 2.6% 1.2% 10.0% -1.0% $8,771,663 2,967,689 118,357 214,465 7,429,485 709,464 7.0% 5.2% 8.1% 1.4% 94.8% (2) 2,930,320 15,989,945 48,726,765 1,943,711 5,687,072 58,606,400 319,798,891 974,535,306 35,340,194 114,768,948 TOTAL $1,907,272,197 10.8% $95,488,935 NUMBER OF ACCOUNTS FISCAL YEAR 1999-00 THROUGH FISCAL YEAR 2001-02 TAXABLE ACTIVITIES AND BUSINESS CLASSIFICATIONS Utilities Communications Publishing Printing/Advertising Restaurants and Bars Amusements Rentals of Personal Property Contracting (All) Retail Hotel/Motel Other Taxable Activities TOTAL FY1999-00 FY2000-01 FY2001-02 49 112 29 42 403 64 51 136 27 36 404 64 53 159 26 36 407 68 535 1,259 4,203 145 1,140 549 1,277 4,151 148 1,140 541 1,286 4,225 145 1,144 7,981 7,983 8,090 (1) License fees, Jet Fuel, Jet Fuel Use, Timber Severance Ponderosa/Other, NSF, Seizure/Sales Fees, Telecommunications Service Assistance, Subpoena Fees and Utilities Credit are not included. (2) Increase due to unusual activity in FY 02. Figures may not add to total due to rounding. TABLE 18 TRANSACTION PRIVILEGE, USE AND SEVERANCE TAX COLLECTIONS (1) IN NAVAJO COUNTY FOR THE PERIOD BEGINNING JULY 1, 2001 AND ENDING JUNE 30, 2002 TAXABLE ACTIVITIES AND BUSINESS CLASSIFICATIONS Utilities Communications Publishing Restaurants and Bars Amusements Rentals of Personal Property Contracting (All) Retail Hotel/Motel Other Taxable Activities TOTAL CALCULATED NET TAXABLE INCOME % CHANGE FROM FY2000-01 COLLECTIONS $58,996,112 41,317,358 1,341,433 64,135,553 4,363,746 0.6% -9.8% 0.9% 3.5% 29.8% $2,949,806 2,065,868 67,072 3,206,778 218,187 17,468,897 138,607,290 578,071,060 28,465,826 119,192,858 -6.7% 15.9% 3.6% -10.9% -5.4% 873,445 6,930,364 28,903,553 1,565,620 4,307,347 $1,051,960,132 2.6% $51,088,040 NUMBER OF ACCOUNTS FISCAL YEAR 1999-00 THROUGH FISCAL YEAR 2001-02 TAXABLE ACTIVITIES AND BUSINESS CLASSIFICATIONS Utilities Communications Publishing Restaurants and Bars Amusements Rentals of Personal Property Contracting (All) Retail Hotel/Motel Other Taxable Activities TOTAL FY1999-00 FY2000-01 FY2001-02 39 131 20 201 44 40 134 18 199 38 46 154 17 198 37 342 770 2,243 144 689 337 802 2,272 136 732 340 850 2,205 149 769 4,623 4,708 4,765 (1) License fees, Jet Fuel, Jet Fuel Use, Timber Severance Ponderosa/Other, NSF, Seizure/Sales Fees, Telecommunications Service Assistance, Subpoena Fees and Utilities Credit are not included. Figures may not add to total due to rounding. TABLE 19 TRANSACTION PRIVILEGE, USE AND SEVERANCE TAX COLLECTIONS (1) IN PIMA COUNTY FOR THE PERIOD BEGINNING JULY 1, 2001 AND ENDING JUNE 30, 2002 TAXABLE ACTIVITIES AND BUSINESS CLASSIFICATIONS Non Metal Mining/Mining Severance Utilities Communications Publishing Printing/Advertising Restaurants and Bars Amusements Rentals of Personal Property Contracting (All) Retail Hotel/Motel Other Taxable Activities TOTAL CALCULATED NET TAXABLE INCOME % CHANGE FROM FY2000-01 COLLECTIONS $12,287,098 1,029,276,491 443,208,480 15,724,754 47,473,259 1,015,497,369 83,031,941 -70.3% (2) -2.2% 15.8% -6.3% -9.3% 2.9% -3.0% $378,523 51,463,825 22,160,424 786,238 2,373,663 50,774,868 4,151,597 445,587,851 1,519,119,188 5,952,745,532 265,848,719 331,327,201 4.0% -0.2% 0.5% -11.3% -4.5% 22,279,393 75,955,958 297,637,277 14,621,680 16,460,532 $11,161,127,882 0.2% $559,043,976 NUMBER OF ACCOUNTS FISCAL YEAR 1999-00 THROUGH FISCAL YEAR 2001-02 TAXABLE ACTIVITIES AND BUSINESS CLASSIFICATIONS Non Metal Mining/Mining Severance Utilities Communications Publishing Printing/Advertising Restaurants and Bars Amusements Rentals of Personal Property Contracting (All) Retail Hotel/Motel Other Taxable Activities TOTAL FY1999-00 FY2000-01 FY2001-02 24 68 196 98 201 1,574 223 20 75 250 94 187 1,535 224 21 76 319 113 178 1,527 222 1,257 4,232 14,567 266 2,513 1,227 4,330 14,179 258 2,575 1,210 4,371 13,982 252 2,569 25,219 24,954 24,840 (1) License fees, Jet Fuel, Jet Fuel Use, Timber Severance Ponderosa/Other, NSF, Seizure/Sales Fees, Telecommunications Service Assistance, Subpoena Fees and Utilities Credit are not included. (2) Decrease due to unusual activity. Figures may not add to total due to rounding. TABLE 20 TRANSACTION PRIVILEGE, USE AND SEVERANCE TAX COLLECTIONS (1) IN PINAL COUNTY FOR THE PERIOD BEGINNING JULY 1, 2001 AND ENDING JUNE 30, 2002 TAXABLE ACTIVITIES AND BUSINESS CLASSIFICATIONS Non Metal Mining/Mining Severance Utilities Communications Publishing Printing/Advertising Restaurants and Bars Amusements Rentals of Personal Property Contracting (All) Retail Hotel/Motel Other Taxable Activities TOTAL CALCULATED NET TAXABLE INCOME ($3,693,511) 184,739,118 87,023,969 3,326,901 1,473,306 98,961,584 16,979,606 % CHANGE FROM FY2000-01 -105.3% (2) 3.1% 9.3% 4.3% -31.3% 2.6% -13.3% COLLECTIONS $56,889 9,236,956 4,351,198 166,345 73,665 4,948,079 848,980 38,037,442 333,959,177 540,035,225 15,875,133 61,516,560 8.5% 2.9% 6.4% -7.3% 10.3% 1,901,872 16,697,959 27,001,761 873,132 3,053,170 $1,378,234,509 -0.8% $69,210,007 NUMBER OF ACCOUNTS FISCAL YEAR 1999-00 THROUGH FISCAL YEAR 2001-02 TAXABLE ACTIVITIES AND BUSINESS CLASSIFICATIONS Non Metal Mining/Mining Severance Utilities Communications Publishing Printing/Advertising Restaurants and Bars Amusements Rentals of Personal Property Contracting (All) Retail Hotel/Motel Other Taxable Activities TOTAL FY1999-00 FY2000-01 FY2001-02 34 48 157 26 25 328 80 28 50 171 23 21 294 87 26 60 218 23 22 314 83 426 1,452 3,398 94 912 423 1,546 3,288 98 954 433 1,645 3,265 102 990 6,980 6,983 7,181 (1) License fees, Jet Fuel, Jet Fuel Use, Timber Severance Ponderosa/Other, NSF, Seizure/Sales Fees, Telecommunications Service Assistance, Subpoena Fees and Utilities Credit are not included. (2) Decrease due unusual activity. Figures may not add to total due to rounding. TABLE 21 TRANSACTION PRIVILEGE, USE AND SEVERANCE TAX COLLECTIONS (1) IN SANTA CRUZ COUNTY FOR THE PERIOD BEGINNING JULY 1, 2001 AND ENDING JUNE 30, 2002 TAXABLE ACTIVITIES AND BUSINESS CLASSIFICATIONS Utilities Communications Publishing Restaurants and Bars Amusements Rentals of Personal Property Contracting (All) Retail Hotel/Motel Other Taxable Activities TOTAL CALCULATED NET TAXABLE INCOME % CHANGE FROM FY2000-01 COLLECTIONS $27,563,837 19,986,205 181,274 32,842,522 1,396,098 3.7% -9.3% -16.5% -2.8% -2.9% $1,378,192 999,310 9,064 1,642,126 69,805 12,995,882 46,785,030 266,013,176 9,416,481 10,341,956 -16.8% 2.4% 3.6% -7.1% -20.6% 649,794 2,339,251 13,300,659 517,906 516,863 $427,522,460 0.5% $21,422,971 NUMBER OF ACCOUNTS FISCAL YEAR 1999-00 THROUGH FISCAL YEAR 2001-02 TAXABLE ACTIVITIES AND BUSINESS CLASSIFICATIONS Utilities Communications Publishing Restaurants and Bars Amusements Rentals of Personal Property Contracting (All) Retail Hotel/Motel Other Taxable Activities TOTAL FY1999-00 FY2000-01 FY2001-02 18 110 12 124 24 19 124 14 121 24 19 133 11 131 16 284 410 1,528 28 529 271 416 1,535 26 516 264 392 1,518 29 506 3,067 3,066 3,019 (1) License fees, Jet Fuel, Jet Fuel Use, Timber Severance Ponderosa/Other, NSF, Seizure/Sales Fees, Telecommunications Service Assistance, Subpoena Fees and Utilities Credit are not included. Figures may not add to total due to rounding. TABLE 22 TRANSACTION PRIVILEGE, USE AND SEVERANCE TAX COLLECTIONS (1) IN YAVAPAI COUNTY FOR THE PERIOD BEGINNING JULY 1, 2001 AND ENDING JUNE 30, 2002 TAXABLE ACTIVITIES AND BUSINESS CLASSIFICATIONS Non Metal Mining/Mining Severance Utilities Communications Publishing Printing/Advertising Restaurants and Bars Amusements Rentals of Personal Property Contracting (All) Retail Hotel/Motel Other Taxable Activities TOTAL CALCULATED NET TAXABLE INCOME $34,036,656 195,530,843 81,954,766 4,470,033 5,406,515 191,730,204 19,769,057 % CHANGE FROM FY2000-01 -32.9% (2) 7.7% 11.1% -2.6% 13.6% 4.6% 9.2% COLLECTIONS $1,063,567 9,776,542 4,097,738 223,502 270,326 9,586,510 988,453 54,005,954 436,873,952 1,058,305,666 72,717,900 47,880,134 3.8% 9.8% 7.5% -2.1% -3.4% 2,700,298 21,843,698 52,915,283 3,999,485 2,371,240 $2,202,681,680 6.2% $109,836,641 NUMBER OF ACCOUNTS FISCAL YEAR 1999-00 THROUGH FISCAL YEAR 2001-02 TAXABLE ACTIVITIES AND BUSINESS CLASSIFICATIONS Non Metal Mining/Mining Severance Utilities Communications Publishing Printing/Advertising Restaurants and Bars Amusements Rentals of Personal Property Contracting (All) Retail Hotel/Motel Other Taxable Activities TOTAL FY1999-00 FY2000-01 FY2001-02 28 63 166 53 70 553 86 24 72 200 54 65 536 85 31 73 222 52 61 545 94 541 2,046 5,373 185 1,103 560 2,092 5,309 189 1,179 529 2,235 5,333 174 1,218 10,267 10,365 10,567 (1) License fees, Jet Fuel, Jet Fuel Use, Timber Severance Ponderosa/Other, NSF, Seizure/Sales Fees, Telecommunications Service Assistance, Subpoena Fees and Utilities Credit are not included. (2) Decrease due to unuaual activity. Figures may not add to total due to rounding. TABLE 23 TRANSACTION PRIVILEGE, USE AND SEVERANCE TAX COLLECTIONS (1) IN YUMA COUNTY FOR THE PERIOD BEGINNING JULY 1, 2001 AND ENDING JUNE 30, 2002 TAXABLE ACTIVITIES AND BUSINESS CLASSIFICATIONS Utilities Communications Publishing Restaurants and Bars Amusements Rentals of Personal Property Contracting (All) Retail Hotel/Motel Other Taxable Activities TOTAL CALCULATED NET TAXABLE INCOME % CHANGE FROM FY2000-01 COLLECTIONS $153,178,418 51,375,362 2,699,789 121,695,701 9,431,947 -3.9% 1.0% -7.5% 7.2% 1.4% $7,658,921 2,568,768 134,989 6,084,785 471,597 57,559,434 220,873,703 866,972,231 26,871,573 49,556,892 -10.4% 9.0% 1.3% -3.6% -1.6% 2,877,972 11,043,685 43,348,612 1,477,937 2,446,918 $1,560,215,050 1.5% $78,114,184 NUMBER OF ACCOUNTS FISCAL YEAR 1999-00 THROUGH FISCAL YEAR 2001-02 TAXABLE ACTIVITIES AND BUSINESS CLASSIFICATIONS Utilities Communications Publishing Restaurants and Bars Amusements Rentals of Personal Property Contracting (All) Retail Hotel/Motel Other Taxable Activities TOTAL FY1999-00 FY2000-01 FY2001-02 34 122 15 278 49 40 144 15 277 46 44 187 13 292 41 487 618 3,265 91 900 491 672 3,229 109 963 462 693 3,246 92 925 5,859 5,986 5,995 (1) License fees, Jet Fuel, Jet Fuel Use, Timber Severance Ponderosa/Other, NSF, Seizure/Sales Fees, Telecommunications Service Assistance, Subpoena Fees and Utilities Credit are not included. Figures may not add to total due to rounding. TABLE 24 STATE TRANSACTION PRIVILEGE AND SEVERANCE TAX DISTRIBUTION TO COUNTIES FISCAL YEAR 1997-98 THROUGH FISCAL YEAR 2001-02 % CHANGE FY2001-02 FROM FY2000/01 COUNTY FY1997-98 FY1998-99 FY1999-00 FY2000-01 Apache Cochise Coconino Gila Graham Greenlee La Paz Maricopa Mohave Navajo Pima Pinal Santa Cruz Yavapai Yuma $3,384,940 7,886,873 12,183,683 4,156,713 2,139,621 3,813,256 1,316,162 256,008,018 11,639,836 6,690,773 65,670,660 10,457,557 2,793,965 13,324,088 9,834,655 $3,565,934 8,390,958 12,695,530 4,067,599 2,247,541 3,226,878 1,421,105 277,695,556 12,194,408 7,136,959 70,057,426 11,018,980 2,968,377 14,218,059 10,495,286 $5,473,442 9,229,981 13,841,588 3,882,098 2,412,735 3,098,540 1,486,269 306,464,900 12,938,817 7,748,173 76,273,737 11,582,587 3,180,054 16,154,370 11,358,869 $4,445,431 9,594,853 13,978,278 4,443,907 2,462,318 3,003,365 1,495,379 322,426,596 13,012,998 7,932,049 79,516,015 12,511,593 3,346,986 16,629,440 11,861,866 $3,808,535 9,111,850 13,695,680 4,087,916 2,366,529 1,794,359 1,525,956 325,710,325 13,293,460 7,990,618 76,759,008 12,467,448 3,275,822 16,504,368 12,675,627 -14.3% -5.0% -2.0% -8.0% -3.9% -40.3% 2.0% 1.0% 2.2% 0.7% -3.5% -0.4% -2.1% -0.8% 6.9% $411,300,801 $441,400,596 $485,126,158 $506,661,075 $505,067,501 -0.3% Figures may not add to totals due to rounding. TABLE 25 STATE TRANSACTION PRIVILEGE AND SEVERANCE TAX DISTRIBUTION TO MUNICIPALITIES FISCAL YEAR 2001-02 CITIES APACHE Eagar St. Johns Springerville COCHISE Benson Bisbee Douglas Huachuca City Sierra Vista Tombstone Willcox COCONINO Flagstaff Fredonia Page Williams GILA Globe Hayden Miami Payson Winkelman GRAHAM Pima Safford Thatcher GREENLEE Clifton Duncan LA PAZ Parker Quartzsite MARICOPA Avondale Buckeye Carefree Cave Creek Chandler El Mirage Fountain Hills Gila Bend Gilbert Glendale Goodyear Guadalupe Litchfield Park Mesa Paradise Valley Peoria Phoenix AMOUNT COUNTY TOTAL $310,785 243,343 160,531 363,032 469,298 1,102,889 134,933 2,910,958 115,899 287,667 4,076,034 79,835 524,704 219,006 576,874 68,738 149,189 1,049,563 34,138 $714,658 5,384,675 4,899,579 1,878,502 153,273 711,422 309,937 1,174,632 200,049 62,573 262,622 241,970 258,461 500,430 2,765,159 654,782 225,556 287,281 13,607,407 586,353 1,559,318 152,580 8,453,298 16,861,747 1,457,290 402,872 293,600 30,544,828 1,052,954 8,350,576 101,800,295 CITIES AMOUNT COUNTY TOTAL Queen Creek Scottsdale Surprise Tempe Tolleson Wickenburg Youngtown MOHAVE Bullhead City Colorado City Kingman Lake Havasu City NAVAJO Holbrook Pinetop-Lakeside Show Low Snowflake Taylor Winslow PIMA Marana Oro Valley Sahuarita South Tucson Tucson PINAL Apache Junction Casa Grande Coolidge Eloy Florence Kearny Mammoth Superior SANTA CRUZ Nogales Patagonia YAVAPAI Camp Verde Chino Valley Clarkdale Cottonwood Jerome Prescott Prescott Valley Sedona YUMA San Luis Somerton Wellton Yuma $332,593 15,620,534 2,377,160 12,223,711 383,299 391,621 231,952 $220,616,766 2,602,254 256,919 1,546,526 3,231,760 7,637,459 378,906 276,030 592,980 343,690 244,744 733,615 2,569,965 1,044,631 2,288,695 249,830 423,062 37,505,234 41,511,452 2,451,601 1,943,772 599,993 799,502 1,113,215 173,309 135,780 250,755 7,467,926 1,608,868 67,890 1,676,758 728,298 603,768 263,701 707,338 25,353 2,615,277 1,813,617 785,400 7,542,752 1,180,720 559,921 140,944 5,973,339 7,854,924 $311,693,101 $311,693,101 TOTAL City Distributions are based on relative population. Figures may not add to total due to rounding. TABLE 26 MUNICIPAL PRIVILEGE TAX COLLECTION PROGRAM COLLECTIONS BY CITY FISCAL YEAR 2001-02 CITY Apache Junction Benson Bisbee Buckeye Bullhead City Camp Verde Carefree Casa Grande Cave Creek Chino Valley Clarkdale Clifton Colorado City Coolidge Cottonwood Douglas Duncan Eagar El Mirage Eloy Florence Fountain Hills Fredonia Gila Bend Gilbert Glendale Globe Goodyear Guadalupe Hayden Holbrook Huachuca City Jerome Kearny Kingman Lake Havasu City Litchfield Park Mammoth RATE (1) (PERCENT) COLLECTIONS 2.2* 2.5* 2.5* 2.0* 2.0* 2.0* 2.0* 1.8* 2.5* 2.0* 2.25* 2.0 2.0* 2.0* 2.2 2.5* 2.0 3.0* 3.0* 3.0* 2.0* 1.6* 2.0 3.0* 1.5* N/A 1.5* 2.0* 2.0 1.0* 3.0* 1.0 3.0 2.0* 2.0* 2.0* 2.0* 2.0* $7,976,373 1,729,091 1,210,933 1,676,502 7,750,817 1,367,995 1,833,020 9,887,404 2,370,960 2,055,626 399,591 301,558 216,132 2,205,133 6,603,951 4,090,781 117,115 372,379 6,649,544 2,437,413 902,407 4,268,848 81,536 868,966 29,194,285 101 (2) 1,770,347 12,305,079 660,014 359,654 2,105,617 120,004 338,647 245,706 8,458,447 14,705,906 1,342,656 79,620 CITY Marana Miami Oro Valley Page Paradise Valley Parker Patagonia Payson Pima Pinetop-Lakeside Prescott Valley Quartzsite Queen Creek Safford Sahuarita St. Johns San Luis Sedona Show Low Sierra Vista Snowflake Somerton South Tucson Springerville Superior Surprise Taylor Thatcher Tolleson Tombstone Wellton Wickenburg Willcox Williams Winkelman Winslow Youngtown Yuma RATE (1) (PERCENT) COLLECTIONS 2.0* 1.5 2.0* 2.0* 1.4* 2.0* 3.0* 2.0* 2.0* 2.5* 2.0* 2.5* 1.0* 2.0* 2.0* 2.0* 2.5* 3.0* 2.0 1.5* 2.0* 2.5* 2.5* 3.0* 2.0* 2.0* 2.0 2.0* 2.0* 2.5* 2.5 1.0 2.0 3.0* 3.5* 3.0* 2.0* 1.7 TOTAL * Jurisdiction levied at more than one rate during the fiscal year. Rate shown is the rate charged on most transactions. (1) Rate shown is effective January 1, 2002 and may have changed during the remainder of FY02. (2) Glendale is not part of the Department's Collection program. These figures do not represent a full years collections. Figures may not add to total due to rounding. $14,842,812 116,348 6,333,076 3,371,939 7,297,814 977,970 161,750 5,166,169 141,215 2,428,102 5,828,323 941,117 1,100,691 2,623,302 2,723,008 460,509 2,068,532 10,651,562 6,617,258 9,741,663 1,010,994 528,863 2,217,163 1,215,617 172,045 16,090,834 490,662 1,844,013 3,276,405 505,351 350,130 1,149,538 1,226,634 2,660,117 79,960 2,973,359 463,644 22,041,801 $280,950,442 TABLE 27 MUNICIPAL PRIVILEGE TAX COLLECTION PROGRAM FISCAL YEAR 1997-98 THROUGH FISCAL YEAR 2001-02 FISCAL YEAR TOTAL COLLECTIONS NUMBER OF CITIES IN PROGRAM 1997-98 $180,932,433 74 1998-99 $202,218,016 75 1999-00 $230,976,587 75 2000-01 $257,706,985 75 2001-02 $280,950,442 75 Income Tax The State of Arizona imposes two types of income tax: corporate, which applies to incorporated businesses and certain other entities operating in this state; and individual, which is levied upon those persons who reside in or earn income in the state (Refer to Table 28). CORPORATE INCOME TAX MAJOR FEATURES Every corporation doing business in Arizona is required to file a corporate income tax return. Corporations filed returns with the state and made payments of $512 million during FY02 (Refer to Table 28). Tax Rate Reduction. Laws 1999, Ch. 318 amended ARS § 43-1111 to reduced the corporate tax rate from 8 percent on taxable income or $50, whichever is greater, to 7.968 percent of taxable income or $50, whichever is greater. The tax reduction is effective for taxable years beginning from and after December 31, 1999. Corporations that expect an Arizona income tax liability of at least $1,000 for the taxable year are required to make estimated tax payments. Any corporate taxpayer whose Arizona income tax liability for the preceding taxable year was $20,000 or more is required to make estimated tax payments via the electronic funds transfer program. Repeal of Several Corporate Tax Credits. Laws 1999, Ch. 318 repealed ARS § 43-1162 (correction industries tax credit); § 43-1164 (recycling equipment tax credit); § 43-1171 (construction materials tax credit); and § 43-1172 (agricultural water conservation system tax credit). The tax credits are repealed effective for taxable years beginning from and after December 31,1999. Taxpayers may claim carryovers of unused tax credits from taxable years beginning prior to January 1, 2000, for taxable years beginning on or before December 31, 2005, consistent with the provisions of the repealed credits. INDIVIDUAL INCOME TAX MAJOR FEATURES million individual filers reported Arizona gross income (defined as federal adjusted gross income) totaling more than $ 95.6 billion. Individuals with Arizona gross income of more than $75,000, in the preceding or current year, are required to file Arizona estimated tax payments. An individual can apply any portion of an income tax refund toward the following year's income tax as an estimated payment. The graduated rate structure for the 2001 tax year ranged from 2.87 percent to a maximum of 5.04 percent on an individual's income over $150,000 (or joint income over $300,000). New Subtraction for World War II Victims: Starting with 2000 taxable year, taxpayers may subtract distributions made to them for their persecution or their ancestors by Nazi Germany or any other Axis regime for racial, religious or political reasons. Taxpayers may also subtract items of income that are attributable to, derived from or related to assets that were stolen or hidden from or lost to them if they were persecuted by Nazi Germany or any other Axis regime for racial, religious or political reasons before, during or immediately after World War II. DISTRIBUTION State income tax collections are shared with Arizona municipalities in an Urban Revenue Sharing Program. During FY 2002 an amount equal to 15 percent of net income tax collections from two years prior was distributed to cities and towns. In FY 2001 the percentage was 15 percent. The distribution is based on population and is given only to incorporated cities and towns. The remainder is deposited in the state general fund after amounts sufficient to pay refunds are allocated (Refer to Tables 28 and 29 ). Voluntary taxpayer contributions to Aid to Education Fund, Citizens Clean Elections Fund, Domestic Violence Shelter Fund, Child Abuse Prevention Fund, Arizona Wildlife Fund, Special Olympics Fund, Neighbors Helping Neighbors Fund, and political parties are distributed to the appropriate agency, political party or organization (Refer to Table 29). For tax year 2000 filed in 2001, approximately two ARIZONA DEPARTMENT OF REVENUE 2002 ANNUAL REPORT 51 CORPORATE AND INDIVIDUAL INCOME TAX CREDITS In addition to the new (expanded) provisions listed above, the following are non-refundable corporate and individual income tax credits. (Refer to Table 29). CREDIT AVAILABLE TO Agricultural Water Taxpayers that incur expenses to purchase and install an Conservation System agricultural water conservation system in Arizona. This credit was repealed for corporations for taxable years beginning from and after December 1, 1999. Taxes paid for Coal Consumed in Generating Electrical Power Corporate taxpayers, a credit equal to 30 percent of the amount paid by the seller or purchaser as transaction privilege tax or use tax for coal sold to the taxpayer that is consumed in the generation of electrical power in Arizona. Construction Materials Taxpayers that purchase construction materials, in excess of five million dollars, for a building used predominantly for mining, manufacturing, fabricating, refining, metallurgical operations, or research and development as defined in ARS 43-1168. This credit was repealed for corporations for taxable years beginning from and after December 1, 1999. Contributions to Charities that Provide Assistance to the Working Poor Individual taxpayers that make cash contributions to certain charities that provide help to the working poor. The maximum amount of this credit is $200. Contributions to School Tuition Organizations Individual taxpayers that made contributions to a school tuition organization that provides scholarships or grants to qualified schools. Taxpayers filing single or head of household can take a maximum credit of $500. Taxpayers that file married filing joint can take a maximum credit of $625, taxpayers that are married filing separately can each take onehalf of the required credit up to the maximum credit of $625. Correctional Industries Corporate taxpayers for the investment in qualified property on the grounds of an Arizona correctional facility, or for the employment of inmates in the Arizona correctional facility, or for the employment of inmates in prison construction (for an Arizona correctional facility). This credit was repealed for taxable years beginning from and after December 1, 1999. Defense Contracting Taxpayers certified by the Arizona Department of Commerce as a qualified defense contractor for qualified increases in employment. Employment of TANF Recipients Taxpayers that employ recipients of Temporary Assistance for Needy Families (TANF). 52 ARIZONA DEPARTMENT OF REVENUE 2002 ANNUAL REPORT CREDIT AVAILABLE TO Enterprise Zone Taxpayers whose business is located in an Arizona enterprise zone that have a net increase in qualified employment positions. Environmental Technology Taxpayers that incur expenses in constructing a qualified Facility environmental technology manufacturing, producing, or processing facility as described in ARS 41-1514.02. The qualified environmental technology manufacturer, producer, or processor must have been certified by Commerce before July 1, 1996. Fees Paid to Public Schools Individual taxpayers that paid certain fees to public schools in Arizona. Taxpayers filing single or head of household can take a maximum credit of $200. Taxpayers that file married filing joint can take a maximum credit of $250, taxpayers that are married filing separately can each take onehalf of the required credit up to the maximum credit of $250. Increased Excise Taxes This credit is for Arizona residents whose federal adjusted gross income is beneath a certain threshold ($25,000 or less for Married Filing Joint or Head of Household, or $12,500 for Married Filing Separately or Single) and who cannot be claimed as a dependent by any other taxpayer. Military Reuse Zone Taxpayers with a net increase in employment of full-time employees working in a military reuse zone. Pollution Control Taxpayers that purchase real or personal property that is used within Arizona in the taxpayer's trade or business to control or prevent pollution. Recycling Equipment Taxpayers who acquire and place in service recycling equipment in Arizona. This credit was repealed for corporations not individuals. Research and Development Corporate taxpayers with an increase in qualifying research and Expenses development expenses conducted in Arizona. Individuals must use Form 308-I effective for taxable years beginning January 1, 2002. School Site Donation This tax credit is for the donation of real property and improvements to an Arizona school district or Arizona charter school for use as a school or as a site for the construction of a school. The credit applies to taxable years beginning from and after December 31, 2000. Solar Energy Individual taxpayers who install a solar energy device in his or her residence located in Arizona. Credit for Taxes Paid to Another State or Country (INDIVIDUALS ONLY) Taxpayers that paid a net income tax to Arizona and another qualified state or foreign country, on the same income. ARIZONA DEPARTMENT OF REVENUE 2002 ANNUAL REPORT 53 CREDIT AVAILABLE TO Underground Storage Tanks Taxpayers that incurred expenses for corrective actions taken with respect to the release of a regulated substance from an underground storage tank. To qualify for this credit, the taxpayer must not have been liable or responsible for the corrective action as an owner or operator of the underground storage tank. Solar Hot Water Heater Plumbing Stub Outs and Electric Vehicle Recharge Outlets Taxpayers for the installation of solar hot water heater plumbing stub outs and electric vehicle recharge outlets in houses or dwelling units constructed by the taxpayer. The houses or dwelling units must be located in Arizona. Wheels to Work Donation This tax credit is for the fair market value of any motor vehicle donated by the taxpayer to the Wheels to Work program established by ARS §46-142. The credit applies to taxable years beginning from and after December 31, 1998. 54 ARIZONA DEPARTMENT OF REVENUE 2002 ANNUAL REPORT TABLE 28 INCOME TAX COLLECTIONS FISCAL YEAR 1997-98 THROUGH FISCAL YEAR 2001-02 SOURCE Withheld from Wages Gross Revenue Refunds and Charge-offs NET FY1997-98 FY1998-99 FY1999-00 FY2000-01 $1,863,292,013 (11,947,994) $2,072,018,474 (18,463,322) $2,259,201,907 (10,053,362) $2,363,693,852 (7,032,321) $1,851,344,019 Individuals & Fiduciaries Gross Revenue Refunds and Charge-offs NET Corporations Gross Revenue Refunds and Charge-offs NET Subtotal Net Collections Less distributions for: Urban Revenue Sharing Contracted Collection Agency Wildlife Contributions Child Abuse Prevention Special Olympics Neighbors Helping Neighbors State Aid to Public Schools (1) Domestic Violence Shelter (1) Democratic Party Green Party Libertarian Party New Alliance Party Republican Party Reform Party Natural Law Party Clean Elections (1) Subtotal Distributions NET REVENUE TO STATE GENERAL FUND WQARF DISTRIBUTION (2) $2,053,555,152 $2,249,148,545 $2,356,661,531 PERCENT OF NET COLLECTIONS FY2001-02 IN FY2001-02 $2,309,340,885 (9,047,839) $2,300,293,045 669,323,279 (657,470,764) 765,853,606 (721,059,420) 826,789,215 (784,055,322) 858,775,963 (911,549,899) 705,843,394 (915,490,638) $11,852,514 $44,794,187 $42,733,894 ($52,773,936) ($209,647,244) 630,836,596 (102,775,471) 643,230,321 (97,842,182) 637,765,231 (114,583,545) 678,002,658 (136,828,789) 512,257,476 (165,976,997) 94.4% -8.6% $528,061,125 $545,388,138 $523,181,687 $541,173,869 $346,280,480 14.2% $2,391,257,658 $2,643,737,477 $2,815,064,125 $2,845,061,464 $2,436,926,281 100.0% 291,243,578 340,310,656 377,710,988 396,452,640 421,876,573 82,890 190,715 223,435 95,487 61,562 39,610 146,278 210,355 74,471 32,374 58,016 177,079 185,666 83,854 46,610 60,989 194,201 222,325 88,051 38,800 20,922 177,886 210,223 83,873 37,696 *** *** 12,091 0 3,004 5 11,623 973 0 *** 48,503 137,524 14,401 0 3,077 0 12,077 869 0 340 7,411 139,208 11,127 0 3,210 0 13,650 194 0 1,827,616 26,884 152,928 15,130 2,667 2,422 0 15,474 36 142 2,315,832 33,955 150,954 15,984 2,559 2,090 0 14,127 92 200 3,246,597 $291,925,363 $341,030,534 $380,264,630 $399,588,520 $425,873,731 $2,099,332,295 $2,302,706,944 $2,434,799,495 $2,445,472,944 $2,011,052,550 $15,000,000 $15,000,000 $15,000,000 *** *** (1) Individual and corporate income tax checkoffs and donations established in tax year 1998. (2) Beginning July 1, 1999, a transfer is made to the Water Quality Assurance Revolving Fund from corporate income tax collections. Figures may not add to total due to rounding. TABLE 29 EXEMPTIONS, DEDUCTIONS AND CREDITS TAX YEAR 1997 THROUGH TAX YEAR 2001 STANDARD MAXIMUM PERSONAL BLIND AND OVER AGE 65 DEPENDENT DEDUCTION PROPERTY FAMILY EXEMPTION EXEMPTION EXEMPTION EXEMPTION LIMIT (1) TAX CREDIT TAX CREDIT 1997 2,100 (2) 1,500 2,100 2,300 3,600/7,200 502 120 1998 2,100 (2) 1,500 2,100 2,300 3,600/7,200 502 240 1999 2,100 (2) 1,500 2,100 2,300 3,600/7,200 502 240 2000 2,100 (2) 1,500 2,100 2,300 3,600/7,200 502 240 2001 2,100 (2) 1,500 2,100 2,300 3,600/7,200 502 240 TAX YEAR MAXIMUM (1) Amounts shown are for individual and married-filing-jointly returns. (2) Beginning with tax year 1997, married filers claiming at least one dependent are entititled to an additional $2,100 personal exemption SELECTED INDIVIDUAL INCOME TAX CREDITS TAX YEAR 1998 THROUGH TAX YEAR 2000 Tax Year 1998 CREDIT CLAIMANTS Agricultural Water Conservation 88 Tax Year 1999 CREDITS Tax Year 2000 CLAIMANTS CREDITS CLAIMANTS CREDITS (2) (2) (3) (3) $576,761 Alternative Fuel - Non Refundable -- Delivery System (1) --Vehicles (1) 71 $56,864 11 $21,749 4 $34,644 245 $734,322 168 $275,941 --Refuel Apparatus/Infrastructure -- -- 66 $99,888 31 $32,247 --Neighborhood Electric Vehicles -- -- 1,140 $6,765,473 2,366 $11,899,648 Alternative Fuel - Refundable -- Delivery System -- -- -- -- 15 $2,752,868 --Vehicles -- -- -- -- 4,811 $91,828,990 -- 573 $2,885,544 23,522 $531,673 --Refuel Apparatus/Infrastructure -- -- Clean Elections -- -- -8,585 $502,151 6,353 $1,091,095 (3) (3) 71 $80,142 (3) (3) Donation to Charities for the Working Poor Donation of Motor Vehicles Enterprise Zone 2,856 -- $472,502 -- 94 $963,958 95 $922,134 93 312,768 $7,390,406 327,974 $7,925,721 322,897 $7,576,013 4,248 $1,816,299 31,892 $13,716,791 38,084 $17,620,022 Property Tax 17,237 $5,290,628 15,862 $4,987,796 14,550 $4,640,629 Public School Extra Curricular (4) 74,242 $8,990,042 109,748 $14,775,353 149,215 $17,526,299 2,147 $685,645 2,755 $876,055 2,121 $692,374 8 $2,153 19 $1,854 Family Tax Credit Private School STO (4) Solar Energy $1,003,394 Solar Hot Water Heater & Plumbing Stub Outs All Other (1) Total 9 413,768 $68,851 $26,314,109 9 504,825 $67,917 $52,568,441 (3) (3) 558,450 (1) Too few claimants to allow release of information without violating confidentiality laws. (2) Credits claimed for tax year 1999 are being reviewed. No data is available at this time. (3) Credits claimed for tax year 2000 are being reviewed. No data is available at this time. (4) Data reported on these credits is based on donation information provided to the Department of Revenue by the Private School Tuition Organizations and the Public Schools. For the purposes of this report, it is assumed that all credit was used in the tax year. Figures for all credits shown here are subject to change, due to the verification process. (3) (3) $159,300,286 TABLE 30 RESIDENT INDIVIDUAL INCOME TAX LIABILITY BY FEDERAL ADJUSTED GROSS INCOME TAX YEAR 1999(1) FEDERAL ADJUSTED GROSS INCOME Negative Income $0.01 to $1,999 $2,000 to $5,999 $6,000 to $9,999 $10,000 to $13,999 $14,000 to $19,999 $20,000 to $24,999 $25,000 to $29,999 $30,000 to $39,999 $40,000 to $49,999 $50,000 to $74,999 $75,000 to $99,999 $100,000 to $199,999 $200,000 to $499,999 $500,000 to $999,999 $1,000,000 to $4,999,999 $5,000,000 and over TOTAL # OF FILERS % OF TOTAL LIABILITY % OF TOTAL 15,304 35,668 113,556 136,216 144,232 221,585 157,904 133,492 208,133 153,758 250,840 117,347 102,359 25,675 4,699 2,342 263 0.84% 1.96% 6.23% 7.47% 7.91% 12.15% 8.66% 7.32% 11.41% 8.43% 13.76% 6.44% 5.61% 1.41% 0.26% 0.13% 0.01% $125,913 60,254 169,343 5,069,669 12,833,414 37,815,549 47,466,783 57,154,784 124,166,557 126,164,047 302,839,755 222,126,012 353,140,863 255,866,794 129,580,946 193,776,478 135,730,820 0.01% 0.00% 0.01% 0.25% 0.64% 1.89% 2.37% 2.85% 6.20% 6.30% 15.11% 11.08% 17.62% 12.77% 6.47% 9.67% 6.77% 1,823,373 100.00% $2,004,087,981 100.00% (1) This summary combines all liability reported on the Arizona Form 140 and 140A Individual Income tax returns for tax year 1999, filed from January 2000 forward. TABLE 31 NONRESIDENT/ PART YEAR RESIDENT INDIVIDUAL INCOME TAX LIABILITY BY FEDERAL ADJUSTED GROSS INCOME TAX YEAR 1999 (1) ARIZONA PORTION OF FEDERAL ADJUSTED GROSS INCOME Negative Income $0.01 to $1,999 $2,000 to $5,999 $6,000 to $9,999 $10,000 to $13,999 $14,000 to $19,999 $20,000 to $24,999 $25,000 to $29,999 $30,000 to $39,999 $40,000 to $49,999 $50,000 to $74,999 $75,000 to $99,999 $100,000 to $199,999 $200,000 to $499,999 $500,000 to $999,999 $1,000,000 to $4,999,999 $5,000,000 and over TOTAL # OF FILERS % OF TOTAL LIABILITY % OF TOTAL 12,893 17,180 31,966 24,398 18,071 19,118 10,973 7,997 10,994 6,822 8,776 3,760 3,983 1,522 414 244 37 7.20% 9.59% 17.84% 13.62% 10.09% 10.67% 6.13% 4.46% 6.14% 3.81% 4.90% 2.10% 2.22% 0.85% 0.23% 0.14% 0.02% $422,146 57,101 242,273 1,338,370 2,302,127 4,478,375 4,051,885 3,927,810 7,481,312 6,577,307 12,423,343 8,300,070 16,011,066 16,537,285 11,611,369 20,257,774 14,846,764 0.32% 0.04% 0.19% 1.02% 1.76% 3.42% 3.10% 3.00% 5.72% 5.03% 9.49% 6.34% 12.23% 12.64% 8.87% 15.48% 11.34% 179,148 100.00% $130,866,377 100.00% (1) This summary combines all liability reported on the Arizona Form 140NR and 140PY Individual Income tax returns for tax year 1999, filed from January 2000 forward. TABLE 32 CORPORATE INCOME TAX CORPORATE TAXPAYER BY SIZE OF TAX LIABILITY TAX YEAR 1999(1) CORPORATE TAX LIABILITY $50 Minimum $50.01 to $99.99 $100 to $499.99 $500 to $999.99 $1,000 to $4,999.99 $5,000 to $9,999.99 $10,000 to $49,999.99 $50,000 to $99,999.99 $100,000 to $499,999.99 $500,000 to $999,999.99 $1,000,000 to $61,000,000 TOTAL # OF FILERS % OF TOTAL 29,040 1,008 3,094 1,769 4,390 1,460 1,640 404 434 88 68 66.9% 2.3% 7.1% 4.1% 10.1% 3.4% 3.8% 0.9% 1.0% 0.2% 0.2% $1,452,000 73,607 801,273 1,286,711 11,076,535 10,292,177 36,759,628 28,415,997 94,132,486 60,842,747 285,450,931 0.3% 0.0% 0.2% 0.2% 2.1% 1.9% 6.9% 5.4% 17.7% 11.5% 53.8% 43,395 100.0% $530,584,092 100.0% LIABILITY % OF TOTAL CORPORATE INCOME TAX CREDITS TAX YEAR 1999 CREDIT TYPE Agricultural Water Conservation Alternative Fuel - Non Refundable --Fuel Delivery System --Vehicles --Refueling Apparatus & Infrastructure --Neighborhood Electric Vehicles Coal Used for Electric Generation Construction Materials Defense Contracting Employment of TANF Recipients Enterprise Zone Environmental Technology Military Reuse Zone Pollution Control Equipment Recycling Equipment Research & Development TOTAL (2) # OF FILERS CREDIT CARRYFORWARD USED AVAILABLE * * * 5 21 7 39 3 7 4 5 71 $400,100 $324,139 $13,630 $1,251,837 $346,712 $419,071 $1,695,598 $47,189 $6,977,472 $875,213 $1,052,098 $16,135 $326,753 $502,037 $746,279 $10,713,356 $2,464 $5,683,416 * * * 3 30 4 117 $15,134 $4,279,930 $16,028 $8,210,082 $27,702 $4,956,413 $234,182 $278,840,560 325 $22,869,491 $327,853,716 (1) This summary combines all liability indicated on the Arizona Form 120 Corporate Income Tax returns for tax year 1999 filed from January 2000 forward. (2) Total is for all credits, including those for which information cannot be divulged individually. * The single asterisk indicates that no information can be divulged regarding this credit due to the confidentiality laws in Arizona TABLE 33 AVERAGE FEDERAL ADJUSTED GROSS INCOME AND AVERAGE TAX LIABILITY PER RETURN BY COUNTY FOR TAX YEAR 1999 APACHE COCONINO Average FAGI $26,489 Average Liability $735 Average FAGI $40,953 Average Liability $1,201 MOHAVE NAVAJO Average FAGI $32,835 Average Liability $797 Average FAGI $32,706 Average Liability $835 GREENLEE YAVAPAI Average FAGI $36,162 Average Liability $810 Average FAGI $39,839 Average Liability $1,084 LA PAZ Average FAGI $28,991 Average Liability $751 GILA Average FAGI $34,716 Average Liability $866 MARICOPA Average FAGI $51,013 Average Liability $1,515 YUMA Average FAGI $29,881 Average Liability $806 STATEWIDE A VERAGES Average FAGI $46,235 Average Liability $1,352 PINAL Average FAGI $33,018 Average Liability $787 PIMA COCHISE Average FAGI $41,477 Average Liability $1,131 Average FAGI is the average federal adjusted gross income reported on the Arizona resident income tax return. Average liability is the average tax liability for all resident Arizona income tax returns filed. ARIZONA DEPARTMENT OF REVENUE 2002 ANNUAL REPORT GRAHAM Average FAGI $32,254 Average Liability $749 Average FAGI $32,948 Average Liability $826 SANTA CRUZ Average FAGI $32,234 Average Liability $992 60 TABLE 34 URBAN REVENUE SHARING FISCAL YEAR 1997-98 THROUGH FISCAL YEAR 2001-02 FISCAL YEAR AMOUNT 1997-98 $291,243,578 1998-99 $340,310,656 1999-00 $377,710,988 2000-01 $396,452,640 2001-02 $421,876,573 TABLE 35 DISTRIBUTION OF INCOME TAX AS URBAN REVENUE SHARING TO MUNICIPALITIES IN FISCAL YEAR 2001-02 CITIES BY COUNTY APACHE Eagar St. Johns Springerville COCHISE Benson Bisbee Douglas Huachuca City Sierra Vista Tombstone Willcox COCONINO Flagstaff Fredonia Page Williams GILA Globe Hayden Miami Payson Winkelman GRAHAM Pima Safford Thatcher GREENLEE Clifton Duncan LA PAZ Parker Quartzsite MARICOPA Avondale Buckeye Carefree Cave Creek Chandler El Mirage Fountain Hills Gila Bend Gilbert Glendale Goodyear Guadalupe Litchfield Park Mesa Paradise Valley Peoria Phoenix AMOUNT % OF TOTAL $420,647 329,688 216,955 0.10% 0.08% 0.05% 491,363 635,195 1,492,760 182,632 3,939,981 156,869 389,357 0.12% 0.15% 0.35% 0.04% 0.93% 0.04% 0.09% 5,516,912 108,056 710,187 296,424 1.31% 0.03% 0.17% 0.07% 780,799 93,037 201,927 1,420,583 46,205 0.19% 0.02% 0.05% 0.34% 0.01% 207,455 962,909 419,500 0.05% 0.23% 0.10% 270,766 84,693 0.06% 0.02% 327,506 349,827 0.08% 0.08% 3,742,643 886,248 305,290 388,835 18,417,625 793,628 2,110,536 206,517 11,441,538 22,822,372 1,972,442 545,287 397,388 41,342,421 1,425,173 11,302,504 137,786,687 0.89% 0.21% 0.07% 0.09% 4.37% 0.19% 0.50% 0.05% 2.71% 5.41% 0.47% 0.13% 0.09% 9.80% 0.34% 2.68% 32.66% CITIES BY COUNTY AMOUNT % OF TOTAL Queen Creek Scottsdale Surprise Tempe Tolleson Wickenburg Youngtown MOHAVE Bullhead City Colorado City Kingman Lake Havasu City NAVAJO Holbrook Pinetop-Lakeside Show Low Snowflake Taylor Winslow PIMA Marana Oro Valley Sahuarita South Tucson Tucson PINAL Apache Junction Casa Grande Coolidge Eloy Florence Kearny Mammoth Superior SANTA CRUZ Nogales Patagonia YAVAPAI Camp Verde Chino Valley Clarkdale Cottonwood Jerome Prescott Prescott Valley Sedona YUMA San Luis Somerton Wellton Yuma $450,164 21,142,391 3,217,486 16,544,791 518,795 530,059 313,947 0.11% 5.01% 0.76% 3.92% 0.12% 0.13% 0.07% 3,522,150 347,740 2,093,222 4,374,187 0.83% 0.08% 0.50% 1.04% 512,849 373,607 802,598 465,184 331,261 992,948 0.12% 0.09% 0.19% 0.11% 0.08% 0.24% 1,413,908 3,097,748 338,145 572,614 50,763,330 0.34% 0.73% 0.08% 0.14% 12.03% 3,318,241 2,630,896 812,090 1,082,126 1,506,736 234,574 183,779 339,396 0.79% 0.62% 0.19% 0.26% 0.36% 0.06% 0.04% 0.08% 2,177,602 91,889 0.52% 0.02% 985,751 817,201 356,919 957,381 34,315 3,539,777 2,454,731 1,063,039 0.23% 0.19% 0.08% 0.23% 0.01% 0.84% 0.58% 0.25% 1,598,104 757,853 190,767 8,084,914 0.38% 0.18% 0.05% 1.92% $421,876,573 100.00% TOTAL City distributions are based on relative population Figures may not add to total due to rounding PROPERTY TAX In Arizona, property taxation is based upon the “ad valorem” value of property (ad valorem, meaning “according to value”). The tax is calculated from two different bases: full cash value (or market value) and limited value (i.e., statutorily-controlled value). The full cash value is used to calculate tax rates to pay for voter-initiated bonds, overrides, and special district levies (Refer to Table 37). Taxes based upon the limited (controlled) value produce funds to maintain the basic operations of state, county and city government, schools, and other public entities (Refer to Table 36). Limited values cannot exceed the full cash value of each property. Taxes calculated on the limited value, called primary taxes, are added to those derived from the full cash value, or secondary taxes, to produce the total annual tax bill. All taxable property in Arizona is classified according to its actual use. Each classification is assigned a specific assessment ratio prescribed by law which is multiplied by the full cash and limited values to produce an assessed value (See Figure 1). The assessed value is the basis for calculating tax bills. GENERAL PROPERTY TAX A DMINISTRATION The duties of valuing property for tax purposes are divided between the Department of Revenue and the fifteen County Assessors’ Offices. The Department values utilities, airlines, railroads, mines, and other geographically-dispersed properties (Centrally Valued Properties). Values determined by the Department for those properties are transmitted to the County Boards of Supervisors for entry upon the county tax rolls for levy and collection of property taxes. County Assessors, utilizing appraisal standards and manuals prescribed by the Department, are responsible for assessment of other classes of property, including residential, commercial, industrial, and agricultural properties (Locally Assessed Properties). Appeals of valuation or classification determined by the county assessors for locally assessed properties originate with the property owner’s petition for review filed with the county assessor. Such appeals may be continued to either the local County Board of Equalization, or to the State Board of Equalization and the Tax Court, a division of the Maricopa County Superior Court. Appeals may also be filed directly with the Tax Court. TAX COLLECTION AND D ISTRIBUTION County Treasurers collect all property taxes (except airline and private car companies) and distribute receipts to all taxing entities. Taxes levied on airline flight properties and private rail car properties are collected by the Department and deposited with the Arizona State Treasurer. Taxes on airline flight properties and private car companies are levied at the average state tax rate. This rate is derived by dividing the total of all of the levies in the state by the total net assessed value in the state. This calculation produces the weighted average of all of the levies in the state and is referred to as the "average state tax rate." EQUALIZATION The Department’s primary tool in evaluating assessors’ assessment performance is its sales ratio study, which compares values established by the County Assessors with sales prices of recently sold properties. These studies are performed several times each year by county, type of property, and area. Sales ratios are derived by dividing full cash values by sales prices of recently sold properties. The median sales ratio is the middle sales ratio when the ratios are arrayed in order of magnitude; in other words, there are an equal number of properties above and below the median. The sales ratio studies include coefficients of dispersion which are a measure of how equally all taxpayers are treated. Coefficient of dispersion targets are currently 25 % for vacant land and commercial properties, 15 % for residential properties in Maricopa and Pima counties, and 20 % on residential properties in all other counties. Lower coefficients of dispersion indicate greater equity in property assessments. ARIZONA DEPARTMENT OF REVENUE 2002 ANNUAL REPORT 63 CENTRALLY VALUED PROPERTIES valued by the Department rather than the 15 County The Centrally Valued Properties Unit is responsible Assessors. for the annual valuation of 13 industries for ad valorem property tax purposes (see chart next page). Beginning with tax year 1998, the assessment and appeals calendar for centrally valued properties was Generally, these are large, complex properties which changed to coincide with the calendar for locally are often located in more than one county and/or in assessed properties. more than one state. Values are determined for the entire system and then apportioned to Arizona and to the individual taxing jurisdictions. They are referred to as “centrally valued” because they are Figure 1 Class Legal Classification Assessment Ratio 1.1 1.3-1.7, 1.11 1.12 1.13 Mines Utilities Commercial Real Commercial Personal 2R 2P Agricultural Real; Vacant Land Agricultural Personal 3 4 5 6 Residential Rental Residential Railroads, Airlines Historic Property; Foreign Trade Zones; Enterprise Zone; Qualified Environmental Technology Facilities 5% Commercial Historic Combination 1% and 25% Rental Residential Historic Combination 1% and 10% Improvements on government property 1% 7 8 9 64 25% 25% 25% First $53,266 exempt; 25% on the remainder 16% First $53,266 exempt; 16% on the remainder 10% 10% 21% ARIZONA DEPARTMENT OF REVENUE 2002 ANNUAL REPORT INDUSTRIES VALUED BY THE DEPARTMENT Industry Number of Companies 2001 2002 2003 Airlines (Flight Property)...................................................................................... 34 ............32...........30 Electric & Gas* Generation……………………………………………………………… 14 ............14……...26 Transmission and Distribution………………………………………….. 37 ............37……...35 Mines (non-producing) ...........................................................................................4.............. 2 ............ 2 Mines (producing)................................................................................................. 30 ............. 30 .........33 Pipelines (Gas Transmission)................................................................................ 11 ............10............9 Private Rail Cars ..................................................................................................260.......... 265 ........ 256 Producing Oil & Gas Interests................................................................................3.............. 2 ............ 2 Railroads............................................................................................................... 11 ............11...........11 Telecommunications............................................................................................. 73 ............78...........81 Waste Water Utilities ............................................................................................ 29 ............ 25..........26 Water Utilities..................................................................................................... 327..........331......... 327 Total................................................................................................................... 833..........837......... 838 * Includes Salt River Project ARIZONA DEPARTMENT OF REVENUE 2002 ANNUAL REPORT 65 TABLE 36 STATE OF ARIZONA TAX YEAR 2002 PRIMARY PROPERTY TAX LEVIES TAX AUTHORITY APACHE COCHISE COCONINO GILA GRAHAM GREENLEE LA PAZ MARICOPA MOHAVE NAVAJO PIMA PINAL SANTA CRUZ YAVAPAI YUMA TOTAL STATE NET ASSESSED VALUATION STATE COUNTY CITIES & TOWNS COMMUNITY COLLEGES SCHOOLS ALL OTHER TOTAL PRIMARY RATE $275,868,482 537,737,089 1,048,500,739 331,626,188 96,969,355 180,356,400 120,512,244 22,955,864,882 1,044,790,536 563,168,606 4,669,335,684 816,899,699 228,063,060 1,388,092,520 596,500,117 $0 374,485 0 0 0 0 0 13,427,476 0 0 0 0 0 0 0 $2,350,675 18,423,949 9,480,544 16,246,035 2,210,998 1,921,336 3,300,709 390,180,835 23,391,815 6,644,166 212,963,731 40,372,000 8,752,148 29,096,384 16,743,162 $0 1,255,710 3,608,334 1,705,615 152,985 9,290 0 106,911,307 2,831,976 286,357 4,643,860 2,533,042 0 1,151,622 5,569,705 $0 9,608,286 4,281,028 0 1,916,114 0 2,201,397 221,156,802 9,818,941 6,701,706 53,838,033 17,756,949 0 21,980,482 10,896,268 $7,932,794 25,345,798 46,725,205 14,701,509 3,827,076 5,721,153 3,698,830 1,108,239,174 41,867,948 25,117,257 278,704,603 39,474,444 10,907,640 52,714,923 32,052,882 $0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 $10,283,469 55,008,228 64,095,111 32,653,159 8,107,173 7,651,779 9,200,936 1,839,915,594 77,910,680 38,749,486 550,150,227 100,136,435 19,659,788 104,943,411 65,262,017 3.73 10.23 6.11 9.85 8.36 4.24 7.63 8.02 7.46 6.88 11.78 12.26 8.62 7.56 10.94 $34,854,285,601 $13,801,961 $782,078,487 $130,659,803 $360,156,006 $1,697,031,236 $0 $2,983,727,493 8.56 AVERAGE STATE PRIMARY TAX RATE PER $100 8.56 TAX YEAR 2001 PRIMARY PROPERTY TAX LEVIES TAX AUTHORITY APACHE COCHISE COCONINO GILA GRAHAM GREENLEE LA PAZ MARICOPA MOHAVE NAVAJO PIMA PINAL SANTA CRUZ YAVAPAI YUMA TOTAL STATE NET ASSESSED VALUATION STATE COUNTY CITIES & TOWNS COMMUNITY COLLEGES SCHOOLS ALL OTHER TOTAL PRIMARY RATE $290,356,165 504,130,498 1,028,681,995 309,062,088 91,847,206 191,053,362 112,008,687 21,355,326,477 991,882,017 544,634,215 4,361,492,992 701,711,651 215,902,760 1,280,950,405 549,270,133 $0 487,910 0 0 0 0 0 17,417,290 0 0 0 0 0 0 0 $2,465,995 17,315,370 8,648,129 15,166,913 2,102,015 1,557,039 3,077,326 358,897,617 22,291,556 6,252,311 199,294,061 34,738,937 8,087,933 26,951,447 15,464,151 $0 1,240,870 3,377,375 1,670,513 149,427 9,155 0 99,452,302 2,633,083 279,658 2,975,033 2,240,048 0 1,098,878 5,208,129 $0 8,755,738 4,125,015 0 1,788,541 0 2,046,062 204,648,094 9,321,315 6,265,472 49,960,363 14,982,948 0 19,630,398 10,033,518 $8,552,420 24,225,930 41,747,664 15,258,987 3,716,032 5,654,893 3,620,177 1,017,198,803 40,723,100 24,171,154 276,898,175 34,620,916 10,846,003 51,227,724 28,282,214 $0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 $11,018,415 52,025,818 57,898,183 32,096,413 7,756,015 7,221,087 8,743,565 1,697,614,106 74,969,054 36,968,595 529,127,632 86,582,849 18,933,936 98,908,447 58,988,012 3.79 10.32 5.63 10.39 8.44 3.78 7.81 7.95 7.56 6.79 12.13 12.34 8.77 7.72 10.74 $32,528,310,651 $17,905,200 $722,310,800 $120,334,471 $331,557,464 $1,586,744,192 $0 $2,778,852,127 8.54 TABLE 37 STATE OF ARIZONA TAX YEAR 2002 SECONDARY PROPERTY TAX LEVIES TAX AUTHORITY APACHE COCHISE COCONINO GILA GRAHAM GREENLEE LA PAZ MARICOPA MOHAVE NAVAJO PIMA PINAL SANTA CRUZ YAVAPAI YUMA TOTAL STATE NET ASSESSED VALUATION STATE COUNTY CITIES & TOWNS COMMUNITY COLLEGES SCHOOLS ALL OTHER TOTAL SECONDARY RATE $283,294,073 554,220,855 1,084,875,819 357,161,346 99,614,664 180,770,442 122,304,607 24,457,047,282 1,072,413,581 592,604,484 4,835,561,219 863,865,161 235,055,570 1,450,497,580 615,920,229 $0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 $3,472,903 1,413,818 3,145,055 1,071,484 40,106 1,131,022 122,305 31,721,521 5,472,909 712,883 51,895,243 1,315,235 967,724 3,072,096 3,104,238 $118,653 131,154 4,433,011 100,000 0 0 0 175,207,012 534,635 48,250 20,674,970 0 0 1,667,615 74,457 $0 0 1,872,405 2,079,751 0 0 311,877 36,526,312 0 1,565,661 18,389,025 0 0 5,735,780 1,570,597 $5,944,208 7,279,778 17,927,789 4,668,305 1,842,704 1,633,174 1,405,585 603,369,737 13,587,726 8,597,221 102,522,442 21,957,638 5,990,469 12,506,662 13,483,131 $2,527,266 5,957,688 8,449,763 3,838,702 268,109 29,348 2,183,938 113,194,334 16,811,747 6,831,602 45,269,882 12,595,876 3,672,772 18,727,476 2,050,061 $12,063,030 14,782,438 35,828,023 11,758,242 2,150,919 2,793,544 4,023,705 960,018,916 36,407,017 17,755,617 238,751,562 35,868,749 10,630,965 41,709,629 20,282,484 4.26 2.67 3.30 3.29 2.16 1.55 3.29 3.93 3.39 3.00 4.94 4.15 4.52 2.88 3.29 $36,805,206,912 $0 $108,658,542 $202,989,757 $68,051,408 $822,716,569 $242,408,564 $1,444,824,840 3.93 AVERAGE STATE SECONDARY TAX RATE PER $100 3.93 TAX YEAR 2001 SECONDARY PROPERTY TAX LEVIES TAX AUTHORITY APACHE COCHISE COCONINO GILA GRAHAM GREENLEE LA PAZ MARICOPA MOHAVE NAVAJO PIMA PINAL SANTA CRUZ YAVAPAI YUMA TOTAL STATE NET ASSESSED VALUATION STATE COUNTY CITIES & TOWNS COMMUNITY COLLEGES SCHOOLS ALL OTHER TOTAL SECONDARY RATE $298,070,585 517,193,490 1,062,082,181 332,789,774 94,281,882 191,505,379 113,560,208 22,913,134,480 1,016,292,255 566,916,980 4,491,395,307 738,562,802 224,373,276 1,344,616,822 568,655,704 $0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 $3,319,613 1,319,360 2,701,770 998,370 42,207 1,709,952 113,560 31,804,420 5,186,138 680,296 51,929,513 1,159,544 923,745 2,831,192 2,866,025 $120,001 128,162 4,241,977 120,000 0 0 0 162,375,543 528,373 45,722 20,953,750 0 0 1,674,115 74,457 $0 0 1,813,343 1,960,914 0 0 313,313 34,930,475 0 1,507,999 18,035,000 284,500 0 5,598,026 1,568,921 $7,323,001 7,253,395 19,065,715 4,345,242 1,624,394 1,552,687 1,406,560 574,908,690 16,163,853 9,063,940 99,366,623 19,547,561 5,917,106 13,673,508 12,437,081 $2,442,584 5,626,314 7,786,631 3,464,198 276,503 34,848 2,091,514 106,097,129 17,585,159 5,735,238 41,635,828 10,502,533 3,481,208 17,023,179 1,830,924 $13,205,199 14,327,231 35,609,436 10,888,724 1,943,104 3,297,487 3,924,947 910,116,257 39,463,523 17,033,195 231,920,714 31,494,138 10,322,059 40,800,020 18,777,408 4.43 2.77 3.35 3.27 2.06 1.72 3.46 3.97 3.88 3.00 5.16 4.26 4.60 3.03 3.30 $34,473,431,125 $0 $107,585,705 $190,262,100 $66,012,491 $793,649,356 $225,613,790 $1,383,123,442 4.01 TABLE 38 AVERAGE PROPERTY TAX RATES PER $100 OF ASSESSED VALUATION TAX YEAR 1999 THROUGH TAX YEAR 2002 1999 PRIMARY School Districts Counties State Cities Community Colleges Special Districts SECONDARY SECONDARY $2.45 0.34 0.00 0.53 0.15 0.66 $4.85 2.23 0.07 0.38 1.03 0.00 $2.42 0.33 0.00 0.54 0.18 0.65 $8.67 $4.13 $8.56 $4.12 $12.80 $12.68 2001 2002 PRIMARY TOTAL PRIMARY $4.90 2.27 0.09 0.38 1.03 0.00 TOTAL School Districts Counties State Cities Community Colleges Special Districts 2000 SECONDARY PRIMARY SECONDARY $4.88 2.22 0.05 0.37 1.02 0.00 $2.30 0.31 0.00 0.55 0.19 0.66 $4.87 2.24 0.04 0.38 1.03 0.00 $2.24 0.30 0.00 0.55 0.18 0.66 $8.54 $4.01 $8.56 $3.93 $12.55 School district rate includes Unorganized School Districts. Figures may not add to total due to rounding. $12.49 All Other Sources Of Revenue BINGO 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 licensee’s tax rate is based on bingo receipts. Class A licensees, whose gross receipts do not exceed $15,600 per year, are taxed at 2.5 percent of their adjusted gross receipts. (Adjusted gross receipts are the monies left after paying prizes.) Class B and Class C licensees are taxed on their gross receipts. Class B licensees, whose gross receipts do not exceed $300,000, are taxed at 1.5 percent of their gross receipts. Class C licensees, whose gross receipts exceed $300,000 per year, are taxed at 2 percent of their gross receipts from bingo. All taxes collected are deposited in the state general fund. A total of $629,680 was deposited in Fiscal Year 2002 (Refer to Table 39). ARIZONA DEPARTMENT OF REVENUE 2002 ANNUAL REPORT 69 TABLE 39 BINGO COLLECTIONS FISCAL YEAR 1997-98 THROUGH FISCAL YEAR 2001-02 FISCAL YEAR AMOUNT 1997-98 $750,970 1998-99 $717,830 1999-00 $677,036 2000-01 $634,384 2001-02 $629,680 BINGO COLLECTIONS Licenses Proceeds Penalty, Interest and Miscellaneous TOTAL FY1997-98 FY1998-99 FY1999-00 FY2000-01 FY2001-02 $22,438 724,040 $24,193 689,423 $21,534 644,385 $24,549 606,880 $21,322 605,388 4,493 4,214 11,116 2,955 2,970 $750,970 $717,830 $677,036 $634,384 $629,680 ESTATE TAX The Arizona estate tax is a tax on the transfer of property or interest in property that takes effect upon the owner’s death. The estate tax is imposed on the net taxable estate before distribution, differing from the inheritance tax, which is imposed on the portion of the estate received by a beneficiary. Arizona does not impose inheritance or gift taxes. Estate taxes are deposited into the state general fund. (Refer to Table 40) The Estate Tax Unit of the Arizona Department of Revenue is responsible for the collection of estate taxes and the processing of estate tax returns and reports of personal representative of decedent. Only estates that are required to file a federal estate tax return are required to file an Arizona Estate Tax return. However, if an estate requires a tax lien waiver from the department in order to transfer property prior to receiving the Internal Revenue Service Closing Letter, the department may issue a partial waiver upon receipt of an Application for Waiver of Tax. After the Arizona estate tax and any penalties and interest have been paid, the department will issue a receipt for payment of tax and a complete tax lien waiver. The Arizona estate tax for an Arizona resident decedent is an amount equal to the federal credit for state death taxes. If the decedent owned real or tangible personal property located in another state, the Arizona tax is reduced by either the amount of death tax paid to the other state or a prorated share of the federal credit, whichever is less. The Arizona estate tax for a nonresident decedent is a prorated share of the federal credit, based on the value of real property and tangible personal property having actual situs in Arizona this year. 71 ARIZONA DEPARTMENT OF REVENUE 2002 ANNUAL REPORT TABLE 40 COLLECTIONS OF ESTATE TAXES FISCAL YEAR 1997-98 THROUGH FISCAL YEAR 2001-02 Fiscal Year Collections 1997-98 Refunds Net $64,490,574 $1,587,899 $62,902,674 1998-99 $89,087,575 $1,837,477 $87,250,098 1999-00 $85,238,335 $4,594,005 $80,644,330 2000-01 $76,921,666 $2,269,883 $74,651,783 2001-02 $81,892,657 $1,340,437 $80,552,220 Figures may not add to total due to rounding. LUXURY TAX Arizona’s luxury tax applies to cigarettes, other tobacco products, and alcoholic beverages. The Department is responsible for issuing tobacco licenses and stamps and collecting taxes on tobacco products and alcoholic beverages. The Department also investigates and confiscates contraband alcoholic beverages and tobacco products. During the 2002 fiscal year, over $210 million was received in luxury tax collections. Of that, $77.3 million was allocated to the Medically Needy Fund, $25.4 million to the Health Education Fund and $5.5 million to the Health Research Fund due to the passage of the Tobacco Tax and Health Care Initiative in November 1994. The Corrections Fund, established by the Legislature in 1984 to pay for prison construction, received $25.7 million, and the Arizona Wine Promotional Fund received $23,391. The Drug Treatment and Education Fund received $7.1 million, and the Corrections Revolving Fund received $2.8 million due to the passage of Proposition 200 in 1996. The remaining $66.1 million was deposited into the state general fund. (Refer to Table 41) Luxury Tax Rates Cigarettes per cigarette package of 20 package of 25 $ .029 $ .58 $ .725 Cigars small cigars weighing not more than 3 lbs/1,000 package of 20 or less selling for $0.05 or less (each 3 cigars) selling for more than $0.05 (each cigar) $ .129 $ .064 $ .064 Smoking Tobacco snuff, fine cut, chewing, etc. (per ounce) Cavendish, plug, or twist (per ounce) $ .065 $ .016 Spirituous Liquors per gallon $3.00 Vinous liquors more than 24% alcohol (per gallon) $4.00 Vinous liquors less than 24% alcohol (per gallon) $0.84 Malt Liquor (Beer) per gallon per barrel (31 gallons) $0.16 $4.96 ARIZONA DEPARTMENT OF REVENUE 2002 ANNUAL REPORT TABLE 41 LUXURY TAX COLLECTIONS FISCAL YEAR 1997-98 THROUGH FISCAL YEAR 2001-02 SOURCE Spirituous Liquor Vinous Liquor Malt Liquor Liquor Collections Tobacco - All Types Gross Revenue Refunds Licenses Administrative Expenses Net Tobacco Collections TOTAL COLLECTIONS PERCENT OF COLLECTIONS FY2001-02 IN FY2001-02 FY1997-98 FY1998-99 FY1999-00 FY2000-01 $18,787,775 7,893,100 19,463,378 $46,144,253 $19,648,670 7,969,428 20,534,013 $48,152,111 $20,587,605 9,026,326 21,309,231 $50,923,162 $21,327,540 8,477,493 21,602,321 $51,407,354 $21,574,744 9,035,156 22,031,467 $52,641,368 169,660,665 (4,569,441) 7,100 (344,036) $164,754,289 166,646,960 (3,457,756) 7,175 (358,196) $162,838,183 163,206,980 (3,474,292) 7,175 (310,931) $159,428,932 161,078,853 (2,662,128) 8,600 (384,593) $158,040,732 162,148,102 (4,169,264) 5,250 (393,800) $157,590,288 75.0% $210,898,542 $210,990,294 $210,352,094 $209,448,087 $210,231,655 100.0% DISTRIBUTIONS: State General Fund Wine Promotional Fund Health Care Funds Drug Treatment & Education Fund DOC Revolving Fund Department of Corrections Fund DOC Corrections Fund Transfer TOTAL DISTRIBUTIONS Figures may not add to total due to rounding. 64,429,625 9,306 114,104,507 6,235,814 2,477,227 23,467,623 174,439 64,770,498 14,595 112,735,957 6,502,823 2,583,453 24,141,360 241,607 65,436,145 21,197 109,786,025 6,897,717 2,739,633 25,192,099 279,278 65,568,793 21,278 108,709,176 6,903,464 2,743,924 25,154,893 346,559 66,069,587 23,391 108,177,154 7,098,014 2,820,269 25,718,685 324,556 $210,898,542 $210,990,294 $210,352,094 $209,448,087 $210,231,655 10.3% 4.3% 10.5% UNCLAIMED PROPERTY Responsibilities of the Unclaimed Property Program include the collection, safekeeping, and disposition of ordinary unclaimed property and escheated estates. The Unclaimed Property staff establishes and maintains records of these types of funds along with other personal property that is presumed to be abandoned. This property is received from regular business associations, banking and financial organizations, insurance companies, utilities, fiduciaries, state courts, and governmental agencies. The largest percentage of unclaimed property is comprised of: • • • • • • • • • Contents of safe deposit boxes on which rent has not been paid for one year. Checks written to employees or vendors not cashed after one year. Government and Court property not claimed in one year. Utility deposits not claimed in two years. Stock or other equity interest in a business association or financial organization with no activity for three years. Bank or credit union accounts with no activity for five years. Cashier and other official checks not cashed in five years. Money orders not cashed in seven years. Traveler’s checks not cashed in fifteen years. Owners may recover unclaimed property at any time with proper documentation, and there is no statute of limitation on claims. ESCHEATED ESTATES In addition to their Unclaimed Property responsibilities, staff members also establish and maintain records of Escheated Estates. An Escheated Estate is created when a person dies without leaving a will and has no known heirs, or if a known heir cannot be located. When either of these conditions exist, his or her property reverts to the state as the original and ultimate proprietor after seven years. Funds received from escheated estates are deposited into the permanent school fund. (Refer to Table 42) ARIZONA DEPARTMENT OF REVENUE 2002 ANNUAL REPORT TABLE 42 COLLECTIONS AND DISTRIBUTION OF UNCLAIMED PROPERTY FISCAL YEAR 1997-98 THROUGH FISCAL YEAR 2001-02 SOURCE UNCLAIMED PROPERTY Refunds Expenses Housing Fund Utility Assistance Fund Racing Fund Victim Restitution Fund (1) NET ESCHEATED ESTATES Refunds NET UNCLAIMED ARIZONA SHARES AND DIVIDENDS (3) TOTAL NET REVENUE FY1997-98 FY1998-99 FY1999-00 $20,770,144 (6,609,804) (983,832) (7,380,832) (711,976) (2,681,159) ----- $21,315,542 (8,135,383) (1,020,282) (6,791,802) (818,382) (2,465,180) ----- $31,415,063 (9,881,814) (1,110,490) (11,421,658) (639,104) (4,153,330) ----- $38,020,547 (15,764,220) (2) (1,023,813) (11,733,852) (905,023) (4,266,855) (17,027) $48,681,438 (11,903,236) (4) (1,324,594) (4) (19,761,582) (868,416) (7,186,030) 18,426 (5) $2,402,541 $2,084,512 $4,208,667 $4,309,756 $7,656,006 109,023 (69,124) 309,305 (92,000) FY2000-01 201,612 (188,587) 647,074 (576,578) 252,786 (294,542) 100.5% $39,899 $217,304 $13,026 $70,496 ($41,755) -0.5% $15,312 $0 $0 $7,326 $5,919 0.1% $2,457,752 $2,301,816 $4,221,693 $4,387,578 $7,620,170 100.0% DISTRIBUTION FISCAL YEAR 2001-02 NET TO GENERAL FUND ADDITIONAL REFUNDS & EXPENSES NET TO PERMANENT SCHOOL FUND NET CHANGE IN RESERVES TOTAL DISTRIBUTION (1) (2) (3) (4) FY2001-02 PERCENT OF COLLECTIONS IN FY2001-02 $7,745,918 (4) (89,912) (4) 0 (6) (35,837) $7,620,170 Victim Restitution Fund became effective on January 1, 2001 per HB 2061. Does not include $540 transfer recorded in FY01. The distribution was completed in FY02. Per Article XI of the Arizona Constitution, proceeds from stock sales are to be deposited in the Permanent School Fund. Amounts shown for Refunds and Expenses increased by $1,937 and $87,975, respectively, between AFIS close and the final adjustment close date causing the general fund to receive additional revenues. Corrections will be made in FY03. (5) Claims paid during FY02 for Victims Restitution exceeded their collections, therefore, no transfer was required. (6) Due to a lack of funding, FY01 Escheated Estates in the amount of $70,496 was not transferred to the Permanent State School Fund in FY02. Also, the transfer of $5,919 from the AZ Unclaimed Shares/Dividends did not occur in FY02, however, it will be adjusted in FY03. Figures may not add to total due to rounding. WASTE TIRE The Arizona waste tire fee is a fee applied to the sale of new motor vehicle tires. The fee is to be collected quarterly at a rate of two percent of the purchase price not to exceed two dollars per tire. During fiscal year 2002, the Department collected $6,392,637 and distributed 3.4% percent to the Department of Environmental Quality with the remainder being distributed to the counties based on the number of motor vehicles registered in the county (Refer to Tables 43 and 44). The distribution is performed quarterly. ARIZONA DEPARTMENT OF REVENUE 2002 ANNUAL REPORT 77 TABLE 43 WASTE TIRE FEE COLLECTIONS FISCAL YEAR 2001-02 NUMBER OF TIRES 1 to 50 51 to 100 101 to 250 251 to 500 501 to 1,000 1,001 to 2,500 2,501 to 5,000 5,001 to 10,000 10,001 to 25,000 More Than 25,000 Overpayments Accounts Receivable Adjustment (1) Total NUMBER OF FILERS TOTAL NUMBER OF TIRES 193 104 154 117 120 137 103 90 68 26 3,656 7,502 25,974 42,322 87,076 232,170 369,652 628,042 1,037,553 3,326,368 1,112 5,760,315 AMOUNT REMITTED $5,549 $10,330 $33,780 $54,402 $113,047 $283,846 $439,064 $757,802 $1,105,115 $3,553,251 ($34,880) $71,330 $6,392,637 (1) This figure represents the Net Balance added to the distribution for Accounts Receivable Collections. Figures may not add to total due to rounding. TABLE 44 WASTE TIRE FEE DISTRIBUTION FISCAL YEAR 1997-98 THROUGH FISCAL YEAR 2001-02 FY1997-98 FY1998-99 FY1999-00 FY2000-01 FY2001-02 Apache $54,182 $64,352 $68,421 $76,526 $78,693 Cochise 143,807 152,286 156,256 174,766 174,721 Coconino 139,828 150,983 153,159 171,302 161,337 Gila 78,834 83,559 83,307 93,175 88,035 Graham 32,835 35,647 36,127 40,407 38,300 Greenlee 13,029 13,870 13,394 14,980 14,021 La Paz 28,969 32,583 32,577 36,436 36,329 Maricopa 2,755,607 2,943,115 3,076,438 3,440,863 3,525,885 Mohave 214,447 232,057 238,888 267,186 271,827 Navajo 101,565 111,158 112,636 125,978 127,482 Pima 770,678 805,024 829,316 927,554 904,818 Pinal 180,662 196,448 197,496 220,890 207,211 48,113 52,529 54,110 60,520 65,220 Yavapai 231,975 244,698 251,010 280,743 290,584 Yuma 151,633 166,882 172,712 193,171 184,430 AZ Dept of Environmental Quality 179,395 191,691 198,606 222,132 223,742 $5,125,561 $5,476,881 $5,674,452 $6,346,629 $6,392,637 Santa Cruz Total Figures may not add to total due to rounding. LEGISLATIVE SUMMARY THE 2002 LEGISLATIVE SUMMARY PROVIDES A BRIEF SUMMARY OF THE TAX-RELATED BILLS THAT WERE ENACTED BY THE LEGISLATURE AND WERE EITHER APPROVED OR VETOED BY THE GOVERNOR. ALSO CONTAINED IN THE SUMMARIZED BILLS ARE OTHER BILLS OF GENERAL INTEREST AND TAX-RELATED RESOLUTIONS FILED WITH THE SECRETARY OF STATE. INCOME TAX LEGISLATION HB 2088 (income tax subtraction; dividends; repeal) - Chapter 50 RFE HB 2088 eliminates the corporate income tax subtraction for dividend income received from Arizona corporations. The Department of Revenue is allowed to disclose the names of corporations, the dividends of which qualified for the subtraction, until July 1, 2004. The bill also clarifies that the Department of Revenue shall release confidential information to the Attorney General for the purpose of enforcing the Tobacco Master Tax Settlement. The bill is effective retroactively to taxable years beginning from and after December 31, 2001. HB 2181 (NOW: enterprise; military reuse; tax credits) - Chapter 237 RFE HB 2181 provides modifications to the enterprise zone program by narrowing definitions, capping the amount of tax credits, increasing reporting requirements and assuring that double credits cannot be taken when a business is in an enterprise zone and another zone. Enterprise Zone Premium and Income Tax Credit Changes • Clarifies and narrows the definitions for the enterprise zone program of retail, retail activities and assigned to retail. The definitions refer to allowable limited retail activity by a manufacturer in an enterprise zone. The definition of zone location also clarifies and limits manufacturers to a single location within a zone. If a business has multiple locations in a zone, each location must qualify. • Limits the number of qualified employment positions that are eligible for the premium or income tax credits under the enterprise zone program. The qualified business will calculate eligible employees as follows but in no case will the number exceed 200 positions. The calculation for eligible employees is the lesser of: - the total number of filled qualified employment positions created or - the difference between the average number of full time employees during the current tax year and the average number of full time employees during the immediately preceding tax year. • Clarifies current procedures for substitution of employees, ensuring that replacement employees meet the original criteria. • Clarifies that the current requirement for 35% of the net new eligible employees live in the enterprise zone applies to all three years in which a credit is claimed. • Requires that an eligible business cannot take credits for the second and third year unless they have taken credit for an employee in the first year of employment. An employee must have been employed at least in the last 90 days of the tax year for the position to qualify for the credit. To qualify for the credit, the business must notify the Department of Commerce within six months or earlier if a tax return is due. • Stipulates requirements for continuing the credits when an ownership change takes place through purchase, reorganization, stock purchase or merger. First year credits can only be claimed for qualified employment positions that it created and filled after the purchase or reorganization. Second and third year credits can be claimed if the original criteria continues to be met. • Requires timely reports to the Department of Revenue or the Department of Insurance, as applicable, as well as the Department of Commerce. A failure to submit a timely report disqualifies the taxpayer from the credits. ARIZONA DEPARTMENT OF REVENUE 2002 ANNUAL REPORT 81 • • Requires increased detailed information on full time employment positions that are eligible for the credit. Also allows the Department of Commerce to make site visits if necessary. • Clarifies that a minority and woman owned business must be independently owned and operated. • Makes technical and conforming changes. Clarifies that a credit cannot be taken in an enterprise zone if a credit is taken for the same employee in a military reuse zone or defense-restructuring program. • Contains a Proposition 108 clause requiring two-thirds vote for passage. Enterprise Zone Property Reclassification Changes • Excludes electric generating plants from the definition of manufacturer for the purpose of reclassification under the enterprise zone program. • Increases reporting requirements to the Department of Commerce for certification of the property tax reclassification. The Department of Commerce will notify the Department of Revenue or the Department of Insurance, whichever is appropriate, if a business fails to maintain eligibility. • Requires annual certification for the property reclassification, even though the original certification is for five years. The reclassification is allowed to continue even if the business grows beyond the original size limits for a small business. However, any small businesses originally certified for a tenyear period (prior to 1996), will lose eligibility if size limits are exceed or the business is no longer independently owned and operated. The bill is effective retroactively to taxable years beginning from and after December 31, 2001. HB 2186 (income tax credit review) Chapter 238 HB 2186 creates the ten member statutory Joint Legislative Income Tax Credit Review Committee. There are five legislative members appointed from each chamber. The committee is to determine the original purpose of existing tax credits and establish a standard for evaluating and measuring the success or failure of tax credits. The committee must review the individual and corporate income tax credits listed in the bill. The committee is use the Joint Legislative Budget Committee staff and is permitted to use the staff of the Department of Revenue and Legislative Council for assistance. The committee is to determine whether credits should be amended or repealed and is to report to the President, Speaker and Governor by December 15 of the year that the committee reviews the credit. The income tax credit review schedule is as follows: For property that qualifies for reclassification under the enterprise zone program, the reclassification cannot continue under the military reuse zone program. ♦ ♦ Miscellaneous Provisions • Requires that the designation of a military reuse zone must have a runway that is at least 8,000 feet long at the time the military facility was closed. ♦ • 82 ♦ ♦ 2002 Recycling Equipment (§ 43-1076) Employment by qualified defense contractor (§ 43-1077 and § 43-1165) Property taxes paid for qualified defense contractor (§ 43-1078 and § 43-1166) Employment in military reuse zone (§ 43-1079 and § 43-1167) Construction cost for qualified environmental technology facility (§ 43-1080 and § 43-1169) ARIZONA DEPARTMENT OF REVENUE 2002 ANNUAL REPORT ♦ ♦ ♦ ♦ ♦ ♦ ♦ ♦ ♦ ♦ ♦ ♦ ♦ ♦ ♦ ♦ 2003 Research and Development activities (§ 43-1074.01 and § 43-1168) Coal consumed in electric generating power (§ 43-1081 and § 43-1178) Underground storage tank corrective action costs (§ 43-1085 and § 43-1173) Pollution control equipment (§ 43-1170) 2004 Agriculture pollution control devices (§ 43-1081.01 and § 43-1170.01) Solar energy devices (§ 43-1083) Agriculture water conservation system (§ 43-1084) 2005 Employment of Temporary Assistance for Needy Families (TANF) recipients (§ 43-1087 and § 43-1175) Contributions to charitable organizations that provide assistance to the working poor (§ 43-1088) Donations of motor vehicles to wheels to work program (§ 43-1090.01 and § 43-1177) 2006 Family tax credit (§ 43-1073) Private school tuition organization (§ 43-1089) Public school extra curricular activity fee (§ 43-1089.01) Construction materials incorporated into qualifying facilities (§ 43-1089.02) Solar hot water heater plumbing stub outs and electric vehicle recharge outlets installed in houses constructed by taxpayer (§ 43-1176 and § 43-1090) Donation of school site (§ 43-1181). The bill also provides that any new individual or corporate income tax credit enacted by the legislature shall include a review by the committee in the fifth full calendar year following the date the credit is enacted. The bill is effective on the general effective date. HB 2616 (tax credit; increased taxes; prisoners) - Chapter 280 RFE/RFEIR HB 2616 provides that for taxable years beginning from and after December 31, 2002 a person who is sentenced for at least sixty days of the taxable year to the custody of the federal Bureau of Prisons, the state Department of Corrections or a county jail is not eligible to claim the state income tax credit in mitigation of increases transaction privilege tax and use tax. The credit is in mitigation of the six-tenths of a cent increase in the transaction privilege tax and use tax for education approved by voters at the 2000 general election. The bill is effective on the general effective date. HB 2712 (IRC conformity; revenue sharing) Chapter 344 HB 2712 conforms Arizona tax statutes to the current United States Internal Revenue Code (IRC) including provisions relating to the Economic Growth and Tax Relief Reconciliation Act of 2001, the Fallen Hero Survivor Benefit Fairness Act of 2001 and portions of the Job Creation and Worker Assistance Act of 2002. The federal government passed three acts with provisions that have an impact on Arizona tax liability. On June 7, 2001, President Bush signed into law the Economic Growth and Tax Relief Reconciliation Act of 2001, which included significant changes to the estate and generationskipping transfer tax. Arizona’s estate tax revenue is based on the state’s share of the maximum credit allowed by the federal estate tax laws. The federal provisions in this Act will phase-out and eventually repeal the federal state death tax credit beginning in tax year 2002. The second Act is the Fallen Hero Survivor Benefit Fairness Act of 2001, signed into law on June 5, 2001. This act amends the Taxpayer Relief Act of 1997 to extend to survivors of public safety officers killed in the line of duty before December 31, 1996, the same tax benefits available to the survivors of officers killed after such date. ARIZONA DEPARTMENT OF REVENUE 2002 ANNUAL REPORT 83 The third act was the Job Creation and Workers Assistance Act of 2002, which was signed into law on March 9, 2002. This act provided for special accelerated depreciation for businesses that purchase equipment between September 11, 2001 through September 11, 2004. This bill provides for immediate conformity of this act, except for the special depreciation, which is phased-in on a delayed basis. In addition, the bill provides changes to the state’s Urban Revenue Sharing (URS) program for 15% to 14.8% for fiscal year 2002-03 and fiscal year 2003-04. For the purposes of computing income tax, for tax year 2002 the IRC means the IRC in effect on March 9, 2002. The sections of the bill concerning the special depreciation allowance are made retroactive to taxable years beginning from and after December 31, 1999. TRANSACTION PRIVILEGE TAX HB 2242 (NOW: prime contracting; lawn maintenance; exemption) – Chapter 307 HB 2242 clarifies lawn maintenance services are not prime contracting activities. The bill clarifies that the gross proceeds of income received from lawn maintenance services are not subject to the prime contracting classification if the contract does not include landscaping activities. It defines lawn maintenance service to include lawn mowing, weeding, repairing sprinkler heads or drip irrigation heads, replacing seasonal flowers and refreshing gravel. The bill further clarifies that the gross proceeds of income received from landscaping activities are subject to the prime contracting classification and defines landscaping activities. These activities include repairing sprinkler or watering systems and installing gravel or boulders, along with planting and removing trees. 84 The bill is effective for taxable periods beginning from and after August 31, 2002. HB 2300 (direct use tax payments) - Chapter 338 HB 2300 allows businesses that buy at least $500,000 worth of tangible personal property annually to pay their use taxes directly to the Department of Revenue. The department will administer the program using application forms, use tax direct payment permits and use tax direct payment certificates. The bill is effective and applies to taxable periods beginning from and after December 31, 2002. PROPERTY TAX HB 2063 (NOW: electric utilities; valuation) Chapter 234 HB 2063 freezes the property values for existing electric generation properties for tax year 2003 and clarifies the allocation method to distribute the values to taxing jurisdictions. In 2000, the Legislature passed HB 2324 that provided a different methodology for valuing electrical generation facilities. As a transition to the new values, the 2000 legislation provided that voluntary contributions (in lieu of property taxes) would be paid by generation plants to any county that had a drop of more than 10% of their assessed valuation as a result of the new values. These voluntary contributions are required for tax years 2001 through 2004. For 2001 and 2002, the voluntary contributions are based on actual value lost in those years. The voluntary contributions for 2003 and 2004 are made based on tax year 2002 values. In 2001 Apache County was the only county that received “backfill” voluntary contributions. This bill modifies voluntary contributions for 2003 and 2004 so that they are also based on value lost in those years. The 2004 contribution is only to be made if the value is less than 90% of the 2000 value. ARIZONA DEPARTMENT OF REVENUE 2002 ANNUAL REPORT The bill also requires existing electrical generation plants or units valued by DOR in tax year 2002 to be valued at the final tax year 2002 full cash value for tax year 2003. It specifies that plants placed in service between December 31, 2000 and December 31, 2001 shall be valued pursuant to the statutory valuation procedure for electric generation properties. In addition HB 2063 provides a method for allocation among the various taxing jurisdictions of the generation, transmission and distribution properties of the electric utilities. It specifies that generation values will be combined with distribution values for purposes of allocation. HB 2063 also directs all companies owning electric generation property to provide, under oath by July 1, 2002, the information required by the bill to the Department of Revenue. Assesses a fine of $1000 per day for noncompliance and allows the director to extend the deadline at the director’s discretion and to abate the penalty for reasonable cause. The bill is effective retroactively to from and after December 31, 2001. HB 2596 (property tax; appraisal and appeal) - Chapter 278 HB 2596 requires county assessors to make necessary changes in the tax roll to reflect decisions on appeals. For properties that have the valuation appealed, the county assessor can only change the appealed value in the subsequent year if there is new construction, a structural change or change of use on the property. The bill is effective on the general effective date. HCR 2038 (senior property valuation freeze) – Secretary of State HCR 2038 clarifies the administration of the property valuation protection option for seniors 65 years or older by creating uniformity among counties in the program’s administration. During the 2000 legislative session, the legislature passed HCR 2028 that established the program. It was approved by the voters at the 2000 general election. One of the criteria used to determine eligibility was income level. However the section of the Social Security Act that prescribes the supplemental security income benefit income level to be used actually contains two levels – one for individuals and one for two or more persons. Some counties used the supplemental security benefit income level for two or more persons. HCR 2038 provides that income level is the rate for an individual. In addition, the resolution requires that applications for the program be made to the county assessor on or before September 1. The assessor is to notify the applicant of acceptance or denial on or before December 1. If the application is filed after September 1, the assessor is to process it for the subsequent year. The resolution will become effective if approved by the voters at the November 2002 general election and on proclamation of the Governor. SB 1224 (tax valuations; timeshare property) Chapter 201 Prior to this bill there was not a statutory method of valuation of timeshare properties in Arizona. SB 1224 creates a statutory valuation methodology for timeshare properties. It provides that county assessors classify timeshare properties that are not used for commercial, industrial or transient occupancy purposes as Class 4 property (Class 4 has a 10% assessment ratio). The valuations are based on the original sales price, comparable sales prices or resale prices. The prescribed valuation methodology applies to both new and existing properties and allows for deductions for nonrealty components. In addition the managing entities of the timeshare properties are required to file a use form with the county assessors once a year as a means of establishing the values of the ARIZONA DEPARTMENT OF REVENUE 2002 ANNUAL REPORT 85 properties. The county assessors are to mail the timeshare use form to the managing entities on or before August 1 of each year. The forms, prescribed by the department, are to be filed by the managing entities with the county assessors on or before September 30 of each year. The bill is effective on the general effective date. SB 1290 (community health centers; taxation; exemption.) - Chapter 174 SB 1290 exempts qualifying community health centers operating in medically underserved areas, from property taxation if they are used or held for profit. In addition to the centers, appurtenant land and their fixtures and equipment are also exempt. The bill is effective on the general effective date. OTHER TAX HB 2177 (NOW: tourism and sports authority; revisions) - Chapter 288 E HB 2177 requires the Tourism and Sports Authority (TSA) to select a site host for the multipurpose facility by September 12, 2002. If the TSA fails to select a site host by this date the TSA must seek voter approval for the continuation of the TSA at the next countywide general election held in the county. The bill also expands the entities allowed to provide the land, infrastructure and parking facilities associated with the multipurpose facility and provides additional monitoring of the TSA’s financial activities. If the electors vote to terminate the TSA and its functions, the necessary statutory changes are contained in the bill in sections 20 through 59. These sections would become effective from and after December 31, 2002. Among the changes would be the repeal of the duty of the department regarding the accounting of revenue collected in connection with a multipurpose facility. These include facility-related transaction 86 privilege taxes in the retail, amusement, restaurant and prime contracting classifications. The bill contains an emergency clause. HB 2313 (jail facilities excise tax; extension) Chapter 266 HB 2313 authorizes the Maricopa County Board of Supervisors, upon resolution and voter approval, to extend a Jail Facilities Excise Tax (JFET) for a period not to exceed twenty years. In 1998, the Legislature authorized Maricopa County to levy a JFET tax at a rate of no more than four percent of the transaction privilege tax, subject to the approval of the voters. The duration of the tax was limited to nine years or until $900 million is collected, whichever occurs first (Laws 1998, Chapter 225). Maricopa County voters approved a 1/5 of a cent JFET construction and operation of new Maricopa County medium and maximum security jail facilities and juvenile detention facilities. The current tax will expire in 2007. Statute authorizes the county JFET monies to be used to finance and construct new adult and juvenile jail facilities, maintain and operate adult and juvenile jail facilities and fund specified programs to reduce the expense of adult and juvenile jail facilities. HB 2313 authorizes Maricopa County to request voter approval to extend the JFET and reauthorizes the current uses of the tax as well as including the renovation of adult and juvenile jail facilities and implementation of other programs designed to reduce the expense of adult and juvenile jail facilities. The statute providing for the JFET as added by the bill is repealed on January 1, 2009 if no tax has been levied as of that date. The bill is effective on the general effective date. ARIZONA DEPARTMENT OF REVENUE 2002 ANNUAL REPORT HCR 2047 (tobacco products tax; health services.) – Secretary of State HCR 2047 will appear as a proposition on the November 2002 general election ballot. If approved by the voters through referendum, the statutory changes made would impose a tax increase of one and one-half times the tax rate on tobacco products on January 1, 2002. The increase would result in an additional tax of sixty cents per pack of cigarettes. Proceeds from the increased tax would be deposited in the Tobacco Products Tax Fund and distributed to the following accounts in the specified amounts: • 42% in the Proposition 204 Protection Account. • 5% in the Health Research Fund. • 27% in the Medically Needy Account. • 20% in the Emergency Health Services Account. • 4% in the Health Care Adjustment Account. • 2% in the Health Education Account. The Department of Revenue administers the Health Care Adjustment Account, as well as the collection of the tobacco taxes. The resolution will become effective if approved by the voters at the November 2002 general election and on proclamation of the Governor. SB 1043 (taxation; estates and trusts) Chapter 130 SB 1043 conforms Arizona estate and trust tax statutes to the Internal Revenue Code (IRC). Currently, Arizona statutes regulating income tax of trust, estates, and beneficiaries of trusts differ from current IRC. Arizona’s statute dealing with estate and trust income tax is primarily based on the 1939 IRC. The Revenue Act of 1954 and several other subsequent changes to IRC have created many differences between the federal and state treatment of estate and trust income tax. Provisions for determination of income distribution and distribution deductions, estate and trust income tax exemptions, and distribution of unused carryovers are currently not conformed to federal law. SB 1043 makes changes to state law to conform to current federal law and current practice. The bill is effective for tax years beginning from and after December 31, 2002. OTHER RELATED LEGISLATION HB 2178 (streamlined sales and use tax) Chapter 289 HB 2178 adds to Joint Legislative Budget Committee (JLBC) duties, establishes the Tax Reform for Arizona Citizens Committee, establishes the Arizona Fiscal accountability Committee and provides for delegates from Arizona to attend multistate discussions regarding streamlined sales and use taxes. The JLBC is to analyze the state tax structure, tax burdens on individuals and businesses, and tax incentives for existing and prospective businesses. The JLBC is required to report by October 31, 2002 to various legislative members on the progress of the implementation. The JLBC is also to implement a system of fiscal analysis that applies to those bills introduced in the legislature that involve one or more proposed changes in the tax laws. The analysis is to be based on assumptions that estimate the probable behavioral response of taxpayers, businesses and other citizens. The fifteen member Tax Reform for Arizona Citizens Committee contains 8 legislative members and seven members representing various groups. The committee is to study and make recommendations on state fiscal policy, economic development strategies, and tax policies of the state and local jurisdictions. It is to develop a comprehensive recommendation concerning the appropriate tax structure of the state and local jurisdictions and a transition ARIZONA DEPARTMENT OF REVENUE 2002 ANNUAL REPORT 87 strategy to the appropriate tax structure. The Governor’s Office of Strategic Planning and Budgeting, the Department of Revenue, JLBC and Legislative Council are to provide technical assistance. The committee is to submit to the Governor, President and Speaker a status report by December 31, 2002 and a final report by September 15, 2003. The session law creating the committee is repealed from and after December 31, 2003. compliance for sellers and for all types of commerce, (2) establish standards for tax compliance software and service providers, and (3) establish performance standards for multistate sellers. If the delegates determine that the state should enter into an agreement, the delegates are to recommend the preparation of legislation. The session law relating to the participation in multistate discussions is repealed from and after June 30, 2004. The fifteen member Arizona Fiscal Accountability Committee contains 8 legislative members and seven members representing various groups. The committee is to study and make recommendations on the expenditure policies of the state and local jurisdictions, explore privatization of services and realigning of services and the elimination or streamlining of duplicative programs at the state level. It is to develop a comprehensive recommendation concerning the appropriate policy adjustments related to the state’s expenditures and a strategy for implementation. The Governor’s Office of Strategic Planning and Budgeting, the Auditor General, JLBC and Legislative Council are to provide technical assistance. The committee is to submit to the Governor, President and Speaker a status report by December 31, 2002 and a final report by September 15, 2003. The session law creating the committee is repealed from and after December 31, 2003. Four delegates are appointed to attend multistate discussions regarding streamlines sales and use taxes. The delegate are (1) one House member appointed by the Speaker, (2) one Senate member appointed by the President, (3) the director, a deputy director or an assistant director of the Department of Revenue appointed by the Governor, and (4) one voting member of the Municipal Tax Code Commission. The delegates are to meet with like delegations from other states to consider whether Arizona should enter into agreement with other states to (1) simplify and modernize administration in order to substantially reduce the burden of tax The bill is effective on the general effective date. 88 HB 2213 (reviser's technical corrections; 2002) - Chapter 241 HB 2213 corrects defective and conflicting dispositions of statutory text. Sections 25 through 28 of the bill deal with unclaimed property and make reference changes in §44-313 and §44-314 as to the statutory site for the housing trust fund. The changes to these sections are effective from and after September 30, 2002. HB 2243 (contract auditors; contingent fees; prohibition) - Chapter 80 HB 2243 prohibits the state from hiring contract auditors on a contingency fee basis except for auditors hired to enforce unclaimed property provisions. The Department of Revenue contracts with persons on a contingent fee basis for the collection of taxes, interest and penalties already due the state. The department does not currently contract on a contingent fee basis for auditing purposes except for unclaimed property issues. The bill codifies the department’s current practices. The bill is effective on the general effective date. HB 2244 (NOW: taxes; administrative procedure) - Chapter 242 HB 2244 provides exceptions to a tax court’s authority to dismiss an appeal if the property taxes become delinquent if either of the ARIZONA DEPARTMENT OF REVENUE 2002 ANNUAL REPORT following occurs: 1. The full year tax for the year is paid on or before December 31 of the tax year. 2. The remaining one-half tax that is unpaid is delinquent after the immediately following May 1 is paid by July 1, including interest due. HB 2706 (general appropriations; fiscal year 2002-2003) - Chapter 327 HB 2706 contains the appropriations needed to operate state government for fiscal year 2003-03. Section 57 of the bill provides for 1,042.1 FTE positions and appropriates $61,140,900 to the Department of Revenue, of which $58,838,200 is from the state general fund. The bill is effective on the general effective date. HB 2708 (omnibus budget reconciliation; public finances) -Chapter 328 HB 2708 is one of the omnibus budget reconciliation bills that provide the statutory changes necessary to implement the fiscal year 2002-03 budget. Section 11 of the bill provides that the Department of Administration shall selfinsure by October 1, 2003. The Department of Administration is to seek a variety of plans for self-insurance, including indemnity health insurance, hospital and medical service plans, dental plans and health maintenance organizations. Section 17 of the bill provides that only $10 million from the corporate income tax shall be transferred to the water quality assurance revolving fund in fiscal year 2002-03. Section 22 requires that the proceeds from the sale, transfer, lease or disposal of excess or surplus property sales in fiscal year 2002-03 be deposited into the state general fund instead of being returned to the agency, except for DPS and ADOT. HB 2414 (NOW: agency reports; web site posting) - Chapter 116 HB 2414 requires that all state agencies that maintain an agency web site, except the State Compensation Fund, to post on their web site a copy of the annual agency report. The bill prohibits an agency that posts a copy of their annual report on their web site from distributing copies of the report, with the exception of copies to the Governor, President of the Senate, Speaker of the House of Representatives and Arizona State Library, Archives and Public Records, and pursuant to public records requests. The agency will send an electronic or printed notification to the recipients that the annual report has been posted on the agency web site. The printed copies of the annual report are to be on twenty-pound bond paper printed with black ink except that the cover and back pages may be of sixty-five pound or less cover paper. If an agency that has maintained a web site has distributed printed copies of an annual report during the twelve months preceding the bill’s effective date, the agency is to notify the director of the Joint Legislative Budget Committee of the savings realized by the posting, printing and distribution requirements contained in the bill. This reporting requirement is repealed on January 1, 2004. The bill is effective on the general effective date. SB 1060 (NOW: budget reconciliation; 2002) - Chapter 321 E SB 1060 contains provisions that are the fourth and final attempt to balance the FY 2001-02 budget. Section 18 of the bill deals with settlement payments in Ladewig v. State of Arizona. It allocated $75 million in fiscal year 2002-03 for the purposes of covering the first year payments and costs associated with the case. From this allocation, the Department of Revenue may use up to $15 million for administration and review of payments. Prior to the administrative expenditure, the department is to present an expenditure plan for Joint Legislative Budget ARIZONA DEPARTMENT OF REVENUE 2002 ANNUAL REPORT 89 Committee approval that includes an estimate and scope of the entire administrative requirement associated with disbursing payments and costs for the case. • The bill contains an emergency clause. Miscellaneous • Removes the requirement that Board of Tax Appeals (BOTA) retain specific records for the property tax assessment and appeals. SB 1139 (tax corrections act of 2002) Chapter 326 SB 1139 makes technical, conforming and clarifying changes to the tax statutes. • Eliminates reporting of transient personal property (livestock). • Clarifies that electronic return preparers retain records of transaction privilege tax and use tax returns for six years and other tax return records for four years. Removes the overlap between confidentiality provisions in current statute (Title 42 and Title 44). • Provides electronic return preparers who fail to retain tax return records for the specified time periods, have the same penalties as other return preparers. Clarifies the exchange of information regarding severance tax, jet fuel excise tax or use tax to any county, city or town tax official. • Clarifies that the Department of Revenue collects and administers, in addition to transaction privilege tax, any affiliated excise taxes including: - Use tax. - Severance tax. - Jet fuel excise and use tax. - Rental occupancy tax. • Authorizes the Department of Revenue to prescribe, by administrative rule, alternative methods for signing, subscribing or verifying any report or statement required to be filed by the department in relation to property tax and unclaimed property. • Allows the Department of Revenue Director to waive the signature requirement provided that an equivalent method of verification is employed. • Stipulates that the Department of Revenue will no longer prescribe short form returns Electronic Return Preparers • Establishes a retention period for tax returns and accompanying documents. • • • Allows the Department of Revenue to require, by administrative rule, electronic return preparers to retain tax return documents for six years and other tax return records for four years. • Clarifies that electronic return preparers must abide by the regulations set forth in department rules, manuals, rulings or procedures. • Moves the definitions of electronic return preparer, return preparer and return to another statutory section. Definitions • Deletes the definition of claimant and statutory references to claimant. • Removes, from the definition of report, a holder’s report of abandoned property. 90 Defines Arizona tax liability due on the taxpayer’s estimated tax return as the amount of tax due on the return minus the amount of Arizona income tax withheld and tax credits claimed by the taxpayer. ARIZONA DEPARTMENT OF REVENUE 2002 ANNUAL REPORT for individual taxpayers whose dividend and interest income is less than $400. the regulatory agenda that the agency expects to follow during the next calendar year. • Corrects internal references regarding personal property. • Corrects internal references regarding the increased transaction privilege tax from the passage of Proposition 301. Among the changes made to the administrative procedures are changes in the areas of the effective date of rules, the vote required for immediate effect of rules, waiting periods for rules, the contents of preambles and the elimination of concise explanatory statements. • Provides a conforming change to the utilities classification from the deregulation bill from 1998. • Removes the transaction privilege tax exemption for semi-trailers manufactured in Arizona that are sold to a person who holds an Interstate Commerce Commission license for use in interstate commerce. • Clarifies the exchange of confidential information regarding hearings involving tax preparers. • Changes the date the assessors calculate voluntary contributions from the third Monday in August to the third Friday in September. • Deletes duplicative statutory language. • Blends multiple enactments regarding constitutional taxation. The bill is effective on the general effective date. SB 1339 (state agencies; administrative procedures; rules) - Chapter 334 SB 1339 makes adjustments to state agency administrative procedures, specifically to rule making guidelines, to substantive policy statements and by requiring annual regulatory agendas. On or before December 1 of each year each agency is to prepare and make publicly available In addition to changes in administrative procedures, the bill also broadens the definition of family members to include aunt, uncle, niece and nephew in situations when annual leave is transferred from a state employee to another state employee when a state employee or the employee’s family member has an extended illness or injury. The bill also establishes the Regulatory Reform and Enforcement Study Committee. The 16member committee has members appointed by the governor, president and speaker and included seven legislators. The committee is to inquire into a multitude of issues including the development of a uniform methodology for the calculation of fees, criminal enforcement of regulatory laws, the effectiveness of agency ombudsmen, and many others. The committee is to submit a written report of its findings and recommendations to the president, speaker and governor on or before December 31, 2003. Section 5 of the bill deals with Department of Environmental Quality air permits and is effective retroactively to from and after February 28, 1992. The remainder of the bill is effective on the general effective date. SB 1415 (public records; inspection; mail) Chapter 211 SB 1415 allows a person to request that the custodian of public records mail a copy of the requested public record not otherwise available on the public body’s web site to the requesting person. Copying and postage charges may be ARIZONA DEPARTMENT OF REVENUE 2002 ANNUAL REPORT 91 required. Access to a public record is deemed denied if it is not provided “promptly.” SB 1415 became law without the Governor’s signature. The Governor explained that the bill was “clumsily written and leaves agencies with no guidance as to implementation.” She further expressed her concern about litigation over undefined language, in particular the use of the adverb “promptly.” SB 1436 (state budget cycles) - Chapter 210 SB 1436 replaces Arizona’s biennial budgeting system with a bifurcated budgeting system, requiring the state’s largest budget units to be enacted annually rather than biennially. The Department of Revenue is a biennial budget unit. The application of the provisions of the bill begins for the fiscal year 2003-04. The bill is effective on the general effective date. STATE OF ARIZONA DEPARTMENT OF REVENUE 1600 WEST MONROE PHOENIX, ARIZONA 85007