A R I Z O N A D E PA R T M E N T O F R E V E N U E

T H E R E V E N U E I M PA C T O F
A R I Z O N A’ S TA X
EXPENDITURES
FY 2007/08
P R E PA R E D

FOR:

T H E G OV E R N O R

B Y: T H E O F F I C E

Janet Napolitano
Governor

OF

AND THE

LE G I S L ATU R E

E C O N O M I C R E S E A RCH & A N A LY S I S

Gale Garriott
Director

November 17, 2008, Preliminary

The following report on Arizona's Tax Expenditures was prepared for the Governor and the
Legislature in compliance with A.R.S. §42-1005.
The preliminary 2008 report provides a broad range of information. The report contains sections for
all taxes imposed by the state; however, the individual income tax section of this report contains only
credit data. The final report will contain additional information made available through the 2006
Individual Income Tax Simulation Model.
If you have any questions or comments regarding this report, please contact the Arizona Department of
Revenue at (602) 716-6090.

TABLE

OF

C ONTENTS

INTRODUCTION........................................................................................................Page 1
AIRCRAFT LICENSE TAX EXPENDITURES..................................................... Page 3
AVIATION FUEL TAX EXPENDITURES ........................................................... Page 9
BINGO TAX EXPENDITURES .............................................................................Page 13
BOXING TAX EXPENDITURES ..........................................................................Page 19
CORPORATE INCOME TAX EXPENDITURES..............................................Page 23
FIDUCIARY INCOME TAX EXPENDITURES ................................................Page 35
FLIGHT PROPERTY TAX EXPENDITURES ...................................................Page 45
IN LIEU PROPERTY TAX EXPENDITURES ...................................................Page 49
INDIVIDUAL INCOME TAX EXPENDITURES .............................................Page 53
INSURANCE PREMIUM TAX EXPENDITURES ............................................Page 59
JET FUEL EXCISE AND USE TAX EXPENDITURES...................................Page 67
LUXURY TAX EXPENDITURES ..........................................................................Page 71
MOTOR CARRIER FEE EXPENDITURES ........................................................Page 77
MOTOR VEHICLE FUEL TAX EXPENDITURES ..........................................Page 83
PARI-MUTUEL TAX EXPENDITURES ..............................................................Page 87
PRIVATE CAR PROPERTY TAX EXPENDITURES .......................................Page 91

PROPERTY TAX EXPENDITURES .....................................................................Page 95
SEVERANCE TAX EXPENDITURES................................................................Page 103
TRANSACTION PRIVILEGE AND USE TAX EXPENDITURES.............Page 107
UNDERGROUND STORAGE TANK TAX EXPENDITURES..................Page 131
UNEMPLOYMENT INSURANCE TAX EXPENDITURES.........................Page 135
USE FUEL TAX EXPENDITURES .....................................................................Page 143
VEHICLE LICENSE TAX EXPENDITURES...................................................Page 147
WORKERS’ COMPENSATION PREMIUM LIEU
TAX EXPENDITURES......................................................................................Page 153

THE 2008 ARIZONA TAX EXPENDITURE REPORT
INTRODUCTION
The Arizona Tax Expenditure Report is a study
prepared for the Governor and the Legislature
by the Arizona Department of Revenue's
Office of Economic Research and Analysis.
The report is prepared in compliance with
A.R.S. §42-1005.
Tax expenditures are provisions within the law
(exemptions, exclusions, deductions and
credits) designed to encourage certain kinds of
activity or to aid taxpayers in certain categories.
Such provisions, when enacted into law, result
in a loss of tax revenues, thereby reducing the
amount of revenues available for state (as well
as local) programs. In effect, the fiscal impact
of implementing a tax expenditure would be
similar to a direct expenditure of state funds.
This report provides a list of tax expenditures,
plus,
whenever
possible,
details
the
approximate costs of exempting certain types of
income, goods, services or property from their
respective tax statutes.
The purpose of this report is to provide a better
understanding of the costs associated with the
existing set of tax exemptions, exclusions,
deductions and credits. There are sections on
every tax imposed in Arizona. In each section,
provisions dealing with that specific tax type are
analyzed. The analysis includes a detailed
explanation of the provision as well as the
approximate cost of that provision, if possible.
Sections pertaining to tax types not
administered by the Arizona Department of
Revenue were reviewed by the agency
administering the tax. Any figures presented in
these sections were provided by that agency.
ASSUMPTIONS
This report is not intended in any way to
determine the desirability of the tax
expenditures currently established in law. The
Legislature and the Governor determine the
taxation environment that they wish to create in

1

Arizona and formulate law to create this
taxation policy. All tax expenditures were
conscious public policy decisions at the time of
enactment. For example, since 1990, public
policy decisions were made to relieve the
individual income tax burden on persons age 65
and over in Arizona. To that end, the amount
of the age 65 and over exemption was increased
in 1992 to $1,750 from $1,500 and increased
again for tax year 1993 to $2,100. From tax
years 1993 through 2007, the age 65 and over
exemption has remained at $2,100.
The costs associated with the specific provisions
shown in this report are the estimated impact of
that provision based upon the information
available for the stated fiscal or calendar year.

There is no consideration of decreased
demand as a result of higher taxes. For

example, if taxes on a certain type of liquor were
increased to $3 per gallon, the calculations
presented assume that the same demand exists
under the $3 per gallon tax as exists when the tax
is 84¢ per gallon. This constant demand would
not exist in the "real" world, but the tools are not
available to the Department of Revenue to
estimate the elasticity of demand. Therefore, the
estimated costs should be used only as a guide
and not as an exact representation of what would
occur in later years.
Finally, the summary page(s) at the end of each
section provides a total value of the tax
expenditure. This total value is only a general

guide and should not be used in isolation
from the rest of the expenditure amounts. In

fact, the expenditures for any particular tax
cannot generally be added to reach a total. The
presence or absence of one expenditure for a tax
type can directly affect the value of another
expenditure for that same tax type.

2

AIRCRAFT LICENSE TAX
EXPENDITURES

3

4

AIRCRAFT LICENSE TAX EXPENDITURES 1
A license tax is imposed on aircraft operating in
this state at the rate of 0.5% of the average fair
market value of the particular make, model and
year of the aircraft, but not less than $20. The
proceeds from this tax are deposited into the
state aviation fund.

of sale, as long as these aircraft are registered within ten
days of the dealer's purchase date. There were 58
aircraft of this type registered by bona fide
aircraft dealers in Arizona in fiscal year
2007/08. The tax value of these aircraft was
approximately $280,571.

AIRCRAFT LICENSE TAX
EXEMPTIONS
Certain aircraft are exempt from this license
tax, as set out in A.R.S. §28-8322. Aircraft
operated by an airline company and regularly scheduled
for the primary purpose of carrying persons or property
for hire in interstate, intrastate, or international
transportation are exempt from this tax. Also,
aircraft owned by a nonresident who bases the
aircraft in this state for a period of not more
than ninety consecutive days or ninety days in
any one calendar year, if the aircraft is not
engaged in intrastate commercial activity is
exempt from this tax. Calculating the tax value
of these tax expenditures would require
knowing the average fair market value of every
aircraft carrying persons or property that stops
at an airport in this state. Therefore, the tax
value of this tax expenditure is not quantifiable.

PREFERENTIAL TAX RATES
There are preferential aircraft license tax rates
granted to certain types of aircraft in A.R.S.
§28-8336. The license tax rate for a nonresident
who bases his aircraft in Arizona for more than 90
days but less than 210 days in a given calendar year,
provided that the aircraft is not engaged in any intrastate
commercial activity, is equal to 0.1% of the average
fair market value of the particular make, model,
and year of aircraft (A.R.S. §28-8336). This tax
rate is 20% of the tax rate imposed on residentowned aircraft. In fiscal year 2007/08, there
were 66 nonresident aircraft based in Arizona.
The total aircraft license tax paid by
nonresidents falling into this category in fiscal
year 2007/08 was $51,986. The value of this
expenditure can be calculated by multiplying
this figure by four, which yields the foregone
tax collections allowed by this preferential rate,
or $207,944.

Aircraft owned and operated exclusively in the public
service by the federal government, by the state or by any
political subdivision thereof, or by the civil air patrol is
exempt from the vehicle license tax (A.R.S. §288323). The average fair market value of aircraft
owned by the federal government and operated
in Arizona is unknown. It is known that there
were 115 aircraft owned by the Arizona
Department of Transportation, the Arizona
Department of Public Safety, various Arizona
counties and cities, and the civil air patrol in
fiscal year 2007/08. The average fair market
value of each aircraft is approximately
$358,899, which equates to a tax value of
$206,366 for this tax expenditure.
A.R.S. §28-8383B also exempts aircraft owned and
held by a bona fide aircraft dealer solely for the purposes
1Any

Aircraft in storage or being repaired is charged a
license tax of $20 (A.R.S. §28-8337). There are
117 aircraft, which have been granted this
license tax rate with a fair market value of
approximately $ 11.1 million. The tax value of
this preferential license tax is $ 58,023 which is
the total fair market value multiplied by 0.5%
less $20 per aircraft.
The annual license tax for a salvage aircraft that is
in storage or that is being restored is $5 (A.R.S. §288338). There are 74 aircraft registered under
this provision. Assuming no market value for
salvage aircraft, the tax value of this tax
expenditure is the difference between the $20
minimum license tax imposed on all other

figures presented for Aircraft License Tax Expenditures were provided by the Arizona Department of
Transportation.

5

aircraft and the $5 minimum license tax
imposed on these tax, or $1,110.
A.R.S. §28-8339 allows a $20 license tax for an
antique, classic, warbird, glider, experimental,
homebuilt, or balloon aircraft. There are 3,865
aircraft registered in Arizona under this
provision, with a total market value of $ 15.4
million. The tax value of this tax expenditure is
the total market value multiplied by 0.5% less
the $20 license tax paid per aircraft, or $0.

6

Maintenance aircraft owned by a nonresident (A.R.S.
§28-8341) and manufacturer's aircraft (A.R.S. §288340) are required to pay an aircraft license tax
of $20. There are 4 nonresident-owned
maintenance aircraft and 13 manufacturer's
aircraft registered in Arizona, for a total market
value of $20.2 million. The tax value of this tax
expenditure can be calculated by multiplying
the total market value by 0.5% and subtracting
the $20 per aircraft tax paid, or $100,840.

S UMMARY OF A IRCRAFT L ICENSE
TAX E XPENDITURES
Revenue Gain
AIRCRAFT LICENSE TAX EXEMPTIONS:
Aircraft operated for the primary purpose of carrying persons or
property for hire ................................................................................................................. NIA *
Nonresident-owned aircraft in the state for less than 90 days..........................................NIA
Aircraft owned by a government or by the civil air patrol ........................................ $206,366
Aircraft owned by an aircraft dealer for sale ................................................................. 280,571
PREFERENTIAL TAX RATES
Preferential rate for nonresidents with aircraft in the state from 90
to 210 days...................................................................................................................... $207,944
Preferential rate for aircraft in storage or being repaired............................................... 58,023
Preferential rate for salvage aircraft in storage or being repaired................................... 1,110
Preferential rate for antique, classic, warbird, etc., aircraft......................................................0
Preferential rate for maintenance aircraft...................................................................................0
Preferential rate for manufacturer's aircraft................................................................... 100,840

TOTAL QUANTIFIABLE AIRCRAFT LICENSE TAX EXPENDITURES 2
..................................................................................................$ 854,854

*No

Information Available.
tax expenditures represent foregone revenues to the state aviation fund.

2These

7

8

AVIATION FUEL
TAX EXPENDITURES

9

10

AVIATION FUEL TAX EXPENDITURES3
An aviation fuel tax is imposed on every supplier
for each gallon of aviation fuel possessed, refined,
manufactured,
produced,
blended
or
compounded in this state by the supplier or
imported by the supplier, whether in the original
package or container in which it was imported or
otherwise. All suppliers are required to pay tax
on all aviation fuel. In order to qualify for
exemptions on certain types of aviation fuel, the
taxpayer must file for a refund. The fuel tax rate
is 5¢ per gallon. Receipts from the aviation fuel
tax are deposited in the Aviation Fund.
Exemptions from the aviation fuel tax are set
out in A.R.S. §28-5610. Aviation fuel moving in
interstate or foreign commerce, not destined or diverted to
a point within this state is exempt from aviation
fuel tax. There is no requirement for reporting
this information; therefore, the tax value of this
expenditure is unknown.
Also exempt from aviation fuel tax is aviation
fuel sold to the United States armed forces for use in

3Any

ships or aircraft, or for use without this state (A.R.S.
§28-5610).
The amount of aviation fuel
purchased by the United States armed forces is
not reported and the tax value is unknown.
Aviation fuel, which is exported from the state, is
exempt from aviation fuel tax (A.R.S. §285610A). The taxpayer must apply for a refund.
If such fuel were subject to taxation in fiscal
year 2007/08, an additional $40,198 in aviation
fuel tax would have been received.
Although not listed as an exemption, a taxpayer
may request a refund for aviation fuel for use in
applying seeds, fertilizer or pesticides (A.R.S. §285611A). No requests for refunds were made in
fiscal year 2007/08.
Also not listed as an exemption, a taxpayer may
request a refund for losses of fuel due to fire, theft or
other accident (A.R.S. §28-5611A). No requests
for refunds were made in fiscal year 2007/08.

figures presented for Aviation Fuel Tax Expenditures were provided by the Arizona Department of
Transportation.

11

S UMMARY OF AVIATION F UEL TAX
E XPENDITURES
Revenue Gain
Aviation fuel moving in interstate or foreign commerce.................................................................... NIA*
Aviation fuel sold to the United States armed forces............................................................................. NIA
Aviation fuel for use in applying seeds, fertilizer or pesticides................................................................. $0
Exported aviation fuel ...........................................................................................................................$40,198
Aviation fuel lost due to fire, theft or other accident................................................................................. $0

TOTAL QUANTIFIABLE AVIATION FUEL TAX EXPENDITURES 4
....................................................................................................................$40,198

*

No Information Available.
tax expenditures represent foregone revenues to the state aviation fund.

4The

12

BINGO
TAX EXPENDITURES

13

14

BINGO TAX EXPENDITURES
The tax on state licensed bingo operations is
based on a multi-tiered licensing structure.
There are three classes of bingo licenses, each of
which has a different tax rate. Each class' tax
rate is based on bingo receipts. All bingo tax
collections are deposited into the general fund.
Class A licensees, whose gross receipts do not
exceed $15,600 per year, are taxed at 2.5% of
their adjusted gross receipts (A.R.S. §5-414).
Adjusted gross receipts equals gross receipts
less the amount paid for prizes. Therefore,
prize money is exempt from taxation for this
class of bingo licensees. In fiscal year 2007/08,
this group of taxpayers subtracted $2.9 million
from gross receipts. Determination of the tax
value of this subtraction, however, is not a
simple matter. If prize money were not allowed
as a subtraction from gross receipts, it is
unlikely that this group would have a 2.5% tax
rate. However, if a 2.5% tax rate is not used, a
more appropriate tax rate must be selected.
The tax value of the prize money subtraction
for Class A taxpayers is calculated in two ways.
Option 1 is to multiply the subtraction amount
by 2.5%, the Class A tax rate. This results in
potential collections of $71,760. Option 2 is to
multiply the subtraction amount by the average
effective tax rate of the Class A licensees,
calculated by dividing Class A tax collections by
Class A total gross receipts. This rate for the
Class A licensees is 0.57%. (This method is
based on the premise that the Class A tax rate
would not be 2.5% if the subtraction were not
allowed.)
Multiplying the prize money
subtraction amount by 0.57% results in
potential collections of $16,250.
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% of their gross receipts. Class C licensees,
whose gross receipts exceed $300,000 annually,
are taxed at 2.0% of their gross receipts. This is
a preferential rate structure because different
tax rates are imposed on similar taxpayers (all

15

involved in the business of bingo) based on
criteria set in Arizona statutes. This preferential
rate structure allows taxpayers with lower gross
receipts to be taxed at a lower tax rate.
Measuring the tax value of allowing a preferred
tax rate for bingo is difficult because the lowestincome taxpayers (recipients of less than $15,600
annually) have a tax rate higher than the highestincome taxpayers.
Normally, this type of
calculation would simply involve applying the
highest tax rate to all taxpayers to find the
revenues that might have been received.
Therefore, the tax value of allowing preferential
tax rates is also calculated in two ways. Option 1
determines the additional tax that would be
received if all classes of licensee were taxed at the
highest rate. However, the tax rate of 0.57%
mentioned previously, is considered to be the
effective tax rate for Class A. This would make
the highest tax rate among the three classes
2.0%. If Class A and Class B were taxed at
2.0%, additional general fund revenues would
total $100,333. (The calculation for Class A
involves substituting 2.0% as the effective tax
rate.) The problem with this method of
determining the tax value of preferential tax rates
is that it assumes (1) there is a possibility of a
legislative change which would raise the bingo
tax to a uniform rate that is the highest tax rate
currently being imposed and (2) small bingo
operations would not be affected by an increase
in the tax rate (the same level of bingo activities
would occur irrespective of the tax rate). Option
2 looks at preferential rates slightly differently.
This option assumes that if a uniform tax rate
were to be imposed to tax all licensees
identically, the new rate would be revenue
neutral, resulting instead in a burden shift. The
effective tax rate on all bingo activities,
determined by dividing total tax collections into
gross receipts, is 1.73%. If this rate is applied to
all classes of bingo licensees, total tax collections
remain the same, but, as can be seen below, the
amount of tax paid by class of licensee shifts.

Class
A
B
C
Total

Original Tax
Collections*
$ 16,250
$194,197
$328,422
$538,869

New Tax
Collections
$ 49,751
$219,577
$269,540
$538,869

*This amount reflects collections for tax only,
and does not include penalty and interest.

Difference
$33,501
$25,380
($58,881)
$0

16

S UMMARY

OF

B INGO TAX E XPENDITURES

Revenue Gain
Subtraction from Gross Receipts for Class A Licensees
Option 1...................................................................................................................................................$71,700
Option 2.....................................................................................................................................................16,250
Preferential Tax Rates for Class A and Class B Licensees
Option 1................................................................................................................................................ $100,300
Option 2.............................................................................................................................................................. 0

TOTAL QUANTIFIABLE BINGO TAX EXPENDITURES 5
RANGES FROM ....................................................................... $16,250 – 100,300

5These

tax expenditures represent foregone revenues to the state general fund.

17

18

BOXING
TAX EXPENDITURES

19

20

BOXING TAX EXPENDITURES6
Any person who promotes a boxing contest in
Arizona must pay to the Department of Racing
(collecting for the state Boxing Commission) a
4% tax on the gross receipts of such match or
exhibition, after deduction of city, state and
federal taxes (A.R.S. §5-104.02A).
Gross
receipts are defined as receipts from the face
value of tickets sold.
Tickets issued as
complimentary by the promoter of a boxing
match are exempt from taxation, as long as the

6Any

number of complimentary tickets does not
exceed 2% of total number of tickets issued or
75 tickets, whichever is greater. During fiscal
year 2007/08, 25 boxing contests were held. At
each event, 75 complimentary tickets were
issued with an average price of $25 each. Had
the value of these tickets been taxable, an
additional $2,000 in boxing taxes would have
been received.

figures presented for Boxing Tax Expenditures were provided by the Arizona Boxing Commission.

21

S UMMARY

OF

B OXING TAX E XPENDITURES

Revenue Gain
Complimentary tickets issued .................................................................................................................$2,000

TOTAL QUANTIFIABLE BOXING TAX EXPENDITURES 7 ............. $2,000

7These

tax expenditures represent foregone revenues to the state general fund.

22

CORPORATE INCOME
TAX EXPENDITURES

23

24

CORPORATE INCOME TAX EXPENDITURES
The Department of Revenue collected nearly $1
billion in net corporate income taxes during
fiscal year 2007/08. Net corporate income tax is
deposited into the general fund. However, 15%
of the tax is distributed to cities and towns two
years after the year in which it was collected. For
example, 15% of tax collected in fiscal year
2007/08 will be distributed to incorporated cities
and towns in fiscal year 2008/09. Therefore,
only 85% of the tax collected is actually available
for the state’s use. This fact should be kept in
mind when reviewing the reported tax value of
subtractions and credits. The assumption can be
made that 85% of the tax value is general fund
revenue, with the remaining 15% distributed to
cities and towns two years after collection.
Arizona corporate taxable income is calculated
beginning with federal taxable income.
Therefore, by conforming Arizona law to the
Internal Revenue Code, any subtractions
allowed under federal law in the calculation of
federal taxable income are allowed under
Arizona law. From federal taxable income,
certain additions and subtractions are allowed
to reach Arizona taxable income.
After
calculating tax liability, corporate taxpayers may
take advantage of a number of credits to reduce
tax liability.
Most of the corporate tax expenditures are not
quantifiable. The tax value of the federal
subtractions in the calculation of federal taxable
income cannot be determined because these are
for corporate income from all states, not just
Arizona income. The tax value of Arizona's
subtractions from federal taxable income
cannot be calculated because subtractions are
deducted from federal taxable income prior to
apportionment of income to Arizona.
Therefore, it cannot be determined what
percent of the subtractions is used in the
calculation of Arizona tax. The remaining
subtractions and tax credits are only
quantifiable to the extent that data exists.

25

SUBTRACTIONS ALLOWED IN THE
CALCULATION OF
FEDERAL TAXABLE INCOME
The starting point for the calculation of
Arizona corporate tax liability is federal taxable
income, as calculated on the federal corporate
income tax return. The Arizona legislature
must approve legislation to conform to the
definition of federal taxable income as of
January of each year. In conforming to the
definition of federal taxable income, Arizona
accepts the subtractions from gross income
allowed by the federal government. These
subtractions include:
•

Compensation of officers.

•

Salaries and wages.

•

Incidental repairs that do not add to the value of the
property or appreciably prolong its life.

•

Debts that became worthless in whole or in part
during the tax year.

•

Expenses of renting or leasing a vehicle.

•

Certain taxes paid or accrued during the tax year.

•

Interest paid on certain debts.

•

Contributions or gifts actually paid within the tax
year to charitable and governmental organizations
and any unused contributions carried over from
prior years, except the total amount claimed may
not be more than 10% of taxable income.

•

Depreciation, plus the part of the cost that the
corporation elected to expense for certain tangible
property placed in service during the tax year.

•

Certain percentage depletion rates applicable to
natural deposits.

•

Contributions to pensions, profit sharing or other
funded deferred compensation plans.

•

Contributions to employee benefit programs not
elsewhere claimed.

•

Other deductions including amortization, certain
costs of qualified film or television productions,
certain business start-up and organizational costs,
reforestation costs, insurance premiums, legal and

professional fees, supplies used and consumed in the
business, utilities, losses from partnership trade or
business activities, deduction for clean-fuel vehicle
and certain refueling property, deduction for certain
energy efficient commercial building property,
dividends paid in cash on stock held by an employee
stock ownership plan, etc.

•

It is not possible to estimate the tax value of
these subtractions. While the Department of
Revenue receives information from the Internal
Revenue Service from federal tax returns for
corporations with an Arizona address, data on
corporations headquartered outside of Arizona
but operating within the state is not available.
Even if it were available, multi-state
corporations would include income and
deductions from all states in which they operate
in the calculation of federal taxable income,
making it useless for Arizona tax expenditure
calculation purposes.

•

•

•

•

EXEMPT ORGANIZATIONS
Certain organizations are exempt from
corporate income tax according to Arizona law.
The organizations specifically set out in statute
as exempt are:
•

•

•
•

•

•

The United States, the state, counties,
municipalities, school districts or other political
subdivisions or units of this state or the federal
government [A.R.S. §43-104(23)].
Labor, agricultural or horticultural organizations,
other than cooperative organizations [A.R.S. §431201(1)].
Qualifying fraternal beneficiary societies, orders or
organizations [A.R.S. §43-1201(2)].
Cemetery companies owned and operated exclusively
for the benefit of their members or which are not
operated for profit [A.R.S. §43-1201(3)].
Qualifying corporations organized and operated
exclusively for religious, charitable, scientific, literary
or educational purposes or for the prevention of
cruelty
to
children
or
animals
[A.R.S. §43-1201(4)].
Nonprofit business leagues, chambers of commerce,
real estate boards or boards of trade
[A.R.S. §43-1201(5)].

26

•

•

•

•

Nonprofit qualifying civic leagues or organizations
operated exclusively for the promotion of social welfare,
or local organizations of employees [A.R.S. §431201(6)].
Clubs organized and operated exclusively for
pleasure, recreation and other non-profit making
purposes [A.R.S. §43-1201(7)].
Corporations organized for the exclusive purpose of
holding title to property, collecting income therefrom
and turning over the entire amount of such income,
less expenses, to an organization which itself is
exempt from the tax imposed by this title
[A.R.S. §43-1201(8)].
Voluntary employee's beneficiary organizations
providing for the payment of life, sick, accident or other
benefits to the members of such organizations or their
dependents, providing certain requirements are met
[A.R.S. §43-1201(9)].
Teachers' or public employees' retirement fund
organizations of a purely local character, provided
certain requirements are met [A.R.S. §431201(10)].
Religious or apostolic organizations or corporations,
if such organizations or corporations have a
common treasury or community treasury, even if
such corporations or organizations engage in
business for the common benefit of the members, but
only if the members thereof include, at the time of
filing their returns, in their Arizona gross income
their pro rata shares, whether distributed or not, of
the net income of the organizations or corporations
for such year [A.R.S. §43-1201(11)].
Voluntary employees' beneficiary organizations
providing for the payment of life, sick, accident or
other benefits to the members of such organization,
their dependents or their designated beneficiaries,
provided membership is limited to officers or
employees of the U.S. government [A.R.S. §431201(12)].
Corporations classified as diversified management
companies under §5 of the Federal Investment
Company Act of 1940 and registered as provided
in that act [A.R.S. §43-1201(13)].
Insurance companies paying to the state tax upon
premium income derived from sources within this
state [A.R.S. §43-1201(14)].

•

•
•

Mutual ditch, irrigation or water companies or
similar nonprofit organizations if 85% or more of
the income consists of amounts collected from
members for the sole purpose of meeting losses and
expenses [A.R.S. §43-1201(15)].
Workers’ compensation pools established pursuant to
§23-961.01 [A.R.S. §43-1201(16)].
A small business corporation which makes an
election for a taxable year pursuant to subtitle A,
chapter 1, subchapter S of the Internal Revenue
Code is not subject to corporate taxes for such year
but only to the extent such corporation is not subject
to federal income taxes [A.R.S. §43-1126).

Three of these organizations - religious or
apostolic organizations, insurance companies
and Subchapter S corporations - are exempt
from corporate tax but their income does not
escape taxation. In the case of the religious or
apostolic corporations and the Subchapter S
corporations, the income is taxed at the
individual income tax level.
Insurance
companies are required to pay insurance
premium tax rather than corporate income tax.

•

•

•

•

It is not possible to calculate the corporate tax
that would be collected if all exempt
organizations were subject to corporate
taxation.
That calculation would require
completion of federal and state tax forms by
the exempt organizations.

•

ARIZONA SUBTRACTIONS FROM
FEDERAL TAXABLE INCOME

•

Arizona statutes set out certain items that can
be subtracted from federal taxable income to
reach adjusted income attributable to Arizona.
The tax value of these subtractions cannot be
determined because these are subtracted from
federal taxable income prior to apportionment
of income to Arizona. It is impossible to
isolate the portion of those subtractions
attributable to Arizona only.
Due to the Department of Revenue’s new
processing system, estimates of the cost of some
of these subtractions are available for 2006.
•

Annuity income included pursuant to §72 of the
Internal Revenue Code if the first payment with

27

•

•
•

respect to such annuity was received prior to
12/31/78 [A.R.S. §43-1022(8)].
The excess of a partner's share of income required to
be included under §702(a)(8) of the Internal
Revenue Code over the income required to be
included under chapter 14, article 2 of Title 43
[A.R.S. §43-1022(9)].
The excess of a partner's share of partnership losses
determined pursuant to chapter 14, article 2 of
Title 43 over the losses allowable under §702(a)(8)
of the Internal Revenue Code [A.R.S. §431022(10)].
The amount by which the adjusted basis of all
property held for the production of income and sold
or otherwise disposed of during the taxable year
other than depreciable property used in a trade or
business, computed pursuant to Title 43 and the
income tax act of 1954, as amended, exceeds the
adjusted basis of such property computed pursuant
to
the
Internal
Revenue
Code
[A.R.S. §43-1022(11)].
The amount allowed by A.R.S. §43-1024 for
amortization by a qualified defense contractor
certified by the Department of Commerce under
§41-1508, of a capital investment for private
commercial activities [A.R.S. §43-1022(12)].
Gain included on the sale or other disposition of a
capital investment that a qualified defense contractor
has elected to amortize pursuant to A.R.S. §431024 [A.R.S. §43-1022(13)].
The amount allowed by §43-1025 for contributions
during the taxable year of agricultural crops to
charitable organizations [A.R.S. §43-1022(14)].
The portion of any wages or salaries paid or
incurred by the taxpayer for the taxable year that is
equal to the amount of the federal work opportunity
credit, the empowerment zone employment credit, the
credit for employer paid social security taxes on
employee cash tips, and the Indian employment
credit that the taxpayer received under §§45A,
45B, 51(a) and 1396 of the IRC
[A.R.S. §43-1022(15)].
An adjustment for federal bonus depreciation
[A.R.S. §43-1022(28, 29)].
Arizona capital loss carryover in an amount not to
exceed $1,000 [A.R.S. §43-1122(2)].

•

•

•
•
•

•

•
•

•
•
•

•

•

•

With respect to a financial institution, expenses and
interest relating to tax-exempt income disallowed
pursuant to §265 of the Internal Revenue Code
[A.R.S. §43-1122(3)].
Dividends received from another corporation owned
or controlled directly or indirectly by a recipient
corporation [A.R.S. §43-1122(4)].
Interest income received on obligations of the U.S.
[A.R.S. §43-1122(5)].
Dividend income from foreign corporations
[A.R.S. §43-1122(6)].
State income tax refunds received which were
included as income in computing federal taxable
income [A.R.S. §43-1122(8)].
Expense recapture included in income pursuant to
§617 of the Internal Revenue Code for mine
exploration expenses [A.R.S. §43-1122(9)].
Deferred exploration expenses allowed by A.R.S.
§43-1127 [A.R.S. §43-1122(10)].
Exploration expenses related to the exploration of
oil,
gas
or
geothermal
resources
[A.R.S. §43-1122(11)].
Amortization of pollution control devices
[A.R.S. §43-1122(12)].
Amortization of the cost of child care facilities
[A.R.S. §43-1122(13)].
Income from a domestic international sales
corporation required to be included in the income of
its shareholders pursuant to §995 of the Internal
Revenue Code [A.R.S. §43-1122(14)].
The income of an insurance company that is exempt
under A.R.S. §43-1201 to the extent that it is
included in computing Arizona gross income on a
consolidated return [A.R.S. §43-1122(15)].
The amount of contributions by the taxpayer during
the taxable year to individual medical savings
accounts pursuant to A.R.S. §43-1028
[A.R.S. §43-1122(16)].
The amount by which capital loss carryover
allowable per A.R.S. §43-1130.01 F exceeds the
capital loss carryover allowable per section
13410(b)(5) of the internal revenue code
[A.R.S. §43-1122(17)].
In tax year 2006, $555.0 billion in
subtractions were claimed on the corporate

28

120 and 120A tax returns. It is not possible
to convert this figure into corporate tax
revenue lost because of the apportionment
of income. However, for informational
purposes, the following line items on the
Arizona corporate income tax return are
shown with their corresponding percentage
shares of the total $555.0 billion.
Line on 120
B1
Recalculated
federal
depreciation
B2 Basis adjustment for property
sold or otherwise disposed of
B3 Adjustment for IRC § 179
expense not allowed
B4 Dividends received from 50%
or more controlled domestic
corporations
B5 Foreign dividend gross-up
B6 Dividends received from
foreign corporations
B7 Dividends received from a
DISC
B8 Interest on US obligations
B9 Agricultural crops charitable
contribution
B10 Capital investment by a
qualified defense contractor
B11 Claim of right adjustments
B12 Other subtractions

% of total
54.82%
0.46%
0.01%
19.51%
4.03%
16.00%
0.08%
1.87%
0.00%
0.00%
0.01%
3.20%

APPORTIONING INCOME TO
ARIZONA
Multi-state corporations must use a formula to
determine the percentage of total income that is
taxable in a given state. For years in all states,
the three components of the formula were
♦ Value of property in the state divided
into value of property held everywhere;
♦ Payroll paid in the state divided into
payroll paid everywhere; and
♦ Sales that occurred in the state divided
by sales everywhere.

The three percentages produced by these
calculations were added together and divided by
three to create an apportionment factor for the
state in question.
In 1991, Arizona adopted a double-weighted
sales factor. The percentage produced by the
calculation involving sales is multiplied by two,
added to the other two factors and the sum is
divided by four.
Based on a sample of multi-state corporations
for which apportionment information was
captured, using the double-weighted sales
formula rather than the standard equalweighted formula resulted in a decrease in tax
collections of $39 million in 2006.
ARIZONA NET OPERATING LOSSES
All corporate taxpayers are allowed to subtract
from their Arizona adjusted gross income the
amount of unused net operating losses attributable to
Arizona for the last five years. (A.R.S. §43-1122,
7). Corporations claimed Arizona-based net
operating losses totaling $4.7 billion in tax year
2006. (This figure compares to $5.8 billion in
2006 - Size of NOL
$1 to $99
$100 to $999
$1,000 to $9,999
$10,000 to $49,999
$50,000 to $99,999
$100,000 to $499,999
$500,000 to $999,999
$1,000,000 and over
Total
NOL $ Value

# with Tax Liability
59
319
891
803
245
286
65
85
2,753
$940,278,659

COMMERCIAL TAX CREDITS
A tax credit reduces corporate tax liability, as
opposed to a subtraction, which reduces taxable
income. Most tax credits that currently exist in
Arizona corporate tax law are nonrefundable;
any credit amount greater than a firm's tax
liability will not be refunded. The unused credit
is then carried forward for use in future tax
29

tax year 2005.) In many cases a corporation’s
reported net operating loss exceeded its
Arizona adjusted gross income. Subtracting the
net operating loss in these cases resulted in
negative taxable income. To calculate the tax
value of the net operating losses, the loss was
multiplied by 6.968% for those businesses with
positive taxable income. For those businesses
with negative taxable income, that portion of
net operating loss that was used to reduce
taxable income to $0 was multiplied by 6.968%.
These calculations result in a maximum tax
value of $143.5 million (compared to $152.7
million in tax year 2005).
About 21% of the 49,933 corporations that
filed Arizona corporate income tax returns for
tax year 2006 reported net operating losses.
The table below shows the number of
corporations by size of net operating loss and
by whether or not there was enough taxable
income to generate a tax liability other than the
$50 minimum tax.

# without Tax Liability
469
929
2,293
1,998
644
905
206
373
7,817
$3,762,951,756

Total
528
1,248
3,184
2,801
889
1,191
271
458
10,570
$4,703,230,415

years. A corporation receives a credit for
expenditures in the following areas:
•
•

for increased employment in enterprise zones
(A.R.S. §43-1161).
for businesses that enhance or sustain forest health,
sustains or recovers watershed or improves public
safety, as certified by the Arizona Department of
Commerce (A.R.S. §43-1162).

•
•

•

•
•

•
•

•
•

•
•
•

•
•

for motion picture production costs (A.R.S. §431163)
for installing one or more solar energy devices for
commercial, industrial or any other nonresidential
application (A.R.S. §43-1164).
for employment and for property taxes paid by a
qualified defense contractor (A.R.S. §43-1165,
A.R.S. §43-1166).
for increased employment in military reuse zones
(A.R.S. §43-1167).
for employing a member of the Arizona national
guard if the employee is placed on active duty
(A.R.S. §43-1167.01)
for research and development expenses
(A.R.S. §43-1168).
for costs in constructing a qualified environmental
technology manufacturing, producing or processing
facility (A.R.S. §43-1169).
for expenses to purchase property used to control or
prevent pollution (A.R.S. §43-1170).
for expenses incurred for tangible personal property
used to control or prevent pollution, relating to
agriculture (A.R.S. §43-1170.01).
for an agricultural water conservation system
(A.R.S. §43-1172).
for
employment
of
TANF
recipients
(A.R.S. §43-1175).
for solar hot water heater plumbing stub outs and
electric vehicle recharge outlets installed (A.R.S.
§43-1176).
for coal consumed in generating electric power
(A.R.S. §43-1178).
a refundable credit for providing technological skills
training to not more than 20 employees (A.R.S.
§43-1179).

30

•

•
•
•
•

a refundable credit for conveying ownership or
development rights of agricultural property to an
agricultural preservation district (A.R.S. §43-1180)
for donating real property or improvements to a
school district (A.R.S. §43-1181)
for cash contributions to a school tuition
organization (A.R.S. §43-1183)
for donations made directly to the Clean Elections
Fund ( A.R.S. §16-954B)
for corporations that elected to file consolidated
returns in Arizona and amended their 1986
through 1993 tax returns, thus creating a credit
that could be taken over ten years.

When reviewing the credit data, it is important
to mention two points. First, corporate tax
information for a given tax year changes over
time. Late returns are filed, corporations are
audited, amended returns are filed, retroactive
legislation is enacted, etc. Therefore, figures
stated here will change next year and figures
cited in previous years will not match what is
presented here. Second, information cannot
be revealed about certain credits claimed
without breaching confidentiality. If less than
three firms claim a credit or if one firm claims
more than 90% of the total credit amount
claimed or if providing statistics on one credit
would result in confidential information being
divulged about other credits, then that
information cannot legally be released.
Data for tax year 2006 is shown below, but it
is preliminary.
For tax year 2005,
corporations claimed 500 commercial tax
credits and used a total of $64.6 million in
credits to offset taxes and get refunds where
allowed. Asterisks indicate instances in which
release of information would breach
confidentiality laws.

TYPE OF
CREDIT
Enterprise zone
Healthy forest
Recycling equipment
Motion picture production costs
Commercial & industrial solar energy
Defense contracting
Military reuse zone
Employing National Guard members
Research & development
Environmental technology facility
Pollution control device
Agricultural pollution control equip’t
Construction materials
Agricultural water conservation system
Underground storage tanks
Alternative fuel vehicles (Nonref)
Neighborhood electric vehicles
Vehicle refueling apparatus &
infrastructure (Nonref)
Alternative fuel delivery systems
(Nonref)
Employment of TANF recipients
Solar hot water plumbing stub outs &
electric vehicle recharge outlets
Taxes paid for coal consumed in
generating electrical power
Agricultural preservation district
School site donation
Technology training
Contributions to School Tuition
Organization
Clean election
Consolidated filer
Total

#
119
n/a
**
n/a
n/a
**
**
n/a
185
**
23
**
**
**
0
3
10
**

2004
$ USED
$7,642,213
n/a
**
n/a
n/a
**
**
n/a
36,733,974
**
1,174,943
**
**
**
0
2,837
11,380
**

#
118
0
**
n/a
n/a
**
**
n/a
180
**
23
0
n/a
0
n/a
n/a
4
n/a

2005
$ USED
$7,620,213
0
**
n/a
n/a
**
**
n/a
47,414,678
**
2,100,899
0
n/a
0
n/a
n/a
3,041
n/a

#
80
0
n/a
0
**
**
**
**
141
0
15
**
n/a
n/a
n/a
n/a
**
n/a

2006
$ USED
$6,960,866
0
n/a
0
**
**
**
**
46,676,231
0
1,344,448
**
n/a
n/a
n/a
n/a
**
n/a

**

**

n/a

n/a

n/a

n/a

14
0

485,190
0

13
0

99,575
0

8
0

34,304
0

3

908,990

3

843,909

3

929,098

0
3
3
n/a

0
616,473
36,268
n/a

0
5
3
4

0
1,272,504
46,356
526,210

n/a
5
n/a
53

n/a
2,400,337
n/a
5,818,438

111
32
502

1,773
2,307,512
$50,395,379

90
27
487

552
4,673,993
$64,603,535

126
41
479

784
30,677,747
$103,137,615

31

S UMMARY

OF

C ORPORATE I NCOME TAX

E XPENDITURES
Revenue Gain
Subtractions Allowed in Calculation of Federal Taxable Income:
Compensation of Officers........................................................................................................................NIA *
Salaries and wages........................................................................................................................................ NIA
Incidental repairs adding no value to property........................................................................................ NIA
Debts becoming worthless during the tax year ....................................................................................... NIA
Expenses of renting or leasing a vehicle .................................................................................................. NIA
Charitable or governmental organization contributions........................................................................ NIA
Depreciation ................................................................................................................................................. NIA
Certain percentage depletion rates applicable to natural deposits........................................................ NIA
Pension, profit-sharing, etc. contributions............................................................................................... NIA
Contributions to employee benefit programs ......................................................................................... NIA
Certain taxes paid or accrued during the tax year ................................................................................... NIA
Interest paid on certain debts..................................................................................................................... NIA
Other miscellaneous deductions................................................................................................................ NIA
Exempt Organizations:
Political subdivisions or units of the state or federal government ....................................................... NIA
Labor, agricultural or horticultural organizations ................................................................................... NIA
Qualifying fraternal beneficiary societies.................................................................................................. NIA
Cemetery companies not for profit........................................................................................................... NIA
Qualifying religious, charitable, scientific, etc., corporations ................................................................ NIA
Nonprofit business leagues ........................................................................................................................ NIA
Nonprofit qualifying civic leagues............................................................................................................. NIA
Clubs organized for pleasure, recreation or other nonprofit purposes ............................................... NIA
Corporations organized to hold title to property for exempt organization ........................................ NIA
Voluntary employee's beneficiary organizations ..................................................................................... NIA
Teachers' or public employees' retirement fund organization .............................................................. NIA
Religious or apostolic organizations which pass through income........................................................ NIA
Voluntary employee's beneficiary organizations with a twist................................................................ NIA
Diversified management companies ......................................................................................................... NIA
Insurance companies subject to the insurance premium tax................................................................. NIA
Mutual ditch, irrigation or water companies............................................................................................ NIA
Subchapter S corporations ......................................................................................................................... NIA
Arizona Subtractions from Federal Taxable Income:
Annuity income included pursuant to §72 of the IRC........................................................................... NIA
Excess of a partner's share of income under §702(a)(8) of IRC........................................................... NIA
Excess of a partner's share of partnership losses ................................................................................... NIA
Excess of adjusted basis of property held for income production....................................................... NIA
Amortization by a qualified defense contractor ...................................................................................... NIA
Gain on amortized capital investment by a qualified defense contractor ........................................... NIA
*

No Information Available.

32

Dividend income received from Arizona corporations ....................................................................... NIA*
Arizona capital loss carryover not to exceed $1,000 prior to 1/1/88.................................................. NIA
Expenses/interest relating to tax-exempt income disallowed per IRC ............................................... NIA
Dividends received from controlled corporation ................................................................................... NIA
Interest income received on obligations of the U.S. .............................................................................. NIA
Dividend income from foreign corporations .......................................................................................... NIA
State income tax refunds ............................................................................................................................ NIA
Expense recapture for mine exploration expenses................................................................................. NIA
Deferred exploration expenses allowed by §43-1127............................................................................. NIA
Exploration expenses related to oil, gas or geothermal exploration .................................................... NIA
Amortization of pollution control devices............................................................................................... NIA
Amortization of the cost of child care facilities ...................................................................................... NIA
Income from domestic international sales corporation ......................................................................... NIA
Contributions to individual medical savings accounts ........................................................................... NIA
Excess capital loss carryover...................................................................................................................... NIA
Double-Weighted Sales Factor Apportionment Formula ........................................ $39,000,000
Net Operating Losses...............................................................................................................$143,500,000
Commercial Tax Credits:
Enterprise zone employment.......................................................................................................... $6,960,866
Healthy forest..................................................................................................................................................... 0
Motion picture production costs..................................................................................................................... 0
Commercial & industrial solar energy ........................................................................................................ NR
Defense contracting ................................................................................................................................... NR 8
Military reuse zone......................................................................................................................................... NR
Employing National Guard members ........................................................................................................ NR
Research & Development ............................................................................................................... 46,676,231
Environmental technology facility .................................................................................................................. 0
Pollution control devices ................................................................................................................... 1,344,448
Agricultural pollution control equipment .................................................................................................. NR
Neighborhood electric vehicles ................................................................................................................... NR
Employment of TANF recipients..........................................................................................................34,304
Solar hot water plumbing stub outs and electric vehicle recharge outlets ................................................ 0
Taxes paid for coal consumed in generating electrical power..........................................................929,098
School site donation ........................................................................................................................... 2,400,337
Contributions to School Tuition Organizations ............................................................................ 5,818,438
Clean election .................................................................................................................................................784
Consolidated filer.............................................................................................................................. 30,677,747
Total Commercial Tax Credits ...............................................................................................$103,137,615

TOTAL QUANTIFIABLE CORPORATE INCOME TAX EXPENDITURES 9
............................................................................................................$285,615,371
*

No Information Available.
NR indicates that the information is not releasable due to Arizona confidentiality laws. Fewer than ten license holders
took advantage of this refund.

8

9These expenditures represent foregone revenues to the state general fund and to the urban revenue sharing fund, which is distributed
to incorporated cities and towns.

33

34

FIDUCIARY INCOME
TAX EXPENDITURES

35

36

F IDUCIARY I NCOME TAX E XPENDITURES
Arizona imposes fiduciary income tax on trusts
and estates. The taxability of the income is
determined by the residence of the fiduciary,
beneficiary or deceased taxpayer. For estates,
the tax applies to the entire taxable income if
the deceased taxpayer was an Arizona resident.
The fiduciary or beneficiary residence is
immaterial. In contrast, for trusts, the tax
applies to the entire taxable income when the
fiduciary or beneficiary is an Arizona resident.
Arizona taxable income is calculated beginning
with federal taxable income. By conforming
Arizona law to the Internal Revenue Code,
subtractions allowed under federal law in
calculating federal taxable income are allowed
under Arizona law. From federal taxable
income, certain additions, subtractions and
exemptions are allowed to reach Arizona
taxable income. After calculating tax liability,
fiduciary taxpayers may reduce their tax liability
by using a credit for taxes paid to other states
or countries or a credit for clean elections.
Fiduciary income tax is deposited into the
general fund. However, 15% of the tax is
distributed to cities and towns two years after
the year in which it was collected. For example,
15% of tax collected in fiscal year 2007/08 will
be distributed to incorporated cities and towns
in fiscal year 2008/09. Therefore, only 85% of
the tax collected, or of the tax value of any
expenditure, is actually available for the state’s
use. This fact should be kept in mind when
reviewing the reported tax value of the various
subtractions, exemptions and credits.
SUBTRACTIONS ALLOWED IN THE
CALCULATION OF FEDERAL
TAXABLE INCOME
The starting point for calculating Arizona
fiduciary income tax liability is federal taxable
income, as calculated on the federal form 1041
(U.S. Fiduciary Income Tax Return). The
Arizona legislature must approve legislation to
conform to the definition of federal taxable
37

income by January of each year. In conforming
to the definition of federal taxable income,
Arizona accepts the subtractions from gross
income allowed by the federal government.
These subtractions include:
•

Deduction for interest paid by the estate or trust
on amounts borrowed by the estate or trust or on
debt acquired by the estate or trust. This
includes any investment interest (subject to
limitations), qualified residence interest, and any
interest payable on any unpaid portion of the
estate tax attributable to the value of a
reversionary or remainder interest in property.

•

Deductible taxes, including state income tax,
real property tax, and generation-skipping
transfer tax imposed on income distributions.

•

Deductible fees paid to the fiduciary for
administering the estate or trust during the tax
year.

•

Charitable deduction.

•

Attorney, accountant, and return preparer fees.

•

Other deductions, such as amortizable bond
premiums, casualty and theft losses, net
operating loss deduction and fiduciary's share of
amortization, depreciation and depletion not
claimed elsewhere.

•

Miscellaneous itemized deductions in excess of
2% AGI.

•

Income distribution deduction.

•

Estate tax deduction.

•

$600 exemption for estates. $300 exemption
for trusts in which all income must be
distributed currently. $100 exemption for all
other trusts.

It is not possible to calculate the tax value of
these subtractions.
Information from the
Internal Revenue Service would be required to
determine the value and this information is not
readily available.

ARIZONA SUBTRACTIONS FROM
FEDERAL TAXABLE INCOME

employees of a county, city or town in
Arizona. [A.R.S. §43-1022(2)]

The Arizona fiduciary income tax return lists
the following specific items that can be
subtracted from federal taxable income to reach
adjusted gross income attributable to Arizona:

•

Refunds from other states. The amount of
any income tax refunds received from
states other than Arizona and included as
income. [A.R.S. §43-1022(7)]

•

Negative Arizona fiduciary adjustment from
another trust or estate. This adjustment is
used if Schedule K-1 indicates a negative
difference between the federal and state
distributable income. [A.R.S. §43-1332(1)]

•

Annuity income. Annuity income included
pursuant to §72 of the internal revenue
code if the first payment with respect to
such annuity was received prior to
12/31/78. [A.R.S. §43-1022(8)]

•

Interest income on U.S. obligations. Interest
income received on U.S. obligations, less
any interest on indebtedness, or other
related expenses, and deducted in arriving
at Arizona gross income, which were
incurred or continued to purchase or carry
such obligations. [A.R.S. §43-1022(6)]

•

Wood stoves and fireplaces. The amount
authorized by A.R.S. §43-1027 for
converting to qualified wood stoves,
wood fireplaces or gas fired fireplaces.
[A.R.S. §43-1022(21)]

•

Operating loss carryover. The amount by
which a net operating loss carryover or
capital loss carryover, allowable pursuant
to A.R.S. §43-1029(F), exceeds the net
operating loss carryover or capital loss
carryover
allowable
pursuant
to
§1341(b)(5) of the internal revenue code.
[A.R.S. §43-1022(23)]

•

Federal credits. The portion of any wages
or salaries paid or incurred by the
taxpayer equal to the amount of the
federal work opportunity credit, the
empowerment zone employment credit,
the credit for employer paid social
security taxes on employee cash tips and
the Indian employment credit that the
taxpayer received under §§45A, 45B,
51(a) and 1396 of the IRC.
[A.R.S. §43-1022(15)]

•

Individual medical savings accounts. With
respect to individual medical savings
accounts established pursuant to A.R.S.
§43-1028, the account holder may
subtract the amount of contributions
made by the employer, to the extent that
these contributions are included in the
taxpayer's federal adjusted gross income,
and the amount deposited by the
taxpayer in the account during the year.
[A.R.S. §43-1022(22)]

•

Energy efficient residence. The amount
authorized by A.R.S. §43-1031 for
constructing
an
energy
efficient
residence. [A.R.S. §43-1022(27)]

The remaining subtractions on the Arizona
fiduciary tax form are entered in aggregate on
the line "Other subtractions from federal
taxable income." The following is a list of
"Other Subtractions":
•

Benefits, annuities and pensions. Benefits,
annuities and pensions totaling not more
than $2,500 received from any of the
following: U.S. government service
retirement and disability fund; retired or
retainer pay of the U.S. uniformed
services; the U.S. foreign service
retirement and disability system; any other
retirement system or plan established by
federal law; the Arizona state retirement
system and retirement plan; the
corrections officer retirement plan; the
public safety personnel retirement plan;
the elected officials' retirement plan; an
optional retirement program established
by the Arizona Board of Regents; an
optional retirement program established
by an Arizona community college district
board; or a retirement plan established for
38

•

Contribution of agricultural crops. The
amount allowed by A.R.S. §43-1025 for
contributions of agricultural crops to
charitable organizations. [A.R.S. §431022(14)].

•

Installment income. The amount of income
on an installment receivable which is
recognized pursuant to the IRC and
which has already been recognized on
the death of the taxpayer for purposes of
this title for tax years ending before
1/1/90. [A.R.S. §43-1022(5)]

•

Holocaust survivors. The amount authorized
by A.R.S. §43-1030 relating to holocaust
survivors. [A.R.S. §43-1022(26)]

•

Recalculated Arizona depreciation.
The
amount of depreciation allowable per
§167(a) of the IRC calculated as if bonus
depreciation for eligible properties had
not been claimed for federal purposes.
[A.R.S. §43-1022(28)]

•

Basis Adjustment for Property Sold or Disposed.
For property sold or otherwise disposed
of, allow a subtraction for the difference
in basis for any asset for which federal
bonus depreciation had been claimed.
[A.R.S. §43-1022(29)]

•

Federal income from other fiduciaries. When
the estate or trust is the beneficiary of
another estate or trust, the beneficiary's
share of the trust or estate income
recognized under the IRC may be
subtracted. [A.R.S. §43-1022(3)]

•

Exemptions for blind persons, persons over 65,
dependents
and
qualifying
ancestors.
Exemptions are allowed for blind
persons ($1,500), persons over 65 years
($2,100), dependents ($2,300) and
qualifying ancestors that live with the
taxpayer and requires assistance with
activities of daily living ($10,000).
[A.R.S. §43-1022(1)]

•

Distributions from individual retirement
accounts. The amount of any distributions
from an individual retirement account as
provided for in §408 of the IRC or from
39

a qualified retirement plan of a selfemployed individual as provided for in
§401 of the IRC to the extent that total
adjustments made pursuant to this
paragraph in all tax years do not exceed
the total of all contributions made by the
taxpayer to such plans prior to
12/31/75, which were included in
computing Arizona taxable income.
[A.R.S. §43-1022(4)]
•

Partner’s share of income. The excess of a
partner's share of income required to be
included under §702(a)(8) of the IRC
over the income required to be included
under chapter 14, article 2 of title 43.
[A.R.S. §43-1022(9)]

•

Partner’s share of losses. The excess of a
partner's share of partnership losses
determined pursuant to chapter 14,
article 2 of title 43 over the losses
allowable under §702(a)(8) of the IRC.
[A.R.S. §43-1022(10)]

•

Sale of income producing property. The
amount by which the adjusted basis of all
property which is held for the
production of income and which is sold
or otherwise disposed of during the
taxable year other than depreciable
property used in a trade or business,
computed pursuant to title 43 and the
income tax act of 1954, as amended,
exceeds the adjusted basis of such
property computed pursuant to the IRC.
[A.R.S. §43-1022(11)]

•

Amortization of capital investment. The
amount allowed by §43-1024 for
amortization, by a qualified defense
contractor certified by the Arizona
Department of Commerce under §411508, of a capital investment for private
commercial activities.
[A.R.S. §431022(12)]

•

Gain on capital investment. The amount of
gain included on the sale or other
disposition of a capital investment that a
qualified defense contractor has elected

to amortize pursuant to §43-1024.
[A.R.S. §43-1022(13)]
•

•

•

•

•

State lottery winnings. The amount of
winnings less than $5,000 in a taxable year
from any of the state lotteries, except that
all such winnings before 3/22/83,
including periodic distributions from such
winnings made after 3/22/83, may be
subtracted. [A.R.S. §43-1022(16)]
Mining exploration expenses. The amount
of
mining
exploration
expenses
determined pursuant to §617 of the IRC
which have been deferred in a taxable
year ending before 1/1/90 and for
which a subtraction has not been
previously made. [A.R.S. §43-1022(17)]
Social security benefits.
The amount
included pursuant to §86 of the IRC,
relating to taxation of social security and
railroad retirement benefits. [A.R.S. §431022(18)]
Compensation for armed forces active service.
To the extent not already excluded,
compensation received for active service
as a member of the armed forces of the
U.S. for any month during any part of
which the member served in a combat
zone. [A.R.S. §43-1022(19)
Adoption costs. The amount of unreimbursed medical and hospital costs,
adoption counseling, legal and agency
fees and other nonrecurring costs of
adoption not to exceed three thousand
dollars. [A.R.S. §43-1022(20)]

40

•

Qualified educational expenses. Any amount
of qualified educational expenses
distributed from a qualified state tuition
program determined pursuant to §529 of
the Internal Revenue Code and that is
included in income. [A.R.S. §43-1022(24)]

•

Installment sale subject to tax in another state.
Any item of income resulting from an
installment sale that has been properly
subject to tax in another state in a
previous year and is included in Arizona
gross income in the current taxable year.
[A.R.S. §43-1022(25)]

•

Income from a trust established as a medical
savings account. In the case of a trust that
is established as a medical savings
account pursuant to A.R.S. §43-1028,
income earned by the trust that is
included in the trust’s Arizona gross
income. [A.R.S. §43-1332(2)]

•

Arizona distribution to beneficiaries. The
income of the estate or trust which is to
be distributed or credited during the year
to any legatee, heir or beneficiary is
allowed as a subtraction from federal
taxable income [A.R.S. §43-1333].

In tax year 2006, subtractions on fiduciary tax
returns were reported in combination with
additions to fiduciary income on the front of
the tax return. Therefore, information is only
available on the value of subtractions not
entirely offset by additions to fiduciary income.
Subtractions for income from a trust
established as a medical savings account were
reported on the front of the tax return.

PREFERENTIAL TAX RATES
Fiduciary income tax is calculated according to a graduated tax rate schedule as shown below:
at least
$0
10,000
25,000
50,000
150,000

but less than
$10,000
25,000
50,000
150,000
and over

2.73% of taxable income
3.04% of taxable income, minus $31.00
3.55% of taxable income, minus $158.50
4.48% of taxable income, minus $623.50
4.79% of taxable income, minus $1,088.50

As can be seen from the table, lower taxable
incomes are taxed at a lower rate. If all
taxpayers were treated identically, the same tax
rate would be applied regardless of the amount
of taxable income. A question arises, however,
as to what tax rate should be applied to
determine the revenue impact of treating all
taxpayers identically. One argument may be that
since the highest tax rate is 4.79%, determining the
impact of taxing all income at 4.79% would seem
appropriate. However, no taxpayer currently
pays 4.79% tax on all taxable income. If a flat
tax rate of 4.79% was applied regardless of
income level, all taxpayers would experience a
tax increase.
A more reasonable approach to a flat tax rate
would be to apply the effective tax rate on
taxable income for all fiduciary taxpayers.
Applying this effective tax rate to all fiduciary
taxpayers will result in the same tax collections
as with the graduated tax rate structure;

41

however, the burden of the tax will shift.
Taxpayers with lower Federal Adjusted Gross
Income would pay more tax and taxpayers with
higher Federal Adjusted Gross Income would
pay less tax.
CREDITS
After fiduciary income tax liability is calculated,
two credits can be subtracted from the tax
liability. If the estate or trust is considered to be
a resident of Arizona and also a resident of
another state or country, the estate or trust will
be allowed a tax credit against the Arizona
income tax liability for taxes paid to the other
state or country. In 2006, $4,906,909 was
claimed as credit for taxes paid to other states or
countries. Additionally, if the trust or estate
makes a contribution to the Clean Elections
Fund, a credit may be claimed for those
contributions. The total clean elections credit
claimed in 2006 by estates and trusts was $158.
Both credits are a direct reduction to tax liability.

S UMMARY

OF F IDUCIARY I NCOME
E XPENDITURES

TAX

Revenue Gain
SUBTRACTIONS IN CALCULATION OF FEDERAL TAXABLE INCOME:
Deduction for interest paid ......................................................................................................................NIA *
Deductible taxes........................................................................................................................................... NIA
Deductible fiduciary fees ............................................................................................................................ NIA
Charitable deduction ................................................................................................................................... NIA
Attorney, accountant, and return preparer fees ...................................................................................... NIA
Other miscellaneous deductions................................................................................................................ NIA
Miscellaneous itemized deductions in excess of 2% AGI ..................................................................... NIA
Income distribution deduction .................................................................................................................. NIA
Estate tax deduction.................................................................................................................................... NIA
$600/$300/$100 estate/trust exemption................................................................................................. NIA
SUBTRACTIONS FROM FEDERAL TAXABLE INCOME:
Negative Arizona fiduciary adjustment from another trust or estate
Interest income on U.S. obligations
Energy efficient residence
U.S./state pensions not over $2,500
Income tax refunds from other states
Annuity income included pursuant to §72 of the IRC
Qualified wood stoves and fireplaces
Excess operating loss carryover
Certain federal credits
Medical savings accounts
Contribution of agricultural crops
Installment income recognized pursuant to the IRC
Holocaust survivors
Recalculated Arizona depreciation
Basis adjustment for property sold or disposed
Federal income from other fiduciaries
Exemptions for blind persons, persons over 65 years of age, dependents and qualifying ancestors
Distributions from individual retirement accounts
Partner’s share of income
Partner’s share of losses
Sale of income producing property
Amortization of capital investment
Gain on capital investment
State lottery winnings
Mining explorations expenses
*

No Information Available.

42

Social security benefits
Compensation for armed forces active service
Adoption costs
Qualified educational expenses
Installment sale subject to tax in another state
Income from a trust established as a medical savings account ..................................... $52,956
Arizona distribution to beneficiaries
Value of subtractions other than medical savings account trusts............................ $15,980,953
TOTAL TAX VALUE OF SUBTRACTIONS FROM FEDERAL
TAXABLE INCOME ............................................................................................... $16,033,909
CREDIT FOR TAXES PAID TO OTHER STATES/COUNTRIES......................$4,906,909
CREDIT FOR CONTRIBUTIONS TO THE CLEAN ELECTION FUND.................. $158

TOTAL QUANTIFIABLE FIDUCIARY INCOME TAX EXPENDITURES 10
............................................................................................................. $20,940,976

10These

expenditures represent foregone revenues to the state general fund and to the urban revenue sharing fund,
which is distributed to incorporated cities and towns.

43

44

FLIGHT PROPERTY
TAX EXPENDITURES

45

46

F LIGHT P ROPERTY TAX E XPENDITURES
The airline companies in Arizona pay a tax on
the flight property within the state. The taxable
value, or net assessed value, of the flight
property is determined by multiplying the full
cash value of the property by an assessment
ratio. The tax rate that is applied to the net
assessed value is equal to the statewide average
tax rate, which was 10.04% in tax year 2007.
EXEMPTIONS
If an airline is operating in Arizona with a maximum
passenger capacity of less than 56 seats and a maximum
pay load capacity of less than 18,000 pounds (A.R.S.
§42-14251.10), this small flight property shall be
valued at 30% of its original cost less depreciation
multiplied by the assessment ratio (A.R.S. §4214254C). Had the taxable value been 100%,
the state would have raised $1.8 million more in
fiscal year 2007/08.

47

PREFERENTIAL ASSESSMENT RATIO
Arizona statutes set out the assessment ratios to
be used in determining the net assessed values
of the various classes of property. These
assessment ratios range from 25% to 5%. For
flight property, the assessment ratio is equal to the
ratio which the total net assessed valuation of all taxable
property in class 1, class 6 paragraph 3 and personal
property in class 2 bears to the total full cash value of
such property (A.R.S. §42-14255). For tax year
2006, the assessment ratio used for flight
property was 22%. This is considered to be a
preferential assessment ratio because it is an
average of the assessment ratios in several other
classes of property. If flight property had an
assessment ratio equal to the highest
assessment ratio imposed, 24.5%, tax
collections would have increased by $2.2
million.

S UMMARY

OF F LIGHT P ROPERTY
E XPENDITURES

TAX

Revenue Gain
EXEMPTION
Tax value at 30% for small airplanes ...................................................................................... $1,793,700
PREFERENTIAL ASSESSMENT RATIOS:
Preferential assessment ratio at 25%....................................................................................... $2,159,757

TOTAL QUANTIFIABLE FLIGHT PROPERTY TAX EXPENDITURES 11
...............................................................................................................$3,953,457

11These

expenditures represent foregone revenues to the state aviation fund.

48

IN LIEU PROPERTY
TAX EXPENDITURES

49

50

I N L IEU P ROPERTY TAX E XPENDITURES
Irrigation districts, power districts, electrical
districts or agricultural improvement districts
directly engaged in the sale of electric power or
energy other than for irrigation purposes may
elect to make voluntary contributions to
Arizona and the political subdivisions thereof
for property taxes. These districts are not
legally liable for property taxes imposed by the
state and the political subdivisions, so these
voluntary contributions are known as in lieu
property taxes. (However, according to A.R.S.
§9-432B, water may not be transported from
remote municipal property by a city, town or
political
subdivision,
unless
voluntary
contributions have been paid.)
The Department of Revenue determines the
full cash value of the district electing to make in
lieu property tax payments.
The county
assessor of each county where district electric
facilities are located computes the gross
contribution to be made. The district may
subtract certain amounts from this gross
contribution figure. A subtraction is allowed
for the contribution related to that portion of
the electric system related to pumping water

51

(A.R.S. §48-242C1). A deduction of $10,000 is
allowed from the gross contribution (A.R.S.
§48-242C2). Certain taxes or assessments paid
to any political subdivision during the preceding
calendar year may be deducted from the gross
contribution (A.R.S. §48-242C3). The annual
average of the total water costs devoted to
municipal use during the last three calendar
years is also deductible from the gross
contribution (A.R.S. §48-242C4).
The effect of these deductions from the gross
contribution amount is that the district in
question pays a certain percentage of the gross
contribution. The primary contributor, Salt
River Project, paid approximately 79.1% of the
tax that would have been levied in fiscal year
2007/08 had they been legally bound to pay
property tax. Given the repeal of the state rate,
the dollar expenditure that previously appeared
in this report is no longer applicable. However,
because the exemptions filter through to the tax
base at the local level, descriptions of the
exemptions remain.

52

INDIVIDUAL INCOME
TAX EXPENDITURES

53

54

I NDIVIDUAL I NCOME TAX E XPENDITURES
No information is available on individual
income tax expenditures at this time. At the
final printing of this publication, data will be
included. The individual income tax
information included in the final report will be
made available through the 2006 Individual
Income Tax Simulation Model.
CREDITS
A tax credit differs from an exemption,
subtraction or deduction in that it directly
reduces tax liability, not taxable income. A $100
deduction, for example, would reduce tax liability
by, at most, $4.79 ($100 times the maximum tax
rate of 4.79%). On the other hand a $100 credit
reduces tax liability by the full $100.
Property Tax Credit
The property tax credit program provides tax
relief to the state's low-income elderly. Under this
program, full-year residents age 65 or older
with a household income of less than $5,500
are eligible for credits ranging from $56 to $502
(A.R.S. §43-1072). The property tax credit is
refundable, meaning that those eligible for the
credit receive money even if they had no
income tax liability.
Credit for Increased Excise Taxes Paid
A refundable credit is allowed against income
tax to mitigate the increase in transaction privilege tax
rates for education (A.R.S. §43-1072.01). To
qualify, claimants must have federal adjusted
gross income of $25,000 or less for married
filing jointly or $12,500 or less for single filers.
The credit shall not exceed $25 for each person
who is a resident and for whom a personal or
dependent exemption is allowed with a
maximum credit of $100 per household.
Family Tax Credit
Single and married filing separately filers with a
federal adjusted gross income of $10,000 or less,
and married filing jointly filers with a federal
adjusted gross income of $31,000 or less with
dependents, may claim the family tax credit
(A.R.S. §43-1073). The amount of the credit is
set at $40 per person in the household, and is
55

capped at $240 for married filing jointly and
unmarried head of household filers, and $120 for
single and married filing separately filers.
Clean Elections Credit
A credit is allowed for donations made directly to the
Clean Elections Fund or a clean election donation made
on the individual income tax return. The credit is
not to exceed 20% of the tax liability or $580
for single filers ($1,160 for married filing
jointly) whichever is greater. The maximum
credit is adjusted biennially (A.R.S. §16-954B).
Other Credits
Other credits are filed on a separate Schedule
CR. In many instances, the credit claimed
exceeds the tax liability on the return. With
those credits that are non-refundable, the
unused portion of the credit is superfluous.
For this reason, in order to generate the true
expenditure associated with credits, each credit
claim must be reviewed.
Credit for Taxes Paid to Other States or
Countries
In the past, the majority of the credits claimed
on the Schedule CR, in terms of dollars and
volume, were for taxes paid to other states or
countries (A.R.S. §43-1071).
Enterprise Zone Credits
Enterprise zone credits are income tax credits
provided for non-retail businesses located in an enterprise
zone established under Arizona law who have a net
increase in employment of qualified employees (A.R.S.
§43-1074). A maximum of $500 per each net
new employee can be claimed in the first or
partial year of employment. In the second year
of continuous employment, a maximum of
$1,000 per net new employee can be claimed.
The limit in the third year of continuous
employment is $1,500 per net new employee.
Credit for Increased Research Activities
A.R.S. §43-1074.01 provides a tax credit for
research and development expenses. The amount of
credit is computed based on the excess of the
qualified research expenses for the taxable year
over the base amount.

Motion Picture Production and
Infrastructure Credit
A nonrefundable, transferable credit is
allowed for a motion picture production
company that produces motion pictures
completely or partially in Arizona and for the
construction of an eligible infrastructure
(A.R.S. §43-1075 and §43-1075.01).
The
taxpayer must receive pre-approval and postapproval from the Department of Commerce.
Recycling Equipment Credit
The recycling equipment credit is an income tax
credit for businesses or individuals that acquire and
place in service recycling equipment in the state (A.R.S.
§43-1076 repealed). This credit is now only
available to the extent that the taxpayer had
unused carry forward from prior years.
Credit for Employment by a Healthy Forest
Enterprise
A.R.S. §43-1076 allows a credit for net increases in
qualified employment positions by a qualified business
that is certified by the Arizona Department of
Commerce as a healthy forest enterprise. The credit
amount per employee depends on the
employee’s year of employment (maximum
credit is in the third year and is equal to the
lesser of $1,500 or one-half of the taxable
wages paid to an employee).
Defense Contracting Credit
Defense contracting credits are provided to
qualified defense contractors for net increases in full-time
employment positions under the United States
Department of Defense contracts and for net increases in
private commercial full-time employment within Arizona
by a qualified defense contractor (A.R.S. §43-1077).
An income tax credit is also allowed equal to a
portion of the amount paid as property taxes during the
taxable year by a qualified defense contractor on property
that is classified as Class 3 (A.R.S. §43-1078).
Military Reuse Zone Credit
The military reuse zone credit is a tax credit for
net increases in employment by the taxpayer of full-time
employees working in a military reuse zone who are
primarily engaged in manufacturing, assembling or
fabricating aviation or aerospace products (A.R.S. §431079). The amount of the credit is determined
by a dollar amount allowed for net new
56

employee positions other than dislocated
military base employees and by a dollar amount
allowed for net new dislocated military base
employee positions.
Employing National Guard Members
Credit
A credit is allowed to each taxpayer whose
employee is a member of the Arizona national guard if
the employee is placed on active duty (A.R.S. §431079.01). The amount of the credit is equal to
$1,000 for each employee placed on active duty.
Environmental Technology Credit
An income tax credit is provided for expenses
incurred in constructing a qualified environmental
technology manufacturing, producing or processing facility
(A.R.S. §43-1080). The amount of the credit is
equal to 10% of the amount spent during the
taxable year to construct the facility.
Pollution Control Device Credit
The pollution control device credit is a tax credit
for expenses incurred to purchase real or personal property
that is used in Arizona in the taxpayer's trade or
business to control or prevent pollution (A.R.S. §431081). The amount of the credit is equal to the
lesser of 10% of the purchase price or $500,000.
Agricultural Pollution Control Equipment
Credit
A credit is allowed for expenses that a taxpayer
(involved in the commercial production of livestock,
livestock products or agricultural, horticultural,
viticultural or floricultural corps or products) incurs to
purchase tangible personal property that is primarily
used in the taxpayer’s trade or business in the state to
control or prevent pollution (A.R.S. §43-1081.01).
Solar Energy Device Credit
A solar energy credit is provided for an
individual who installs a solar energy device in his or
her residence in Arizona. The credit for buying or
installing such a device is 25% of the cost,
including installation, or $1,000, whichever is
less (A.R.S. §43-1083).
Agricultural Water Conservation System
Credit
A credit is allowed for expenses incurred by a
taxpayer to purchase and install an agricultural water
conservation system (A.R.S. §43-1084).
The

agricultural water conservation system must be
primarily designed to substantially conserve
water on land that is used to produce
agricultural products, raise, harvest or grow
trees, or sustain livestock. The amount of the
credit is 75% of the qualifying expenses.
Commercial and Industrial Solar Energy
Credit
A credit is provided for installing one or more solar
energy devices for commercial or industrial purposes in
the taxpayer’s trade or business (A.R.S. §43-1085).
The credit is equal to 10% of the installed cost
of the device, not to exceed $25,000 per
taxpayer/per building or $50,000 in total in any
year.
Alternative Fuel Vehicle Credit
An income tax credit was provided for the
purchase of one or more new alternative fuel vehicles for use
in this state or for expense incurred for converting one or
more conventional vehicles to operate on alternative fuel
(A.R.S. §43-1086). This credit is now only
available to the extent that the taxpayer had
unused carry forward from prior years for a
neighborhood electric vehicle.
Employment of TANF Recipients Credit
A.R.S. §43-1087 provides for an income tax
credit for net increases in qualified employment of
recipients of temporary assistance for needy families who
are Arizona residents. A maximum of $500 per
each net new employee can be claimed in the
first year of employment, $1,000 in second year
of employment and $1,500 in the third year.
Contributions to Charities that Provide
Assistance to the Working Poor Credit
A.R.S. §43-1088 allows a credit for the amount
of voluntary cash contributions to a charitable
organization that spends at least 50% of its budget on
services to Arizona residents who receive TANF
benefits or low income Arizona residents (income of

57

less than 150% of the federal poverty level), up
to $200 for single and $400 for married filing
joint/unmarried head of household (married
filing separate can claim one half of the married
amount).
Private School Tuition Organization Credit
The private school tuition organization credit is
allowed for cash contributions to a school tuition
organization, up to $500 for single and $1,000 for
married filing joint/unmarried head of
household filers (married filing separate can
claim one half of the married amount). (A.R.S.
§43-1089).
Public School Extra Curricular Activity Fee
Credit
A.R.S. §43-1089.01 allows an income tax credit
for the amount of fees paid to a public school located
in Arizona for the support of extra curricular activities,
up to $200 for single and $400 for married
filing joint/unmarried head of household filers
(married filing separate can claim one half of
the married amount).
School Site Donation Credit
A.R.S. §43-1089.02 provides a credit for
donation of real property and improvements to a school
district or charter school for use as a school or a site for
the construction of a school. The amount of the
credit is 30% of the value of real property and
improvements donated.
Solar Hot Water Heater Plumbing Stub
Outs and Electric Vehicle Recharge Outlets
Credit
A credit is allowed for costs incurred of installing
an electric vehicle recharge outlet and for including
solar hot water heater plumbing stub outs in one or
more houses in Arizona constructed by the taxpayer.
(A.R.S. §43-1090)

TYPE OF CREDIT
Property tax credit
Credit for increased excise taxes paid
Family tax credit
Clean elections credit
Credit for taxes paid to other states or countries
Enterprise zone credit
Credit for increased research activities
Motion picture production and infrastructure credit
Recycling equipment credit
Credit for employment by a healthy forest enterprise
Defense contracting credit
Military reuse zone credit
Employing National Guard members credit
Environmental technology credit
Pollution control device credit
Agricultural pollution control equipment credit
Solar energy device credit
Agricultural water conservation system credit
Commercial and industrial solar energy credit
Alternative fuel vehicle credit – neighborhood electric vehicle portion
Employment of TANF recipients credit
Contributions to charities that provide assistance to the working poor
credit
Private school tuition organization credit
Public school extra curricular activity credit
School site donation credit
Solar hot water heater plumbing stub outs and electric vehicle recharge
outlets credit
TOTAL VALUE OF ALL CREDITS 14

# of
claimants
13,247
536,940
448,960
32,563
34,880
188
223
0
0
0
0
0
12
NR
0
13
DNA
DNA
DNA
79
0
DNA
0

2006
(Millions)
$4.78
28.75
6.87
0.80
124.94
1.57
3.62
0.00
0.00
0.00
0.00
0.00
NR
0.00
DNA
DNA
DNA
0.97
0.00
DNA
0.00

29,202
73,617
216,664
87

7.94
51.01
43.23
7.70

DNA
1,388,650

DNA
$282.17

12 Too few taxpayers have claimed this credit to allow for a release of the cost without violating confidentiality
laws.
13 Data was not available for this credit at the time of publication.
14 Figures for all credits shown here are subject to change due to the verification process.

58

INSURANCE PREMIUM
TAX EXPENDITURES

59

60

I NSURANCE P REMIUM TAX
E XPENDITURES
15

Each admitted insurer doing business in the
state is required to annually report its total
direct premium income to the Arizona
Department of Insurance (ARS § 20-224).
Total direct premium income excludes
“...applicable cancellations, returned premiums, the
amount of reduction in or refund of premiums allowed to
industrial life policyholders for payment of premiums
direct to an office of the insurer, all policy dividends,
refunds, savings coupons and other similar returns paid
or credited to policyholders within this state and not
reapplied as premiums for new, additional or extended
insurance.”
Direct premium income also
excludes “considerations received on annuity
contracts,” as well as the “unabsorbed portion of any
premium deposit.” No information is available on
the value of these exclusions from direct
premium income because insurers are not
required to report this information to the
Department of Insurance. However, there is
data available for “considerations received on annuity
contracts.”
Insurance companies (excluding
fraternal benefit societies) reported $4,405.1
million in these considerations which, if taxed
at a two-percent rate, would have resulted in
$88.1 million in revenues to the state in fiscal
year 2007/08.
Insurers subject to Guaranty Fund assessments
may offset their premium tax liabilities “in the
amount of 20% of the assessment for the year of
assessment and 20% of the assessment in each of the
succeeding four years.” [ARS §§ 20-674(B) and 20692(B)]. Because insurers have not been
assessed by either of the Insurance Guaranty
Funds for over five years, no credits emanating
from Guaranty Fund assessments were
available to offset Calendar Year 2007 premium
tax liabilities (and thus, fiscal year 2007/08 tax
revenues).

15Any

ARS §§ 20-224.03 and 20-224.04 provide credits to
insurers that increase their employment of
individuals who reside in enterprise zones if the
insurers meet a series of requirements, and provide
credits to insurers that have offices established in
military reuse zones as established in Title 41,
Chapter 10, Article 3 and that meet other
requirements. One insurer reported credits relating
to Calendar Year 2007, totaling $592.5 thousand,
which offset the insurer’s insurance premium tax
obligations. ARS § 20-224.03(H) prevents the
enterprise zone credit from causing a foreign
insurer to have to pay a corresponding increase in
retaliatory taxes required under ARS § 20-230.
Domestic life and disability insurers that pay
their certificate of authority renewal fees are
eligible for credits against their insurance
premium taxes. ARS §§ 20-167(D). The sum
of these credits reduced fiscal year 2007/08
premium tax revenues by $23.6 thousand.
Surplus lines insurers do not remit ordinary
premium tax. Instead, surplus lines brokers are
responsible for remitting premium taxes
collected from insureds when coverage is
placed in the surplus lines market. The tax rate
is 3% of gross premiums and fees less certain
prescribed statutory reductions. [ARS § 20416.] Surplus lines brokers are not required to
collect and remit insurance premium tax on
“...reinsurance, ocean marine and foreign trade
insurance, insurance on subjects located, resident or to be
performed wholly outside this state, insurance on vehicles
or aircraft owned and principally garaged outside this
state, or insurance on property or operations of railroads
engaged in interstate commerce.” [ARS § 20-420(A)].
Surplus lines tax is not imposed on coverage
provided to federally recognized Native
American governments in accordance with
Attorney General Opinion I95-13 (R95-11).
Surplus lines tax is not imposed on coverage
provided to the State of Arizona pursuant to

figures presented for Insurance Premium Tax Expenditures were provided by the Department of Insurance.

61

ARS § 41-621(F), which exempts the
Department of Administration from the
provisions of Title 20, Chapter 2, Article 5 -the Article that, in part, imposes the surplus
lines tax. Excluding reinsurance and insurance
on extra-state risks (which are excluded from
taxation for admitted insurers), surplus line
brokers reported $6.2 million in premiums
exempted from Calendar Year 2007 premium
tax. The tax on these premiums would have
been $186.3 thousand if they were taxed at the
three-percent rate at which non-exempt surplus
lines premiums are taxed.
Insurers are required to pay a 2.2% tax on fire
insurance premiums “... except that the tax on fire
insurance premiums on property located in [qualified
locations including] incorporated cities or towns that
procure the services of private fire companies....” is
0.66% [ARS § 20-224(B)]. The State Treasurer
apportions eighty-five percent of fire insurance
premium taxes to fire districts and
municipalities for the retirement plans of
firefighters [ARS §§ 20-224(C), 9-951, 9-952, 9972]. The remaining 15% of fire insurance
premium taxes are deposited with the General
Fund (ARS § 20-227). In Calendar Year 2007,
insurers wrote $18.6 million of taxable fire
insurance premium for risks in qualified
locations resulting in $122.5 thousand in
insurance premium tax paid during fiscal year
2007/08 for those risks. If risks in qualified
locations were subject to the 2.2% tax rate
applied to other fire insurance premiums,
insurers would have paid $408.2 thousand in
fiscal year 2007/08, a difference of $285.7
thousand. The portion of the difference
allocable to the General Fund (15%) would
have been $42.9 thousand although for the
purposes of this report, we suggest the tax
expenditure is $285.7 thousand (i.e. to include
the amounts transferred for firefighter
retirement plans). The effect of the tax rate
difference may be mitigated by retaliatory tax,
described later.
Arizona law does not impose a premium tax on
captive insurers licensed pursuant to Title 20,
Chapter 4, Article 14. All other states that
license captive insurers impose an insurance

62

premium tax. The Director of Insurance has
discretion over the license fees and renewal fees
imposed upon captive insurers, and those fees
are higher than the fees for other types of
insurers licensed in Arizona and the fees captive
insurers pay in some other states. Other states
tax captive insurer premiums at lower tax rates
than other types of insurer premiums but tax
nationwide premiums (rather than just intrastate premiums). The other states tax insurance
and reinsurance (rather than only insurance).
Vermont was one of the first states to license
captive insurers and it has the most captive
insurers licensed of any state. In total, Arizona
captive insurers reported $1,902.3 million in
premiums exempted from Calendar Year 2007
premium tax. If Arizona applied Vermont’s
captive insurance tax structure, Arizona would
have collected $1.6 million in captive insurance
premium tax. During fiscal year 2007/08, the
department collected $0.5 million in license
renewal fees from captive insurers. If Arizona
forewent all captive insurer renewal fees in
exchange for Vermont’s captive insurance
premium tax structure, Arizona would have
collected an additional $1.1 million.
The premium tax for non-profit hospital,
medical, dental and optometric service
corporations does not apply to“any coverage
concerning which the corporation’s relationship is as
administrative or fiscal agent for national, state or
municipal government or any political subdivision body
thereof and such tax shall not apply with respect to any
premiums received from funds of national, state or
municipal government or any political subdivision or
body thereof.” (ARS § 20-837). The total of
exempted net premiums in Calendar Year 2007
was $176.3 million and if the State were able to
apply the two-percent tax rate, the State would
have collected $3.5 million in additional
premium taxes in fiscal year 2007/08.
“The
Medicare
Prescription
Drug
Improvement and Modernization Act of 2003”
prohibits states from taxing Medicare
Advantage premiums. 42 U.S.C. § 1395w24(g). In Calendar Year 2007, insurers reported
a total of $2,648.2 million subject to this
preemption. If those premiums were subject to

the Arizona 2% tax rate, the state would have
collected $53.0 million in fiscal year 2007/08.
Life and health insurance premiums paid by the
Federal Employee Health Benefits (“FEHB”)
Fund are exempt from taxation by the states [5
U.S.C. §§ 8714 and 8909(f)]. In Calendar Year
2007, the FEHB Fund paid $484.0 million to
provide life and health coverage for Federal
employees in Arizona. If Arizona were able to
tax those premiums at a two-percent rate, the
state would have collected $9.7 million in fiscal
year 2007/08.
Premiums for farmowners multiperil coverage
reinsured by the Federal Crop Insurance
Corporation (FCIC) (7 U.S.C. § 1508) are
exempt from state insurance premium taxation
(7 U.S.C § 1511). In Calendar Year 2007,
insurers collected $8.4 million in premiums
reinsured by the FCIC which, if taxable at a
two-percent rate, would have resulted in an
additional $167.0 thousand being collected by
the state in fiscal year 2007/08.
ARS § 20-2304(J) exempts small group health
insurance policies written by accountable health
plans from insurance premium tax. During
Calendar Year 2007, insurers received $707.3
million in premiums for health benefits plans
issued to small employers by accountable health
plans. Had the tax rate on these premiums
remained at two percent, an additional $14.1
million would have been deposited to the
General Fund in fiscal year 2007/08.
ARS § 20-883 exempts fraternal benefit
societies qualified under ARS § 20-893 from
insurance premium taxes (and from other state,
county, district, municipal and school taxes).
Fraternal benefit society premiums exempted
from tax totaled $86.3 million for Calendar
Year 2007. Had these premiums been subject
to a two-percent tax rate for Calendar Year
2007, the State would have collected $1.7
million more in fiscal year 2007/08.

63

ARS §§ 20-224.05 and 43-210 provide a tax
credit to an insurer that issues health insurance
coverage to individuals and small businesses
who are certified by the Department of
Revenue as meeting prescribed qualifications.
The Act requires the Department of Revenue
to limit certifications such that the aggregate
credits to which insurers will be entitled shall
not exceed $5 million. An insurer is owed a tax
refund or tax credit carry-forward for unused
credit issued pursuant to the Act. In the
aggregate, insurers reduced their Calendar Year
2007 tax liability by $3.4 million with health
insurance coverage credits.
ARS § 20-230 allows the Department of
Insurance to charge foreign and alien insurers
the same taxes, fees, fines, penalties, licenses,
deposit and other obligations that the laws of
their state or country impose on Arizona
insurers doing business in their state or country.
This retaliatory tax, as it is commonly known,
guarantees that insurers incorporated in state
“X” pay the same rates of taxes and fees in
Arizona as Arizona-based insurers pay in state
“X.” This is common practice among most
states. Therefore, foreign or alien insurers
(incorporated outside Arizona) pay Arizona’s
taxes and fees plus retaliatory tax if the
combination of taxes and fees the insurer
would have paid in its home state would be
greater than the taxes and fees levied by
Arizona. Because the amount of retaliatory tax
that foreign and alien insurers pay relies on the
tax rates, fees, assessments, credits, etc. in the
insurers’ states of domicile, no method exists to
calculate the exact effect Arizona would realize
if the foregoing qualifications and exemptions
of insurance premium taxes were not in place.
Therefore, tax expenditure estimates exclude
the possible effects of retaliation. It is fair to
say, however, that retaliatory tax collections
would be diminished to some degree if tax
expenditures were reduced.

S UMMARY

OF I NSURANCE P REMIUM
E XPENDITURES

TAX

Revenue Gain
SUBTRACTIONS FROM TOTAL PREMIUM INCOME:
Applicable cancellations............................................................................................................................NIA *
Returned premiums..................................................................................................................................... NIA
Reduction or refund for direct payment of industrial life insurance.................................................... NIA
Policy dividends ........................................................................................................................................... NIA
Refunds ......................................................................................................................................................... NIA
Savings coupons........................................................................................................................................... NIA
Other similar returns paid or credited to policyholders not reapplied as premiums......................... NIA
Considerations received on annuity contracts (excludes tax
expenditures relating to considerations received by fraternal benefit societies).....................$88,101,660
Unabsorbed portion of any premium deposit......................................................................................... NIA
TOTAL QUANTIFIABLE SUBTRACTIONS FROM
PREMIUM INCOME ............................................................................................................... $88,101,660
AVAILABLE TAX CREDITS
Insurance guaranty fund assessment tax credit ........................................................................................... $0
Domestic life and disability insurer tax credit ....................................................................................$23,625
Enterprise zone and military reuse zone tax credits ....................................................................... $592,500
Health insurance certificates for qualified persons 16 ................................................................... $3,436,157
TOTAL AVAILABLE TAX CREDITS......................................................................$4,052,282
EXEMPTIONS FOR SURPLUS LINE INSURANCE:
Ocean marine and foreign trade insurance .............................................................................................. NIA
Insurance on property or operations of railroads engaged in interstate commerce .......................... NIA
Insurance on federally reorganized Native American governments .................................................... NIA
Insurance on the State of Arizona ............................................................................................................ NIA
TOTAL EXEMPTIONS FOR SURPLUS LINE INSURANCE.......................................$186,325
PREFERENTIAL RATE ON QUALIFIED FIRE INSURANCE ..................................$285,751
ABSENCE OF CAPTIVE INSURANCE PREMIUM TAX..................................... $1,637,685

*No

Information Available.
The credits for health insurance certificates for qualified persons become tax expenditures beginning in Fiscal Year
2007.

16

64

GOVERNMENT PROGRAM EXEMPTIONS:
Hospital, medical, dental and optometric service corporation premiums
paid by federal, state and municipal governments..................................................................... $3,525,940
Medicare Advantage plan premiums............................................................................................ $52,963,660
Life and health insurance premiums paid by the Federal Employee
Health Benefits Fund..................................................................................................................... $9,679,435
Premiums for coverage reinsured by the Federal Crop Insurance Corporation........................ $167,030
Accountable health plan group health insurance to small employers..................................... $14,146,607
Exempt fraternal benefit societies.................................................................................................. $1,726,640
TOTAL GOVERNMENT PROGRAM EXEMPTIONS ....................................... $82,209,312

TOTAL QUANTIFIABLE INSURANCE PREMIUM TAX
EXPENDITURES 17 ........................................................................$176,187,264

17These

expenditures represent foregone revenues to the state general fund.

65

66

JET FUEL EXCISE AND USE
TA X E X P E N D I T U R E S

67

68

J ET F UEL E XCISE AND U SE TAX
E XPENDITURES
Arizona imposes a tax of 3.05¢ per gallon on
the first ten million gallons of jet fuel sold. Jet
fuel is defined as being expressly manufactured
and blended for operating jet or turbine
powered aircraft. The jet fuel use tax rate is
also 3.05¢ per gallon and is levied on the first
ten million gallons of jet fuel stored, used or
consumed. The use tax applies to purchasers
who originally purchased jet fuel for resale but
instead used or consumed the jet fuel and on
which excise tax has not been paid. The excise
tax does not apply to the sale or use of jet fuel
that has already been taxed by another state
unless the tax imposed by another state is less
than Arizona's tax rate. The difference between
Arizona's rate and the rate of the other state is
what will be levied and collected.

69

PREFERENTIAL JET FUEL TAX RATES
Amounts of jet fuel sold over ten million
gallons are not subject to the excise or use tax.
Fiscal year 1993/94 was the last year that
amounts over ten million gallons were taxed.
In that year, 179,413,000 gallons were taxed at
the over ten million gallon tax rate of 1.05¢ per
gallon. Using the same growth rate that has
been experienced with jet fuel of less than ten
million gallons, an additional $8.2 million could
have been generated in fiscal year 2007/08 if
sales of jet fuel over ten million gallons were
taxed at 3.05¢ per gallon.
JET FUEL TAX EXEMPTIONS
Jet fuel sold to commercial airlines and used on flights
that originate in Arizona and whose first outbound
destination is outside of the United States is exempt
from the jet fuel excise tax (A.R.S. §42-5354).
Information is not available on this tax
exemption.

S UMMARY OF J ET F UEL E XCISE
U SE TAX E XPENDITURES

AND

Revenue Gain
PREFERENTIAL TAX RATES:
Jet fuel over 10 million gallons ............................................................................................... $ 8,161,586
EXEMPTIONS:
International flights which originated within the state..................................................................NIA*

TOTAL QUANTIFIABLE JET FUEL EXCISE AND USE TAX
EXPENDITURES 18 ........................................................................... $ 8,161,586

*

No Information Available.
expenditures represent foregone revenues to the state general fund, counties and incorporated cities and towns.

18These

70

LUXURY
TAX EXPENDITURES

71

72

L UXURY TAX E XPENDITURES
Luxury tax collected by the Arizona Department
of Revenue totaled $472.0 million for fiscal year
2007/08 The potential for additional luxury tax
collections would have been $445.1 million with
the elimination of exemptions currently allowed,
and with the adoption of a standard liquor tax
rate. Repeal of exemptions currently in place
would have resulted in an additional $13.1
million. The remaining $458.2 million would be
the result of standardizing the liquor tax rate to
$3.00 per gallon in exchange for the current rates.
ITEMS TAXED AT A PREFERENTIAL
RATE
Current Arizona law (A.R.S. §42-3052) provides
for liquor to be taxed at four different rates: (1)
spirituous liquor at the rate of $3.00 per gallon; (2) on
each container of vinous liquor, except cider, of which the
alcoholic content is not greater than 24% by volume, at
the rate of $0.84 per gallon (3) on each container of
vinous liquor of which the alcoholic content is greater
than 24% by volume 19 , containing eight ounces or less,
$0.25; and (4) on each gallon of malt liquor or cider,
$0.16. By applying the standard $3.00 per
gallon rate across all liquor types, the resulting
revenues would have been:
FY 2007/08
Vinous
At $3/gallon
Actual
Difference

$46,451,739
$13,006,487
$33,445,252

Malt
At $3/gallon
Actual
Difference

$448,802,363
$23,936,126
$424,866,237

Total

$458,311,489

This analysis ignores any decrease in demand
due to increased prices, a probable result of
raising all liquor taxes to $3.00 per gallon.
19The

department has received no tax collections for
this liquor type.

73

An alternative to equalizing liquor prices but
not raising all liquor taxes to the highest rate
would be to determine the effective tax rate for
all liquor and use this rate for taxation. This is
accomplished by determining gallons sold for
each type of liquor and dividing the total tax
collections by this figure. The result is the
effective tax rate, $0.37 per gallon. Applying
this tax rate to all types of liquor will result in
the same amount of tax collections; however,
there will be a tax burden shift. Spirituous and
vinous liquor are taxed at a lower rate under
this scenario, and malt liquor is taxed at a
higher rate. Therefore, the proportion of total
taxes paid by each type of liquor shifts away
from spirituous and vinous and towards malt.
Original
New Tax
Tax
Type
Collections Collections
Spirituous $27,613,939 $ 3,409,389
Vinous
$13,006,487 $ 5,735,222
Malt
$23,936,126 $55,411,941
Total
$64,556,551 $64,556,551

Difference
($24,204,549)
($ 7,271,265)
$31,475,815
$0

EXEMPTIONS FOR TOBACCO
PRODUCTS
Several exemptions from luxury tax on tobacco
products are allowed. Tobacco powder or tobacco
products used exclusively for agricultural or horticultural
purposes and unfit for human consumption are exempt
from taxation according to A.R.S. §42-3052.06.
Since this figure is exempt from taxation, the
Arizona Department of Revenue does not
require this figure to be reported. Therefore, no
tax value of this tax expenditure is available.
A.R.S. §42-3206 allows discounts on cigarette stamps.
The luxury tax on cigarettes is in the form of a
stamp affixed to the cigarette package, which is
obtained from the Department of Revenue at
the following rates:
1.
96% of face value of stamp for first
$36,000 worth of stamps.
2.
97% of face value of stamp for second
$36,000 worth of stamps.

3.

98% of face value of stamp for
additional stamps up to $165,000 in any
month by a distributor. In addition, if
the distributor purchases more than
$165,000 worth of stamps, then the
effective rate for all stamps purchased,
including the first $72,000, will be 98%
of face value.

If all stamps were purchased at face value,
revenue would have increased by $8.3 million in
fiscal year 2007/08.
According to A.R.S. §42-3209A, a distributor
may return unused tobacco product stamps for a
refund. Luxury tax is also refunded if the
cigarettes become unfit for sale due to breakage or
spoilage (A.R.S. §42-3008A2).
Most often,
staleness is the reason for refund. If the state
considered this to be a hazard of doing business
and disallowed such refunds, an additional $4.8
million in fiscal year 2007/08 in luxury
revenues would have resulted.
If proof is provided that cigarettes for which
the stamps were purchased were exported from the
state, luxury tax may be refunded (A.R.S. §423008A). No information is available on the
value of this exemption.

74

EXEMPTIONS FOR LIQUOR
Liquids containing less than 1/2% alcohol by volume are
exempt from luxury tax (A.R.S. §42-3001.10A,
.13 & .14B). Since, reporting is not required by
this group of taxpayers, there is no available
information on potential luxury tax collections.
In accordance with A.R.S. §42-3001.10B, .13 &
.14C, taxable liquors does not include medicines that
are unsuitable for beverage purposes. No information
is available on medicine, which includes liquor
and is unsuitable for beverage purposes.
According to A.R.S. §42-3008A, luxury tax is
refunded if (1) proof is provided that the liquor
for which the stamps were purchased was exported from
the state and (2) if the liquor becomes unfit for sale due
to breakage or spoilage. No information is
available on liquor for which stamps were
purchased and were then exported from the
state. Liquor unfit for sale due to breakage or
spoilage includes beer or wine which has
exceeded its shelf life of three to six months
and containers damaged in such a way that the
product's quality is uncertain. Documents
reporting destruction under this provision
indicated $115,352 in tax revenue lost in fiscal
year 2007/08.

S UMMARY

OF

L UXURY TAX E XPENDITURES

Revenue Gain
PREFERENTIAL TAX RATES ON LIQUOR: ............................................................ $ 458,311,489
TOBACCO PRODUCT EXEMPTIONS AND REFUNDS:
Tobacco powder or products used exclusively for agricultural or
horticultural purposes & unfit for human consumption...................................................................NIA *
Discounts ........................................................................................................................................... $8,302,000
Breakage or spoilage refunds ............................................................................................................ 4,761,000
Exported from state after cigarette stamps purchased........................................................................... NIA
TOTAL TOBACCO PRODUCT EXEMPTIONS AND REFUNDS .......................$ 13,063,000
LIQUOR EXEMPTIONS AND REFUNDS:
Liquids containing less than 1/2% alcohol by volume .......................................................................... NIA
Liquor contained in medicines, unsuitable for beverage purposes ...................................................... NIA
Liquor exported from state after stamps were purchased ..................................................................... NIA
Breakage or spoilage refunds ............................................................................................................. $115,352
TOTAL LIQUOR EXEMPTIONS AND REFUNDS ..........................................................$115,352

TOTAL QUANTIFIABLE LUXURY TAX EXPENDITURES 20
...........................................................................................................$ 445,133,137

*

No Information Available.
expenditures represent foregone revenues to the state general fund and the corrections fund.

20These

75

76

MOTOR CARRIER FEE
TAX EXPENDITURES

77

78

M OTOR C ARRIER F EE TAX
E XPENDITURES
21

Motor carriers are responsible for the following
fees: motor carrier fee, commercial registration
fee, gross weight fee, highway use fee, title fee,
and registration fee. Receipts from these fees
primarily go into the Highway User Revenue
Fund and are distributed to the Department of
Public Safety, Economic Strength fund, state
highway fund, counties, and incorporated cities
and towns.
PREFERENTIAL VEHICLE FEE
RATES
Motor Carrier Fee
The basic motor carrier fee is set at amounts
ranging from $64 to $800. The fees are flat
amounts based on gross vehicle weight (A.R.S.
§28-5854). The vehicle weight for this schedule
ranges from 12,001 pounds to 80,000 pounds.
Lightweight motor vehicles with a declared
gross weight of 12,000 or fewer pounds pay a
flat rate of $64 per vehicle (A.R.S. §28-5492).
Persons who pay the light motor vehicle fee are
exempt from any transaction privilege tax or
any similar tax imposed by any taxing authority
in this state on transactions involving
transporting for hire persons, freight or
property (A.R.S. §28-5493A). The value of this
expenditure is currently unavailable. However,
during fiscal year 2007/08, Arizona based
carriers paid $20.5 million in motor carrier fees.
A reduced motor carrier fee of 7/10 of the full rate is
applied against motor vehicles (A.R.S. §285855) that pre qualified for the reduced motor
carrier fee with the department and travel under
the following conditions: 45% or more of the
mileage reported is either (1) without a load; (2)
with equipment which makes a motor vehicle
ready for the road, (3) with restraining
equipment which makes the load safe, (4) with
equipment normally carried with the motor
vehicle and used for load or unloading, (5) with
21Figures

empty containers and boxes being returned to
the point of shipment, or (6) with commodities
or goods being returned to the point of
shipment as a result of damage, spoilage,
misfills, consignee rejections, or consignee
returns. The value of this expenditure is
unavailable.
A reduced motor carrier fee of 7/10 of the full rate is
applied against motor vehicles weighing 26,000
pounds or more. To qualify, the vehicle must
begin and end its trip at the same point without
adding to its load any items other than those
listed in the previous paragraph and at the
midway point of a qualifying trip, the load is
less than 45% of the full load capacity of the
vehicle (A.R.S. §28-5856). The tax value of this
information is not available.
A reduced motor carrier fee of 7/10 of the full rate
applies to motor vehicles or lightweight motor
vehicles if the vehicle is used only for
transporting agricultural products (A.R.S. §285857). Agricultural products are crops, livestock,
machinery or supplies used or produced in
farming operations or products, crops or
livestock in their unmanufactured or
unprocessed states. The value of this expenditure
is unavailable.
The following motor vehicles are exempt
from the Motor Carrier Fee prescribed in
A.R.S. § 28-5853
1. A school bus
2. A motor vehicle that is used in the
production of:
(a) Motion pictures, including films to be
shown in theaters and on television.
(b) Industrial, training and educational films.
(c) Commercials for television.
(d) Video discs.
(e) Videotapes.

presented for Motor Carrier Tax Expenditures were provided by the Department of Transportation.

79

3. Alternate Vehicles- when the vehicle is
propelled by an Alternate fuel and is a
school bus or a motor vehicle used in the
production of: 2 (a)-(e) above. (A.R.S. § 285805)
4. Church vehicles- when used in religious
associations or institutions. (Article 9,
Section 2, Arizona Constitution)
5. Leased School bus (A.R.S. 28-5853)
6. Non-Profit School vehicles- not used or
held for profit. (Article 9, Section 2, Arizona
Constitution)
The following motor vehicles, trailers, and
semitrailers are exempt from the
Commercial Registration Fee
(as a result of the weight fee exemption
established for certain circumstances)
prescribed in section A.R.S. § 28-5432.C
1. Church vehicles- Operated by religious
institutions and used exclusively for the
transportation of property produced and
distributed for charitable purposes are
exempt from the Commercial Registration
Fees (A.R.S. §28-5432C1).
2. Non-Profit School vehicles- if used
exclusively for transportation of pupils in
connection with school curriculum, training
of pupils or transportation of property for
charitable purposes without compensation
are exempt for the Commercial Registration
Fee. (A.R.S. §28-5432C2)
3. Non-Profit Organization vehicles - a
nonprofit organization which can present a
form approved by the director of the
division of emergency management may
have its motor vehicles exempted from the
Commercial Registration Fee. (A.R.S. §285432C3).
4. Foreign Government vehicles-A vehicle
owned and operated by a foreign
government, a consul or any other official
representative of a foreign government, by
the United States, by a state or political
subdivision of a state or by an Indian tribal
government is exempt from the

80

Commercial Registration Fee. (A.R.S. §285432C4).
5. School Bus- A motor vehicle that is
privately owned and operated exclusively as
a school bus pursuant to a contract with a
school district is exempt from the
Commercial Registration Fee. (A.R.S. §285432C5).
Gross Weight Fee
The gross weight fee is set at amounts ranging
from $7.50 to $918, dependent upon vehicle
weight (A.R.S. §28-5433). The vehicle weight
for this schedule ranges from up to 8,000
pounds to 80,000 pounds. Vehicles in excess
of 80,000 are subject to special permits. Total
gross weight fees collections for Arizona based
vehicles during fiscal year 2007/08 was not
available.
A $4.00 commercial registration fee is added to
the gross weight fee for each registered vehicle.
Commercial registration fees collected for
Arizona based vehicles was not available for
fiscal year 2007/08.
If a motor vehicle is used for seasonal agricultural
work, the annual fee will be reduced by 1/12th
for each month the vehicle is not in use. The
reduced fee is for a period of at least 90 days
but less than a full year (A.R.S. §28-5436). The
value of this expenditure is currently
unavailable.
If a privately owned school bus is temporarily
operated for purposes other than providing
transportation of children to and from school,
the owner must pay 1/10th of the annual gross
weight fee (A.R.S. §28-5432). The value of this
expenditure is currently unavailable.

The following motor vehicles, trailers, and
semitrailers are exempt from the gross
weight fee prescribed in section 28-5432.C:
1. Motor vehicles, trailers or semitrailers owned and
operated by religious institutions and used

exclusively for the transportation of property
produced and distributed for charitable purposes are
exempt from the gross weight fee (A.R.S.
§28-5432C1). No information is available
for this tax exemption.
2. Motor vehicles, trailers or semitrailers owned and
operated by nonprofit schools which are recognized
as being tax exempt by the federal or state
government are exempt from the gross weight
fee (A.R.S. §28-5432C2) if used exclusively
for transportation of pupils in connection
with school curriculum, training of pupils
or transportation of property for charitable
purposes without compensation.
No
information is available on the tax value of
this exemption.
3. A nonprofit organization which can present a form
approved by the director of the division of emergency
management may have its motor vehicles,
trailers and semitrailers exempted from the
gross weight fee (A.R.S. §28-5432C3). No
information is available on this tax
exemption.
4. A vehicle owned and operated by a foreign
government, a consul or any other official
representative of a foreign government, by the United
States, by a state or political subdivision of a state
or by an Indian tribal government is exempt
from the gross weight fee (A.R.S. §285432C4). No information is available on
this tax exemption.
5. A motor vehicle that is privately owned and
operated exclusively as a school bus as a school bus
pursuant to a contract with a school district is

81

exempt from the gross weight fee (A.R.S.
§28-5432C5). No information is available
on this tax exemption.
Highway Use Fee
The highway use fee is set at amounts ranging
from $50 to $2,217, depending upon vehicle
weight and age. Vehicle weight for this
schedule ranges from 0 pounds to 80,000
pounds. Highway use fees collected for Arizona
based vehicles totaled $5.2 million during fiscal
year 2007/08. Vehicles in excess of 80,000
pounds are subject to special permits. If the
model year of the vehicle is 1978 or older, the
use fee schedule is lower, ranging from $50 to
$1,095 (A.R.S. §28-5471). The values of these
expenditures are currently unavailable.
Due to reporting practices, the Department of
Transportation is unable to split out foreign
based motor carrier fee collections. However,
the total amount received from both of these
carriers in fiscal year 2007/08 was $88.3
million. This amount includes registration fees,
motor carrier fees, gross weight fees, &
highway use fees prorated for miles driven in
Arizona. The values of these expenditures are
also unavailable.
The following motor vehicles are exempt
from the Highway Use fee prescribed in
A.R.S. 28-5473D
A farm vehicle that is issued a farm vehicle license plate
is exempt from highway use fees (A.R.S. §285473D). No information is available on this tax
exemption.

S UMMARY

OF M OTOR C ARRIER
E XPENDITURES

TAX

Revenue Gain
PREFERENTIAL FEE RATES:
Motor Carrier Fee
Same motor carrier fees for all Arizona based vehicles ....................................................................... NIA*
Reduced motor carrier fee for lighter loads............................................................................................. NIA
Reduced motor carrier fee for trips starting and ending at the same point
with a lighter load midway ....................................................................................................................... NIA
Reduced motor carrier fee for agricultural loads .................................................................................... NIA
Commercial Registration Fee..................................................................................................................... NIA
Gross Weight Fee
Same gross weight fees for all Arizona based vehicles........................................................................... NIA
Reduced gross weight fee for seasonal agricultural vehicles ................................................................. NIA
Reduced gross weight fee for privately owned school busses .............................................................. NIA
Highway Use Fee
Same use fees for all Arizona based vehicles........................................................................................... NIA
Foreign Based Carriers
Registration fees, motor carrier fees, gross weight fees and highway use fees................................... NIA
VEHICLE FEE EXEMPTIONS:
Motor carriers owned by religious institutions and used for charitable purposes ............................. NIA
Motor carriers owned by nonprofit schools............................................................................................ NIA
Motor carriers owned by nonprofit organizations with a division of
emergency maintenance form.................................................................................................................. NIA
Motor carriers owned by governments .................................................................................................... NIA
Farm vehicles .............................................................................................................................................. NIA

TOTAL QUANTIFIABLE MOTOR CARRIER FEE EXPENDITURES 22
........................................................................................................................NIA

*No Information Available.
22These expenditures represent foregone revenues to the state highway fund, counties and incorporated cities/towns.

82

MOTOR VEHICLE FUEL
TAX EXPENDITURES

83

84

M OTOR V EHICLE F UEL TAX
E XPENDITURES
23

There is a tax of 18¢ per gallon on each gallon
of motor vehicle fuel possessed, refined,
manufactured,
produced,
blended
or
compounded by the supplier or imported by
the supplier, whether in the original package or
container in which it was imported or
otherwise. Beginning January 1, 1998, all
suppliers are required to pay tax on all fuel
received. During fiscal year 2007/08, motor
vehicle fuel tax collected from licensed
suppliers was $505.3 million. The proceeds of
this tax go into the Highway User Revenue
Fund, the off-highway vehicle recreation fund
and the state lake improvement fund. The
Highway User Revenue Fund revenues are
distributed to the Department of Public Safety,
Economic Strength Fund, state highway fund,
counties, and incorporated cities and towns.
EXEMPTIONS FROM THE MOTOR
VEHICLE FUEL TAX
In order to qualify for an exemption, the
taxpayer must then file for a refund (A.R.S.
§28-5610B).
Motor vehicle fuel purchased in Arizona, for which
proof of export is available and either exported by a
supplier or sold by a supplier to a distributor for
immediate export is exempt from motor vehicle
fuel tax (A.R.S. §28-5610A1-2). Requests for
refunds against import liability in the amount of
$4,521,076 were received in fiscal year 2007/08.
Motor vehicle fuel that is sold within an Indian
Reservation to an enrolled member of the Indian tribe is
excluded from taxation per A.R.S. §28-5610A3.

23Any

The total amount refunded for this provision
during fiscal year 2007/08 was $992,214.
Motor vehicle fuel used solely and exclusively
as fuel to operate a motor vehicle on highways
in this state if the motor vehicle is leased to or
owned by and is being operated for the sole
benefit of an Indian tribe for governmental
purposes only (A.R.S. §28-5610A4).
Anyone who purchases motor vehicle fuel and
loses such fuel due to fire, theft or other accident may
request a refund for the tax paid on this fuel
(A.R.S. §28-5611A4). No refunds of this type
were requested for fiscal year 2007/08.
Motor vehicle fuel moving in interstate or foreign
commerce, not destined or diverted to a point within this
state is exempt from the motor vehicle fuel tax
(A.R.S. §28-5610A5).
No information is
available on this tax expenditure.
Motor vehicle fuel sold to the United States or an
instrumentality or agency of the United States is
exempt from the motor vehicle fuel tax (A.R.S.
§28-5610A6). During fiscal year 2007/08,
$406,563 was refunded for this exemption.
A person who purchases and uses motor vehicle fuel
other than in motor vehicles upon the highways of
Arizona, and other than in watercraft upon the
waterways in Arizona, and other than in motor vehicles
operating on a transportation facility or toll road shall
be repaid the motor vehicle fuel tax paid
(A.R.S. §28-5611A). In fiscal year 2007/08,
$1,794,705 in motor vehicle fuel tax was
refunded based on this exemption.

figures presented for Motor Vehicle Fuel Tax Expenditures were provided by the Arizona Department of
Transportation.

85

S UMMARY OF M OTOR V EHICLE F UEL
TAX E XPENDITURES
Revenue Gain
Motor vehicle fuel moving in interstate or foreign commerce ...........................................................NIA*
Motor vehicle fuel sold to the United States or an instrumentality or agency
of the United States........................................................................................................................... $406,563
Motor vehicle fuel sold to Native Americans on Reservations .................................................... $992,214
Motor vehicle fuel used other than in motor vehicles, watercraft and motor
vehicles operating on a transportation facility or toll road ..................................................... $1,794,705
Motor vehicle fuel purchased for export ...................................................................................... $4,521,076
Motor vehicle fuel lost due to fire, theft or other accident ......................................................................... 0

TOTAL QUANTIFIABLE MOTOR VEHICLE FUEL TAX
EXPENDITURES 24 ............................................................................. $7,714,558

*

No Information Available.
tax expenditures represent foregone revenues to the off-highway vehicle recreation fund, the state lake
improvement fund, the state highway fund, counties and incorporated cities and towns.
24The

86

PARI-MUTUEL
TAX EXPENDITURES

87

88

PARI -M UTUEL TAX E XPENDITURES
HORSE OR HARNESS RACING
PREFERENTIAL RATES

•

For horse or harness races, the state receives
2% of the gross amount of the first $1 million
wagered on live races in pari-mutuel pools and
5% of the gross amount exceeding $1 million
(A.R.S. § 5-111.D). If the state received 5% of
all dollars wagered in horse or harness live
races, the state would have received an
additional $1.6 million in fiscal year 2008.
EXEMPTIONS
MUTUEL TAX
•

•

FROM

THE

PARI-

Moneys handled in a pari-mutuel pool for
wagering on simulcasts of out-of-state
horse or harness races are exempt from the
state tax (A.R.S. § 5-111.D). The state share
of the pari-mutuel tax was reduced by $4.77
million in fiscal year 2008 due to this
exemption.
Any county fair racing association may have
one racing meeting each year (A.R.S. § 5111.E). All such racing meetings are exempt
from the state tax on horse or harness live
racing. If county fair racing meetings were
not exempt from the tax, the state would
have received an additional $133,608 in
pari-mutuel revenues during fiscal year
2008.

25Any

•

•

25

Moneys from charity racing days are also
exempt from the state tax (A.R.S. § 5111.F). Taxation of these events would
have raised an additional $51,415 in parimutuel revenues during fiscal year 2008.
The percentage paid to the state for
greyhound racing and for horse or harness
racing shall be reduced by 1% of the total
amount wagered in counties with a
population of 500,000 or more and by 2%
in all other counties for those permittees
who make approved capital improvements
to existing race tracks (A.R.S. § 5-111.03.A).
The state share of the pari-mutuel tax was
reduced by $100,037 due to this reduction
in the percentage during fiscal year 2008.
The percentage decrease in pari-mutuel
wagering between the base year and the
previous fiscal year determines a permittee’s
eligibility for a hardship tax credit. The state
share of the pari-mutuel tax for greyhound
racing and for horse or harness racing was
reduced by the amount equal to the amount
of the hardship tax credit (A.R.S. § 5-111.I).
The state share of the pari-mutuel tax was
reduced by $1.77 million in hardship tax
credits in fiscal year 2008.

figures presented for Pari-mutuel Tax Expenditures were provided by the Arizona Department of Racing.

89

S UMMARY OF PARI -M UTUEL
TAX E XPENDITURES
Revenue Gain
PREFERENTIAL TAX RATES FOR HORSE OR HARNESS
RACING.............................................................................................................. $1,586,438
PARI-MUTUEL TAX EXEMPTIONS:
Reduction in pari-mutuel tax on simulcast out-of-state races...................................................... 4,767,890
County fair racing association meetings ..............................................................................................133,608
Charity racing days....................................................................................................................................51,415
Reduction in pari-mutuel tax for capital improvements to race tracks ..........................................100,037
Reduction in pari-mutuel tax for hardship tax credit .................................................................... 1,768,622

TOTAL QUANTIFIABLE PARI-MUTUEL TAX EXPENDITURES 26
............................................................................................................... $8,398,010

26These

expenditures represent foregone revenues to the breeders award fund; the county fairs' racing betterment fund;
county fairs' livestock agriculture promotion fund; the coliseum and exposition center fund; the county fair racing fund;
the administration of county fair racing betterment retirement fund; the breeders award fund; the stallion award fund;
the greyhound adoption fund; the agriculture consulting and training fund; and the state general fund.

90

P R I VAT E C A R P R O P E RT Y
TA X E X P E N D I T U R E S

91

92

P RIVATE C AR P ROPERTY TAX
E XPENDITURES
Businesses which operate, furnish or lease
railroad cars to be used for transporting or
accommodating persons or freight over railroad
lines not owned, leased or operated by the
business are subject to a private car property
tax in Arizona. The taxable value, or net
assessed value, of the private car property is
determined by multiplying the full cash value of
the property by an assessment ratio. The tax
rate that is applied to the net assessed value is
equal to the average primary and secondary
property tax rates in the taxing districts of the
state, which was $10.04 in 2007.
Arizona statutes set out the assessment ratios to
be used in determining the net assessed values

93

of the various classes of property. These
assessment ratios range from 24% to 5%. For
private car property, the assessment ratio is equal to
the ratio which the total net assessed valuation of all
taxable property in class 1, class 6 paragraph 3 and
personal property in class 2 bears to the total full cash
value of such property (A.R.S. §42-14308). For tax
year 2007, the assessment ratio used for private
car property was 21%. This is considered to be
a preferential assessment ratio because it is an
average of the assessment ratios in several other
classes of property. If private car property had
an assessment ratio equal to the highest
assessment ratio imposed, 24%, tax collections
would have increased by $154,066.

S UMMARY

OF

P RIVATE C AR P ROPERTY TAX
E XPENDITURES

Revenue Gain
Preferential assessment ratio at 24.5% ............................................................................................. $154,066

TOTAL QUANTIFIABLE PRIVATE CAR PROPERTY TAX
EXPENDITURES 27 ...............................................................................$154,066

27These

expenditures represent foregone revenues to the state general fund.

94

PROPERTY
TAX EXPENDITURES

95

96

P ROPERTY TAX E XPENDITURES
The property tax system in Arizona has many
components. These components are intertwined,
making it difficult to address the impact of tax
expenditures on one component in isolation.
The state no longer levies a property tax per $100
of net assessed value on primary values, so state
revenues are affected by exemptions from
property tax in three ways.
First, basic state aid, or a basic level of funding
for education per student statewide, is provided
through the state, the county and school
districts. The school district's responsibility is
determined by multiplying a uniform tax rate by
assessed valuation. If this amount is less than
the basic level of funding, additional revenues
are received from the state, funded by the
education equalization rate which is currently
set at zero. If education equalization revenues
cannot bring the school district to its basic level
of funding, the state provides the balance of the
basic state aid. Therefore, exemptions reduce
the property tax base, which may increase the
state's portion of basic state aid funding.
The second method concerns the taxation of
homeowner property. Frequently, if a political
subdivision sees a decline in property values, the
tax rate imposed by that subdivision increases so
that a consistent revenue stream is provided from
the property tax. The same is true if the political
subdivision sees its taxable base decrease through
exemptions from the property tax. Through a
program called additional state aid (commonly
known as homeowner's rebate), the state pays
thirty-eight percent of a homeowner's school
district tax bill, up to $560. If a homeowner's
school taxes increase due to higher tax rates, the
state will be required to pay a larger amount of
money.
Finally, the state pays that part of a homeowner's
primary tax bill that exceeds one percent of the
limited property value. Higher tax rates could
mean a larger state payment.
Although the state education equalization
property tax rate per $100 of net assessed value
97

is now set at $0, exemptions filter through to
the tax base at the local level, and therefore, as
mentioned earlier in this section, these
exemptions do affect state revenues.
Article IX of the Arizona Constitution exempts:
• property owned by widows and widowers subject
to limitations.
• property owned by disabled persons, subject to
limitations.
• all federal, state, county and municipal property.
• property of educational, charitable and religious
associations or institutions not used or held for
profit.
• household goods owned by the user and used solely
for noncommercial purposes.
• stocks of raw or finished materials, unassembled
parts, work in process or finished products
constituting the inventory of a retailer or
wholesaler located within the state and principally
engaged in the resale of such materials, parts or
products, whether or not for resale to the ultimate
consumer.
There are also several exemptions from
property taxation that are listed in the Arizona
Revised Statutes, as follow:
•

Libraries, colleges, school buildings and other
buildings used for education, with their furniture,
libraries and equipment, and the lands appurtenant
to and used with such buildings, as long as they are
used for the purpose of education and not used or
held for profit. A.R.S. § 42-11104(A).

•

Property and buildings leased from a school district
or a community college district pursuant to a lease
or lease-purchase agreement. A.R.S. § 4211104(B).

•

Property and buildings, including land,
improvements, furniture and equipment, owned by a
nonprofit organization recognized under section 501
(c) (3) of the internal revenue code and that operates
as a charter school pursuant to section 15-183.
A.R.S. § 42-11104(C).

•

•

Hospitals for relief of the indigent or afflicted,
appurtenant land and their fixtures and
equipment to such buildings, as long as they are
not used or held for profit.
A.R.S. 4211105(A).
Property used for operation of a health care
institution which provides medical, nursing or
health-related services to handicapped persons or
persons sixty-two years of age or older and which
is not used or held for profit. A.R.S. § 4211105(B).

•

Property used for qualifying community health
care centers which is not used or held for profit.
A.R.S. § 42-11105 (C).

•

Property owned by a health care provider,
recognized under section 501 (c) (3) of the
internal revenue code and organized as a
nonprofit corporation if the property is used to
provide health care services and not used or held
for profit. A.R.S. § 42-11105 (D).

•

•

•

Property used for the operation of a residential
apartment housing facility which is not used or
held for profit, which is structured for
handicapped persons or persons sixty-two years of
age or older, which is located adjacent to a
property exempted from taxation and which is
owned and operated by the same persons or
associations as such other adjacent property.
A.R.S. § 42-11106(1).
Property used for the operation of a residential
apartment housing facility which is not used or
held for profit, which is structured for
handicapped persons or persons sixty-two years of
age or older and for which a subsidy or payment
is given by federal, state or local government or by
nonprofit organizations in a substantial amount
in relation to the amount given or the total
annual operating expenses to pay for principal,
interest and operating expenses as long as that
organization was not created or operating for the
primary purpose of providing the subsidy or
payment. A.R.S. § 42-11106(2).
Property of charitable institutions for relief of the
indigent or afflicted, including the lands
appurtenant to such property, with their fixtures,
equipment and other reasonably required
98

property, as long as such institutions and property
are not held or used for profit. A.R.S. § 4211107.
•

Grounds and buildings owned by agricultural
societies, as long as they are used for those
purposes only, and not used or held for profit.
A.R.S. § 42-11108.

•

Property or buildings used or held primarily for
religious worship, including furniture and
equipment, and the land and improvements
appurtenant to and used with such buildings, as
long as the property is not used or held for profit.
A.R.S. § 42-11109(A).

•

Cemeteries set apart and used for interring the
dead, except such portions thereof that are used or
held for profit. A.R.S. § 42-11110.

•

Property of widows, widowers and disabled
persons subject to specified conditions and
limitations. A.R.S. § 42-11111.

•

Observatories maintained for astronomical
research and education for the public welfare,
together with all property used in the work or
maintenance of observatories, including property
held in trust, as long as the observatories and
other property are used for such purposes only and
not used or held for profit. A.R.S. §42-11112.

• Grounds and buildings belonging to societies for

the prevention of cruelty to animals and for
sheltering, caring for and controlling animals, as
long as the grounds and buildings are used for
those purposes only and not held or used for
profit. A.R.S. § 42-11113.
• •Property held by a charitable organization for

transfer to this state or a political subdivision of
this state to be used as parkland if no rent or
valuable consideration is received by the charitable
organization. A.R.S. § 42-11114(A).
• •Property held by a charitable organization to

preserve and protect scientific, biological,
geological,
paleontological,
natural
or
archaeological resources. A.R.S. § 42-11115.
• Property

of musical, dramatic, dance and
community art groups, botanical gardens,
museums and zoos as long as the property is used

for those purposes and not used or held for profit.
A.R.S. §42-11116.

regulated by the United States commodity futures
trading commission . A.R.S. § 42-11122.

• Property belonging to a volunteer fire department if

• Animal and poultry feed, including salts, vitamins

the property is used exclusively for fire suppression
and prevention activities and neither used nor
occupied by or for the benefit of any person.
A.R.S. § 42-11117.

and other additives, for animal or poultry
consumption. A.R.S. § 42-11123.
• •Stocks

of row or unfinished materials,
unassembled parts, work in progress or finished
products constituting the inventory of a retailer,
wholesaler or manufacturer located in this state
and principally engaged in reselling the materials,
parts or products. A.R.S. § 42-11125.

• Property that is owned by a volunteer nonprofit

organization that is operated exclusively to
promote social welfare and provide community
quasi-governmental services in an unincorporated
area of a county. A.R.S. § 42-11118(A).

• Livestock and poultry as defined in section 3-

• Property that is owned by a volunteer nonprofit

1201, aquatic animals defined in section 32901, and colonies of bees. A.R.S. § 4211126.

organization, used exclusively for the purpose of
performing roadway cleanup and beautification on
a gratuitous basis, not used or held for profit and
not used or occupied by or for the benefit of any
person. A.R.S. § 42-11119.

• Commercial and agricultural personal property

• Property that is owned by a United States

• Personal property moving through the state or

Veterans' Organization that qualifies as a
charitable organization and is recognized under
either section 501 (C)(3) or 501 (C)(19) of the
internal revenue code if the property is used
predominantly for those purposes and not used or
held for profit. A.R.S. § 42-11120.

subject to specified conditions and limitations.
A.R.S. § 42-11127.
consigned to a warehouse in the state from a point
outside this state for storage or assembly in
transit to a final destination outside this state.
A.R.S. § 42-11128(A).
•

Property claimed to have no situs in this state for
the purposes of taxation shall be considered
property-in-transit or futures contract property.
A.R.S. § 42-11128(B).

•

Property that is owned by a fraternal society or
organization that is devoted exclusively to
religious,
charitable,
scientific,
literary,
educational or fraternal purposes and if no
portion of the property is used for the sale of food
or beverages to the general public or the
consumption of alcoholic beverages by
nonmemebers or is used or held for profit.
A.R.S. § 42-11129.

•

Property that is owned by an organization whose
mission is to provide supplemental financial
support to public libraries, that qualifies as a
charitable organization and that is not used or
held for profit. A.R.S. § 42-11130.

•

Property owned and operated by a federally
recognized Indian tribe or its tribally designated
housing authority that is used exclusively for the
charitable purpose of providing low-income rental

• Property that is not used or held for profit and that

is owned by a community service organization the
mission of which is to serve a population that
includes persons who are indigent or afflicted, as
defined in this section, and that qualifies as a
charitable organization and is recognized under
section 501 (C) (3) of the internal revenue code if
the community service organization is primarily
engaged in delivering services on that property
consisting of fitness programs, camping programs,
health and recreation services, youth programs,
child care, senior citizen programs, individual and
family counseling, employment and training
programs, services for individuals with disabilities,
meals, feeding programs and disaster relief.
A.R.S. § 42-11121.
• A commodity that is consigned for resale in a

warehouse in this state in or from which the
commodity is deliverable on a contract for future
delivery subject to the rules of a commodity market

99

housing and related facilities for the use of
Indians; not used or held for profit; no part of the
earnings of the housing authority may inure to
benefit of any private shareholder or individual;
the housing was designed and constructed using
federal financial assistance pursuant to the
Native American Housing Assistance and SelfDetermination Act (P.L. 104-330; 25 US
Code Chapter 43) or using tribal monies.
A.R.S. § 42-11131.
•

•

•

Property, buildings and fixtures that are owned
by an educational, a religious or a charitable
organization, institution or association if the
property is used for educational instruction in any
grade or program through grade twelve. A.R.S. §
42-11132.
Property used exclusively for rental housing and
related facilities if the property is not used or held
for profit; is owned and operated by, or is a
wholly owned subsidiary of, a charitable fund,
foundation or corporation, including a limited
partnership in which the managing general
partner is an eligible nonprofit corporation; the
acquisition, rehabilitation, development or
operation of the property is financed with tax
exempt mortgage review bonds or general
obligation bonds or is financed by local, state or
federal loans or grants; the rents do not exceed
those prescribed by deed restrictions or regulatory
agreements; the owner of the property is eligible for
and receives tax credits for low-income housing
established under section 42 of the internal
revenue code; the property is used as an assisted
living facility for low-income elderly residents; and
the facility does not exceed two hundred residents.
A.R.S. § 42-11133(A).

2008 ADDITIONAL STATE AID TO
EDUCATION
Pursuant to A.R.S. §15-972, a report indicating
the amount of additional State Aid to Education
is prepared each year. This additional aid is the
amount referred to as the "Homeowner's
Rebate." (The state pays 38% of a homeowner's
school district tax bill, up to $560.) The summary
at the end of this section shows the Additional
State Aid to Education tax roll that was billed in
2008, including additional amounts that were
billed for legal class 3 property on the personal
property tax roll.
ADDITIONAL STATE AID TO
EDUCATION
ASAE Tax
Roll
Apache
Cochise
Coconino
Gila
Graham
Greenlee
La Paz
Maricopa
Mohave
Navajo
Pima
Pinal
Santa Cruz
Yavapai
Yuma
Total

28

$ 5,479,093
8,281,260
28

701,910
28

235,921
28

12,501,728
28

66,196,812
28
28

14,379,020
28

Personal
Property
Tax Roll County Total
28
$ 797,786
$ 133,978
5,613,071
50,165
8,331,425
28
3,240,500
47,720
749,629
28
111,826
0
235,921
28
254,960,171
176,792
12,678,520
28
4,808,693
787,308
66,984,121
28
21,512,217
28
2,826,380
206,484
14,585,505
28
6,055,261
$ 403,635,384

Property owned or used by special taxing districts for
the purpose of irrigation water delivery shall be
exempt from taxation when used for district purposes.
A.R.S. § 48-3472(A).

28

The breakdown between real and personal property
is not available.

100

S UMMARY OF P ROPERTY
TAX E XPENDITURES
Revenue Gain
ADDITIONAL STATE AID TO EDUCATION ................................................$ 403,635,3840

TOTAL QUANTIFIABLE PROPERTY TAX EXPENDITURES 29
........................................................................................................... $403,635,384

29These

expenditures represent foregone revenues to the state general fund.

101

102

SEVERANCE
TAX EXPENDITURES

103

104

S EVERANCE TAX E XPENDITURES
Persons engaged in the business of mining or
timbering in Arizona are subject to a severance
tax. Mining severance is taxed at the rate of
2.5% (A.R.S. §42-5202C) and is levied upon the
net severance base. The net severance base is
defined as fifty percent of the difference
between the gross value of production and the
production costs (A.R.S. §42-5204).
The timber severance tax was levied on the
timber products derived from timbering activity
(A.R.S. §42-5202D) through October 31, 2006.
Beginning November 1, 2006 the timber
severance tax was repealed. Total mining and
timbering severance tax collections in fiscal year
2007/08 totaled $43.8 million .
PREFERENTIAL SEVERANCE TAX
RATES
Until October 31, 2006 timber severance was
taxed depending on the type of timber product.
The tax rate for ponderosa pine timber
products was $2.13 per thousand board feet
and the tax rate for all species except ponderosa
pine was $1.51 per thousand board feet. The
tax rate for all other species except ponderosa
pine is a preferential rate over the ponderosa
pine rate. During fiscal 2007/08 virtually all

105

timber severance collections were for
ponderosa pine for periods prior to it’s repeal.
As a result, the preferential rate had no impact
on collections.
SEVERANCE TAX CREDITS
A credit is allowed against severance tax
imposed for accounting and reporting expenses incurred
by the taxpayer (A.R.S. §42-5017A). The credit
equals 1% of the amount of tax due, not to
exceed $10,000 in any calendar year. In fiscal
year 2007/08, information about the value of
the severance tax accounting credit was
unavailable.
SEVERANCE TAX EXCLUSIONS
Mining Severance
The net severance base is fifty percent of the
difference between the gross value of production
and the production costs. (A.R.S. §42-5204) Both
the fifty percent factor and the value of
production costs are exclusions from severance
taxation. Taxing the net severance base at 100%
would have generated an additional $43.8 million
in fiscal year 2007/08. The tax value of the
production costs is unknown.

S UMMARY OF S EVERANCE
TAX E XPENDITURES
Revenue Gain
PREFERENTIAL TIMBER SEVERANCE TAX RATE FOR
OTHER TIMBER PRODUCTS............................................................................................................. $0
SEVERANCE TAX CREDITS:
Accounting credit ...................................................................................................................................... NIA*
SEVERANCE TAX EXCLUSIONS:
Fifty percent factor........................................................................................................................... 43,750,000
Production Costs ......................................................................................................................................... NIA

TOTAL QUANTIFIABLE SEVERANCE TAX EXPENDITURES 30
............................................................................................................. $43,750,000

*

No Information Available.
expenditures represent foregone revenues to the state general fund, counties and incorporated cities and towns.

30These

106

TRANSACTION PRIVILEGE
A N D U S E TA X
EXPENDITURES

107

108

T RANSACTION P RIVILEGE AND
U SE TAX E XPENDITURES
Transaction privilege and use tax gross
collections in fiscal year 2007/08 totaled over
$5.5 billion. Of that amount, $1.2 billion was
distributed to the counties and cities. The
remaining $4.3 billion was deposited into the
State General Fund. Potential transaction
privilege and use tax collections from the
various transaction privilege tax exemptions
would have, at a minimum, increased
collections by more than 173%. The
quantifiable exemptions discussed in this report
represent potential collections of $9.7 billion.
Additionally, lost revenues due to preferential
tax rates, e.g., those items taxed at a rate below
5%, total $417 million while credits totaled
$22.2 million. Therefore, the State of Arizona
could be collecting at least an additional $10.1
billion in transaction privilege and use tax if the
credits, exempted items and items taxed at a
preferential rate were taxed at a 5% rate.
The Proposition 301 - Education Tax, collected
$646 million at the 0.6% rate. While the two
taxes are collected on roughly the same tax
base, the Proposition 301 monies are dedicated
to Education related funds. We continue to
present the value of exemptions at the 5% rate.
The effect of these exemptions on Proposition
301 can be estimated by taking 12% of the
amounts shown later in this section. For fiscal
year 2007/08, the value of the exemptions on
the Proposition 301 Education funds was $1.2
billion.
PREFERENTIAL TRANSACTION
PRIVILEGE TAX RATES
In most categories, sales in Arizona are taxed at a
5% rate. Three categories of taxable activities,
however, are currently taxed at a lower rate.
These activities and the corresponding tax rates
are as follows:

CODE

TAXABLE ACTIVITIES

RATE

2

Non-Metal Mining, Oil &
Gas Production

3.125%

13

Commercial Lease 31

0%

28

Rental Occupancy Tax

0%

If the activities in these categories had been
taxed at a 5% rate in fiscal year 2008, additional
transaction privilege tax of $417 million would
have been collected.
TRANSACTION PRIVILEGE AND USE
TAX CREDIT
A credit is allowed against transaction privilege
tax imposed for accounting and reporting expenses
incurred by the taxpayer (A.R.S. §42-5017). The
credit equals 1% of the amount of tax due, not
to exceed $10,000 in any calendar year. In fiscal
year 2007/08, the value of the accounting credit
equaled $22.2 million.
TRANSACTION PRIVILEGE AND USE
TAX EXEMPTIONS
Certain types of income or sales by businesses
are exempt from transaction privilege and use
tax. Some of these businesses have taxable
sales as well as exempt sales; some have no
taxable sales at all. In the case of those
businesses that have both taxable and exempt
sales, there is some information on the value of
the exemption. Those businesses that only
have exempt sales generally do not file
transaction privilege tax returns; therefore, no
figures are reported for the value of the exempt
business. The following information lists all
exemptions identified in the Arizona Revised
Statutes, whether information was available on
the tax value of the exemption or not.
The primary type of business exempt from
transaction privilege tax in Arizona is the
31The

tax rate for this class changed to 0% from 1.0%
effective July 1, 1997.

109

business of providing a service (A.R.S. §425061A1, A2). Service industries can be broken
down into several major categories as defined
by the U.S. Census Bureau: (1) professional,
scientific and technical; (2) health care and
social assistance; (3) administrative and business
support; (4) personal care; (5) educational; and
(6) other services. Examples of each of these
service categories are listed at the end of this
section. A summary of potential transaction
privilege tax revenue from these major
categories is as follows:
Professional, Scientific
and Technical

$634,507,000

Health Care and Social
Assistance

$722,009,000

Administrative and
Business Support

$510,768,000

Personal Care

$44,667,000

Educational

$27,770,000

Other Services

$126,541,000

Total transaction privilege tax revenue available
from these businesses is nearly $2.1 billion.
Although the estimate of potential tax
collections provided here does not include
estimates for all services, the majority has been
captured.
The business of selling tangible personal property at
wholesale, by definition, is not taxable. During
fiscal year 2007/08, wholesale trade was
estimated to be $72 billion. If taxed at a 5%
rate, collections from this category would be
$3.6 billion.
The transaction privilege and use tax is levied
upon the gross income or the gross proceeds of
sales. Gross proceeds of sales do not include
cash discounts allowed (A.R.S. §42-5001.5). The
value of merchandise traded in on the purchase
of new merchandise when the trade-in allowance
is deducted from the sales price of the new
merchandise before completion of the sale is
exempt (A.R.S. §42-5001.6). No information is

110

available on the value of cash discounts or
trade-ins.
Sales of warranty or service contracts are exempt
from transaction privilege tax (A.R.S. §425061A3). In fiscal year 2007/08 it is estimated
that businesses deducted $442 million for such
contracts. Taxing these contracts at a 5% rate
would have resulted in collections of $21.1
million.
Sales of tangible personal property by any nonprofit
organization and operated exclusively for charitable
purposes and recognized by the department and the
United States Internal Revenue Service as such a
nonprofit organization for charitable purposes are
exempt from transaction privilege and use tax
(A.R.S. §42-5061A4; A.R.S. §42-5074B6; A.R.S.
§42-5159A15a). No information is available on
this tax expenditure.
The sale of stocks and bonds is not subject to
transaction privilege tax in Arizona (A.R.S. §425061A7). No information is available on this
tax expenditure.
Items required by prescription, such as prescription
drugs and medical oxygen (A.R.S. §42-5061A8,
A.R.S. §42-5159A16), are exempt from
transaction privilege tax. In fiscal year 2007/08
it is estimated that businesses took $8.0 billion
in deductions for prescriptions and medical
oxygen. Had these purchases been taxed at a
rate of 5%, collections would be $400.5 million.
Insulin, syringes, glucose test strips (A.R.S. §425061A10, A.R.S. §42-5159A19), eyeglasses and
contact lenses (A.R.S. 42-5061A11, A.R.S. §425159A18), prosthetic appliances prescribed or
recommended by a physician, dentist or other
professional (A.R.S. §42-5061A9, A.R.S. §425159A17) and hearing aids (A.R.S. §42-5061A12,
A.R.S. §42-5159A20) are exempt from
transaction privilege and use tax, as are durable
medical equipment (A.R.S. §42-5061A13, A.R.S.
§42-5159A21). In fiscal year 2007/08 it is
estimated that deductions of $273 million were
taken for these items. Had they been taxed,
collections would have been $13.7 million.
Sales to nonresidents of Arizona for use outside
Arizona if the vendor ships or delivers the

tangible personal property outside of the state
are exempt from transaction privilege tax
(A.R.S. §42-5061A14). It is estimated that in
fiscal 2007/08 a total of $1.5 billion was
deducted for other tangible personal property
sold to a nonresident and delivered out of state.
Were these transactions taxable, an additional
$77 million would have been collected.
Food for home consumption (A.R.S. §42-5061A15,
A.R.S. §42-5159A22) was exempted from
transaction privilege and use tax effective July
1980. This includes items purchased with food
stamps (A.R.S. §42-5061A16, A.R.S. §425159A23). In fiscal year 2007/08 it is estimated
that deductions of $13.7 billion were taken for
these items. A 5% tax on these would have
brought in $687 million in additional revenues.
Textbooks sold by any bookstore that are required by
any state university or community college are not
subject to the transaction privilege or use tax
(A.R.S. §42-5061A17, A.R.S. §42-5159A28.)
Deductions estimated to be $85.4 million were
taken for this exemption in fiscal 2007/08. At
a rate of 5%, these deductions would have
generated $4.3 million had they been taxable.
Meals provided to employees of restaurants are exempt
from transaction privilege and use taxation
(A.R.S. §42-5061A18, A.R.S. §42-5159A24).
Using an average value of $9.91 per meal,
employees of full service restaurants working
five days per week would consume meals worth
$149 million. This converts to tax collections of
$7.5 million at a 5% tax rate for fiscal year
2007/08.
No transaction privilege or use tax is applied to
food, drink or condiment purchased for school
lunches (A.R.S. §42-5061A19, A.R.S. §425159A26). No information is available for this
tax expenditure.
Arizona lottery ticket sales (A.R.S. §42-5061A20,
A.R.S. §42-5159A27), amounting to $472.9
million in fiscal year 2007/08, are not taxable.
Additional tax collections of $23.6 million
would have been received if the sales were
taxed at a 5% rate.

111

The sale of precious metal bullion and monetized
bullion to the ultimate consumer is exempt from
transaction privilege tax (A.R.S. §42-5061A21).
Precious metal bullion is defined as precious
metal, including gold, silver, platinum, etc.,
which has been smelted or refined so that its
value depends on its contents and not on its
form. Monetized bullion means coins and other
forms of money which are manufactured from
gold, silver, etc., and which have been used as a
medium of exchange. No information is
available for this tax expenditure.
Tangible personal property sold to a qualifying hospital
or a qualifying health care organization used by the
organization solely to provide health and
medical related educational and charitable
services is exempt from transaction privilege
and use tax (A.R.S. §42-5061A25a,b, §425063C3, §42-5065B2, §42-5066B3, §42-5067B,
§42-5074B8; A.R.S. §42-5159A13a, b, d). In
fiscal year 2007/08 deductions of an estimated
$1.2 billion were taken for these exemptions.
Had they been taxed at 5%, $58.8 million
would have been collected.
Tangible personal property sold to or purchased by
qualifying community health centers and health care
organizations dedicated to assisting blind, visually
impaired, and multi-handicapped children are
exempt from transaction privilege and use tax
(A.R.S. §42-5061A25c, A.R.S. §42-5061A25d,
A.R.S. §42-5159A13e). No data is available on
the value of this exemption.
Sales of tangible personal property to a nonprofit
charitable organization that regularly serves meals to the
needy and indigent on a continuing basis at no cost is
exempt from the transaction privilege and use
tax (A.R.S. §42-5061A25e, A.R.S. §425159A13j). During fiscal 2007/08, businesses
deducted an estimated $34 million for this
exemption. At 5%, this would have raised $1.7
million had it been taxable.
Sales of tangible personal property to a nonprofit
charitable organization that provides residential apartment
housing for low income persons over sixty-two years of age
in a facility that qualifies for a federal housing subsidy, is
exempt from the transaction privilege and use
tax (A.R.S. §42-5061A25f, A.R.S. §42-5159A13l)

The gross proceeds of sales from a contract for
construction of a residential apartment housing facility that
qualifies for a federal housing subsidy for low income
persons over sixty-two years of age and that is owned by a
nonprofit charitable organization is exempt from the
prime contracting classification of transaction
privilege tax (A.R.S. §42-5075B13). Information
is not available on these expenditures.
No transaction privilege or use tax is charged
on magazines or other periodicals or other publications
by this state to encourage tourist travel (A.R.S. §425061A26, 42-5065A2, A.R.S. §42-5159A29).
Arizona Highways magazine is the primary
publication of this type. No information is
available on the value of this exemption.
Articles or materials purchased to be
incorporated into a final product for sale are
exempt from transaction privilege and use tax.
Two examples of this exemption can be
quantified. Sales of articles to a contractor with a
transaction privilege tax license for incorporation or
fabrication under a construction contract (A.R.S. §425061A27a) were estimated using the 2002
Census of Construction Industries for Arizona.
On the basis of estimated cost of materials of
$9.5 billion in this category, potential tax
collections at a 5% tax rate would have been
$475.3 million. Sales of articles to be incorporated
into a manufactured product (ACRR R15-5-1839,
A.R.S. §42-5159A4) were estimated using the
2002 Census of Manufacturing. On the basis
of estimated sales of $22.2 billion, potential tax
collections at a 5% tax rate would have been
$1.1 billion in fiscal year 2007/08.
The sale of a motor vehicle is exempt from
transaction privilege tax under two conditions
(A.R.S. §42-5061A28).
If the buyer is a
nonresident of this state and the state of residence does
not allow a corresponding use tax exemption and if the
nonresident has secured a special thirty-day nonresident
vehicle registration, the transaction is not taxable.
In fiscal 2007/08 an estimated $402 million was
deducted for this exemption.
Had these
transactions been taxable an additional $20.1
million would have been collected. Also, if the
purchaser is an enrolled member of an Indian tribe who
resides on the Indian reservation established for that

112

tribe, no tax can be imposed. In fiscal 2007/08
an estimated total of $113.5 was deducted for
this exemption. An additional $5.7 million
would have been collected at the 5% rate.
Tangible personal property purchased or leased by a
nonprofit charitable organization that engages in and uses
such property exclusively for training, job placement or
rehabilitation programs or testing for mentally or physically
handicapped persons is exempt from the transaction
privilege and use tax (A.R.S. §42-5061A29, A.R.S.
§42-5159A13f). No information is available on
the tax value of this exemption.
Tangible personal property sold and sales under
the amusement and restaurant classifications by
a nonprofit organization if the organization is associated
with a major league baseball team or a national touring
professional golf association is not subject to
transaction privilege or use tax (A.R.S. §425061A30; 42-5073A5 42-5074B4; A.R.S. §425159A15b). Similar qualified organizations
which sponsor or operate a rodeo featuring
primarily farm and ranch animals are also exempt
from the transaction privilege and use tax
(A.R.S. §42-5061A32, 42-5073A6; 42-5074B5;
A.R.S. §42-5159A15c). No information is
available on these tax expenditures.
Sales of commodities, as defined by title 7 United States
Code § 2, that are consigned for resale in a warehouse in
or from which the commodity is deliverable on a contract
for future delivery subject to the rules of a commodity
market are exempt from transaction privilege
and use tax (A.R.S. §42-5061A31, A.R.S. §425159A14). No information is available on the
tax value of this exemption.
There is no transaction privilege or use tax on the
sale of seeds, seedlings, roots, bulbs, cuttings and other
propogative material to persons who uses those items to
commercially produce agricultural, horticultural, viticultural
or floricultural crops in Arizona (A.R.S. §42-5061A33,
A.R.S. §42-5159A9). In fiscal year 2007/08 an
estimated $17.3 million was deducted for this
exemption. Had it been taxable, $866,000 would
have been collected.
Machinery, equipment and certain supplies used to assist
the physically or developmentally disabled or those persons
with head injuries are exempt from transaction
privilege and use tax (A.R.S. §42-5061A34,

A.R.S. §42-5159A34).
No information is
available on the value of this exemption.
Tangible personal property shipped or delivered directly
to a foreign country for use in that country is exempt
from transaction privilege tax (A.R.S. §425061A35). In fiscal year 2007/08 an estimated
$225 million was deducted for this exemption.
Had it been taxable, $11.3 million would have
been collected. Fiscal year 2007/08 deduction
information will be available at a later date.
Sales of natural gas or liquefied petroleum gas used to
propel a motor vehicle are exempt from transaction
privilege and use tax (A.R.S. §42-5061A36,
A.R.S. §42-5063B2, A.R.S. §42-5063B3, A.R.S.
§42-5159A33). In fiscal year 2007/08 an
estimated $25.6 million was deducted for this
exemption. Had it been taxed at the 5% rate an
additional $1.3 million.
Paper machine clothing sold to a paper manufacturer and
directly used or consumed in paper manufacturing is
exempt from transaction privilege and use tax
(A.R.S. §42-5061A37, A.R.S. §42-5159A30). No
information is available for this expenditure.
The gross proceeds of sales or gross income derived from
sales of machinery, equipment, utility product, materials
and other tangible personal property used directly to
construct a qualified environmental technology
manufacturing, producing or processing facility are
deducted from transaction privilege tax base
(A.R.S. §42-5061E, 42-5063C4). Use tax does
not apply to the storage, use or consumption in
Arizona of machinery, equipment, materials or other
tangible personal property if use directly to
construct a qualified environmental technology
manufacturing, producing or processing facility
(A.R.S. §42-5159E).
Information is not
available on these expenditures.
Sales of coal, petroleum, coke, natural gas, virgin fuel
oil and electricity to an environmental technology
manufacturer, producer or processor and that
are directly used or consumed in the generation
or provision of on-site power or energy are
exempt from transaction privilege and use tax
(A.R.S. §42-5061A38, A.R.S. §42-5159A31). In
fiscal year 2007/08 an estimated $18.1 million
was deducted for this exemption. At a rate of
5% $905,000 would have been collected.
113

Sales of liquid, solid or gaseous chemicals used in
manufacturing, processing, fabricating, mining, refining,
metallurgical operations or research and development are
exempt from transaction privilege and use tax if
the chemicals are used for the purpose of
causing or permitting a chemical or physical
change to occur in the materials as a part of the
production process (A.R.S. §42-5061A39, A.R.S.
§42-5159A35). In fiscal year 2007/08 an
estimated $62 million was deducted for this
exemption. At a rate of 5% $3.1 million would
have been collected.
Under the retail classification and the restaurant
classification, sales of food, drink or condiment for
consumption within the premises of any jail or prison or
any other institution under the jurisdiction of the
county sheriff, DOC, DPS, or DYTR are
exempt from transaction privilege and use tax,
(A.R.S. §42-5061A41; 42-5074B9; A.R.S. §425159A36). During fiscal year 2007/08 $2.5
million was estimated to be deducted for this
exemption. Had this been taxed at 5%,
$126,000 would have been collected.
Motor vehicles and any repair and tangible personal
property that becomes a part of the motor vehicles sold to
a licensed motor carrier subject to a fee under title
28, chapter 9, article 6 who lease or rent the
property are not subject to transaction privilege
or use tax (A.R.S. §42-5061A42, A.R.S. §425159A37). In fiscal year 2007/08 an estimated
$198.7 million was deducted for this
exemption. Had it been taxable, $9.9 million
would have been collected.
Livestock, poultry, feed and supplies for use or
consumption in the businesses of farming, ranching and
feeding livestock and poultry, not including fertilizers,
herbicides and insecticides are not subject to use
tax in Arizona (A.R.S. §42-5159A8). Sales of
livestock and poultry feed, salts, vitamins for livestock or
poultry consumption sold to persons engaged in
producing livestock, poultry or products are
exempt from transaction privilege tax (A.R.S.
§42-5061A43). Information is not available on
these expenditures.
There is no transaction privilege or use tax on
the sale or purchase of implants used as growth
promotants and injectable medicines for livestock and

poultry owned by persons engaged in producing
or feeding livestock or poultry (A.R.S. §425061A44, A.R.S. §42-5159A7).
In fiscal
2007/08 $5.6 million was estimated to be
deducted for this exemption. Had it been
taxable, $281,000 would have been collected.
Sales of motor vehicles at auction to nonresidents of this
state for use outside this state if the vehicles are
shipped or delivered outside of the state are
exempt from the transaction privilege tax
(A.R.S. §42-5061A45). During fiscal 2007/08
an estimated total of $87.1 million was
deducted for this exemption. Were these
transactions taxable, an additional $4.4 million
would have been collected.
Transaction privilege and use tax does not
apply to sales of tangible personal property to
persons engaged in business under the transient
lodging classification if the property is personal
hygiene products or articles used for drink or condiment,
except alcoholic beverages, which are furnished to and to
be consumed by the transient during his occupancy
(A.R.S. §42-5061A46, A.R.S. §42-5159A13k).
Information is not available on this
expenditure.
Sales or purchases of alternative fuel to a used oil fuel
burner who is permitted under §49-426 or §49480 to burn used oil or used oil fuel are exempt
from transaction privilege and use tax (A.R.S.
§42-5061A47, A.R.S. §42-5159A42). No
information is available on this tax expenditure.
Printed, photographic, electronic or digital media
materials for use in libraries funded with public moneys
in Arizona, are exempt from transaction
privilege and use tax (A.R.S. §42-5061A48,
A.R.S. §42-5159A12). During fiscal 2007/08
an estimated $1.7 million is deductions were
claimed for this exemption. At a rate of 5%,
tax collections would have been $86,000 had
these items been taxable.
Under the retail classification and the restaurant
classification, tangible personal property sold to or
purchased by a commercial airline that consist of food,
beverages and condiments and accessories used for
serving, if the items are provided without
additional charge, are exempt from transaction
privilege and use tax (A.R.S. §42-5061A49; 42114

5074C; A.R.S. §42-5159A43). In fiscal 2007/08
an estimated $2.5 million was deducted for this
exemption. Had this been taxable, an additional
$126,000 would have been collected.
Sales of new alternative fuel vehicles, as defined in
A.R.S. §43-1086, if the vehicle was manufactured as a
diesel fuel vehicle and converted to operate on alternative
fuel, and equipment that is installed in a conventional
diesel fuel motor vehicle to convert the vehicle to operate
on an alternative fuel. (A.R.S. §42-5061A50, A.R.S.
§42-5159A44) Information is not available on
this expenditure.
Sales of any spirituous, vinous or malt liquor by a
person that is licensed in this state as a wholesaler by the
Arizona Department of Liquor Licenses and control.
(A.R.S. §42-5061A51) No information is
available on the value of this tax expenditure.
Sales of tangible personal property to be incorporated or
installed as part of environmental response or
remediation activities under A.R.S. §42-5075B6.
(A.R.S. §42-5061A52) No information is
available on the value of this tax expenditure.
Sales of tangible personal property by a nonprofit
organization if the organization produces, organizes or
promotes cultural or civic related festivals or events and
no part of the organization’s net earnings inures to the
benefit of any private shareholder or individual.
(A.R.S. §42-5061A53) No information is
available on the value of this tax expenditure.
Machinery or equipment used directly in manufacturing,
processing, fabricating, job printing, refining or
metallurgical operations is not subject to transaction
privilege or use tax (A.R.S. §42-5061B1, A.R.S.
§42-5159B1). Limited information is available
on this type of machinery or equipment. Using
the 2002 Census of Manufacturing and inflating
the capital expenditure figure by the rate of
increase in the Producer Price Index for
machinery and equipment, an estimated $1.0
billion in sales of this machinery taxed at 5%
would have brought in an additional $50.7
million in revenues.
Sales of machinery or equipment used in mining
directly in the process of extracting ores or
minerals from the earth for commercial
purposes (A.R.S. §42-5061B2, A.R.S. §42-

5159B2) and sales of machinery or equipment used in
drilling for or extracting oil or gas from the earth
(A.R.S. §42-5061B10, A.R.S. §42-5159B10) are
not taxed. During fiscal 2007/08 an estimated
$816 million was deducted for this exemption.
A 5% tax on this machinery would have
brought in $40.8 million in additional revenues.
Tangible personal property sold to persons engaged in
business under the telecommunications classification,
consisting of central office switching equipment,
switchboards,
private
branch
exchange
equipment, microwave radio equipment and
carrier equipment including optical fiber, coaxial
cable and other transmission media which are
components of carrier systems are exempt from
the transaction privilege and use tax (A.R.S. §425061B3, A.R.S. §42-5159B3). No information is
available on this tax expenditure.
Machinery, equipment or transmission lines used directly
in producing or transmitting electrical power, but not
including distribution is exempt from the
transaction privilege and use tax (A.R.S. §425061B4, A.R.S. §42-5159B4). Transformers and
control equipment used in transmission
substation sites are included in this exemption.
During fiscal 2007/08 $1.4 billion was
estimated to have been deducted for this
exemption. Had this been taxable, an additional
$72.3 million would have been collected.
Neat animals, horses, asses, sheep, swine or goats used
or to be used as breeding or production stock are not
subject to the transaction privilege or use tax
(A.R.S. §42-5061B5, A.R.S. §42-5159B5). No
information is available on the tax value of this
exemption.
There is no transaction privilege or use tax on
pipes or valves four inches in diameter or larger used to
transport oil, natural gas, artificial gas, water or coal
slurry (A.R.S. §42-5061B6, A.R.S. §42-5159B6).
In fiscal 2007/08 $367.7 million was estimated
to have been deducted for this exemption. Had
this been taxable, $18.4 million would have
been collected.
Aircraft, navigational and communication instruments
sold to (a) a person holding a federal certificate
of public convenience and necessity or foreign
air carrier permit for air transportation in
115

intrastate, interstate or foreign commerce, (b) any
foreign government for use outside of Arizona,
or (c) nonresidents who will not use such
property in Arizona other than in removing such
property from Arizona are not subject to the
transaction privilege and use tax (A.R.S. §425061B7, A.R.S. §42-5159B7). During fiscal
2007/08 it was estimated that $60 million was
deducted for this exemption. Had it been
taxable, $3 million would have been collected.
Machinery, tools, equipment and related supplies used or
consumed directly in repairing, remodeling or
maintaining aircraft, aircraft engines or aircraft
component parts by or on behalf of a certified or licensed
carrier of persons or property are exempt from tax
(A.R.S. §42-5061B8, A.R.S. §42-5159B8). No
information is available on this exemption.
Railroad rolling stock, rails, ties and signal control
equipment used directly to transport persons or property
in intrastate or interstate transportation for hire is
exempt from the transaction privilege and use
tax (A.R.S. §42-5061B9, A.R.S. §42-5159B9).
No data is available on the value of this
exemption.
Transaction privilege and use tax do not apply to
sales of buses or other urban mass transit vehicles which
are used directly to transport persons or property for hire or
pursuant to a governmentally adopted and controlled
urban mass transportation program and which are sold to
bus companies holding a federal certificate of convenience
and necessity (A.R.S. §42-5061B11, A.R.S. §425159B11). No information is available on this
exemption.
Groundwater measuring devices and their installation
required under A.R.S. §45-604 are exempt from
transaction privilege and use tax (A.R.S. §425061B12, A.R.S. §42-5075B2, A.R.S. §425159B12). No information is available on the
value of these devices.
New machinery and equipment (never sold at retail
pursuant to leases or rentals which do not total two years
or more) used for commercial production of agricultural,
horticultural, viticultural and floricultural crops in
Arizona are exempt from transaction privilege
and use tax (A.R.S. §42-5061B13, A.R.S. §425159B13). This equipment consists of tractors,
tractor-drawn
implements,
self-powered

implements and drip irrigation lines. No
information is available on the value of this
exemption.
Transaction privilege and use tax does not apply
to sales of machinery or equipment used in research and
development. Research and development means
basic and applied research in the sciences and
engineering, and designing, developing or testing
prototypes, processes or new products, including
research and development of computer software
that is embedded in or an integral part of the
prototype or new product or that is required for
machinery or equipment to function effectively
(A.R.S. §42-5061B14, A.R.S. §42-5159B14). No
information is available on the value of this
exemption.
Machinery and equipment purchased by or on behalf of
owners of a soundstage complex and primarily used for
motion picture, multimedia or interactive video
production are exempt from transaction privilege
and use tax (A.R.S. §42-5061B15, A.R.S. §425159B15). Information is not available on the
value of this exemption.
Tangible personal property used by any direct broadcast
satellite television or data transmission service or facility to
receive, store, convert, produce, generate,
decode,
encode,
control
or
transmit
telecommunications information is exempt from
transaction privilege and use tax (A.R.S. §425061B16, A.R.S. §42-5159B16a). The broadcast
satellite television or data transmission service or
facility must operate within federal regulations.
Sales of services by direct broadcast satellite television
services that operate within federal regulation are
not taxable under the telecommunications
classification
(A.R.S.
§42-5064B4).
No
information is available on the value of these
exemptions.
Clean rooms that are used for manufacturing,
processing, fabrication or research and
development of semiconductor products are
exempt from transaction privilege and use taxes
(A.R.S. §42-5061B17, A.R.S. §42-5159B17).
This includes the integrated systems, fixtures,
piping, movable partitions, lighting and property
that is necessary for control of the clean room.
No information is available on the value of this
116

exemption. The income derived from the
installation, assembly, repair or maintenance of the clean
rooms is exempt from taxation under the
contracting classification. (A.R.S. §42-5075B12).
No information is available on the value of this
exemption.
Machinery and equipment used directly in the feeding of
poultry, the environmental control of housing for poultry,
the movement of eggs within a production and packaging
facility or the sorting or cooling of eggs. (A.R.S. §425061B18, A.R.S. §42-5159B18). No information
is available on the value of this exemption.
Machinery or equipment, including related structural
components, that is employed in connection with
manufacturing, processing, fabricating, job printing,
refining, mining, natural gas pipelines, metallurgical
operations,
telecommunications,
producing
or
transmitting electricity or research and development and
that is used directly to meet or exceed rules or regulations
adopted by the federal energy regulatory commission, the
United States Environmental Protection Agency, the
United States Nuclear Regulatory Commission, the
Arizona Department of Environmental Quality or a
political subdivision of this state to prevent monitor,
control or reduce land, water or air pollution. (A.R.S.
§42-5061B19, A.R.S. §42-5159B19) No
information is available on the value of this
exemption.
Machinery and equipment that are sold to a person
engaged in the commercial production of livestock,
livestock products or agricultural, horticultural,
viticultural or floricultural crops or products in this state
and that are used directly and primarily to prevent,
monitor, control or reduce air, water or land pollution.
(A.R.S. §42-5061B20, A.R.S. §42-5159B20) No
information is available on the value of this
exemption.
Machinery or equipment that enables a television station
to originate and broadcast or to receive and broadcast
digital television signals and that was purchased to
facilitate compliance with the telecommunications act of
1996. (A.R.S. §42-5061B21, A.R.S. §425159B21) No information is available on the
value of this exemption.
Qualifying equipment purchased by a qualifying
business for harvesting or the initial processing of
qualifying forest products removed as part of the Healthy

Forests program are exempt from transaction
privilege and use tax.. (A.R.S §42-5061B22) In
fiscal 2007/08 an estimated $1.3 million was
deducted for this exemption. At a rate of 5%
the value of this exemption is $66,000.
Machinery, equipment and other tangible personal
property used directly in motion picture production by a
motion picture production company is exempt from
transaction privilege and use tax.. (A.R.S §425061B23) No information is available on the
value of this exemption.
The portion of the sales price of heavy trucks and
trailers that reflect the federal luxury excise tax (A.R.S.
§42-5061E) are exempt from transaction
privilege tax. The portion of the sales price of use
fuel that reflects the federal luxury excise tax is
also exempt from transaction privilege tax
(A.R.S. §42-5061F). Information is not available
on these expenditures.
The gross proceeds of sales or gross income derived from
sales of machinery, equipment, materials and other
tangible personal property used directly and
predominantly to construct a qualified environmental
technology manufacturing, producing or processing facility
as described in A.R.S. §41-1514.02. (A.R.S. §425061D) No information is available on the tax
value of this exemption.
Sales of overhead materials or other tangible personal
property to a manufacturer, modifier, assembler or repairer
are exempt from transaction privilege and use
tax if the gross proceeds of sales derived from
the property are exempt from transaction
privilege tax due to performing a contract
between the United States government and the
manufacturer, modifier, assembler or repairer
(A.R.S. §42-5061J, A.R.S. §42-5159A39). For
those sales of tangible personal property made directly to
the United States government that are not deducted under
A.R.S. §42-5061J, 50% of the gross proceeds or
gross income derived will be deducted from the
tax base (A.R.S. §42-5061K). Data is not
available on the value of these exemptions.
The gross proceeds of sales or gross income derived from
a manufacturer’s cash rebate on the sales price of a
motor vehicle if the buyer assigns the buyer’s right in the
rebate to the retailer; or the waste tire disposal fee
imposed pursuant to A.R.S. §44-1302. (A.R.S. §42117

5061M1, §42-5061M2). No data is available on
the tax value of the waste tire disposal fee.
During fiscal 2007/08 an estimated $288
million was deducted for the manufacturer’s
cash rebate. At a rate of 5%, the tax value of
this exemption is $14.4 million.
Sales of solar energy devices and the contractor’s retail cost
of a solar energy device that the contractor supplied and
installed are to be deducted from the tax base, but
the deduction is not to exceed $5,000 for each
device (A.R.S. §42-5061N, A.R.S. §42-5075B14).
Information is not available on this expenditure.
In fiscal 2007/08 an estimated total of $56.3
million was deducted for this exemption. At a
rate of 5%, the value of the exemption is $2.8
million.
Sales of wireless telecommunication equipment to a
person who holds the equipment for sale or transfer to a
customer as an inducement to enter into or continue a
contract for telecommunications services taxable
under A.R.S. §42-5064 is considered a sale for
resale under the transaction privilege and use
taxes (A.R.S. §42-5061P, A.R.S. §42-5159A41).
In addition, the gross proceeds of sales or gross income
do not include the sales commissions received as a
result of a customer entering or continuing a
contract (A.R.S. §42-5061O). Information is
not available on these expenditures.
Ambulances or ambulance services provided under
Title 48 or certified pursuant to Title 36,
chapter 21.1 or provided by a city or town in a
county with a population of less than 150,000 is
not subject to taxation under the transporting
classification of the transaction privilege tax
(A.R.S. §42-5062A3). No information is
available about the value of this exemption.
The transporting classification of the transaction
privilege tax excludes public transportation services for
the dial-a-ride programs and special needs transportation
services (A.R.S. §42-5062A4). No information is
available on the tax value of this exemption.
The transporting classification of the
transaction privilege tax also excludes
transporting freight or property for hire by a railroad
operating exclusively in this state if the transportation
comprises a portion of a single shipment of freight or
property, involving more than one railroad, either from a

point in this state to a point outside this state or from a
point outside this state to a point in this state. (A.R.S.
§42-5062A5) No information is available on
the tax value of this exemption.
The transporting classification of the
transaction privilege tax does not apply to
arranging transportation as a convenience or service the
business is not otherwise engaged in the business of
transporting persons, freight or property for hire.
(A.R.S. §42-5062A6)
No information is
available on the tax value of this exemption.
The gross proceeds of sales or gross income derived from
transporting for hire persons, freight or property by a
railroad pursuant to a contract with another railroad is
exempt from transaction privilege tax if the
other railroad has already paid the transaction
privilege tax on the transporting of goods
(A.R.S. §42-5062B1). No data is available on
the tax value of this exemption.
The gross proceeds of sales or gross income derived from
transporting fertilizer by a railroad from a point in this
state to another point in this state is exempt from
transaction privilege tax if the other railroad has
already paid the transaction privilege tax on the
transporting of goods (A.R.S. §42-5062B5). No
data is available on the tax value of this
exemption.
Sales of electricity to a distributor who has a transaction
privilege tax license (A.R.S. §42-5063B1) are
essentially sales of electricity for resale.
Information on this activity is not available.
Sales of alternative fuel, as defined in A.R.S. §1-215
to a used oil fuel burner who has received a permit to
burn used oil or used oil fuel under A.R.S. §49-426 or
49-480. (A.R.S. §42-5063B3)
No data is
available on the tax value of this exemption.
Sales of ancillary services, electric distribution services,
electric generation services, electric transmission services
and other services that are related to providing electricity
to a retail electric customer who is located outside this
state for use outside this state if the electricity is delivered
to a point of sale outside this state. (A.R.S. §425063B4) No data is available on the tax value
of this exemption.
Revenues received by a municipally owned utility in the
form of fees charged to persons constructing residential,
118

commercial or industrial developments or connecting
residential, commercial or industrial developments to a
municipal utility system if the fees are segregated and
used only for capital expansion, system enlargement or
debt service of the utility system are excluded from
the taxable base under the utilities classification
of transaction privilege tax (A.R.S. §42-5063c1,
A.R.S. §42-5159F1). No information is available
on the tax value of this exemption.
Revenues received by any person owning a utility system
in the form of reimbursement or contribution
compensation for property and equipment installed to
provide utility access to, on or across the land of an
actual utility consumer if the property and equipment
become the property of the utility are excluded from
the taxable base under the utilities classification
of the transaction privilege tax (A.R.S. §425063c2, A.R.S. §42-5159F2). No information is
available on the tax value of this exemption.
Interstate sales of electricity, natural gas and water
(ACRR R15-5-2014) are exempt from
transaction privilege tax. Information is not
available for this expenditure at this time.
Income from interstate telecommunication services
(A.R.S. §42-5064) is not taxable under the
telecommunications classification of transaction
privilege tax. No data is available on the tax
value of this exemption.
Sales of intrastate telecommunications services by a cable
television system or by a microwave television transmission
system that transmits television programming to multiple
subscribers are not subject to transaction privilege
tax (A.R.S. §42-5064A1). No data is available
on the tax value of this exemption.
Sales of internet access services to subscribers and
customers. (A.R.S. §42-5064A2). In fiscal 2007/08
an estimated $30.6 million was deducted for this
exemption. Had it been taxable at the 5% rate,
$1.5 million would have been collected.
End user common line charges and carrier access charges
established by federal communications regulations are
exempt from transaction privilege tax (A.R.S.
§42-5064B2,
A.R.S.
§42-5064B3).
No
information is available on the tax value of this
exemption.

Sales of direct broadcast satellite television services
pursuant to 47 Code of Federal Regulations parts 25 and
100 by a direct broadcast satellite television service that
operates pursuant to 47 Code of Federal Regulations
parts 25 and 100. (A.R.S. §42-5064B4) No data is
available on the tax value of this exemption.
The gross proceeds from manufacturing or
publishing books are exempt from transaction
privilege tax (A.R.S. §42-5065A1). No data is
available on the tax value of this exemption.
The gross income derived from advertising is excluded
from the tax base for the publication
classification under transaction privilege tax
(A.R.S. §42-5065B1). Advertising receipts for
fiscal year 2007/08 were estimated using the
2002 Census of Professional, Scientific and
Technical Services to be $665 million. A 5%
tax on advertising would have resulted in $33.3
million in potential tax collections.
The gross proceeds of sales to a person in
Arizona who has a transaction privilege tax
license and who distributes printing, engraving,
embossing or copying without consideration in connection
with the publication of a newspaper or magazine are not
included in the taxable base under the job
printing classification of the transaction privilege
tax (A.R.S. §42-5066B1). No information is
available on this exemption.
Sales of job printing, engraving, embossing, and copying
for use outside the state if the materials are shipped or
delivered out of the state, regardless of where title to the
materials passes or their free on board point are
exempt from the job printing classification
(A.R.S. §42-5066B2). No data is available on
the tax value of this exemption.
Sales of postage and freight except that the amount
deducted shall not exceed the actual postage and freight
expense that is paid to the United States postal service
or a commercial delivery service are exempt from the
job printing classification (A.R.S. §42-5066B4).
No data is available on the tax value of this
exemption.
Sales to a motion picture production company that will
use the job printing, engraving, embossing or copying
directly in motion picture production are not included
in the job printing tax base (A.R.S. §42119

5066B5). No information is available on this
exemption.
Leasing or renting four or fewer rooms of an owneroccupied residential home, furnishing no more than
a breakfast meal, with no more than 50%
average annual occupancy rate is not subject to
the transaction privilege tax under the transient
lodging classification (A.R.S. §42-5070B3). No
information is available on the value of this
exemption.
Leasing or renting films, tapes or slides used by theaters or
movies, which are engaged in business under the
amusement classification, or use by television stations or
radio stations is not subject to the transaction
privilege tax under the personal property rental
classification
(A.R.S.
§42-5071A1).
No
information is available on the value of this
exemption.
Operating coin operated washing, drying and dry
cleaning machines or coin operated car washing machines
at establishments for the use of such machines are not
subject to transaction privilege tax (A.R.S. §425071A4). No information is available on this
exemption.
Leasing or renting tangible personal property for
incorporation into comprising any part of a qualified
environmental technology facility.
(A.R.S. §425071A5) No data is available on the value of
this exemption.
Leasing or renting aircraft, flight simulators or similar
training equipment to students or staff by nonprofit,
accredited educational institutions that offer associate or
bachelor’s degrees in aviation or aerospace related fields.
(A.R.S. §42-5071A6) No data is available on
the value of this exemption.
Leasing or renting photographs, transparencies or other
creative works used by this state on internet web sites, in
magazines or in other publications that encourage tourism.
(A.R.S. §42-5071A7) No data is available on the
value of this exemption.
Amounts received by a motor vehicle dealer for the first
month of a lease payment if the lease and the lease
payment for the first month of the lease are transferred to a
third party leasing company are deducted from the
tax base (A.R.S. §42-5071B5). During fiscal
2007/08 an estimated $23 million was deducted

from transaction privilege tax returns. At a tax
rate of 5%, $1.2 million would have been
collected.
Freight charges included in the sales price of any
nonmetalliferous
mineral
product
are
subtracted from the taxable base under the
mining classification of the transaction privilege
tax (A.R.S. §42-5072C). No data is available on
the value of this exemption.
Tuition and fees paid to universities and community
colleges (A.R.S. §42-5073A1) are exempt from
transaction privilege tax. Information on tuition
figures for fiscal year 2007/08 were not
available.
Private or group instructional activities and membership
and initiation fees for health or fitness clubs or private
recreational establishments with memberships greater
than 28 days are exempt from the amusement
classification of transaction privilege tax (A.R.S.
§42-5073A2, A.R.S. §42-5073B1). Information
about this exemption is not available.
Events sponsored by the Arizona Coliseum and
Exposition Center Board (A.R.S. §42-5071A2, §425073A3) are not subject to transaction privilege
tax. Information about this exemption is not
available.
A musical, dramatic or dance group or a botanical
garden, museum or zoo that qualified as a nonprofit
charitable organization is exempt from transaction
privilege tax under the amusements classification
(A.R.S. §42-5073A4). Information about this
exemption is not available.
Sales of admissions to intercollegiate football contests if
the contests are operated by a nonprofit organization are
exempt from transaction privilege tax (A.R.S.
§42-5073A7). During fiscal year 2007/08,
admissions to such contests are estimated to
have been $2.4 million. At 5%, potential tax
collections would have been $122,000.
Fees and assessments received by a homeowners
organization from members or guests of
members are not taxable under the amusement
classification (A.R.S. §42-5073A8). The value
of this exemption is not available.
Arranging an amusement activity as a service to a
person’s customers if that person is not otherwise engaged
120

in the business of operating or conduction an amusement
is not taxable under the Amusements
classification (A.R.S. §42-5073A10). The value
of this exemption is not available.
Under the amusement classification of
transaction privilege tax, 2009 NBA All-Star
game events are exempt from tax. (Laws 2007,
Ch. 258.) This value of this exemption in fiscal
year 2007/08 is $0.
Under the restaurant classification of
transaction privilege tax, sales by a congressionally
chartered veterans organization of food or drink
prepared for consumption on the premises leased, owned
or maintained by the organization are exempt from
tax (A.R.S. §42-5074B2). No information is
available on the value of this exemption.
Sales by churches, fraternal benefit societies and other
nonprofit organizations which do not regularly engage or
continue in the restaurant business for the purpose of fund
raising are exempt from transaction privilege tax
(A.R.S. §42-5074B3). No information is available
on the value of this tax expenditure.
Under the restaurant classification of transaction
privilege tax, sales to qualifying hospitals. (A.R.S.
§42-5074B7). No information is available on the
value of this tax expenditure.
While income from prime contracting is taxable,
both the sale price of land and the wages and salaries
paid for any labor employed in construction (A.R.S. §425075B and B1) are not taxable. The tax is
limited to that portion which is essentially
materials (tax is applied to 65% of gross
proceeds). The amount of contracting wages and
salaries estimated by the Department of
Economic Security for fiscal year 2007/08 was
$9.7 billion. At a 5% tax rate, the tax on the
labor component is $485 million. However,
during fiscal 2007/08, $15.4 billion was
estimated to be deducted from transaction
privilege tax returns for the 35% deduction, a
significantly higher number. At a 5% tax rate,
the tax on the 35% deduction would have been
$772 million. In fiscal 2007/08 $780 million was
estimated to be deducted for the cost of land.
Had land been taxable at the 5% rate, an
additional $39 million would have been
collected.

Sales and installation of groundwater measuring devices
required under section 45-604 and groundwater
monitoring wells required by law, are exempt from the
Prime Contracting classification (A.R.S. §425075B2). No information is available for this
exemption.
The gross proceeds of sales or gross income
received from a contract entered into for the
construction, alteration, repair, addition,
subtraction, improvement, movement, wrecking
or demolition of any building, highway, road,
railroad, excavation or other structure, project,
development or improvement located in a
military reuse zone for a manufacturer, assembler or
fabricator of aviation or aerospace products is exempt
from transaction privilege tax under the prime
contracting classification (A.R.S. §42-5075B4).
No information is available for this exemption.
The gross proceeds of sales derived from a
contract to construct a qualified environmental technology
manufacturing, producing or processing facility is
exempt from transaction privilege tax under the
prime contracting classification (A.R.S. §425075B5). The value of this exemption is not
available.
The gross proceeds of sales from a contract to
provide response to a release or suspected release of a
hazardous substance is exempt from the prime
contracting classification of transaction
privilege tax (A.R.S. §42-5075B6). Information
is not available on this expenditure.
The gross proceeds of sales that are from a
contract entered into for the installation,
assembly, repair or maintenance of machinery
or other tangible personal property that is
deducted under the retail classification A.R.S.
§42-5061B and that does not become permanently
attached to the structure or project is exempt
from the prime contracting classification of
transaction privilege tax (A.R.S. §42-5075B7).
No information is available on the value of this
tax expenditure.
Income received from a contract for constructing
a lake facility development in a commercial enhancement
reuse district is exempt from the prime
contracting classification of transaction

121

privilege tax (A.R.S. §42-5075B8). Information
is not available on this expenditure.
Income from a contract for the construction of an
environmentally controlled facility for the raising of poultry
for the production of eggs and the sorting, cooling and
packaging of eggs is exempt from the prime
contracting classification of transaction privilege
tax (A.R.S. §42-5075B10). Information is not
available on this expenditure.
Income from a contract with a person in the
agricultural industry for construction, alteration,
repair, improvement movement, wrecking, demolition,
addition to or subtraction from any building, highway,
road, excavation, manufactured building or other
structure, development or improvement used directly and
primarily to prevent, monitor, control or reduce air water
or land pollution. (A.R.S. §42-5075B11) No
information about this expenditure is available.
Income from a contract entered into for the
construction of a launch site, as defined in 14 Code
of Federal Regulations section 401.5. (A.R.S.
§42-5075B15) No information about this
expenditure is available.
Income from a contract entered into for the
construction of a domestic violence shelter that is owned
and operated by a nonprofit charitable organization.
(A.R.S. §42-5075B16) No information about
this expenditure is available.
Gross proceeds of sales or gross income derived from
contracts to perform post-construction treatment of real
property for termite and general pest control, including
wood destroying organisms. (A.R.S. §42-5075B17)
No information is available on the value of this
tax exemption.
Gross proceeds of sales or gross income derived from
contracts to build certain state university research
infrastructure projects. (A.R.S. §42-5075B18) No
information is available on the value of this tax
exemption.
Gross proceeds of sales or gross income received from a
contract for the construction of any building, or other
structure, project, development or improvement owned a
by a qualified Healthy Forest business (A.R.S. §425075B19). No information is available on the
value of this tax exemption.

Gross proceeds of sales or gross income received from a
contract for the construction of any building or other
structure associated with motion picture production in
this state. (A.R.S. §42-5075B120).
No
information is available on the value of this tax
exemption.
Any amount of the gross proceeds of sales or gross
income from a contract that constitutes development or
impact fees paid to the state or a local government to
offset governmental costs of providing public
infrastructure, public safety and other public services to a
development.
(A.R.S. §42-5075B120).
No
information is available on the value of this tax
exemption.
Use tax does not apply for tangible personal
property not exceeding $200 in any one month
purchased by an individual at retail outside the
continental limits of the United States for personal
use and enjoyment (A.R.S. §42-5159A10). No
data is available on the value of this exemption.

122

All purchases made by a residential care institution that
is operated in conjunction with licensed nursing care
institutions are exempt from use tax (A.R.S. §425159A13c). Information is not available on this
expenditure.
Tangible personal property purchased by a nonprofit
charitable organization from the parent or affiliate
organization that is located out of state is exempt
from use tax (A.R.S. §42-5159A13h). No data
is available on the value of this exemption.
Motor vehicles that are removed from inventory and are
provided to charitable or educational institutions or state
universities or their affiliated organizations are exempt
from use tax (A.R.S. §42-5159A32). No
information is available on the value of this
exemption.
Use tax does not apply to tangible personal property
that is or directly enters into and becomes an
ingredient or part of cards used as prescription plan
identification
cards
(A.R.S.
§42-5159A38).
Information is not available on this expenditure.

S UMMARY

OF T RANSACTION P RIVILEGE
AND U SE TAX E XPENDITURES

Additional
Collections
PREFERENTIAL TAX RATE CATEGORIES
at a 5% Rate
Nonmetalliferous Mining; Oil and Gas Production.................................................................... $4,063,000
Commercial Lease........................................................................................................................... 412,977,000
Rental Occupancy Tax.............................................................................................................................. NIA ∗
Total Preferential Tax Rates...................................................................................................$417,040,000
CREDITS
Accounting Credit ......................................................................................................................... $22,247,000
Total Credits..................................................................................................................................$22,247,000
EXEMPTIONS
Professional Scientific and Technical Services:
Legal .......................................................................................................................................... $132,244,000
Architectural and Engineering................................................................................................. 151,677,000
Design Services............................................................................................................................ 13,938,000
Computer System Design and Related Services ................................................................... 164,642,000
Management, Scientific and Technical Consulting ................................................................ 87,778,000
Market Research, Polling.............................................................................................................. 5,366,000
Photographic Services .................................................................................................................. 4,749,000
Veterinary Services...................................................................................................................... 18,741,000
Accounting, Tax Preparation & Bookkeeping........................................................................ 55,374,000
Total Reportable Professional, Scientific and Technical Services ......................................... $634,509,000
Health Care and Social Assistance Services:
Physicians ................................................................................................................................. $276,532,000
Dentists......................................................................................................................................... 82,111,000
Chiropractors ............................................................................................................................... 12,797,000
Optometrists ......................................................................................................................................811,000
Mental Health Practitioners......................................................................................................... 2,606,000
Physical, Occupational and Speech Therapy............................................................................. 9,495,000
Podiatrists....................................................................................................................................... 3,291,000
Miscellaneous Health Practitioners............................................................................................. 3,509,000
Outpatient Care Centers ............................................................................................................ 77,819,000
Medical Diagnostic Labs ............................................................................................................ 42,612,000
Home Health Services ................................................................................................................ 28,107,000
Other Amubulatory Health Services ........................................................................................ 13,286,000
Nursing and Residential Care Facilities.................................................................................. 103,262,000
Individual and Family Social Services ...................................................................................... 38,107,000
∗

No Information Available.

123

Community Food and Housing, Emergency Relief Services ............................................. $20,540,000
Vocational Rehabilitation............................................................................................................. 7,121,000
Total Reportable Health Care and Social Assistance Services ............................................... $722,009,000
Administrative and Business Support Services
Administrative and Support Services ................................................................................... $198,872,000
Business Support Services.......................................................................................................... 61,199,000
Services to Buildings and Dwellings...................................................................................... 95,270,000 32
Management of Companies....................................................................................................... 30,280,000
Investigation and Security .......................................................................................................... 30,200,000
Other Support Services .............................................................................................................. 57,343,000
Waste Management..................................................................................................................... 37,603,000
Total Administrative and Business Support Services.............................................................. $510,768,000
Personal Care Services
Barber............................................................................................................................................... $640,000
Beauty Salons ............................................................................................................................... 16,582,000
Nail Salons..........................................................................................................................................770,000
Other Personal Care ..................................................................................................................... 3,707,000
Death Care Services ...................................................................................................................... 9,130,000
Drycleaner & Laundry.................................................................................................................. 6,872,000
Pet Care (not Veterinary) ............................................................................................................. 1,591,000
Parking lot/garages ....................................................................................................................... 5,375,000
Total Personal Care Services......................................................................................................... $44,667,000
Educational Services
Business School/Computer/Management Training.............................................................. $5,698,000
Technical and Trade Schools..................................................................................................... 17,272,000
Dance Schools ............................................................................................................................... 1,266,000
Exam Preparation ......................................................................................................................... 1,168,000
Driving Schools .................................................................................................................................990,000
Other Miscellaneous Schools ...................................................................................................... 1,376,000
Total Educational Services ............................................................................................................ $27,770,000
Other Services
Automotive Repair and Maintenance..................................................................................... $92,934,000
Electronic and Precision Repair and Maintenance................................................................. 10,969,000
Commercial, Industrial Machinery Repair and Maintenance................................................ 15,516,000
Personal and Household Goods Repair and Maintenance ..................................................... 7,122,000
Total Other Services..................................................................................................................... $126,541,000
Wholesale Trade ........................................................................................................................$3,597,762,000
Cash Discounts .......................................................................................................................................... NIA ∗
Trade-Ins....................................................................................................................................................... NIA
Sale of Warranty or Service Contracts....................................................................................... $21,103,000 •
32 A portion of these services many be taxable.
∗ No Information available.
• This information is an estimate for Fiscal Year

2007/08. Actual data will be available at a later date.

124

Sale of Tangible Personal Property by a Nonprofit Organization ..................................................... NIA ∗
Sale of Stocks and Bonds ........................................................................................................................... NIA
Prescription Drugs and Medical Oxygen ................................................................................ $400,541,000 •
Eyeglasses and Contact Lenses, Insulin, Insulin Syringe and Glucose Test Strips,
prosthetic appliances, hearing aids and durable medical equipment ................................... 13,662,000 •
Sales to Nonresidents for use outside Arizona if the property is shipped or
delivered outside the state...........................................................................................................77,014,000•
Food for Home Consumption ....................................................................................................687,522,000•
Textbooks that are required by any state university or community college.............................. 4,270,000•
Meals Provided to Employees of Restaurants................................................................................ 7,448,000
Food Used in School Lunches................................................................................................................... NIA
Sale of Arizona Lottery Tickets ...................................................................................................... 23,647,000
Precious Metal Bullion and Monetized Bullion ...................................................................................... NIA
Tangible Personal Property sold to a Qualifying Hospital or a Qualifying
Health Care Organization ............................................................................................................58,791,000•
Tangible Personal Property Sold to or Purchased by Qualifying Community
Health Centers and Health Care Organizations ................................................................................... NIA
Tangible Personal Property Sold to a Non-Profitable Organization which
Regularly Serves Meals to the Needy and Indigent .................................................................... 1,698,000•
Tangible Personal Property Sold to a Non-Profitable Organization which
Provides Housing for Low Income Persons Over Sixty-Two Years ................................................ NIA
Gross Proceeds from Contracts to Build Housing for Nonprofits to
House Low Income Persons Over Sixty-Two Years ....................................................................... NIA
Magazines or other Periodicals or other Publications To Encourage
Tourist Travel ......................................................................................................................................... NIA
Sale of Articles to a Contractor for Incorporation or Fabrication
Under a Contract....................................................................................................................... 475,351,000
Sale of Articles to be Incorporated into a Manufactured Product ....................................... 1,112,489,000
Exempt Motor Vehicle Sales (certain nonresidents and Indians) ............................................25,776,000•
Tangible Personal Property Purchased by a Nonprofit Charitable Organization
that uses such property for training, etc., for mentally
or physically handicapped persons ...................................................................................................... NIA
Tangible Personal Property Sold by a Nonprofit Organization associated
with a major league baseball team or a national touring professional golf association................ NIA
Tangible Personal Property Sold by a Nonprofit Organization associated
with a rodeo featuring primarily farm and ranch animals ................................................................ NIA
Sales of Commodities under Futures Contracts Consigned to a Warehouse
for Resale................................................................................................................................................. NIA
Seeds, Seedlings, Roots, Bulbs, Cuttings and Other Propogative Material
used to commercially produce agricultural, horticultural, viticultural
or floricultural crops in Arizona ................................................................................................... 866,000•
Machinery, Equipment and Certain Supplies Used to Assist the Physically
or Developmentally Disabled or those Persons with Head Injuries .............................................. NIA
Tangible Personal Property Shipped or Delivered Directly to a Foreign
∗ No Information available.
• This information is an estimate

for Fiscal Year 2007/08. Actual data will be available at a later date.

125

Country for use in that Country............................................................................................ $11,278,000 •
Sales of Natural Gas or Liquefied Petroleum Gas used to Propel a Motor Vehicle ............... 1,278,000•
Paper Machine Clothing Used or Consumed in Paper Manufacturing ............................................. NIA ∗
Machinery, Equipment, Utility Product, Materials and Other Tangible Personal
Property Used to Construct a Qualified Environmental Technology Facility.............................. NIA
Sales of Coal, Petroleum, Coke, Natural Gas, Virgin Fuel Oil and Electricity
to an Environmental Technology Facility ................................................................................... 905,000•
Sales of Liquid, Solid or Gaseous Chemicals Used in
Manufacturing, Processing, Fabricating, Mining, Refining,
Metallurgical Operations or Research and Development ...................................................... 3,115,000•
Sales of Food or Drink Consumed on the Premises of a Jail, Prison,....................................... 1,250,000•
Motor Vehicles and any Tangible Personal Property or Repair that Becomes a Part
of the Motor Vehicles sold to a Licensed Motor Operator that Lease or Rent
the Property .................................................................................................................................. 9,935,000•
Livestock, Poultry, Feed and Supplies for Use or Consumption in the Businesses
of Farming, Ranching and Feeding Livestock and Poultry ............................................................. NIA
Sale or Purchase of Implants Used as Growth Promotants and Injectable Medicine ............... 281,000•
Sales of Motor Vehicles at Auction to Nonresidents of this State for Use
Outside of this State .................................................................................................................... 4,353,000•
Personal Hygiene Products Which are Furnished to and to be Consumed by
Hotel Occupant ...................................................................................................................................... NIA
Sales or Purchases of Alternative Fuel to a Used Oil Fuel Burner ...................................................... NIA
Printed, Photographic, Electronic or Digital Media Materials for use in
Publicly Funded Libraries ................................................................................................................ 86,000•
Tangible Personal Property Consisting of Food, Beverages and Condiments
Sold to or Purchased by a Commercial Airline........................................................................... 126,000•
Sale of New Alternative Fuel Vehicles and Conversion Equipment ................................................... NIA
Sale of Spirituous, Vinous or Malt Liquor by a Liquor Wholesaler ..................................................... NIA
Property to be Incorporated as Part of Environmental Response or
Remediation Activities........................................................................................................................... NIA
Tangible Personal Property by a Nonprofit that Produces, Organizes or
Promotes Cultural or Civic Related Festivals..................................................................................... NIA
Machinery or Equipment used directly in Manufacturing, Processing,
Fabricating, Job Printing, Refining or Metallurgical Operations ......................................... 50,720,000
Sale of Machinery or Equipment Used in Mining and in Drilling for or Extracting
Oil or Gas from the Earth ........................................................................................................40,807,000•
Certain Equipment used in the Telecommunications Industry............................................................ NIA
Machinery, Equipment or Transmission Lines used directly in Producing or
Transmitting Electrical Power..................................................................................................72,342,000•
Neat Animals, Horses, Asses, Sheep, Swine or Goats used or to be used as
breeding or production stock ............................................................................................................... NIA
Pipes or Valves Four Inches in Diameter Used to Transport Oil, Natural Gas,
Artificial Gas, Water or Coal Slurry.........................................................................................18,385,000•
• This information is an estimate
∗ No Information available

for Fiscal Year 2007/08. Actual data will be available at a later date.

126

Certain Aircraft, Navigational and Communication Instruments ............................................$2,996,000 •
Machinery, Tools, Equipment Used in Repairing, Remodeling or Maintaining
Aircraft, Aircraft Engines or Aircraft Component Parts ............................................................... NIA∗
Railroad Rolling Stock, Rails, Ties and Signal Control Equipment Used to
Transport Persons or Property for hire .............................................................................................. NIA
Buses or Other Urban Mass Transit Vehicles Used to Transport Persons
for hire or pursuant to a governmentally adopted and controlled
urban mass transportation program .................................................................................................... NIA
Certain Groundwater Measuring Devices and their installation........................................................... NIA
New Machinery and Equipment Used for Commercial Production of
Agricultural, Horticultural, Viticultural and Floricultural Crops..................................................... NIA
Machinery or Equipment used in Research and Development ............................................................ NIA
Machinery and Equipment Purchased by or on Behalf of Owners of a
Soundstage Complex ............................................................................................................................. NIA
Tangible Personal Property Used by any Direct Broadcast Satellite Television
or Data Transmission Service or Facility............................................................................................ NIA
Sales of Services by Direct Broadcast Satellite Television Services...................................................... NIA
Clean Rooms Used for Manufacturing, Processing
Fabrication or Research and Development........................................................................................ NIA
Gross Income from Installation, Assembly, Repair or Maintenance Clean Rooms.......................... NIA
Machinery and Equipment Used in the Feeding of Poultry or Production
and Packaging of Eggs .......................................................................................................................... NIA
Machinery and Equipment used to Meet Land, Water and Air Quality Standards ........................... NIA
Machinery and Equipment used by Agriculture to Prevent, Monitor,
Control or Reduce Pollution ................................................................................................................ NIA
Digital Television Machinery and Equipment Purchases for Compliance
with the Telecommunications Act of 1996 ........................................................................................ NIA
Machinery and Equipment sold or rented to a Healthy Forest Certified Business ...................... 66,000•
Machinery, Equipment and Tangible Personal Property used directly in Motion
Picture Production by a Motion Picture Production Company...................................................... NIA
Portion of Sales Price of Luxury Automobiles that Reflects the
Federal Luxury Excise Tax ................................................................................................................... NIA
Portion of Sales Price of Use Fuel that Reflects the Federal Luxury Excise Tax .............................. NIA
Gross Income from Machinery, Equipment and Materials used Directly
to Construct a Qualified Environmental Technology Facility ........................................................ NIA
Sales of Overhead Materials or Other Tangible Personal Property to a
Manufacturer, Modifier, Assembler or Repairer if Performing a Contract
between the United States Government and the Manufacturer...................................................... NIA
Sales of Tangible Personal Property made to the United States Government
Not Deducted under A.R.S. §42-5061L ............................................................................................. NIA
Gross Income from Motor Vehicle Manufacturer’s Cash Rebates if
Assigned to the Retailer.............................................................................................................14,416,000•
Gross Income derived from the Waste Tire Disposal Fee.................................................................... NIA
Sales of Solar Energy Devices ......................................................................................................... 2,815,000•
Sales of Wireless Telecommunication Equipment as an Inducement to
• This information is an estimate
∗ No Information available

for Fiscal Year 2007/08. Actual data will be available at a later date.

127

Enter into or Continue a Contract for Telecommunication Services or
Sales Commissions Received.............................................................................................................. NIA *
Ambulances or Ambulance Services......................................................................................................... NIA
Public Transportation Services for Dial-A-Ride Programs and Special Needs
Transportation Services......................................................................................................................... NIA
Gross Proceeds for Transporting Freight or Property by an Exclusively Arizona
Railroad for Portions of Single Shipments Involving Other Railroads ......................................... NIA
Gross Proceeds for Arranging Transportation as a Convenience or Service to a
Customer if the Business is not Otherwise Engaged in the Transportation Business................. NIA
Gross Proceeds of Sales or Gross Income Derived from Transporting For Hire
Persons, Freight or Property by a Railroad Pursuant to a
Contract with Another Railroad........................................................................................................... NIA
Gross Proceeds of Sales or Gross Income Derived from Transporting Fertilizer by a
Railroad from a Point in this State to Another Point in this State ................................................. NIA
Sales of Electricity to a Distributor........................................................................................................... NIA
Sales of Alternative Fuel to a Used Oil Fuel Burner .............................................................................. NIA
Sales of Electric Services to a Retail Electric Customer Who Is Located
Outside This State for Delivery and Use Outside the State............................................................. NIA
Revenues Received by a Municipally Owned Utility in the form of Fees Charged
to Persons Constructing Residential, Commercial or Industrial Developments.......................... NIA
Revenues Received By Any Person Owning a Utility System in the Form of Reimbursement
or Contribution Compensation for Property and Equipment Installed to Provide
Utility Access to, on or across the land of an actual utility consumer ........................................... NIA
Interstate Sales of Electricity, Natural Gas & Water.............................................................................. NIA
Interstate Telecommunication Services.................................................................................................... NIA
Sales of Intrastate Telecommunications Services by a Cable Television System
or by a Microwave Television Transmission System ........................................................................ NIA
Sales of internet access services……………………….. ..........................................................$1,529,000•
End User Common Line Charges and Carrier Access Charges Established by
Federal Communications Regulations ................................................................................................ NIA
Sales of Direct Broadcast Satellite Television Services .......................................................................... NIA
Manufacturing or Publishing Books ......................................................................................................... NIA
Gross Income of Publications Derived from Advertising ......................................................... 33,279,000
Sales to a Person who Distributes Printing, Engraving, Embossing or Copying Without
Consideration In Connection With the Publication of a Newspaper or Magazine...................... NIA
Sales of Job Printing, Engraving, Embossing, and Copying for Use Outside
the State if the Materials are Shipped or Delivered Out of the State ............................................. NIA
Sales of Postage and Freight ...................................................................................................................... NIA
Sales of Job Printing, Engraving, Embossing or Copying to a Motion Picture
Production Company............................................................................................................................. NIA
Leasing or Renting Four or Fewer Rooms of an Owner Occupied Residence
Bed and Breakfast with less than 50% Average Annual Occupancy.............................................. NIA
Leasing Films, Tapes or Slides Used by Theaters or Movies or Used By
Television Stations or Radio Stations.................................................................................................. NIA
Operating Coin Operated Washing, Drying and Dry Cleaning Machines.......................................... NIA
* No Information Available
• This information is an estimate

for Fiscal Year 2007/08. Actual data will be available at a later date.

128

Operating Coin Operated Car Washing Machines ................................................................................. NIA
Leasing or Renting Personal Property for Incorporation into a Qualified
Environmental Technology Facility .................................................................................................. NIA ∗
Leasing or Renting Aircraft or Training Equipment by a Non-Profit School
Offering Aviation and Aerospace Degrees ........................................................................................ NIA
Leasing or Renting Photographs, Transparencies or Other Creative
Works used by this State on Internet Web Sites, in Magazines or Other
Publications that Encourage Tourism................................................................................................. NIA
Amounts Received by a Motor Vehicle Dealer for the First Month of a Lease
Payment if the Lease is Transferred to a Third Party ...........................................................$1,152,000 •
Freight Charges Relating Nonmetalliferous Mineral Products............................................................. NIA
Tuition and Fees Paid to Universities & Community Colleges ............................................................ NIA
Private or Group Instructional Activities and Membership and Initiation Fees
for Health or Fitness Clubs or Private Recreational Establishments with
Memberships Greater than 28 Days.................................................................................................... NIA
Events Sponsored by the Arizona Coliseum & Exposition Board...................................................... NIA
Musical, Dramatic or Dance groups or a Botanical Garden, Museum or Zoo
that Qualifies as a Nonprofit Charitable Organization..................................................................... NIA
Sales of Admissions to Intercollegiate Football Contests ................................................................122,000
Fees and Assessments Received by a Homeowners Organization ...................................................... NIA
Arranging an Amusement Activity as a Service to a Person’s Customers .......................................... NIA
2009 NBA All Star Game Events ................................................................................................................... 0
Sales By a Congressionally Chartered Veterans Organization of Food or Drink .............................. NIA
Sales By Churches, Fraternal Benefit Societies and Other Nonprofit Organizations
Which Do Not Regularly Engage or Continue in the Restaurant Business
for the purpose of fund raising ............................................................................................................ NIA
Restaurant Sales to Qualifying Hospitals ................................................................................................. NIA
Wages & Salaries for Labor Employed in Construction ........................................................772,206,000•
Sale Price of Land............................................................................................................................39,029,000•
Contracting in a Military Reuse Zone for a Manufacturer, Assembler or
Fabricator of Aviation or Aerospace Products.................................................................................. NIA
Gross Proceeds from Contracts to Construct a Qualified Environmental
Technology Facility................................................................................................................................ NIA
Gross Proceeds of Sales from a Contract to Provide Response to a Release
or Suspected Release of a Hazardous Substance............................................................................... NIA
Gross Proceeds of Sales from a Contract to Install, Assemble, Repair or
Maintain Machinery that does not become permanently attached. ................................................ NIA
Income Received from a Contract for Constructing a Lake Facility
Development in a Commercial Enhancement Reuse District......................................................... NIA
Income from Contracts for Construction of Facilities for Raising Egg Producing
Poultry, or the Production and Packaging of Eggs.......................................................................... NIA
Income from Contracts for Construction Work to Prevent, Monitor, Control
or Reduce Pollution in the Agriculture Industry ............................................................................... NIA
Income from Contracts for Construction of a Launch Site.................................................................. NIA
Income from Contracts for Construction of a Domestic Violence Shelter........................................ NIA
∗ No Information Available
• This information is an estimate

for Fiscal Year 2007/08. Actual data will be available at a later date.

129

Gross Proceeds from Contracts to Perform Post-Construction Treatment of Real
Property for Termite and General Pest Control ............................................................................... NIA
Gross Proceeds from Contracts to Construct Certain State University
Research Infrastructure Projects........................................................................................................ NIA ∗
Gross Proceeds from Construction Contract for Healthy Forest Business ....................................... NIA
Gross Proceeds from a Contract to Construct any Building or Structure
Associated with Motion Picture Production...................................................................................... NIA
Gross Proceeds from Development or Impact Fees ............................................................................. NIA
Tangible Personal Property Not Exceeding $200 Purchased By An Individual
at Retail Outside the Continental United States – USE TAX ONLY ........................................... NIA
Purchases Made by a Residential Care Institution that is Operated in Conjunction
with Licensed Nursing Care Institutions – USE TAX ONLY ....................................................... NIA
Tangible Personal Property Purchased by a Nonprofit Charitable Organization
from the Parent or Affiliate Organization located Out of StateUSE TAX ONLY .................................................................................................................................. NIA
Motor Vehicles Removed From Inventory and Provided to Charitable or
Educational Institutions or State Universities or their Affiliated OrganizationUSE TAX ONLY .................................................................................................................................. NIA
Tangible Personal Property which Directly Enters into or becomes an Ingredient
or Part of Cards Used as Prescription Plan Identification Cards
- USE TAX ONLY................................................................................................................................ NIA
Total Exemptions .................................................................................................................. $9,656,674,000

TOTAL QUANTIFIABLE TRANSACTION PRIVILEGE AND USE TAX
EXPENDITURES 33 ................................................................................... $10,095,961,000
Value of Exemptions from the Proposition 301-Education Tax .......................... $1,158,801,000

∗

No Information available
expenditures represent foregone revenues to the state general fund, counties and incorporated cities/towns.

33These

130

UNDERGROUND
STORAGE TANK
TAX EXPENDITURES

131

132

U NDERGROUND S TORAGE TANK
TAX E XPENDITURES
34

An underground storage tank tax is imposed by
A.R.S. §49-1031. For purposes of this tax, it is
presumed until proven differently that all
regulated substances which are motor vehicle
fuel, aviation fuel and diesel and which are
refined, manufactured, produced, compounded
or blended in Arizona, or imported into the
state, will be placed in an underground storage
tank from which the fuel is dispensed to users
who consume the fuel and do not further
distribute it. The tax is levied at the rate of 1¢ per
gallon of regulated substance. Revenue from this
tax is deposited into the Arizona Department of
Environmental Quality Assurance Account, used
for corrective action projects.
This tax does not apply to underground storage
tanks operated by the United States or Arizona and its
agencies (A.R.S. §49-1031C). Currently, there are
98 federal tanks in use with an average tank
capacity of 10,100 gallons. There are 69 state
tanks currently in use with an average tank
capacity of 10,730 gallons. The Department of
Environmental Quality does not require the
owners/operators of these tanks to report the
total number of times they are refueled.
Therefore, there is no information on the tax
value of this tax expenditure.

34Any

Underground storage tanks used for the purpose of storing,
handling or distributing naphtha-type jet fuel or kerosenetype jet fuel are exempt from the underground
storage tank tax (A.R.S. §49-1031C). Currently,
there are 88 of these jet fuel tanks in use with an
average tank capacity of 14,140 gallons. As with
the underground storage tanks owned by the
federal government and the state of Arizona, the
owner/operators of these types of underground
storage tanks are not required to report the
number of times their tanks are refueled. Due to
the lack of information, there is no way to
calculate the impact of this tax expenditure.
Above-ground storage tanks are not subject to this
tax. The owners/operators of these types of
tanks are not required to register their tanks
with the Department of Environmental Quality
nor with the State Fire Marshal. Municipalities
regulate these types of tanks in their own city.
Thus, due to the lack of information, it is not
possible to determine the impact.

figures presented for Underground Storage Tank Tax Expenditures were provided by the Arizona Department of
Environmental Quality.

133

S UMMARY OF U NDERGROUND S TORAGE
TANK TAX E XPENDITURES
Revenue Gain
Underground Storage Tanks Operated by the U.S. or Arizona .........................................................NIA*
Tanks used for Naphtha-Type or Kerosene-Type Jet Fuel................................................................... NIA
Above-Ground Storage Tanks................................................................................................................... NIA

TOTAL QUANTIFIABLE UNDERGROUND STORAGE TANK TAX
EXPENDITURES 35
........................................................................................................................NIA

*

No Information Available.
expenditures represent foregone revenues to the DEQ Assurance Account.

35These

134

UNEMPLOYMENT
INSURANCE
TAX EXPENDITURES

135

136

U NEMPLOYMENT I NSURANCE
TAX E XPENDITURES
36

Unemployment insurance taxes are paid by
liable employers on the first $7,000 in gross
wages they pay to each of their employees
during the calendar year. A.R.S. §23-622 sets
out the following exemptions from the
definition of taxable wages:
•
That part of the remuneration in excess of $7,000
paid in a calendar year to an individual by an
employer with respect to employment during the
calendar year, unless that part of the above
specified excess remuneration is subject to a tax,
under federal law, against which credit may be
taken for contributions required to be paid into a
state unemployment fund by employers subject to
the federal law.
•
The amount of any payment, including monies
paid by an employer for insurance or annuities,
made to or on behalf of an employee or his/her
dependents under a plan or system established by
an employer which makes provision for the
employees generally on account of sickness or
accident disability, medical or hospitalization
expenses in connection with sickness or accident
disability or death.
•
The payment by an employer, without deduction
from the remuneration of the employee, of the tax
imposed upon an employee under § 3101 of the
Internal Revenue Code relating to federal
insurance contributions with respect to
remuneration paid to an employee for domestic
service in a private home or for agricultural labor.
•
Any payment on account of sickness or accident
disability, or medical or hospitalization expenses
in connection with sickness or accident disability,
made by an employing unit to an employee after
the expiration of six calendar months following the
last calendar month in which the employee worked
for such employing unit.
•
Any payment made to an employee or his/her
beneficiary:
36Any

(1) from or to a trust described in § 401(a) of
the Internal Revenue Code relating to
qualified pension, profit sharing and stock
bonus plans which is exempt from tax under
§ 501(a) of the Internal Revenue Code;
(2) under or to an annuity plan which is a plan
described in § 403(a) of the Internal
Revenue Code;
(3) under a simplified employee pension as
defined in § 408(k)(1) of the Internal
Revenue Code other than contributions
described in § 408(k)(6) of the Internal
Revenue Code;
(4) under or to an annuity contract described in
§ 403(b) of the Internal Revenue Code;
(5) under or to an exempt governmental deferred
compensation plan; as defined in
§3121(v)(3) of the Internal Revenue Code;
(6) to supplement pension benefits under a plan
or trust described in this paragraph to take
into account some portion of the increase in
the cost of living since retirement;
(7) or under a cafeteria plan within the meaning
of § 125 of the Internal Revenue Code if
such a payment would not be treated as
wages without regard to such plan.
•

Remuneration paid in any medium other than
cash to an employee for service not in the course of
the employing unit's trade or business.

•

Remuneration paid for agricultural labor
performed in any medium other than cash.

•

Any tip, gratuity or service charge received by an
employee, with certain exceptions.

•

Remuneration which the individual receives for
drill, training or other national guard or reserve
activity which occurs on not more than one
weekend per month.

figures presented for Unemployment Insurance Tax Expenditures were provided by the Arizona Department of
Economic Security.

137

•

Remuneration paid to an employee if at the time
of the payment it is reasonable to believe that a
corresponding deduction is allowable under § 217
of the Internal Revenue Code relating to moving
expenses.

•

Any contribution, payment or service provided by
an employer which may be excluded from gross
income under the provisions of § 120 of the
Internal Revenue Code.

•

Any payment made or benefit furnished to an
employee if it is reasonable to believe that the employee
will be able to exclude the payment or benefit from
income under § 127, relating to educational
assistance, or § 129, relating to dependent care
assistance, of the Internal Revenue Code.

•

The value of meals or lodging furnished by the
employer if it is reasonable to believe that the
employee will be able to exclude these items from
income under § 119 of the Internal Revenue
Code.

•

Any payment made by an employer to a survivor
or the estate of a former employee after the
calendar year in which the employee died.

•

Any benefit provided to an employee if it is
reasonable to believe that the employee will be
able to exclude the benefit from income under §
74(c) relating to employee achievement awards,
section 117 relating to qualified scholarships or §
132 relating to certain fringe benefits of the
Internal Revenue Code.

An employee is an individual who performs
services for an employing unit and who is subject
to the direction, rule or control of the employing
unit as to both the method of performing the
services and the result to be accomplished. This
definition, per A.R.S. §23-613.01(A) and (B), does
not include:
•

•

An individual who performs services as an
independent contractor, business person, agent or
consultant, or in a capacity characteristic of an
independent profession, trade, skill or occupation.
An individual subject to the direction, rule, control
or subject to the right of direction, rule or control of
an employing unit solely because of a provision of
law regulating the employing unit.

138

•

An individual or class of workers whose services
have been exempted by the Internal Revenue Service
from Federal Unemployment Tax.

•

An individual whose services the employing unit
demonstrates are performed in the same manner as
a similarly situated class of workers whose services
have been exempted by the Internal Revenue Service
from Federal Unemployment Tax.

•

An individual or class of workers that have
previously been found not to be employees in prior
audits by the department, but have currently been
found to be employees due to prior audit errors, will
not be treated as employees by the department for
any previous time, but the employer will be required
to begin reporting those workers during the next
quarter.

Employment means any service of whatever
nature performed by an employee for an
employer.
Per A.R.S. §23-615(6)(d), the
following services are excluded from this
definition of employment:
• Services performed in the employ of a church or
convention or association of churches, or an
organization operated primarily for religious
purposes and which is operated, supervised,
controlled or principally supported by a church or
convention or association of churches.
•

Services performed by a duly ordained,
commissioned, or licensed minister of a church in the
exercise of his or her ministry; or by a member of a
religious order in the exercise of duties required by
such order.

•

Services performed in the employ of a governmental
entity by an elected official, member of the legislature
or judiciary of this state or a political subdivision,
in the exercise of his or her duties.

•

Services performed in the employ of a governmental
entity as a member of the state National Guard or
Air National Guard.

•

Services performed in the employ of a governmental
entity as an employee on a temporary basis in case
of a fire, storm, snow, earthquake, flood or similar
emergency.

•

Services in the employ of a governmental entity in a
position which is designated under or pursuant to
state law as a major non tenured policy making or

advisory position, or a policy making or advisory
position of which the duties ordinarily do not require
more than eight hours per week.
•

•

•

Services performed by impaired individuals who
cannot be readily absorbed into the competitive labor
market in a facility conducted for the purpose of
providing a program of rehabilitation for such
individuals.
Services performed by an individual in an
unemployment work relief or work training program
financed in part or in whole by a governmental
entity.

•

Agricultural labor unless ten or more individuals
were employed for some portion of a day in twenty
different weeks in a calendar year, or total cash
wages of $20,000 or more were paid in a calendar
quarter.

•

Domestic service in a private home, local college club
or local chapter of a college fraternity or sorority,
unless total cash wages of $1,000 or more were paid
in a calendar quarter.

•

•

•

Service with respect to which unemployment
compensation is payable under an unemployment
compensation established by an act of Congress.

•

Service performed in a calendar quarter in the
employ of an organization exempt from income tax
under § 501(a) or § 521 of the Internal Revenue
Code, if the remuneration for the services is less
than $50.

•

Service performed in the employ of a school, college
or university, if the service is performed by a student
enrolled and regularly attending classes at the
school, college or university, or by the spouse of such
a student.

•

Service performed in the employ of a corporation,
community chest fund or foundation, organized and
operated exclusively for religious, charitable,
scientific, testing for public safety, literary, or
educational purposes, or for the prevention of cruelty
to children or animals, no part of the net earnings of
which inures to the benefit of a private shareholder
or individual and with further qualifications.

•

Services performed by a student nurse in the employ
of a hospital or a nurses' training school by an
individual enrolled and regularly attending classes,
and service performed as an intern in the employ of
a hospital by an individual who has completed a
four years' course in a medical school.

•

Service performed by an individual for an employing
unit as an insurance agent, if paid solely by
commission.

•

Service performed by an individual under the age of
18 in the delivery or distribution of newspapers or
shopping news, with qualifications.

•

Service performed by an individual for an employing
unit as a licensed real estate broker or licensed
cemetery broker or a licensed real estate salesman or
licensed cemetery salesman, if paid solely by
commission.

•

Service performed in the employ of a foreign
government including service as a consular or other
officer or employee or a non diplomatic
representative.

Services performed by an inmate of a custodial or
penal institution.

Types of exempt employment are set out in
A.R.S. §23-617, as follows:

•

from the tax imposed by §3301 of the federal
Internal Revenue Code.

Service performed on or in connection with a vessel
or aircraft not an American vessel or American
aircraft, if the employee is employed on or in
connection with such vessel or aircraft when outside
the United States.
Service performed by an individual in the employ of
his/her children or spouse, and service performed by
an individual under the age of 21 in the employ of a
parent.
Service performed in the employ of another state, or
any political subdivision of another state, or an
instrumentality of one or more thereof which is
wholly owned by one or more other states or political
subdivisions and which exercises only governmental
as distinguished from proprietary functions, and
service performed in the employ of any political
subdivision of this or any other state to the extent
the instrumentality, with respect to such service, is
exempt under the Constitution of the United States

139

•

•

Service performed in the employ of an
instrumentality wholly owned by a foreign
government if certain qualifications are met.
Service covered by an arrangement between the
department and agency charged with the
administration of any other state or federal
unemployment compensation law pursuant to which
all services performed by an individual for an
employing unit is deemed to be performed entirely
within such agency's state.

•

Casual labor not in the course of the employer's
trade or business.

•

Service performed by an individual for an employing
unit as a securities salesman, if paid solely by
commission.

140

•

Service performed in the employ of a hospital if such
service is performed by a patient of the hospital.

•

Service performed by individuals solely to the extent
that the compensation includes commissions,
overrides or profits realized on sales primarily
resulting from the in-person solicitation of orders for
or making sales of consumer goods in the home.

•

Services performed by an individual for an
employing unit in the preparation of tax returns
and related schedules and documents if all such
services are performed for remuneration solely by
way of commission.

There is no requirement for reporting wages or
remuneration for the exemptions mentioned
above, therefore, no information is available on
the value of these tax expenditures.

S UMMARY OF U NEMPLOYMENT
I NSURANCE TAX E XPENDITURES
Revenue Gain
Exemptions from the definition of taxable wages................................................................................NIA *
Exemptions from the definition of employee......................................................................................... NIA
Exemptions from the definition of employment.................................................................................... NIA

TOTAL QUANTIFIABLE UNEMPLOYMENT INSURANCE TAX
EXPENDITURES 37 ......................................................................................NIA

*

No Information Available.
expenditures represent foregone revenues to the state unemployment insurance fund.

37These

141

142

USE FUEL
TAX EXPENDITURES

143

144

U SE F UEL TAX E XPENDITURES
Arizona has a two tiered use fuel tax rate. There
is a use fuel tax rate of 26¢ per gallon on each
gallon of use fuel (all fuel that is not considered
motor vehicle fuel, like diesel fuel) used in the
propulsion of a use class motor vehicle on any
highway within this state (A.R.S. §28-5606B2),
with the exception of clean burning use fuel, and
a use fuel tax rate of 18¢ per gallon on each gallon
of use fuel used in the propulsion of a light class
motor vehicle or exempt use class motor vehicle
(A.R.S. §28-5606B1). A tax of 26¢ is collected by
licensed suppliers. During fiscal year 2007/08,
use fuel tax collected from licensed suppliers
was $248.4 million. The proceeds of this tax go
into the Highway User Revenue Fund and are
distributed to the Department of Public Safety,
Economic Strength Fund, state highway fund,
counties, and incorporated cities and towns.
The total use fuel tax revenues collected is
$252.3 million.
PREFERENTIAL USE FUEL TAX
RATES
For purposes of convenience the use fuel sold to
light class motor vehicles and exempt use class
motor vehicles by vendors is charged the 18¢ per
gallon. Subsequently a vendor may request a
refund for the 8¢ differential for the sales to light
class motor vehicles and exempt use class motor vehicles
(A.R.S. §28-5614). The amount of refunds
issued for fiscal year 2007/08 was $5.2 million.
Liquid use fuel, used for export purposes is taxed
at a $0.26 per gallon rate. The amount refunded
for this type of use fuel was $2.2 million.

38

EXEMPTIONS TO THE USE FUEL TAX
Dyed diesel sold for Off-Highway uses
Farm tractors and implements of husbandry designed
primarily for or used in agricultural operations and
only incidentally operated or moved upon a
highway are exempt from the use fuel tax
(A.R.S. § 28-5610A.8a). Road rollers or vehicles
which are designed and used primarily for grading,
paving, earth moving and other construction work on
highways and which are not designed or used
primarily for transportation of persons or
property and which are incidentally operated or
moved over the highway are also exempt from
use fuel tax (A.R.S. § 28-5610A8.b). Refunds
granted for these types of exemptions together
totaled $8.1 million in fiscal year 2007/08.
Taxable use fuel that has been accidently
contaminated so as to be unsalable as highway
fuel as proved by proper documentation (A.R.S.
§28-5610A7)
Liquid use fuel sold within an Indian reservation
to an enrolled member of the tribe is excluded
from taxation per A.R.S. § 28-5610A3). The
total amount refunded for this provision during
fiscal year 2007/08 was $81,376.
Use fuel used solely and exclusively as fuel to
operate a motor vehicle on highways in this state
if the motor vehicle is leased or owned by and
being operated for the sole benefit of an Indian
tribe for governmental use purposes only (A.R.S.
§28-5610A4)

There is a $0.02 per gallon credit for all use fuel
purchased in Arizona and used outside of the
state (A.R.S. §28-5728). The total amount
refunded for this type of purchase during fiscal
year 2007/08 was $332,567

Each supplier that properly remits use fuel tax may
retain four-tenths of one per cent of the tax imposed to
cover the costs of administration of the tax (A.R.S.
§28-5751). This amount would have been
collected by the state if this provision were not
in effect. The value of this provision for fiscal
year 2007/08 is $2.6 million.

Fuel used on use class motor vehicles used to transport
forest products in compliance with section 41-1516 is
taxed at $0.13 per gallon (A.R.S. § 28-5606).
This tax is perfected by the approved
companies filing a refund request. No requests
for refunds were made in fiscal year 2007/08.

Effective April 1, 1997, all clean burning fuels
are no longer taxed (A.R.S. §28-5708A2). Since
taxpayers who consume alternative fuels are not
required to report their use information to the
department, no information is available on this
exemption.

38Any

figures presented for Use Fuel Tax Expenditures were provided by the Arizona Department of Transportation.

145

S UMMARY OF U SE F UEL
TAX E XPENDITURES
Revenue Gain
PREFERENTIAL TAX RATES:
Fuel purchased in Arizona and used outside the state ................................................................... $332,567
Light class and exempt vehicles use rate ......................................................................................... 5,200,000
Liquid use fuel used for export......................................................................................................... 2,200,000
EXEMPTIONS:
Farm tractors, implements of husbandry and road rollers or vehicles designed and
used for grading, paving, earth moving and other construction work on highways........... 8,100,000
Native American Refunds .......................................................................................................................81,376
Administration exemption for use fuel suppliers........................................................................... 2,600,000
Exemption for clean burning fuels ......................................................................................................... NIA*

TOTAL QUANTIFIABLE USE FUEL TAX EXPENDITURES 39
..............................................................................................................$18,513,943

*No Information Available.
39These tax expenditures represent foregone revenues to the state highway fund, counties and incorporated cities and
towns.

146

VEHICLE LICENSE
TAX EXPENDITURES

147

148

V EHICLE L ICENSE TAX E XPENDITURES
Under current law, Arizona imposes a vehicle
license tax at the rate of $2.95 for each $100 in
vehicle value during the first twelve months of
life of the vehicle. During the succeeding
periods, the tax rate is $3.04. However, the
vehicle value is 60% of the manufacturer's base
retail price in the first year and declines by
16.25% each year thereafter. The minimum
vehicle license tax is $10. The proceeds of this
tax are distributed to the state highway fund,
counties, incorporated cities and towns, county
assessors and the state general fund.
PREFERENTIAL VEHICLE LICENSE
TAX RATES
Three classes of motor vehicles pay lower vehicle
license tax rates. Privately owned motor vehicles
which are exclusively operated as a school bus
(A.R.S. §28-5804), privately owned ambulances
and fire fighting vehicles (A.R.S. §28-5806), and
motor vehicles powered by alternative fuels
(A.R.S. §28-5805) have a vehicle value in the first
year of 1% of the manufacturer's base retail price.
The minimum tax for these vehicles is $5.00.
The information on this tax expenditure is not
available at this time.
The following motor vehicles are exempt
from the Vehicle License Tax as prescribed
in the Arizona Revised Statute and the
Arizona Constitution
Any vehicle, which is not required to be
registered in Arizona, is not required to pay a
vehicle license tax. Vehicles which are exempt
from registration are:
• Farm tractors (A.R.S. §28-2153D1)
• Trailers used solely in the operation of a farm for
transporting the unprocessed fiber or forage
products of a farm or any implement of
husbandry designed primarily for or used in
agricultural operations and only incidentally
operated or moved upon a highway (A.R.S. §282153D2)
40Any

•

•

•

•
•

•

40

Road rollers or road machinery, including power
sweepers, temporarily operating or moved upon
the highway (A.R.S. §28-2153D3)
Vehicles operated by an owner under special
provisions relating to lienholders, manufacturers,
dealers and nonresidents (A.R.S. §28-2153D4)
Motorized or nonmotorized equipment designed
primarily for and used in mining operations and
only incidentally operated or moved on a highway
(A.R.S. §28-2153D5)
A motor vehicle being towed by a tow truck which
has been registered (A.R.S. §28-2153D6)
A golf cart or other motor vehicle used in the
operation of a golf course and only incidentally
operated or moved on a highway
(A.R.S. §28-2153D7)
Wheeled equipment, such as compressors, forklifts,
portable cement mixers, tow dollies, tar pots, water
trailers, welders, etc. (A.R.S. §28-2153D8)

Also exempt from Vehicle License Taxes
are:
1. Government Vehicles-a vehicle in the name
and owned by a government agency such as
the
Federal, State, County or
Municipalities.(Arizona Constitution, Article
9, Section 2)
2. Non-Profit Organization vehicles-Property
of educational, charitable and religious
associations or institutions not used or held
for profit. (Arizona Constitution, Article 9,
Section 2)
3. Church vehicles- Property of educational,
charitable and religious associations or
institutions not used or held for profit.
(Arizona Constitution, Article 9, Section 2)
4. Non- Profit School vehicles- Property of
educational, charitable and religious
associations or institutions not used or held
for profit. (Arizona Constitution, Article 9,
Section 2)

figures presented for Vehicle License Tax Expenditures were provided by the Arizona Department of
Transportation.

149

5. Charitable Institution vehicles - Property
of educational, charitable and religious
associations or institutions not used or held
for profit. (Arizona Constitution, Article 9,
Section 2)

10. Nonresident
Military
Member
exemption vehicles -a vehicle owned by a
nonresident military member or officer of
Public Health Services. (Pursuant to the
soldiers and Sailors Civil Relief Act of 1940)

6. Tribal member vehicles - that is owned by
an enrolled member of a Native American
tribe, who resides on the reservation.
(Arizona Constitution, Article 20, Section 5)

11. Special Military exemptions - an Arizona
resident who is a member of the U.S. Armed
Forces, including a National Guard or
Reserve Unit who is deployed in support of
a worldwide contingency operation may
register a newly acquired vehicle or renew
the registration of a motor vehicle for one
year without payment of registration and
vehicle license tax fees. (A.R.S. 28-5811)

7. Widow Exemption vehicles - a vehicle that
is owned by a widow or widower. (Arizona
Constitution, Article 9, Section 2)
8. Veterans Grant Exemption vehicles - a
vehicle that is acquired by financial aid from
the Veteran’s Administration and that is
owned by a veteran. (A.R.S. 28-5802)
9. 100% Disabled Veteran
vehicles - (A.R.S. 28-5802)

Exemption

150

12. Supplemental Security Income (SSI)
exemptions- a vehicle that is owned by a
recipient of public monies as a disabled
individual under Title 16 of the Social Security
Act. (28-5803 (A)

S UMMARY OF V EHICLE L ICENSE
TAX E XPENDITURES
Revenue Gain
PREFERENTIAL TAX RATES:
School buses ...............................................................................................................................................NIA *
Ambulances and fire fighting vehicles...................................................................................................... NIA
Motor vehicles operated by alternative fuels ........................................................................................... NIA
EXEMPTIONS:
Farm tractors ................................................................................................................................................ NIA
Trailers used solely in the operation of a farm for transporting the
unprocessed fiber or forage products of a farm or any implement
of husbandry designed primarily for or used in agricultural operations ....................................... NIA
Road rollers or road machinery ................................................................................................................. NIA
Any owner permitted to operate a vehicle under special provisions
relating to lienholders, manufacturers, dealers and nonresidents .................................................. NIA
Motorized or nonmotorized equipment designed primarily for and used
in mining operations............................................................................................................................. NIA
Motor vehicles being towed by a tow truck............................................................................................. NIA
Golf carts or other motor vehicles on a golf course. ............................................................................. NIA
Wheeled equipment..................................................................................................................................... NIA
Vehicles purchased by Indians residing on the reservations................................................................. NIA
Vehicles owned by a government or by a nonprofit organization with a
form approved by the division of emergency management ........................................................... NIA
Vehicles owned by certain veterans .......................................................................................................... NIA
Vehicle owned by disabled individuals ..................................................................................................... NIA

TOTAL QUANTIFIABLE VEHICLE LICENSE
TAX EXPENDITURES 41 .............................................................................NIA

*No Information Available.
41These tax expenditures represent foregone revenues to the counties, incorporated cities and towns, county assessors,
the state highway fund and the state general fund.

151

152

W O R K E R S ’ C O M P E N S AT I O N
PREMIUM LIEU
TA X E X P E N D I T U R E S

153

154

W ORKERS ’ C OMPENSATION P REMIUM
L IEU TAX E XPENDITURES
42

Workers’ compensation premiums are taxed at a
rate up to 4.5% on all premiums collected during
the calendar year, less certain deductions from total
premiums (A.R.S. §23-961J). These deductions are
for applicable cancellations, returned premiums,
and policy dividends or refunds paid or credited to

42Any

policyholders within Arizona and not reapplied as
premiums for new, additional or extended
insurance.
During calendar year 2007 the
deductions from premiums totaled $66.0 million
which results in a tax expenditure of $3.0 million.

figures presented for Workers’ Compensation Premium Lieu Tax Expenditures were provided by the Industrial
Commission of Arizona.

155

S UMMARY OF W ORKERS ’ C OMPENSATION
P REMIUM L IEU TAX E XPENDITURES
Revenue Gain
Deductions from total premiums................................................................................................... $2,976,526

TOTAL QUANTIFIABLE WORKERS’ COMPENSATION
PREMIUM LIEU TAX EXPENDITURES 43 .................................$2,976,526

43These expenditures represent foregone revenues to the Administrative and Special Funds of the Industrial
Commission.

156