AR I ZONA DEPARTMENT OF R EVENUE

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
E X PE N D I T U R E S
FY 2 0 1 2
P R E PA R E D F O R T H E G O V E R N O R A N D T H E L E G I S L AT U R E B Y
T H E O F F I C E O F E C O N O M I C R E S E A R C H & A N A LY S I S AT T H E
A R I Z O N A D E PA RT M E N T O F R E V E N U E

Janice K. Brewer

John A. Greene

Governor

Director
N o v e mb e r 1 5 , 2 0 1 2 , P r e l i mi n a r y

The following report on Arizona' s Tax Expenditure s was prepared for the Governor and the
Legislature in compliance with A.R.S. §42-1005.
The preliminary 2012 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 a dditional information made available through the
2010 Individual Income Tax Simulation Model.
If you have any questions or com
ments 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 7
BINGO TAX EXPENDITURES .................................................................... Page 11
BOXING & MMA TAX EXPENDITURES .................................................. Page 15
CORPORATE INCOME TAX EXPENDITURES ........................................ Page 19
FIDUCIARY INCOME TAX EXPENDITURES .......................................... Page 25
FLIGHT PROPERTY TAX EXPENDITURES ............................................. Page 35
IN LIEU PROPERTY TAX EXPENDITURES ............................................. Page 39
INDIVIDUAL INCOME TAX EXPENDITURES ........................................ Page 43
INSURANCE PREMIUM TAX EXPENDITURES ...................................... Page 51
JET FUEL EXCISE AND USE TAX EXPENDITURES .............................. Page 59
LUXURY TAX EXPENDITURES ................................................................ Page 63
MOTOR CARRIER FEE EXPENDITURES ................................................. Page 69
MOTOR VEHICLE FUEL TAX EXPENDITURES ..................................... Page 75
PARI-MUTUEL TAX EXPENDITURES...................................................... Page 79
PRIVATE CAR PROPERTY TAX EXPENDITURES ................................. Page 83

PROPERTY TAX EXPENDITURES ............................................................ Page 85
SEVERANCE TAX EXPENDITURES ......................................................... Page 93
TRANSACTION PRIVILEGE AND USE TAX EXPENDITURES ............ Page 97
UNDERGROUND STORAGE TANK TAX EXPENDITURES ................Page 123
UNEMPLOYMENT INSURANCE TAX EXPENDITURES .....................Page 127
USE FUEL TAX EXPENDITURES ............................................................Page 133
VEHICLE LICENSE TAX EXPENDITURES ............................................Page 137
WORKERS’ COMPENSATION PREMIUM LIEU
TAX EXPENDITURES ...........................................................................Page 143

THE 2012 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.

ASSUMPTIONS
This report is not intended 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 Arizona and
formulate law to create this taxation policy.
All tax expenditures were conscious public
policy decisions at the time of enactment.

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 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 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
any change in 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.

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.

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.

Page 1

Page 2

AIRCRAFT LICENSE TAX
EXPENDITURES

Page 3

Page 4

AIRCRAFT LICENSE TAX EXPENDITURES1
aircraft is approximately $575,061 which
equates to a tax value of $276,029.

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.

A.R.S. §28-8383B also exempts aircraft
owned and held by a bona fide aircraft dealer
solely for the purposes of sale, as long as
these aircraft are registered within ten days
of the dealer's purchase date. There were 107
aircraft of this type registered by bona fide
aircraft dealers in Arizona. The tax value of
these aircraft was approximately $936,619.

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 if not engaged in
intrastate commercial activity, 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 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 resident-owned aircraft. In
fiscal year 2011/12, there were 138
nonresident aircraft based in Arizona. The
total aircraft license tax paid by nonresidents
falling into this category was $179,200. 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 $716,800.

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 96 aircraft owned by the
Arizona Department of Transportation, the
Arizona Department of Public Safety, various
Arizona counties and cities, and the civil air
patrol. The average fair market value of each

Aircraft in storage or being repaired is
charged a license tax of $20 (A.R.S. §288337). There are 94 aircraft which have been
granted this license tax rate with a fair market
value of approximately $149,569,420. The
tax value of this preferential license tax is
$745,967 which is the total fair market value
multiplied by 0.5% less $20 per aircraft.

1Any

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

Page 5

multiplied by 0.5% less the $20 license tax
paid per aircraft, or $0.

The annual license tax for a salvage aircraft
that is in storage or that is being restored is
$5 (A.R.S. §28-8338). There are 32 aircraft
registered under this provision. Assuming no
market value for salvage aircraft, the tax
value of this tax expenditure is the difference
between the $20 minimum license tax
imposed on all other aircraft and the $5
minimum license tax imposed on these tax, or
$480.

Maintenance aircraft owned by a nonresident
(A.R.S. §28-8341) and manufacturer's
aircraft (A.R.S. §28-8340) are required to pay
an aircraft license tax of $20. There are 2
nonresident-owned maintenance aircraft and
12 manufacturer's aircraft registered in
Arizona, for a total market value of $84.0
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 $419,720.

A.R.S. §28-8339 allows a $20 license tax for
an antique, classic, warbird, glider,
experimental, homebuilt, or balloon aircraft.
There are 4,135 aircraft registered in Arizona
under this provision, with a total market value
of $16.6 million. The tax value of this tax
expenditure is the total market value

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 ............................... $276,029
Aircraft owned by an aircraft dealer for sale.................................................... $936,619
PREFERENTIAL TAX RATES
Preferential rate for nonresidents with aircraft in the state from 90
to 210 days ..................................................................................................... $716,800
Preferential rate for aircraft in storage or being repaired ................................. $745,967
Preferential rate for salvage aircraft in storage or being repaired ........................... $480
Preferential rate for antique, classic, warbird, etc., aircraft ........................................ $0
Preferential rate for maintenance aircraft ......................................................... $419,720
Preferential rate for manufacturer's aircraft ................................................................ $0

TOTAL QUANTIFIABLE AIRCRAFT LICENSE TAX EXPENDITURES2
................................................................................................... $ 3,095,615
*No

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

2These

Page 6

AVIATION FUEL
TAX EXPENDITURES

Page 7

Page 8

3

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. 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.

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.
§28-5610A). The taxpayer must apply for a
refund. If such fuel were subject to taxation
in fiscal year 2011/12, an additional $87,275
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. §28-5611A).
Refunds
made in fiscal year 2011/12 were $1,274.

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 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. §285611A). No requests for refunds were made
in fiscal year 2011/12.

Also exempt from aviation fuel tax is aviation
fuel sold to the United States armed forces for
use in ships or aircraft, or for use without this
state (A.R.S. §28-5610). The amount of

3Any

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

Page 9

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 ............................................. $1,274
Exported aviation fuel .......................................................................................................... $87,275
Aviation fuel lost due to fire, theft or other accident .................................................................... $0

TOTAL QUANTIFIABLE AVIATION FUEL TAX EXPENDITURES4
.........................................................................................................................$88,549

*

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

4The

Page 10

BINGO
TAX EXPENDITURES

Page 11

Page 12

BINGO TAX EXPENDITURES
$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 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.

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
2011/12, this group of taxpayers subtracted
$3.3
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.

Measuring the tax value of allowing a
preferred tax rate for bingo is difficult because
the lowest-income taxpayers (recipients of less
than $15,600 annually) have a tax rate higher
than the highest-income 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 0.31% 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 $122,224. (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).

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 $81,354.
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 0.31%.
(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 0.31%
results in potential collections of $10,066.
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

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

Page 13

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 1.59%. 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*
$ 10,067
$205,778
$270,211
$486,056

New Tax
Collections
$ 51,756
$217,087
$217,212
$486,056

Difference
$ 41,689
$ 11,309
($52,998)
$0

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

S UMMARY OF B INGO TAX E XPENDITURES
Revenue Gain
Subtraction from Gross Receipts for Class A Licensees
Option 1 ................................................................................................................................ $81,354
Option 2 .................................................................................................................................. 10,066
Preferential Tax Rates for Class A and Class B Licensees
Option 1 .............................................................................................................................. $122,224
Option 2 ........................................................................................................................................... 0

TOTAL QUANTIFIABLE BINGO TAX EXPENDITURES5
RANGES FROM ....................................................................... $ 10,066 – 122,224

5These

tax expenditures represent foregone revenues to the state general fund.

Page 14

BOXING & MIXED
MARTIAL ARTS
TAX EXPENDITURES

Page 15

Page 16

BOXING & MIXED MARTIAL ARTS
TAX EXPENDITURES6
Any person who promotes a boxing or mixed
martial arts (MMA) contest in Arizona must
pay to the Department of Racing (collecting
for the state Boxing and Mixed Martial Arts
Commission) a 4% tax on the gross receipts
of such match or exhibition, after deduction
of city, state and federal taxes (A.R.S. §5104.02A) (tax not applicable to events on
Native American reservations).
Gross
receipts are defined as receipts from the face
value of tickets sold. Tickets issued as
complimentary by the promoter of a boxing or
MMA match are exempt from taxation, as

long as the number of complimentary tickets
does not exceed 2% of total number of tickets
issued or 75 tickets, whichever is greater.
During fiscal year 2012, 17 taxable boxing
and mixed martial arts contests were held. At
each event, up to 75 complimentary tickets
were issued with an average price of $20
each.
Had the value of these tickets been taxable, an
additional $1,020 in boxing/MMA taxes
would have been received.

S UMMARY OF B OXING & MMA
TAX E XPENDITURES
Revenue Gain
Complimentary tickets issued ................................................................................................ $1,020

TOTAL QUANTIFIABLE BOXING &MMA
TAX EXPENDITURES ................................................................$1,020

6Any

figures presented for Boxing Tax Expenditures were provided by the Arizona Boxing and Mixed Martial Arts
Commission.

Page 17

Page 18

CORPORATE INCOME
TAX EXPENDITURES

Page 19

Page 20

CORPORATE INCOME TAX EXPENDITURES
With the exception of credits, no information is available on corporate income tax expenditures at
this time. This publication will be updated as soon as the Corporate Income Tax Expenditures
section is complete.


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 years. A corporation could
receive a credit in 2010 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 Commerce
Authority (A.R.S. §43-1162).
for motion picture production costs
(A.R.S. §43-1163)
for installing one or more solar energy
devices for commercial, industrial or any
other nonresidential application (A.R.S.
§43-1164).
for expanding or locating qualified
renewable energy operations in Arizona
(A.R.S. §43-1164.01).
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).














Page 21

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. §431170).
for expenses incurred for tangible
personal property used to control or
prevent pollution, relating to agriculture
(A.R.S. §43-1170.01).
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 taxes paid on coal consumed in
generating electric power (A.R.S. §431178).
for
donating
real
property
or
improvements to a school district (A.R.S.
§43-1181)
for installing or including in one or more
houses or dwelling units in Arizona and
constructed by the taxpayer, a water
conservation plumbing stub out that
collects all graywater sources that end at
a plumbing stub out that is separate and
distinct from the regular plumbing system
(A.R.S. §43-1182)
for cash contributions to a school tuition
organization (A.R.S. §43-1183)
for cash contributions to a school tuition
organization for scholarships to disabled
or displaced students (A.R.S. §43-1184)
for donations made directly to the Clean
Elections Fund ( A.R.S. §16-954B)

credit would result in confidential
information being divulged about other
credits, then that information cannot legally
be released.

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

TYPE OF
CREDIT
Enterprise zone
Healthy forest
Motion picture production costs
Commercial & industrial solar energy
Renewable Energy Industry
Defense contracting
Military reuse zone
Employing National Guard members
Research & development
Environmental technology facility
Pollution control device
Agricultural
pollution
control
equipment
Employment of TANF recipients
Solar hot water plumbing stub outs &
electric vehicle recharge outlets
Taxes paid for coal consumed in
generating electrical power
School site donation
Water conservation plumbing stub
outs
Contributions to School Tuition
Organization
Contributions to School Tuition
Organizations for scholarships for
disabled or displaced students
Clean election
Total

Data for tax year 2010 is shown below, but it
is preliminary.
For tax year 2009,
corporations claimed 693 commercial tax
credits and used a total of $54.5 million in
credits to offset taxes and get refunds where
allowed. Asterisks indicate instances in
which release of information would breach
confidentiality laws.
The symbol “n/a”
indicates that the credit was not available in
that tax year.

#
101
**
11
7
n/a
**
**
5
246
3
17
0

2008
$ USED
$7,083,503
**
7,377,180
74,899
n/a
**
**
3,100
49,695,671
**
1,418,256
0

#
92
**
5
10
n/a
**
**
6
242
**
15
0

2009
$ USED
$6,148,657
**
1,343,532
87,118
n/a
**
**
7,000
33,486,510
**
1,715,381
0

#
78
0
12
12
0
0
**
8
257
**
15
0

2010
$ USED
$5,475,438
0
8,579,472
129,528
0
0
**
17,900
62,298,705
**
2,510,980
0

8
0

29,006
0

12
0

43,178
0

7
0

61,289
0

**

**

4

658,252

4

2,182,237

**
0

**
0

**
0

**
0

**
0

**
0

74

6,147,240

69

8,873,043

63

8,471,772

n/a

n/a

**

**

**

**

329
808

22,558
$83,478,796

228
693

1,292
$54,507,601

260
724

2,842
$90,625,629

Page 22

S UMMARY OF C ORPORATE I NCOME TAX
E XPENDITURES
Revenue Gain
Commercial Tax Credits:
Enterprise zone employment ........................................................................................... $5,475,000
Healthy forest .................................................................................................................................. 0
Motion picture production costs........................................................................................ 8,579,000
Commercial & industrial solar energy ................................................................................. 130,000
Renewable energy industry ............................................................................................................. 0
Defense contracting ......................................................................................................................... 0
Military reuse zone ..................................................................................................................... NR7
Employing National Guard members ..................................................................................... 18,000
Research & Development................................................................................................ 62,299,000
Environmental technology facility ...............................................................................................NR
Pollution control devices ................................................................................................... 2,511,000
Agricultural pollution control equipment........................................................................................ 0
Employment of TANF recipients ........................................................................................... 61,000
Solar hot water plumbing stub outs and electric vehicle recharge outlets ...................................... 0
Taxes paid for coal consumed in generating electrical power .......................................... 2,182,000
School site donation .....................................................................................................................NR
Water conservation plumbing stub outs .......................................................................................... 0
Contributions to School Tuition Organizations ................................................................ 8,472,000
Contributions to School Tuition Organizations for scholarships to disabled/displaced ..............NR
Clean election ........................................................................................................................... 3,000
Total Commercial Tax Credits ................................................................................. $90,626,0008

*

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 This total includes the value of the credits that individually are not releasable.
7

Page 23

Page 24

FIDUCIARY INCOME
TAX EXPENDITURES

Page 25

Page 26

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.

SUBTRACTIONS ALLOWED IN THE
CALCULATION OF FEDERAL
TAXABLE INCOME
The starting point for calculating Arizona
fiduciary income tax liability is federal
taxable income, as calculated on the federal
form 1041 (U.S. Fiduciary Income Tax
Return).
The Arizona legislature must
approve legislation to conform to the
definition of federal taxable income each
year. In conforming to the definition of
federal taxable income, Arizona accepts the
subtractions from gross income allowed by
the federal government. These subtractions
include:
 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 or state and local general
sales tax, real property tax, and
generation-skipping
transfer
tax
imposed on income distributions.
 Deductible fees paid to the fiduciary
for administering the estate or trust
during the tax year.
 Charitable deduction.
 Attorney, accountant, and return
preparer fees.
 Other deductions, such as amortizable
bond premiums, casualty and theft
losses, net operating loss deduction, up
to 6% of the fiduciary’s share of

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
2009/10 will be distributed to incorporated
cities and towns in fiscal year 2011/12.
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.

Page 27






qualified domestic production activities
and
the
fiduciary's
share
of
amortization,
depreciation
and
depletion not claimed elsewhere.
Miscellaneous itemized deductions in
excess of 2% AGI.
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.

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
employees of a county, city or town in
Arizona. [A.R.S. §43-1022(2)]
 Refunds from other states. The amount
of income tax refunds received from
states other than Arizona and included
as income. [A.R.S. §43-1022(7)]
 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 12/31/1978. [A.R.S. §431022(8)]
 Wood stoves and fireplaces.
The
amount authorized by A.R.S. §43-1027
for converting wood fireplaces or gasfired fireplaces to qualified wood
stoves. [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

It is not possible to calculate the tax value of
these subtractions. Information from the
Internal Revenue Service would be required
to determine the value and this information is
not readily available.
ARIZONA SUBTRACTIONS FROM
FEDERAL TAXABLE INCOME
The Arizona fiduciary income tax return lists
the following items that can be subtracted
from federal taxable income to reach adjusted
gross income attributable to Arizona:
 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)]
 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)]
 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
Page 28













the internal revenue code. [A.R.S. §431022(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. §431022(22)]







Contribution of agricultural crops. The
amount allowed by A.R.S. §43-1025
for contributions of agricultural crops
to charitable organizations. [A.R.S.
§43-1022(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 1/1/1990. [A.R.S. §431022(5)]
Holocaust survivors.
The amount
authorized by A.R.S. §43-1030 relating
to holocaust survivors. [A.R.S. §431022(26)]
Recalculated Arizona depreciation. The
amount of depreciation allowable per
§167(a) of the IRC calculated as if





Page 29

bonus
depreciation
for
eligible
properties had not been claimed for
federal purposes.
[A.R.S. §431022(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. §431022(3)]
Exemptions for blind persons, persons
over 65 years of age, 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. §431022(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 a qualified
retirement plan of a self-employed
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
12/31/1975, 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
Commerce Authority under §41-1508,
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
disposition of a capital investment that
a qualified defense contractor has
elected to amortize pursuant to §431024. [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
3/22/1983,
including
periodic
distributions from such winnings made
after 3/22/1983, 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













Page 30

which have been deferred in a taxable
year ending before 1/1/1990 and for
which a subtraction has not been
previously made.
[A.R.S. §431022(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. §43-1022(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. §431022(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 $3,000. [A.R.S.
§43-1022(20)]
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 subjected to tax in
another state in a previous year and is
included in Arizona gross income in
the current taxable year. [A.R.S. §431022(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)]





income under IRC §108(i) [A.R.S. §431022(33)].

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].



Contributions to 529 college savings
plans. The amount contributed to 529
college savings plans up to a total of
$750 [A.R.S. §43-1022(30)].



Previously deferred discharge of
indebtedness (DOI) income adjustment.
The amount of previously deferred
DOI included in gross income for the
current year to the extent that the
amount was previously added to
Arizona
income
[A.R.S.
§431022(34)].



Original issue discount (OID) on
reacquisition of debt instrument. The
amount of OID not allowed to be
deducted in computing federal taxable

Net operating loss adjustment. The net
operating loss computed under §172 of
the IRC in effect prior to enactment of
special federal net operating loss rules
per IRC §172(b)(1)(H) for losses
incurred during 2008 or 2009 [A.R.S.
§43-1022(35)].

In tax year 2010, subtractions on fiduciary tax
returns were reported in combination with
additions to fiduciary income on the front of
the tax return. Therefore, information is only
available on the value of subtractions not
entirely offset by additions to fiduciary
income for a total of $11,581,091.
Subtractions for income from a trust
established as a medical savings account were
reported on the front of the tax return for a
total of $486,081.

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

2.59% of taxable income
2.88% of taxable income, minus $29.00
3.36% of taxable income, minus $149.00
4.24% of taxable income, minus $589.00
4.54% of taxable income, minus $1,039.00

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 4.54%,
determining the impact of taxing all income at
4.54% would seem appropriate. However, no
taxpayer currently pays 4.54% tax on all

taxable income. If a flat tax rate of 4.54%
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; however, the burden of the tax will
shift. Taxpayers with lower Federal Adjusted
Gross Income would pay more tax and

Page 31

taxpayers with higher Federal Adjusted Gross
Income would pay less tax.

Arizona income tax liability for taxes paid to
the other state or country. In 2010, $3,687,503
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
tax credits claimed in 2010 by estates and
trusts was $932. Both credits are a direct
reduction to tax liability.

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

Page 32

S UMMARY OF F IDUCIARY I NCOME TAX
E XPENDITURES
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 estate exemption /$300 or $100 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
*

No Information Available.

Page 33

State lottery winnings
Mining explorations expenses
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 .................................... $486,081
Arizona distribution to beneficiaries
Contributions to 529 college savings plans
Previously deferred discharge of indebtedness income adjustment
Original issue discount on reacquisition of debt instrument
Net operating loss adjustment
Value of subtractions other than medical savings account trusts........................... $11,581,091
TOTAL TAX VALUE OF SUBTRACTIONS FROM FEDERAL
TAXABLE INCOME .................................................................................................. $12,067,172
CREDIT FOR TAXES PAID TO OTHER STATES/COUNTRIES........................ $3,687,503
CREDIT FOR CONTRIBUTIONS TO THE CLEAN ELECTION FUND ...................... $932

TOTAL QUANTIFIABLE FIDUCIARY INCOME TAX EXPENDITURES9
................................................................................................................. $15,755,607

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.

Page 34

FLIGHT PROPERTY
TAX EXPENDITURES

Page 35

Page 36

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
10.947% in tax year 2011.

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 20% 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 2010, the assessment ratio used
for flight property was 17%.
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, 20%, tax collections would have
increased by $903,842.

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. §4214251.10), this small flight property shall be
valued at 30% of its original cost less
depreciation multiplied by the assessment
ratio (A.R.S. §42-14254C). Had the taxable
value been 100%, the state would have raised
$612,281 more in fiscal year 2012.

S UMMARY OF F LIGHT P ROPERTY TAX
E XPENDITURES
Revenue Gain
EXEMPTION
Tax value at 30% for small airplanes ........................................................................... $612,281
PREFERENTIAL ASSESSMENT RATIOS:
Preferential assessment ratio at 25% ............................................................................ $903,842

TOTAL QUANTIFIABLE FLIGHT PROPERTY TAX EXPENDITURES10
................................................................................................................... $1,516,123

10These

expenditures represent foregone revenues to the state aviation fund.

Page 37

Page 38

IN LIEU PROPERTY
TAX EXPENDITURES

Page 39

Page 40

I N L IEU P ROPERTY TAX E XPENDITURES
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. §48242C3). 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. §48242C4).

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 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
84.07% of the tax that would have been levied
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.

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
(A.R.S. §48-242C1). A deduction of $10,000

Page 41

Page 42

INDIVIDUAL INCOME
TAX EXPENDITURES

Page 43

Page 44

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 2009
Individual Income Tax Simulation Model.

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 capped at $240 for married filing jointly
and unmarried head of household filers, and
$120 for single and married filing separately
filers.

CREDITS

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 $640
for single filers ($1,280 for married filing
jointly) whichever is greater. The maximum
credit is adjusted biennially (A.R.S. §16954B).

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, $4.54 ($100 times the
maximum tax rate of 4.54%). 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.

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 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. §431072.01). 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.

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

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
Page 45

$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.

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).

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.

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. §431077). 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).

Credit for Investment in Qualified Small
Business
A.R.S. §43-1074.02 provides a tax credit for
investments made in a qualified small
business.
The amount of credit is a
percentage of the investment amount based on
the location or type of the qualified small
business. The amount of credit is determined
and authorized by the Arizona Commerce
Authority.

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. §43-1079). The amount of the credit
is determined by a dollar amount allowed for
net new employee positions other than
dislocated military base employees and by a
dollar amount allowed for net new dislocated
military base employee positions.

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 Arizona Commerce
Authority.
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.

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. §43-1079.01). The amount of the
credit is equal to $1,000 for each employee
placed on active duty.

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 Commerce Authority as a healthy
forest enterprise. The credit amount per

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. §431080). The amount of the credit is equal to
10% of the amount spent during the taxable
Page 46

for each 1 full-time employment position
created for headquarters, neither of which can
exceed 10% of the taxpayer’s total capital
investment.
Approval from the Arizona
Commerce Authority is required to take the
credit.

year to construct the facility but not to exceed
75% of tax liability.
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. §43-1081). The
amount of the credit is equal to the lesser of
10% of the purchase price or $500,000.

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.

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). The credit is
equal to 25% of the cost of the real or
personal property not to exceed $25,000.

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.

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).

Credit for Donations to the Military
Family Relief Fund
A.R.S. §43-1086 provides a credit for cash
donations made to the Military Family Relief
fund up to $400 for married filing joint and
$200 for all other filing statuses. Only the
first $1 million in donations made to the fund
will qualify for the tax credit.

Renewable Energy Industry Credit
A.R.S. §43-1083.01 provides a refundable
credit for expanding or locating qualified
renewable energy operations in Arizona. The
credit is up to 10% of the taxpayer’s total
capital investment in Arizona if 1.5 new fulltime employment positions are created for
each $500,000 of capital investment for
manufacturing operations or 1 new full-time
employment position is created for each
$200,000 in capital investment for
headquarters. For other qualifying renewable
energy investment, the credit is 10% of
$500,000 for each 1.5 new full-time
employment
positions
created
in
manufacturing operations or 10% of $200,000

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.

Page 47

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.

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 less than
150% of the federal poverty level), up to $400
for married filing joint and $200 for all other
filing statuses.

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).

Private School Tuition Organization Credit
The private school tuition organization credit
is allowed for cash contributions to a school
tuition organization, up to $1,000 for married
filing joint and $500 for all other filing
statuses (A.R.S. §43-1089).

Water Conservation Systems Credit
A credit is allowed for installing a
conservation system in a taxpayer’s Arizona
residence. The amount of the credit is equal
to 25% of the cost of the system, not to
exceed $1,000 for the same residence
(A.R.S. §43-1090.01).

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 $400 for
married filing joint and $200 for all other
filing statuses.
School Site Donation Credit

Page 48

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
Credit for investment in qualified small business
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
Renewable energy industry credit
Agricultural water conservation system credit
Commercial and industrial solar energy credit
Credit for donations to the Military Family Relief fund
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
Water conservation systems credit
TOTAL VALUE OF ALL CREDITS 13

11

# of
claimants
17,526
656,524
516,513
24,908
36,535
DNA11
451
203
NR12
0
DNA
0
0
NR
NR
NR
NR
DNA
0
DNA
46
3,052
3

2010
(Millions)
$6.75
35.28
5.59
0.64
84.09
DNA
6.46
0.79
NR
0.00
DNA
0.00
0.00
NR
NR
NR
NR
DNA
0.00
DNA
0.26
1.00
0.02

61,602
62,940
250,004
DNA

16.68
43.18
43.72
DNA

DNA
230
1,630,547

DNA
0.10
$244.66

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

Page 49

Page 50

INSURANCE PREMIUM
TAX EXPENDITURES

Page 51

Page 52

INSURANCE PREMIUM TAX EXPENDITURES

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 2012
premium tax revenues by $14.8 thousand.

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
$4.61 billion in these considerations which, if
taxed at a 2% rate, would have resulted in
$92.3 million in revenues in Fiscal Year 2012.

Two versions of ARS § 20-224.03 now exist
– a repealed version and a newly enacted
version.
The repealed version of ARS §20-224.03
provides credits to insurers that increased their
employment of individuals who reside in
enterprise zones if the insurers met a series of
requirements. Three insurers reported credits
relating to Calendar Year 2011, totaling
$250,400, which offset the insurers’ 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. With the repeal
of the enterprise zone credit effective July 1,
2011, by Laws 2006, Ch. 387, § 5, insurers are
no longer able to claim first-year credits, but
may be allowed to claim second-year and
third-year credits for enterprise zone
employment that began prior to the repeal.
The newly enacted version of ARS
§ 20-224.03, the “qualified jobs tax credit,”
became effective from and after June 30,
2011. It provides a tax credit to a taxpayer
that makes a required level of capital
investment in Arizona and that has a
minimum number of qualified employment
positions (full-time employees for which the
employer pays at least 65% of health benefit
costs and to whom the employer pays at least
the median wage by county computed by the
Arizona Commerce Authority). A qualifying
employer is permitted a tax credit of $3,000
for each qualified employment position for

Insurers subject to Guaranty Fund
assessments may offset 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 20-692(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 2012
premium tax liabilities (and thus, Fiscal Year
2012 tax revenues).
14Any

14

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

Page 53

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
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 $4.0 million in
premiums exempted from Calendar Year
2011 premium tax.
The tax on these
premiums would have been $120,700 if they
were taxed at the 3% rate at which nonexempt surplus lines premiums are taxed.

each of three years of continuous
employment. One insurer reduced its tax
liability by $1,400 on its Calendar Year 2011
tax report.
ARS § 20-224.04 provides 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.
No insurer has claimed the military reuse
zone credit since its inception.
ARS §§ 20-224.06 (effective May 29, 2011)
and 20-224.07 (effective July 29, 2011)
provide tax credits to insurers that make
voluntary contributions to school tuition
organizations and exclude the credits from the
retaliation calculation prescribed by ARS § 20230, described later. During Fiscal Year 2012,
insurers reduced their taxes by $2.0 million.
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 2011 tax
liability by $4.0 million with health insurance
coverage credits.

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 85% of fire insurance
premium taxes to fire districts and
municipalities for the retirement plans of
firefighters [ARS §§ 20-224(C), 9-951, 9-952,
9-972]. The remaining 15% of fire insurance
premium taxes are deposited with the General
Fund (ARS § 20-227). In Calendar Year
2011, insurers wrote $3.9 million of taxable
fire insurance premium for risks in qualified
locations resulting in $26,000 in insurance
premium tax paid during Fiscal Year 2012 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 $86,600 in Fiscal Year 2012, a
difference of $60,600. The effect of the tax

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
§ 20-416.] Surplus lines brokers are not
required to collect and remit insurance
premium tax on “...reinsurance, ocean marine
and foreign trade insurance, insurance on
subjects located, resident or to be performed

Page 54

subdivision or body thereof.” (ARS § 20-837).
The total of exempted net premiums in
Calendar Year 2011 was $176.4 million and if
the State were able to apply the 2% tax rate,
the State would have collected $3.5 million in
additional premium taxes in Fiscal Year 2012.

rate difference may be mitigated by the
retaliation calculation required by ARS § 20230, 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
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 intra-state premiums). The
other states tax insurance and reinsurance
(rather than only insurance). Vermont was
one of the first states to license captive
insurers and it has the most captive insurers
licensed of any state. In total, Arizona
captive insurers reported $5.8 billion in
premiums and reinsurance assumptions
exempted from Calendar Year 2011 premium
tax. If Arizona applied Vermont’s captive
insurance tax and fee structure, Arizona
would have collected $2.7 million. During
Fiscal Year 2012, the Department collected
$0.5 million in license renewal fees from
captive insurers. If Arizona replaced its
$5,500 captive insurer renewal fee with
Vermont’s $500 captive insurer renewal fee
and adopted Vermont’s captive insurance
premium tax structure, Arizona would have
collected an additional $2.2 million.

“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 2011, insurers
reported a total of $3.4 billion subject to this
preemption. If those premiums were subject
to the Arizona 2% tax rate, the state would
have collected $67.5 million in Fiscal Year
2012.
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 2011, the FEHB Fund paid
$577.5 million to provide life and health
coverage for Federal employees in Arizona.
If Arizona were able to tax those premiums at
a 2% rate, the state would have collected
$11.5 million in Fiscal Year 2012.
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
2011, insurers collected $14.9 million in
premiums reinsured by the FCIC which, if
taxable at a 2% rate, would have resulted in
an additional $297,500 being collected by the
state in Fiscal Year 2012.

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

ARS § 20-2304(J) exempts small group
health insurance policies written by
accountable health plans from insurance
premium tax. During Calendar Year 2011,
insurers received $670.4 million in premiums
for health benefits plans issued to small
employers by accountable health plans. Had
the tax rate on these premiums remained at
2%, an additional $13.4 million would have

Page 55

on the tax rates, fees, assessments, credits,
etc. in the insurers’ states of domicile, no
method exists to calculate the exact effect
Arizona would realize if the foregoing
qualifications and exemptions of insurance
premium taxes were not in place.
Additionally, retaliation is extremely difficult
to calculate because of differences in the ways
that states tax each type of insurers or each
class of insurance, and the variety of
additional fees, credits and other obligations
that apply to insurers in each state. Therefore,
the tax expenditure estimates exclude the
possible consequential effects on the
retaliation calculation. It is fair to say,
however, that retaliation revenues could fall if
Arizona imposed additional taxes or fees, or
eliminated tax credits that were part of the
retaliation calculation.

been deposited to the General Fund in Fiscal
Year 2012.
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 $128.3 million for
Calendar Year 2011. Had these premiums
been subject to a 2% tax rate, the State would
have collected $2.6 million more in Fiscal
Year 2012.
ARS § 20-230 requires the Department of
Insurance to impose on foreign and alien
insurers the same taxes, fees, fines, penalties,
licenses, deposit and other obligations that the
laws of their domicile impose on Arizona
insurers doing business in their state or
country. Because the amount of retaliatory
tax that foreign and alien insurers pay relies

Page 56

S UMMARY OF I NSURANCE P REMIUM TAX
E XPENDITURES
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) ......................................... $92,262,207
Unabsorbed portion of any premium deposit ............................................................................. NIA
TOTAL QUANTIFIABLE SUBTRACTIONS FROM
PREMIUM INCOME ................................................................................................. $92,262,207
AVAILABLE TAX CREDITS
Insurance guaranty fund assessment tax credit ............................................................................. $0
Domestic life and disability insurer tax credit ..................................................................... $14,755
Enterprise zone and military reuse zone tax credits ........................................................... $250,380
Qualified jobs tax credit ......................................................................................................... $1,426
School tuition organization contributions credit ............................................................. $2,034,168
Health insurance certificates for qualified persons ......................................................... $4,041,370
TOTAL AVAILABLE TAX CREDITS ...................................................................... $6,342,099
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 .................................. $120,665
PREFERENTIAL RATE ON QUALIFIED FIRE INSURANCE ................................. $60,625
ABSENCE OF CAPTIVE INSURANCE PREMIUM TAX ..................................... $2,168,848
GOVERNMENT PROGRAM EXEMPTIONS:
Hospital, medical, dental and optometric service corporation premiums
paid by federal, state and municipal governments ........................................................ $3,527,302
*No

Information Available.

Page 57

Medicare Advantage Plan premiums ............................................................................ $67,495,576
Life and health insurance premiums paid by the Federal Employee
Health Benefits Fund ................................................................................................ $11,549,609
Premiums for coverage reinsured by the Federal Crop Insurance Corporation ................. $297,522
Accountable health plan group health insurance to small employers ........................... $13,408,674
Exempt fraternal benefit societies ................................................................................... $2,566,483
TOTAL GOVERNMENT PROGRAM EXEMPTIONS ........................................ $98,845,166

TOTAL QUANTIFIABLE INSURANCE PREMIUM TAX
EXPENDITURES15........................................................................... $199,799,610

15These

expenditures represent foregone revenues to the state general fund.

Page 58

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

Page 59

Page 60

J ET F UEL E XCISE AND U SE TAX
E XPENDITURES
Arizona imposes a tax of 3.05¢ per gallon on
the first 10 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 10 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 is levied and
collected.

PREFERENTIAL JET FUEL TAX RATES
Amounts of jet fuel sold over 10 million
gallons are not subject to the excise or use
tax. Fiscal year 1993/94 was the last year that
amounts over 10 million gallons were taxed.
In that year, 179,413,000 gallons were taxed
at the over 10 million gallon tax rate of 1.05¢
per gallon. Using the same growth rate that
has been experienced with jet fuel of less than
10 million gallons, an additional $6.5 million
could have been generated in fiscal year 2012
if sales of jet fuel over 10 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 AND
U SE TAX E XPENDITURES
Revenue Gain
PREFERENTIAL TAX RATES:
Jet fuel over 10 million gallons ................................................................................ $ 6,524,014
EXEMPTIONS:
International flights which originated within the state ....................................................... NIA*

TOTAL QUANTIFIABLE JET FUEL EXCISE AND USE TAX
EXPENDITURES16 ............................................................................... $ 6,524,014
*

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

16These

Page 61

Page 62

LUXURY
TAX EXPENDITURES

Page 63

Page 64

L UXURY TAX E XPENDITURES
Luxury tax collected by the Arizona
Department of Revenue totaled $409.1 million
for fiscal year 2011/12. The potential for
additional luxury tax collections would have
been $440.0 million with elimination of
exemptions currently allowed, and with
adoption of a standard liquor tax rate. Repeal
of exemptions currently in place would have
resulted in an additional $25.3 million. The
remaining $414.2 million would be the result of
standardizing the liquor tax rate to $3.00 per
gallon rather than the current rates.

This analysis ignores any decrease in demand
due to increased prices, a likely result of
raising all liquor taxes to $3.00 per gallon.
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, $0.43 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.

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 volume17, 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:
Vinous
At $3/gallon
Actual
Difference
Malt
At $3/gallon
Actual
Difference
Total

Original
Tax
Type
Collections
Spirituous $31,847,105
Vinous
$15,430,577
Malt
$21,101,489
Total
$68,379,171

New Tax
Collections
$ 4,512,302
$ 7,808,226
$56,058,643
$68,379,171

Difference
($27,334,803)
($ 7,622,352)
$ 34,957,155
$0

EXEMPTIONS FOR TOBACCO
PRODUCTS

FY2011/12
$55,109,205
$15,430,577
$39,678,628
FY2011/12
$395,652,913
$21,101,489
$374,551,424
$414,230,052

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.

17The

department has received no tax collections for
this liquor type.

Page 65

(A.R.S. §42-3008A).
No information is
available on the value of this exemption.

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.

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
$145,357 in tax revenue lost.

If all stamps were purchased at face value,
revenue would have increased by $6.9
million.
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 $18.3 million 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

Page 66

S UMMARY OF L UXURY TAX E XPENDITURES
Revenue Gain
PREFERENTIAL TAX RATES ON LIQUOR:.................................................... $ 414,230,052
TOBACCO PRODUCT EXEMPTIONS AND REFUNDS:
Tobacco powder or products used exclusively for agricultural or
horticultural purposes & unfit for human consumption ......................................................... NIA*
Discounts ......................................................................................................................... $6,866,954
Breakage or spoilage refunds ........................................................................................ $18,316,959
Exported from state after cigarette stamps purchased ................................................................ NIA
TOTAL TOBACCO PRODUCT EXEMPTIONS AND REFUNDS ..................... $ 25,183,913
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 ............................................................................................. $145,357
TOTAL LIQUOR EXEMPTIONS AND REFUNDS ................................................... $145,357

TOTAL QUANTIFIABLE LUXURY TAX EXPENDITURES18
............................................................................................................... $439,559,322

*

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

18These

Page 67

Page 68

MOTOR CARRIER FEE
TAX EXPENDITURES

Page 69

Page 70

MOTOR CARRIER FEE TAX EXPENDITURES

load or unloading, (5) with empty containers
and boxes being returned to the point of
shipment, or (6) with commodities or goods
being returned to the point of shipment as a
result of damage, spoilage, misfills, consignee
rejections, or consignee returns. The value of
this expenditure is unavailable.

Motor carriers are responsible for the
following fees: motor carrier fee, commercial
registration fee, gross weight fee, highway
use fee, title fee, and registration fee.
Receipts from these fees go into the Highway
User Revenue Fund and are distributed to the
Department of Public Safety, Economic
Strength fund, state highway fund, counties,
and incorporated cities and towns.

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.

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 2011/12, Arizona based carriers paid
$16.8 million in motor carrier fees.

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

A reduced motor carrier fee of 7/10 of the full
rate is applied against motor vehicles (A.R.S.
§28-5855) 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
19Figures

19

1. 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.

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

Page 71

(e) Videotapes.
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. §
28-5805)

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
Commercial Registration Fee. (A.R.S.
§28-5432C4).

4. Religious 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)

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.
§28-5432C5).
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
2011/12 was $28.8 million.

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. Religious vehicles- Operated by nonprofit 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).

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 2011/12.

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)

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.

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.
§28-5432C3).

The following motor vehicles, trailers, and
semitrailers are exempt from the gross weight
fee prescribed in section 28-5432.C:

4. Foreign Government vehicles-A vehicle
owned and operated by a foreign
government, a consul or any other official

Page 72

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 exempt from the
gross weight fee (A.R.S. §28-5432C5).
No information is available on this tax
exemption.

1. Motor vehicles, trailers or semitrailers
owned and operated by non-profit
religious institutions and used exclusively
for the transportation of property
produced and distributed for charitable
purposes are exempt from the gross
weight fee (A.R.S. §28-5432C1). No
information is available for 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 $5.5 million
during fiscal year 2011/12. 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. §285471). The values of these expenditures are
currently unavailable.

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.

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. §28-5473D).
No information is
available on this tax exemption
Foreign Based Carriers
The total amount received from foreign based
motor carriers in fiscal year 2011/12 was
$92.3 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 unavailable.

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.

Page 73

S UMMARY OF M OTOR C ARRIER F EE
TAX E XPENDITURES
Revenue Gain
PREFERENTIAL FEE RATES:
Motor Carrier Fee
Same motor carrier fees for all Arizona based vehicles ................................................ $16,815,197
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 ................................................ $28,777,332
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 ................................................................. $5,454,255
Foreign Based Carriers
Registration fees, motor carrier fees, gross weight fees and highway use fees ............ $92,311,065
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 EXPENDITURES20
............................................................................................................... $143,357,849

*No Information Available.
20These expenditures represent foregone revenues to the state highway fund, counties and incorporated cities/towns.
Page 74

MOTOR VEHICLE FUEL
TAX EXPENDITURES

Page 75

Page 76

MOTOR VEHICLE FUEL TAX EXPENDITURES

21

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. §285610A4).

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 2011/12, motor
vehicle fuel tax collected from licensed
suppliers was $470.6 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.

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 2011/12.
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.

EXEMPTIONS FROM THE MOTOR
VEHICLE FUEL TAX

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
2011/12, $1,381,460 was refunded for this
exemption.

In order to qualify for an exemption, the
taxpayer must file for a refund (A.R.S. §285610B).
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. §285610A1-2). Requests for refunds against
import liability in the amount of $5,943,179
were received in fiscal year 2011/12.

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 2011/12,
$678,353 in motor vehicle fuel tax was
refunded based on this exemption.

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.
The total amount
refunded for this provision during fiscal year
2011/12 was $968,872.

21Any

figures presented for Motor Vehicle Fuel Tax Expenditures were provided by the Arizona Department of
Transportation.
Page 77

S UMMARY OF M OTOR V EHICLE F UEL
TAX E XPENDITURES
Revenue Gain
Motor vehicle fuel purchased for export ......................................................................... $5,943,179
Motor vehicle fuel sold to Native Americans on Reservations.......................................... $968,872
Motor vehicle fuel for motor vehicles leased to or owned by and operated for
the sole benefit of a native American tribe for governmental purposes................................... NIA
Motor vehicle fuel lost due to fire, theft or other accident.............................................................. 0
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 ....................................................................................................... $1,381,460
Motor vehicle fuel used other than in motor vehicles, watercraft and motor
vehicles operating on a transportation facility or toll road ............................................. $678,353

TOTAL QUANTIFIABLE MOTOR VEHICLE FUEL TAX EXPENDITURES22
................................................................................................................... $8,971,864

*

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.
22The

Page 78

PARI-MUTUEL
TAX EXPENDITURES

Page 79

Page 80

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



RACING

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 $447,007 in fiscal year
2012.
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 $3.3 million in fiscal year 2012 due to
this exemption.
Any county fair racing association may
have one racing meeting each year (A.R.S.
§ 5-111.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
$76,786 in pari-mutuel revenues during
fiscal year 2012.

23Any



23

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 $7,413 in parimutuel revenues during fiscal year 2012.
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. § 5111.03.A). The state share of the parimutuel tax was not known during fiscal
year 2012.
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
$507,099 in hardship tax credits in fiscal
year 2012.

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

Page 81

S UMMARY OF PARI -M UTUEL
TAX E XPENDITURES
Revenue Gain
PREFERENTIAL TAX RATES FOR HORSE OR HARNESS
RACING .................................................................................................................... $447,007
PARI-MUTUEL TAX EXEMPTIONS:
Reduction in pari-mutuel tax on simulcast out-of-state races ........................................... 3,324,379
County fair racing association meetings ................................................................................ 76,786
Charity racing days................................................................................................................... 7,413
Reduction in pari-mutuel tax for capital improvements to race tracks ........................................... 0
Reduction in pari-mutuel tax for hardship tax credit ........................................................... 507,099

TOTAL QUANTIFIABLE PARI-MUTUEL TAX EXPENDITURES24
................................................................................................................... $4,362,684

24These

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.

Page 82

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

Page 83

Page 84

P RIVATE C AR P ROPERTY TAX
E XPENDITURES
These assessment ratios range from 20% 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 2011, the assessment ratio used
for private car property was 15%. 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, 20%, tax
collections would have increased by
$354,940.

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 $10.94 in
2011.
Arizona statutes set out the assessment ratios
to be used in determining the net assessed
values of the various classes of property.

S UMMARY OF P RIVATE C AR P ROPERTY TAX
E XPENDITURES
Revenue Gain
Preferential assessment ratio at 20% .................................................................................. $354,940

TOTAL QUANTIFIABLE PRIVATE CAR PROPERTY TAX
EXPENDITURES25 ................................................................................... $354,940

25These

expenditures represent foregone revenues to the state general fund.

Page 85

Page 86

PROPERTY
TAX EXPENDITURES

Page 87

Page 88

P ROPERTY TAX E XPENDITURES
 Property owned by widows and widowers

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.

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:

First, basic state aid, or a basic level of funding
for education per student statewide, is provided
through the state, the county and school
districts. The school district's responsibility is
determined by multiplying a uniform tax rate
by assessed valuation. If this amount is less
than the basic level of funding, additional
revenues are received from the state, funded by
the education equalization rate which is
currently $0.4259 per $100 of assessed value.
If education equalization revenues cannot bring
the school district to its basic level of funding,
the state provides the balance of the basic state
aid. Therefore, exemptions reduce the property
tax base, which may increase the state's portion
of basic state aid funding.
The second method concerns the taxation of
homeowner (primary residence) 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 forty percent of a homeowner's
school district tax bill, up to $600. If a
homeowner's primary residence 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 of the homeowners
primary residence. Higher tax rates could mean a
larger state payment.
Article IX of the Arizona Constitution exempts:

Page 89



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 leasepurchase 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 15183. A.R.S. § 42-11104(C).





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).





operating for the primary purpose of
providing the subsidy or payment. A.R.S.
§ 42-11106(2).

Hospitals for relief of the indigent or
afflicted, appurtenant land and their
fixtures and equipment to such buildings,
as long as they are not used or held for
profit. A.R.S. 42-11105(A).

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 that adjacent property.
A.R.S. § 42-11106(1).
Property used for the operation of a
nonprofit residential apartment housing
facility, 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 the
federal, a state or local government or by
a nonprofit organization that is 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

Page 90



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 property,
as long as such institutions and property
are not used or held for profit. A.R.S. §
42-11107.



Grounds and buildings owned
agricultural societies, as long as they
used for those purposes only, and
used or held for profit. A.R.S. §
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 the buildings, if the property is
not
used
or
held
for
profit.
A.R.S. § 42-11109(A).



Cemeteries as defined in section 32-2101
set apart and used for interring the dead,
and historic private burial sites and
historic private cemeteries as defined in
section 41-511.04, unless any part is no
longer, or will not be, used as a cemetery
or is rezoned, or if any interest in the title
is transferred to a new owner. A.R.S. §
42-11110.



Property of widows, widowers and
disabled persons subject to specified
conditions and limitations. A.R.S. § 4211111.



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, if the observatories and other
property are used for those purposes only
and not used or held for profit. A.R.S.
§42-11112.

by
are
not
42-







Grounds and buildings belonging to
societies for the prevention of cruelty to
animals and for sheltering, caring for and
controlling animals, if the grounds and
buildings are used for those purposes
only and are not used for held for profit.
A.R.S. § 42-11113.
Property
held
by
a
charitable
organization recognized under I.R.C.
section 501(c)(3) or section 43-1201 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. § 4211114(A).
Property
held
by
a
charitable
organization recognized under I.R.C.
section 501(c)(3) or section 43-1201 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 qualified under I.R.C.
section 501(c)(3) or section 43-1201 as
long as the property is used for those
purposes and not used or held for profit.
A.R.S. §42-11116.



Property belonging to a volunteer fire
department recognized under I.R.C.
section 501 or section 43-1201 if the
property is used exclusively for fire
suppression and prevention activities and
neither used nor occupied by or for the
benefit of any person. A.R.S. § 42-11117.



listed under Subsection B. A.R.S. § 4211118(A).

Property that is owned by a volunteer
nonprofit organization recognized under
I.R.C. section 501(c)(4) or section 43-1201
that is operated exclusively to promote
social welfare and provide community
quasi-governmental services in an
unincorporated area of a county and that
provides at least six of the nine services

Page 91



Property that is owned by a volunteer
nonprofit organization, if it is used
exclusively for performing roadway
cleanup and beautification on a
gratuitous basis, is not used or held for
profit, and is not used or occupied by or
for the benefit of any person. A.R.S. § 4211119.



Property that is owned by a United States
Veterans' Organization that qualifies as a
charitable organization and that is
recognized under either I.R.C. section
501(c)(3) or 501(c)(19) if the property is
used predominantly for those purposes
and is not used or held for profit. A.R.S.
§ 42-11120.



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
A.R.S. § 42-11101, and that qualifies as a
charitable organization and is recognized
under I.R.C. section 501(c)(3) 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
or disaster relief. A.R.S. § 42-11121.



A commodity, as defined in 7 U.S. Code
section 2, that is consigned for resale in a
warehouse in this state in or from which
the commodity is deliverable on a contract
for future delivery subject to the rules of a
commodity market regulated by the United
States
commodity
futures
trading
commission. A.R.S. § 42-11122.





nonmembers or is used or held for profit.
A.R.S. § 42-11129.

Animal and poultry feed, including salts,
vitamins and other additives, for animal
or poultry consumption. A.R.S. § 4211123.
Stocks of raw 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 that
is principally engaged in reselling the
materials, parts or products. A.R.S. § 4211125.



Livestock and poultry as defined in
section 3-1201, aquatic animals defined
in section 3-2901, and colonies of bees.
A.R.S. § 42-11126.



Commercial [§ 42-12001(8-11) or (13)]
and agricultural [§ 42-12002(P)(2)(a) or
(b)] personal property subject to specified
conditions and limitations. A.R.S. § 4211127.



Personal property moving through the
state to a final destination outside this
state, or that is 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(i.e.,
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. § 4211128(A) and (B).



Property that is owned by a fraternal
society or organization that is recognized
under I.R.C. section 501(c)(8) or (10), if
[its] net earnings are devoted exclusively
to religious, charitable, scientific,
literary, educational or fraternal
purposes, and if the property is used
predominantly for educational, charitable
or religious purposes and 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

Page 92



Property that is not used or held for
profit, that is owned by a charitable
organization recognized under I.R.C.
section 501(c)(3) whose mission is to
provide supplemental financial support to
public libraries, if the property is used
predominantly for those purposes. A.R.S.
§ 42-11130.



Property owned and operated by a
federally recognized Indian tribe or its
tribally designated housing authority
subject to the following requirements; (1)
that it is used exclusively for the
charitable purpose of providing lowincome rental housing and related
facilities for the use of Indians; (2) that it
is not used or held for profit; (3) no part
of the earnings of the housing authority
may “inure to benefit of any private
shareholder or individual”;
(4) the
housing was designed and constructed
using federal financial assistance
pursuant to the Native American Housing
Assistance and Self-Determination Act
(P.L. 104-330; 25 U.S. Code, Chapter 43)
or using tribal monies. An Indian tribe or
tribal housing authority may make
voluntary contributions in lieu of
property taxes to a county, city, town,
school district or other political
subdivision for providing services,
improvements or facilities for the benefit
of a low income housing project owned
and operated by the tribe or housing
authority. A.R.S. § 42-11131.



Property, buildings and fixtures (or those
portions of them) that are leased to a not
for profit charter school and that are
used for educational instruction in any
grade or program through grade twelve
shall be Class Nine pursuant to A.R.S §
42-12009. A.R.S. § 42-11132(A).







2012 ADDITIONAL STATE AID TO
EDUCATION

Property, buildings and fixtures that are
owned by an educational, a religious or a
charitable organization, institution or
association and that are leased to a not
for profit educational organization,
institution or association are exempt if
the property is used for educational
instruction in any grade or program
through grade twelve. A.R.S. § 4211132(B).

Pursuant to A.R.S. § 15-972, a report indicating
the amount of Additional State Aid to Education
(ASAE) is prepared each year. This additional
State Aid is the amount referred to as the
"Homeowner's Rebate." (The state pays forty
percent of a homeowner's school district tax bill,
up to $600.) The summary chart provided here
shows the Additional State Aid to Education tax
roll that was billed in 2012, including additional
amounts that were billed for Legal Class Three
property on the personal property tax roll.

Property used exclusively for rental
housing and related facilities is exempt if
the property is not used or held for profit
and 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, and if all
of the following apply: (a)the acquisition,
rehabilitation, development or operation
of the property (or any combination
thereof) is financed with tax exempt
mortgage revenue bonds or general
obligation bonds or is financed by local,
state or federal loans or grants, and the
rents do not exceed those prescribed by
deed
restrictions
or
regulatory
agreements pursuant to financing terms;
(b) the owner of the property is eligible
for and receives tax credits for lowincome housing established under section
42 of the internal revenue code; (c) the
property is used as an assisted living
facility for low-income elderly residents;
and (d) the facility cannot exceed two
hundred residents. A.R.S. § 42-11133(A).

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

26
26

$6,482,175
26
26
26
26

26

10,412,612
26

55,232,916
26
26
26
26

Personal
Property
Tax Roll County Total
26
$ 803,630
26
5,668,513
$55,001
6,537,176
26
1,860,105
26
1,121,348
26
107,095
26
359,980*
26
195,627,645
107,988
10,520,600
26
2,791,455
520,352
55,753,269
26
18,493,836
26
1,899,030
26
13,540,506
26
7,585,125
$322,669,313

* Estimate

Property owned or used by special taxing
districts organized under Title 48, Chapter
20 (Flood Control Districts), for the purpose
of irrigation water delivery, shall be exempt
from taxation when used for district
purposes. A.R.S. § 48-3472(A).
26

The breakdown between real and personal property is
not available.

Page 93

S UMMARY OF P ROPERTY
TAX E XPENDITURES
Revenue Gain
ADDITIONAL STATE AID TO EDUCATION ................................................... $ 322,669,313

TOTAL QUANTIFIABLE PROPERTY TAX EXPENDITURES27
.............................................................................................................. $ 322,669,313

27These

expenditures represent foregone revenues to the state general fund.

Page 94

SEVERANCE
TAX EXPENDITURES

Page 95

Page 96

S EVERANCE TAX E XPENDITURES
During fiscal 2011/12 virtually all timber
severance collections were for ponderosa pine
for periods prior to its repeal. As a result, the
preferential rate had no impact on collections.

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).

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 2011/12, information about the
value of the severance tax accounting credit
was unavailable.

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
2011/12 totaled $40.6 million.

SEVERANCE TAX EXCLUSIONS

PREFERENTIAL SEVERANCE TAX
RATES

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 $40.6
million in fiscal year 2011/12. The tax value of
the production costs is unknown.

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.

Page 97

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 .......................................................................................................... 40,580,000
Production Costs ........................................................................................................................ NIA

TOTAL QUANTIFIABLE SEVERANCE TAX EXPENDITURES28
................................................................................................................. $40,580,000

*

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

28These

Page 98

TRANSACTION PRIVILEGE
A N D U S E TA X
EXPENDITURES

Page 99

Page 100

T RANSACTION P RIVILEGE AND
U SE TAX E XPENDITURES
For fiscal year 2011/12, the value of the
exemptions on the Proposition 100 Temporary
Tax funds was $2.2 billion.

Transaction privilege and use tax gross
collections in fiscal year 2011/12 totaled nearly
$4.7 billion. Of that amount, $1 billion was
distributed to the counties and cities. The
remaining $3.7 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 237%. The quantifiable
exemptions discussed in this report represent
potential collections of $11 billion. Additionally,
lost revenues due to preferential tax rates, e.g.,
those items taxed at a rate below 5%, total $410
million while credits totaled $19.9 million.
Therefore, the State of Arizona could be
collecting at least an additional $11.5 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.

PREFERENTIAL TRANSACTION
PRIVILEGE TAX RATES
In most categories, sales in Arizona are taxed at a
5% rate. Two categories of taxable activities,
however, are currently taxed at a lower rate.
These activities and the corresponding tax rates
are as follows:
CODE

TAXABLE ACTIVITIES

2

Non-Metal Mining, Oil &
Gas Production

13

Commercial Lease29

RATE
3.125%
0%

If the activities in these categories had been
taxed at a 5% rate in fiscal year 2011/12,
additional transaction privilege tax of $410.3
million would have been collected.

The Proposition 301 - Education Tax, collected
$542 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 2011/12, the value of the exemptions on
the Proposition 301 Education funds was $1.3
billion.

TRANSACTION PRIVILEGE AND USE
TAX CREDIT
A credit is allowed against transaction privilege
tax 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 2011/12, the value of the accounting
credit equaled $19.9 million.
TRANSACTION PRIVILEGE AND USE
TAX EXEMPTIONS

The Proposition 100 – Temporary Tax of 1.0%
collected $915.8 million at the 1% rate. While
the two taxes are collected on roughly the same
tax base, the Temporary Tax monies are
directed to the State General Fund. We
continue to present the value of exemptions at
the 5% rate. The effect of these exemptions on
Proposition 100 can be estimated by taking
20% of the amounts shown later in this section.

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
29The

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

Page 101

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.

from the Sample of Services in these major
categories is as follows30:

The primary type of business exempt from
transaction privilege tax in Arizona is the
business of providing a service (A.R.S. §425061A1, A2).
The U.S. Census Bureau
provides information about the value of
services in Arizona through the 2007 Economic
Census. This is the basis for the following
analysis of the tax value of some services.
Please note that some portion of the value of
these services may already be taxable. For
example the sale of hair shampoo products at a
Beauty Salon is taxable but the service of
cutting and styling hair is not. The receipts
reported in the Economic Census would
include both the retail sale of products and the
provision of the service. No attempt has been
made to determine the non-taxable portion of
the receipts.

Personal Care

$78,620,000

Educational

$49,800,000

Professional, Scientific and
Technical

$990,700,000

Health Care

$890,600,000

Administrative and
Business Support

$460,600,000

Finance

$370,270,000

Other Services

$210,850,000

Total transaction privilege tax revenue
available from these businesses is $3 billion.
Although the estimate of potential tax
collections provided here does not include
estimates for all services, the majority have
been captured.
The business of selling tangible personal
property at wholesale, by definition, is not
taxable. During fiscal year 2011/12, wholesale
trade was estimated to be $91.5 billion. If
taxed at a 5% rate, collections from this
category would be $4.6 billion. Another
measure of this type of activity is the deduction
for sales for resale. In fiscal year 2011/12 it is
estimated that businesses deducted nearly $79.9
billion for sales for resale. At 5%, these
transactions would have generated nearly $4
billion.

The list of services in this report is a sample of
services and is not intended to be a
comprehensive list. The categories shown are
defined by the Census Bureau, not by the
preparers of this report. For a complete look at
the service industry in Arizona, refer to the
several reports comprising the 2007 Economic
Census of Arizona, available at the U.S. Census
Bureau website, www.census.gov .

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 tradein allowance is deducted from the sales price of
the new merchandise before completion of the

Several major categories as defined by the U.S.
Census Bureau are shown in the sample of
services:
(1) professional, scientific and
technical; (2) health care; (3) administrative
and business support; (4) personal care; (5)
educational; (6) finance and (7) other services.
Examples of each of these service categories
are listed at the end of this section. A summary
of potential transaction privilege tax revenue

30

This summary is not intended to be a comprehensive
analysis of potential transaction privilege tax revenue for
services. Some portion of the value of these services
may already be taxable.

Page 102

sale is exempt (A.R.S. §42-5001.6).
No
information is available on the value of cash
discounts or trade-ins.

estimated that deductions of $532 million were
taken for these items. Had they been taxed,
collections would have been $26.6 million.

Sales of warranty or service contracts are
exempt from transaction privilege tax (A.R.S.
§42-5061A3). In fiscal year 2011/12 it is
estimated that businesses deducted $630
million for such contracts.
Taxing these
contracts at a 5% rate would have resulted in
collections of $31.5 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 year 2011/12 a total of $3.5 billion was
deducted for other tangible personal property
sold to a nonresident and delivered out of state.
Were these transactions taxable, an additional
$177.6 million would have been collected.

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.

Food for home consumption (A.R.S. §425061A15, 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.
§42-5159A23). In fiscal year 2011/12 it is
estimated that deductions of $14.4 billion were
taken for these items. A 5% tax on these would
have brought in $718 million in additional
revenues.

The sale of stocks and bonds is not subject to
transaction privilege tax in Arizona (A.R.S.
§42-5061A7). No information is available on
this tax expenditure.

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 $43.6 million were taken for this
exemption in fiscal 2011/12. At a rate of 5%,
these deductions would have generated $2.2
million had they been taxable.

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 2011/12 it is estimated that businesses
took $7.4 billion in deductions for prescriptions
and medical oxygen. Had these purchases been
taxed at a rate of 5%, collections would be
$371 million.

Meals provided to employees of restaurants are
exempt from transaction privilege and use
taxation (A.R.S. §42-5061A18, A.R.S. §425159A24). No information is available for this
tax expenditure.

Insulin, syringes, glucose test strips (A.R.S.
§42-5061A10,
A.R.S.
§42-5159A19),
eyeglasses and contact lenses (A.R.S. 425061A11, A.R.S. §42-5159A18), prosthetic
appliances prescribed or recommended by a
physician, dentist or other professional (A.R.S.
§42-5061A9, A.R.S. §42-5159A17) 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. §425159A21).
In fiscal year 2011/12 it is

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. §425061A20, A.R.S. §42-5159A27), amounting to
$647 million in fiscal year 2011/12, are not

Page 103

taxable. Additional tax collections of $32.3
million would have been received if the sales
were taxed at a 5% rate.

deducted an estimated $18.7 million for this
exemption. At 5%, this would have raised
nearly $1 million had it been taxable.

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.

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.

The sales of vehicle fuel and aviation fuel
which are subject to another tax (A.R.S. §425061A22). In fiscal year 2011/12 deductions
of $11.3 billion were taken. Had they been
taxed at 5%, $564 million would have been
collected.

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. §42-5061A26, 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.

Tangible personal property sold to a qualifying
hospital or a qualifying health care
organization used by the organization solely to
provide health and medical related educational
and charitable services and tangible personal
property sold to or purchased by qualifying
community health centers and health care
organizations dedicated to assisting blind,
visually impaired, and multi-handicapped
children are exempt from transaction privilege
and use tax (A.R.S. §42-5061A25a,b,c,d, §425063C3, §42-5065B2, §42-5066B3, §425067B, §42-5074B8; A.R.S. §42-5159A13a, b,
d, e). In fiscal year 2011/12 deductions of an
estimated $1.2 billion were taken for these
exemptions. Had they been taxed at 5%, $63.1
million would have been collected.

Articles or materials purchased to be
incorporated into a final product for sale are
exempt from transaction privilege and use tax.
Sales of articles to a contractor with a
transaction privilege tax license for
incorporation or fabrication under a
construction contract (A.R.S. §42-5061A27a).
In fiscal 2011/12 and estimated $164 million
was taken for this deduction. Had it been taxed
at 5% $8.2 million would have been collected.
Sales of articles to be incorporated into a
manufactured product (ACRR R15-5-1839,
A.R.S. §42-5159A4) were estimated using the
2010 Annual Survey of Manufacturers. On the
basis of estimated cost of materials of $24.6
billion, potential tax collections at a 5% tax rate
would have been $1.2 billion in fiscal year
2011/12.

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 2011/12, businesses
Page 104

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. §42-5159A14).
No information is
available on the tax value of this exemption.

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 2011/12 an estimated $337
million was deducted for this exemption. Had
these transactions been taxable an additional
$16.8 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 tribe, no tax can
be imposed. In fiscal 2011/12 an estimated
total of $119 was deducted for this exemption.
An additional $6 million would have been
collected at the 5% rate.

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. §425061A33, A.R.S. §42-5159A9). In fiscal year
2011/12 an estimated $69.2 million was deducted
for this exemption. Had it been taxable, $3.5
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).
In fiscal year 2011/12 an estimated $99.2
million was deducted for this exemption. Had
it been taxable, $5.0 million would have been
collected.

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. §425061A29,
A.R.S.
§42-5159A13f).
No
information is available on the tax 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. §42-5061A35). In fiscal
year 2011/12 an estimated $390 million was
deducted for this exemption. Had it been
taxable, $19.5 million would have been
collected.

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. §42-5061A30; 425073A5 42-5074B4; A.R.S. §42-5159A15b).
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. §425061A32, 42-5073A6; 42-5074B5; A.R.S. §425159A15c). No information is available on
these tax expenditures.

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. §425061A36, A.R.S. §42-5063B2, A.R.S. §425063B3, A.R.S. §42-5159A33). In fiscal year
2011/12 an estimated $163 million was
deducted for this exemption. Had it been taxed
at the 5% rate an additional $8.2 million.
Paper machine clothing sold to a paper
manufacturer and directly used or consumed in
paper manufacturing is exempt from transaction

Sales of commodities, as defined by title 7
United States Code § 2, that are consigned for

Page 105

under the jurisdiction of the county sheriff,
DOC, DPS, or DYTR are exempt from
transaction privilege and use tax, (A.R.S. §425061A41; 42-5074B9; A.R.S. §42-5159A36).
During fiscal year 2011/12 $33 million was
estimated to be deducted for this exemption.
Had this been taxed at 5%, $1.6 million would
have been collected.

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.

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. §425061A42, A.R.S. §42-5159A37). In fiscal year
2011/12 an estimated $200 million was
deducted for this exemption. Had it been
taxable, $10 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). 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. §425061A38, A.R.S. §42-5159A31). In fiscal year
2011/12 an estimated $14 million was deducted
for this exemption. At a rate of 5% $723,000
would have been collected.

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). In fiscal
year 2011/12 an estimated $415 million was
deducted for this exemption. Had it been
taxable, $20.7 million would have been
collected.

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 2011/12 an estimated $123 million
was deducted for this exemption. At a rate of
5% $6 million would have been collected.

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. §42-5061A44, A.R.S. §425159A7). In fiscal 2011/12 $1.5 million was
estimated to be deducted for this exemption.
Had it been taxable, $73,000 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
Page 106

an estimated $2.1 was deducted for this
exemption. Had this been taxable, an additional
$107,000 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. §425061A45). During fiscal year 2011/12 an
estimated total of $106 million was deducted
for this exemption. Were these transactions
taxable, an additional $5.3 million 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. §425061A50, A.R.S. §42-5159A44) Information is
not available on this expenditure.

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. §425159A13k). No information is available on
this tax 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. §425061A51) 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 or purchases of alternative fuel to a used
oil fuel burner who is permitted under §49-426
or §49-480 to burn used oil or used oil fuel are
exempt from transaction privilege and use tax
(A.R.S. §42-5061A47, A.R.S. §42-5159A42).
No information is available on 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.

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. §425061A48, A.R.S. §42-5159A12). During fiscal
year 2011/12 an estimated $1.2 million is
deductions were claimed for this exemption.
At a rate of 5%, tax collections would have
been $62,000 had these items been taxable.

Sales of Arizona centennial medallions by the
historical advisory commission. (A.R.S. §425061A54) No information is available on the
value of this tax expenditure.

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; 42-5074C;
A.R.S. §42-5159A43). In fiscal year 2011/12

Application services that are designed to assess
or test student learning or to promote
curriculum design or enhancement purchased
by or for any school district, charter school,
community college or state university. (A.R.S.
§42-5061A55) No information is available on
the value of this tax expenditure.

Page 107

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. §425061B5, A.R.S. §42-5159B5). No information
is available on the tax value of this exemption.

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).
During fiscal year 2011/12 an estimated $1.3
billion was deducted for this exemption. A 5%
tax on this machinery would have brought in
$62.6 million in additional revenues.

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. §425061B6, A.R.S. §42-5159B6). In fiscal year
2011/12 $102.6 million was estimated to have
been deducted for this exemption. Had this
been taxable, $5.1 million would have been
collected.

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. §425159B2) 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
year 2011/12 an estimated $86.9 million was
deducted for this exemption. A 5% tax on this
machinery would have brought in $43.5 million
in additional revenues.

Aircraft, navigational and communication
instruments sold to (a) a person holding a federal
certificate of public convenience and necessity
or foreign air carrier permit for air transportation
in intrastate, interstate or foreign commerce, (b)
any foreign government for use outside of
Arizona, or (c) nonresidents who will not use
such property in Arizona other than in removing
such property from Arizona are not subject to
the transaction privilege and use tax (A.R.S.
§42-5061B7, A.R.S. §42-5159B7).
During
fiscal year 2011/12 it was estimated that $113.3
million was deducted for this exemption. Had it
been taxable, $5.7 million would have been
collected.

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, 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.

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. §42-5061B4, A.R.S. §425159B4). Transformers and control equipment
used in transmission substation sites are
included in this exemption. During fiscal year
2011/12 $242 million was estimated to have
been deducted for this exemption. Had this
been taxable, an additional $12.1 million would
have been collected.

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. §425061B9, A.R.S. §42-5159B9). No data is
available on the value of this exemption.

Page 108

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. §42-5159B11). No
information is available on this exemption.

or interactive video production are exempt
from transaction privilege and use tax (A.R.S.
§42-5061B15,
A.R.S.
§42-5159B15).
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. §42-5061B16, A.R.S. §425159B16a). 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.

Groundwater measuring devices and their
installation required under A.R.S. §45-604 are
exempt from transaction privilege and use tax
(A.R.S. §42-5061B12, A.R.S. §42-5075B2,
A.R.S. §42-5159B12).
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. §42-5159B13). This equipment consists
of tractors, tractor-drawn implements, selfpowered implements and drip irrigation lines.
No information is available on the value of this
exemption.

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
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. §425075B12). 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). In fiscal
year 2011/12 an estimated total of $639 million
was deducted for this exemption. At a rate of
5%, the value of the exemption is $3.2 million.

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 and equipment purchased by or on
behalf of owners of a soundstage complex and
primarily used for motion picture, multimedia

Machinery or equipment, including related
structural components, that is employed in
connection with manufacturing, processing,
Page 109

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.

privilege and use tax.. (A.R.S §42-5061B23)
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. §42-5061D)
No information is
available on the tax 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.

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.

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
year 2011/12 an estimated $2 million was
deducted for this exemption. At a rate of 5%
the value of this exemption is $101,000.

Retail sales to a manufacturer, modifier,
assembler or repairer if the end product is sold
to the U.S. Government (A.R.S. §42-5061J2),
and retail sales to the U.S. Government by a
manufacturer, modifier, assembler or repairer
(A.R.S. §42-5061; §42-5071B2) and other retail
sales made directly to the U.S. Government
(A.R.S. §42-5061K) are fully or partially exempt
from transaction privilege and use tax. In fiscal

Machinery, equipment and other tangible
personal property used directly in motion
picture production by a motion picture
production company is exempt from transaction

Page 110

(A.R.S. §42-5062A3). No information is
available about the value of this exemption.

year 2011/12 a combined $3.9 billion was
deducted for these purposes. Had these sales
been taxable at the 5% rate, an additional $195
million would have been created.

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 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. §425061M1, §42-5061M2). No data is available
on the tax value of the waste tire disposal fee.
During fiscal year 2011/12 an estimated $203
million was deducted for the manufacturer’s
cash rebate. At a rate of 5%, the tax value of
this exemption is $10.1 million.

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.

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
year 2011/12 an estimated total of $1 billion was
deducted for this exemption. At a rate of 5%, the
value of the exemption is $51.6 million.

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.

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.

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.

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
Page 111

Sales of electricity to a distributor who has a
transaction privilege tax license (A.R.S. §425063B1) are essentially sales of electricity for
resale. Information on this activity is not
available.

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 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 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 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. §42-5063B4) 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). No data is
available on the tax value of this exemption.
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.

Revenues received by a municipally owned
utility in the form of fees charged to persons
constructing residential, commercial or
industrial
developments
or
connecting
residential,
commercial
or
industrial
developments to a municipal utility system if
the fees are segregated and used only for
capital expansion, system enlargement or debt
service of the utility system are excluded from
the taxable base under the utilities
classification of transaction privilege tax
(A.R.S. §42-5063c1, A.R.S. §42-5159F1). 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. §425064B4) 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.

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. §42-5063c2, A.R.S. §42-5159F2). No
information 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).
The value of this
deduction is included in the Services section
under the Advertising, Public Relations
category.

Page 112

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.

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. §42-5071A4).
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.

Leasing or renting tangible personal property
for incorporation into comprising any part of a
qualified environmental technology facility.
(A.R.S. §42-5071A5) 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.

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).
During fiscal year 2011/12 an estimated $17.6
million was deducted from transaction privilege
tax returns. At a tax rate of 5%, $881,000 would
have been collected.

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.

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. §42-5066B5). No
information is available on 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 year 2011/12 an
estimated $34 million was deducted from
transaction privilege tax returns. At a tax rate of
5%, $1.7 million would have been collected.

Leasing or renting four or fewer rooms of an
owner-occupied residential home, furnishing
no more than a breakfast meal, with no more
than 50% average annual occupancy rate is not
subject to the transaction privilege tax under
the transient lodging classification (A.R.S. §425070B3). No information is available on the
value of this exemption.

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.

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

Tuition and fees paid to universities and
community colleges (A.R.S. §42-5073A1) are
Page 113

§42-5073A10). The value of this exemption is
not available.

exempt from transaction privilege tax.
Information on tuition figures for fiscal year
2011/12 was not available.

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.

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).
During fiscal year 2011/12 it is estimated that
$67.4 million was deducted from transaction
privilege tax returns for this deduction. At a
5% tax rate, the tax on this deduction would
have been $3 million.

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.

Events sponsored by the Arizona Coliseum and
Exposition Center Board (A.R.S. §42-5071A2,
§42-5073A3) are not subject to transaction
privilege tax.
Information about this
exemption is not available.

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.

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.

Food sales to a school district or charter school
by a restaurant are exempt from transaction
privilege tax (A.R.S. §42-5074B11). During
fiscal year 2011/12 it is estimated that $18.3
million was deducted from transaction privilege
tax returns for this deduction. At a 5% tax rate,
the tax on this deduction would have been $xx
million.

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).
Information about this exemption is not
available.

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. §42-5075B and B1) are not
taxable. The tax is limited to that portion which
is essentially materials (tax is applied to 65% of
gross proceeds). During fiscal year 2011/12,
$5.8 billion was estimated to be deducted from
transaction privilege tax returns for the 35%
deduction. At a 5% tax rate, the tax on the 35%
deduction would have been $292 million. In
fiscal year 2011/12 $198.6 million was
estimated to be deducted for the cost of land.
Had land been taxable at the 5% rate, an
additional $9.9 million would have been
collected.

Fees and assessments received by a
homeowners organization from members or
guests of members are not taxable under the
amusement
classification
(A.R.S.
§425073A8). 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 in the business of operating
or conduction an amusement is not taxable
under the Amusements classification (A.R.S.

Page 114

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. §42-5075B2).
No
information is available for this exemption.

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. §425075B10). Information is not available on this
expenditure.

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.

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.

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. §42-5075B5). The value
of this exemption is not 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.

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.

Gross proceeds of sales or gross income
derived from contracts to perform postconstruction treatment of real property for
termite and general pest control, including
wood destroying organisms. (A.R.S. §425075B17) No information is available on the
value of this tax exemption.

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.

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,

Page 115

development or improvement owned a by a
qualified Healthy Forest business (A.R.S. §425075B19). In fiscal year 2011/12 $5.2 million
was estimated to be deducted for this exemption.
Had it been taxable at the 5% rate, an additional
$259,000 would have been collected.

5159A10). No data is available on the value of
this exemption.
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. §42-5159A13c).
Information is not available on this
expenditure.

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.
§42-5075B20). No information is available on
the value of this tax exemption.

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. §425159A13h). No data is available on the value
of this 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. §42-5075B21). In fiscal year 2011/12
$57.8 million was estimated to be deducted for
this exemption. At the 5% state rate, this
would have generated $2.9 million in tax.

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.

Under prime contracting the income derived
from direct costs of providing architectural and
engineering services is exempt from
transaction privilege tax. During fiscal year
2011/12 it was estimated that $72.5 million was
deducted for this exemption. Had it been
taxable at the 5% rate, an additional $3.6
million would have been collected.

Use tax does not apply to liquefied natural gas
used to fuel compressor equipment (A.R.S. §425159A45). During fiscal year 2011/12 $880,000
was deducted for this purpose. Had it been
taxable at the 5% rate, an additional $44,000
would
have
been
collected.

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-

Page 116

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 ............................................................. $1,980,000
Commercial Lease ............................................................................................................. 408,280,000
Total Preferential Tax Rates ........................................................................................ $410,260,000
CREDITS
Accounting Credit.............................................................................................................. $19,890,000
Total Credits..................................................................................................................... $19,890,000
EXEMPTIONS
Sample of Services31:
Professional Scientific and Technical Services:
Legal ........................................................................................................................... $169,780,000
Architectural and Engineering ...................................................................................... 219,670,000
Specialized Design Services ........................................................................................... 18,430,000
Computer System Design and Related Services ........................................................... 253,900,000
Management, Scientific and Technical Consulting ...................................................... 100,690,000
Scientific Research and Development ............................................................................ 38,470,000
Advertising, Public Relations and Related Services....................................................... 59,700,000
Other Professional, Scientific and Technical Services ................................................... 49,770,000
Accounting, Tax Preparation & Bookkeeping ................................................................ 80,300,000
Total Reportable Professional, Scientific and Technical Services .................................. $990,700,000
Health Care Services:
Physicians ................................................................................................................... $350,920,000
Dentists ......................................................................................................................... 110,790,000
Chiropractors .................................................................................................................. 13,300,000
Optometrists ...................................................................................................................... 9,250,000
Mental Health Practitioners .............................................................................................. 4,200,000
Specialty Therapists ........................................................................................................ 17,800,000
All Other Health Practitioners .......................................................................................... 8,370,000
Outpatient Care Centers .................................................................................................. 83,730,000
Medical and Diagnostic Labs ......................................................................................... 54,830,000
Home Health Services..................................................................................................... 39,900,000
Other Amubulatory Health Services ............................................................................... 71,750,000

31

This summary is not intended to be a comprehensive analysis of potential transaction privilege tax revenue from
Services. Some portion of the value of these services may already be taxable.

Page 117

At a 5% rate
Sample of Services, continued32
Nursing Care Facilities ................................................................................................. $47,990,000
Residential Mental Health Facilities ............................................................................... 28,520,000
Community Care Facilities ............................................................................................. 42,240,000
Other Residential Care Facilities ...................................................................................... 7,010,000
Total Reportable Health Care Services ........................................................................... $890,600,000
Administrative and Business Support Services
Office Administrative Services ..................................................................................... $52,120,000
Facilities Support Services.............................................................................................. 25,750,000
Employment Placement and Executive Search Services ................................................ 22,720,000
Business Support Services .............................................................................................. 77,500,000
Services to Buildings and Dwellings ............................................................................ 152,930,000
Investigation and Security .............................................................................................. 40,440,000
Other Support Services ................................................................................................... 30,920,000
Waste Management and Remediation Services .............................................................. 58,210,000
Total Reportable Administrative and Business Support Services ................................... $460,600,000
Personal Care Services
Barber................................................................................................................................. $670,000
Beauty Salons ................................................................................................................. 21,300,000
Nail Salons ........................................................................................................................... 980,000
Other Personal Care .......................................................................................................... 5,650,000
Death Care Services .......................................................................................................... 9,440,000
Drycleaner & Laundry .................................................................................................... 25,340,000
Pet Care (not Veterinary) .................................................................................................. 3,000,000
Parking lot/garages ........................................................................................................... 8,570,000
Other Personal Services .................................................................................................... 3,680,000
Total Reportable Personal Care Services .......................................................................... $78,620,000
Educational Services
Business School/Computer/Management Training ........................................................ $5,480,000
Technical and Trade Schools .......................................................................................... 21,520,000
Other Schools and Instruction......................................................................................... 17,230,000
Education Support Services .............................................................................................. 5,580,000
Total Reportable Educational Services.............................................................................. $49,800,000
Financial Services
Mortgage and Nonmortgage Loan Brokers .................................................................. $28,710,000
Financial Transaction Processing and Clearing ............................................................ 100,300,000
Other Activities Related to Credit Intermediation .......................................................... 19,720,000
Securities and Commodity Contracts Intermediation ................................................... 149,890,000
At a 5% rate
32

This summary is not intended to be a comprehensive analysis of potential transaction privilege tax revenue from
Services. Some portion of the value of these services may already be taxable.

Page 118

Portfolio Management .................................................................................................... 55,930,000
Investment Advice .......................................................................................................... 10,540,000
All Other Financial Investment Activities ...................................................................... $5,180,000
Total Reportable Financial Services ................................................................................ $370,270,000
Other Services
Automotive Repair and Maintenance ......................................................................... $107,510,000
Electronic and Precision Repair and Maintenance ........................................................... 8,220,000
Commercial, Industrial Machinery Repair and Maintenance ......................................... 20,690,000
Personal and Household Goods Repair and Maintenance ................................................ 5,320,000
Data Processing, Hosting and Related Services ............................................................. 66,270,000
Local Messengers and Local Delivery.............................................................................. 2,830,000
Total Reportable Other Services...................................................................................... $210,850,000
Wholesale Trade ........................................................................................................... $3,996,290,000
Cash Discounts .............................................................................................................................. NIA
Trade-Ins ......................................................................................................................................... NIA
Sale of Warranty or Service Contracts ................................................................................ 31,550,000
Sale of Tangible Personal Property by a Nonprofit Organization .................................................. NIA
Sale of Stocks and Bonds ............................................................................................................... NIA
Prescription Drugs and Medical Oxygen........................................................................... 370,910,000
Eyeglasses and Contact Lenses, Insulin, Insulin Syringe and Glucose Test Strips,
prosthetic appliances, hearing aids and durable medical equipment ................................ 26,600,000
Sales to Nonresidents for use outside Arizona if the property is shipped or
delivered outside the state............................................................................................... 177,640,000
Food for Home Consumption ............................................................................................ 717,970,000
Textbooks that are required by any state university or community college .......................... 2,180,000
Meals Provided to Employees of Restaurants ................................................................................ NIA
Food Used in School Lunches ........................................................................................................ NIA
Sale of Arizona Lottery Tickets........................................................................................... 32,330,000
Precious Metal Bullion and Monetized Bullion ............................................................................. NIA
Sales of Vehicle Fuel and Aviation Fuel ........................................................................... 593,980,000
Tangible Personal Property sold to a Qualifying Hospital or a Qualifying Health
Care Organization or Sold to or Purchased by Qualifying Community Health
Centers and Health Care Organizations............................................................................. 63,060,000
Tangible Personal Property Sold to a Non-Profitable Organization which
Regularly Serves Meals to the Needy and Indigent or .......................................................... 940,000
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 LowIncome Persons Over 62 Years .................................................................................................... NIA



No Information available.

Page 119

At a 5% rate
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 ........... $8,200,000
Sale of Articles to be Incorporated into a Manufactured Product .................................. 1,229,460,000
Exempt Motor Vehicle Sales (certain nonresidents and Indians)........................................ 22,840,000
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 ............................................................................................................................ 3,480,000
Machinery, Equipment and Certain Supplies Used to Assist the Physical or
Developmentally Disabled or those Persons with Head Injuries ........................................ 4,960,000
Tangible Personal Property Shipped or Delivered Directly to a Foreign Country
for use in that Country ....................................................................................................... 19,510,000
Sales of Natural Gas or Liquefied Petroleum Gas used to Propel a Motor Vehicle.............. 8,180,000
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 ....................................................................................... 720,000
Sales of Liquid, Solid or Gaseous Chemicals Used in Manufacturing, Processing,
Fabricating, Mining, Refining, Metallurgical Operations or Research and
Development ........................................................................................................................ 6,150,000
Sales of Food or Drink Consumed on the Premises of a Jail, Prison, ................................... 1,640,000
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 ......... 9,990,000
Livestock, Poultry, Feed and Supplies for Use or Consumption in the Businesses of
Farming, Ranching and Feeding Livestock and Poultry .............................................................. NIA
Livestock, Poultry feed, Salts, Vitamins for Livestock or Poultry Consumption ............... 20,750,000
Sale or Purchase of Implants Used as Growth Promotants and Injectable Medicine................. 73,000
Sales of Motor Vehicles at Auction to Nonresidents of this State for Use
Outside of this State ............................................................................................................... 5,320,000
Personal Hygiene Products Which are Furnished to and 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 ..................................................................................................................... $60,000
At a 5% rate




No Information available
No Information available.

Page 120

Tangible Personal Property Consisting of Food, Beverages and Condiments Sold to or
Purchased by a Commercial Airline ....................................................................................... 110,000
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
Sale of Arizona centennial medallions by the historical advisory commission ............................. NIA
Application services designed to assess or test student learning .................................................... 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 .......................................................... 62,620,000
Sale of Machinery or Equipment Used in Mining and in Drilling for or Extracting
Oil or Gas from the Earth .................................................................................................. 43,450,000
Certain Equipment used in the Telecommunications Industry ....................................................... NIA
Machinery, Equipment or Transmission Lines used directly in Producing or
Transmitting Electrical Power ........................................................................................... 12,090,000
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 .................................................................................... 5,130,000
Certain Aircraft, Navigational and Communication Instruments .......................................... 5,660,000
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 ............................................................................................................... $3,190,000
Gross Income from Installation, Assembly, Repair or Maintenance Clean Rooms ....................... NIA
Machinery and Equipment used to Meet Land, Water and Air Quality Standards ....................... NIA





No Information available.
No Information available.
No Information available.

Page 121

At a 5% rate
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................... 100,000
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 US Government not Deducted under
A.R.S. §42-5061L ......................................................................................................................... NIA
Retail Sales to the Manufacturer, or Assembler if the end product is sold to the
US Government ............................................................................................................... 194,830,000
Gross Income from Motor Vehicle Manufacturer’s Cash Rebates if Assigned to
the Retailer ......................................................................................................................... 10,140,000
Gross Income derived from the Waste Tire Disposal Fee .............................................................. NIA
Sales of Solar Energy Devices............................................................................................. 51,590,000
Sales of Wireless Telecommunication Equipment as an Inducement to Enter Into or
Continue a Contract for Telecommunication Services or Sales Commission 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

At a 5% rate



No Information available.

Page 122

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……………………….. ............................................................... NIA
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 ............................................................. NIA
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 ................................................................................................... $880,000
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
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 .......................................................... 1,720,000
Freight Charges Relating to 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 Membership Greater
than 28 Days ...................................................................................................................... $3,370,000
Events Sponsored by the Arizona Coliseum & Exposition Board ................................................. NIA

At a 5% rate



No Information available.

Page 123

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 ............................................................. NIA
Fees and Assessments Received by a Homeowners Organization ................................................. NIA
Arranging an Amusement Activity as a Service to a Person’s Customers ..................................... NIA
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
Restaurant Sales to a School District or Charter ...................................................................... 910,000
Wages & Salaries for Labor Employed in Construction ................................................... 291,990,000
Sale Price of Land .................................................................................................................. 9,930,000
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 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
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 ............................... 260,000
Gross Proceeds from a Contract to Construct any Building or Structure Associated
with Motion Picture Production ................................................................................................... NIA
Gross Proceeds from Development or Impact Fees .............................................................. 2,890,000
Gross Proceeds from Direct Costs for Architectural or Engineering Services...................... 3,620,000
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 State-USE TAX ONLY .................................... NIA
At a 5% rate



No Information available.
No Information available.

Page 124

Motor Vehicles Removed From Inventory and Provided to Charitable or Educational
Institutions or State Universities or their Affiliated Organization-USE 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
Liquefied Natural Gas used to Fuel Compressor Equipment-USE TAX ONLY ..................... $40,000
Total Exemptions ...................................................................................................... $11,110,770,000

TOTAL QUANTIFIABLE TRANSACTION PRIVILEGE AND USE TAX
EXPENDITURES33 ............................................................................ $11,540,920,000
Value of Exemptions from the Proposition 301-Education Tax............................. $1,333,290,000
Value of Exemptions from the Temporary Tax ....................................................... $2,222,150,000

33These

expenditures represent foregone revenues to the state general fund, counties and incorporated cities/towns.

Page 125

Page 126

UNDERGROUND
STORAGE TANK
TAX EXPENDITURES

Page 127

Page 128

U NDERGROUND S TORAGE TANK
TAX E XPENDITURES
34

Underground storage tanks used for the
purpose of storing, handling or distributing
naphtha-type jet fuel or kerosene-type jet fuel
are exempt from the underground storage tank
tax (A.R.S. §49-1031C). Currently, there are
93 of these jet fuel tanks in use with an average
tank capacity of 14,355 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.

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.

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.

This tax does not apply to underground
storage tanks operated by the United States
or Arizona and its agencies (A.R.S. §491031C). Currently, there are 85 federal tanks
in use with an average tank capacity of 10,798
gallons. There are 71 state tanks currently in
use with an average tank capacity of 10,712
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

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

Page 129

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
EXPENDITURES35
.............................................................................................................................. NIA

*

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

35These

Page 130

UNEMPLOYMENT
INSURANCE
TAX EXPENDITURES

Page 131

Page 132

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:
(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

36Any

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

Page 133



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.





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:

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, § 117
relating to qualified scholarships or §
132 relating to certain fringe benefits of
the Internal Revenue Code.

Page 134



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.



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 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.



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:

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.





Page 135



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











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.



licensed real estate salesman or licensed
cemetery salesman, if paid solely by
commission.


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



Service performed in the employ of an
instrumentality wholly owned by a foreign
government if certain qualifications are
met.



Service covered by an arrangement
between the department and agency
charged with the administration of any
other state or federal unemployment
compensation law pursuant to which all
services performed by an individual for an
employing unit is deemed to be performed
entirely within such agency's state.



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



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



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



Service performed by individuals solely to
the extent that the compensation includes
commissions, overrides or profits realized
on sales primarily resulting from the inperson 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.

Service performed by an individual for an
employing unit as a licensed real estate
broker or licensed cemetery broker or a

Page 136

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
EXPENDITURES37............................................................................................ NIA

*

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

37These

Page 137

Page 138

USE FUEL
TAX EXPENDITURES

Page 139

Page 140

U SE F UEL TAX E XPENDITURES

(A.R.S. § 28-5606). This tax is perfected by the
approved companies filing a refund request.
Refunds for fiscal year 2011/12 is $0.

Arizona has a two-tiered use fuel (diesel fuel)
tax rate. There is a use fuel tax rate of 26¢ per
gallon on each gallon of use 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 2011/12, total use fuel tax
collected was $226.3 million. The primary
source of revenue is from licensed suppliers.
The proceeds of this tax go into the Highway
User Revenue Fund and are distributed to the
Department of Public Safety, Economic
Strength Fund, state highway fund, counties,
and incorporated cities and towns.

EXEMPTIONS TO THE USE FUEL TAX
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 $6.7
million in fiscal year 2011/12.

PREFERENTIAL USE FUEL TAX RATES

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)

For purposes of convenience, the use fuel sold
to light class motor vehicles and exempt use
class motor vehicles by vendors is charged at
$0.18 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
2011/12 was $13.9 million.

Liquid use fuel sold within an Indian
reservation to an enrolled member of the tribe
is excluded from taxation per A.R.S. § 285610A3). The total amount refunded for this
provision during fiscal year 2011/12 was
$51,425.

Liquid use fuel, used for export purposes is
taxed at a $0.26 per gallon rate. The amount
refunded for this type of use fuel during fiscal
year 2011/12 was $2.8 million.

Use fuel that is used solely and exclusively as
fuel to operate a motor vehicle on highways in
this state when the motor vehicle is leased or
owned by an Indian tribe and being operated
for the sole benefit of an Indian tribe and the
vehicle is used only for governmental purposes
(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 2011/12 was $451,440.

Use 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

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
38Any

38

figures presented for Use Fuel Tax Expenditures were provided by the Arizona Department of Transportation.
Page 141

2011/12, $325,681 was refunded for this
exemption

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.

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 2011/12 is $1.91
million.

International Fuel Tax Agreement (IFTA) tax
distributed to other states (A.R.S. §28-5703B1)
for fiscal year 2011/12 is $21.6 million.

S UMMARY OF U SE F UEL
TAX E XPENDITURES
Revenue Gain
PREFERENTIAL TAX RATES:
Light class and exempt vehicles use rate ...................................................................... $13,914,431
Liquid use fuel used for export ......................................................................................... 2,833,350
Fuel purchased in Arizona and used outside the state...........................................................451,440
Fuel used to transfer forest products ....................................................................................................... 0
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 ............... 6,668,758
Native American Refunds ...................................................................................................... 51,425
Administration exemption for use fuel suppliers .............................................................. 1,905,502
Exemption for clean burning fuels ........................................................................................... NIA*
Use fuel sold to the United States or an instrumentality or agency of the US ..................... 325,681
IFTA Tax distribution to other states .............................................................................. 21,601,458

TOTAL QUANTIFIABLE USE FUEL TAX EXPENDITURES39
................................................................................................................. $47,752,045

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

Page 142

VEHICLE LICENSE
TAX EXPENDITURES

Page 143

Page 144

V EHICLE L ICENSE TAX E XPENDITURES
Arizona imposes a vehicle license tax at the
rate of $2.95 for each $100 in vehicle value
during the first 12 months of life of the vehicle.
During the succeeding periods, the tax rate is
$3.04. The vehicle value is set at 60% of the
manufacturer's base retail price in the first year
and declines by 16.25% each year thereafter.
The minimum vehicle license tax is $10. The
proceeds of this tax are distributed to the state
highway fund, counties, incorporated cities and
towns and the state general fund.







PREFERENTIAL VEHICLE LICENSE
TAX RATES
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. 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

40

or moved upon a highway (A.R.S. §282153D2)
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. §282153D5)
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. Non- Profit School vehicles- Property of
educational, charitable and religious

Any vehicle not required to be registered in
Arizona is not required to pay a vehicle license
tax. Vehicles 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

40Any

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

Page 145

associations or institutions not used or held
for profit. (Arizona Constitution, Article 9,
Section 2)

9. 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)

4. 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)
5. Widow Exemption vehicles - a vehicle that
is owned by a widow or widower. (Arizona
Constitution, Article 9, Section 2)

10. 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)

6. 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)
7. 100% Disabled Veteran
vehicles - (A.R.S. 28-5802)

Exemption

8. 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)

Page 146

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 EXPENDITURES41 .................................................................................. 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.

Page 147

Page 148

W O R K E R S ’ C O M P E N S AT I O N
P R E M I U M L I E U TA X
EXPENDITURES

Page 149

Page 150

WORKERS’ COMPENSATION PREMIUM LIEU
TAX EXPENDITURES
42

Workers’ compensation premiums are taxed at a
rate up to 5.5% 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 policyholders within

Arizona and not reapplied as premiums for new,
additional or extended insurance.
During
calendar year 2011 the deductions from
premiums totaled $6,357,100 and returns of
tax overpayments by the Industrial
Commission to insurance carriers and selfinsured employers totaled $2,512,473.

S UMMARY OF W ORKERS ’ C OMPENSATION
P REMIUM L IEU TAX E XPENDITURES
Revenue Gain
Deductions from total premiums ........................................................................................ $2,512,473
TOTAL QUANITIFIABLE WORKERS’ COMPENSATION PREMIUM
LIEU TAX EXPENDITURES ...................................................................................... $2,512,473

42Any

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

Page 151