ARIZONA DEPARTMENT OF REVENUE FY 2007 ANNUAL REPORT Please click on the blue text to access the areas described. TABLE OF CONTENTS Letter to the Governor DEPARTMENT ORGANIZATION Organization & Organization Chart Strategic Plan Highlights Administrative Services Audit Collections External Services & Special Projects Information Technology Process Administration Property Tax Taxpayer Services Tax Policy & Research ARIZONA'S TAXES Revenue Summary (Table 1) Net Revenue to State General Fund (Table 2) Gross Collections of Audit Assessments and Delinquent Tax (Table 3) Transaction Privilege, Use and Severance Tax Income Tax Property Tax OTHER SOURCES OF REVENUE Bingo Estate Tax Luxury Tax Unclaimed Property & Escheated Estates Waste Tire Fee Legislative Summary Bills STATE OF ARIZONA Department of Revenue November 15, 2007 The Honorable Janet Napolitano Governor State of Arizona 1700 West Washington Street Phoenix, Arizona 85007 Janet Napolitano Governor Gale Garriott Director Dear Governor Napolitano and the Taxpayers of Arizona: Fiscal year 2007 was another milestone year in that we collected more than $14 billion as an agency. Total taxes collected by the department during fiscal year 2007 exceeded $14.4 billion, including more than $8.7 billion that was deposited directly into the state General Fund. Included in this total is $585.9 million that was collected through the department’s tax enforcement efforts. By collecting $585.9 million through the audit, license compliance, and collections programs, the department exceeded the $461 million target set at the beginning of the year, performing at 126% of goal. One area to highlight this year is the Audit division’s “Nexus” program. The Nexus Program assists businesses involved in multi state commerce to voluntarily resolve potential state sales/use tax and/or income/franchise tax liabilities where nexus is the central issue. Taxpayers benefit by resolving potential Arizona tax disputes before being assessed with prior year audits of taxes, interest and penalties. Between identifying nexus candidates and administering the Voluntary Disclosure Program, the Nexus Unit collected over $40M in taxes for fiscal year 2007. This was quite an accomplishment for the two person unit! Another noteworthy highlight is that the Department processed over 1.3 million electronically filed income tax returns during the last tax season. Interest in alternatives to paper filing has increased over the past few years and DOR’s commitment to provide further opportunities has grown accordingly. The Department’s major revenue contributions were achieved while still performing other services at high performance levels and working through the continuing implementation of the Business Reengineering/Integrated Tax System (BRITS) project. Information Technology’s focus continues to be on support for data conversions to the new BRITS platform and ongoing maintenance of Legacy and BRITS systems. The successful conversion of the corporate tax system to BRITS occurred in September. Department resources are already actively working on the conversion of the income tax system to BRITS, which will occur in fiscal year 2008. As we go forward, we will continue to address our three core goals as outlined in our strategic plan: • To increase our return on investment; we focus on issues of increased productivity and cost effectiveness throughout the agency. • To increase customer and stakeholder satisfaction; we focus on customer feedback to learn what we are doing well and where we need improvement so we can target our process improvement efforts appropriately. • To increase employee satisfaction; we focus on our employees and their job performance and satisfaction. We hope you enjoy reading our Annual Report and find it informative. If you have any questions or comments, please feel free to contact me. Sincerely, Gale Garriott Director 1600 West Monroe Street, Phoenix AZ 85007-2650 www.azdor.gov DEPARTMENT ORGANIZATION Organization & Organization Chart Strategic Plan Highlights Administrative Services Audit Collections External Services & Special Projects Information Technology Process Administration Property Tax Taxpayer Services Tax Policy & Research ARIZONA DEPARTMENT OF REVENUE 2007 ANNUAL REPORT 2 Organization The mission of the Arizona Department of Revenue is to administer tax laws fairly and efficiently for the people of Arizona. It is our vision that we set the standard for tax services. The department is currently undertaking an effort to reengineer its business processes and update its tax administration systems. This project, the Business Reengineering and Integrated Tax Systems (BRITS), is managed by the department’s Information Technology division. The project management team includes a Project Manager that reports to the Assistant Director of the Information Technology division. The Project Manager is responsible for coordinating the department’s efforts with those of the vendor contracted to assist the department with the BRITS project. Tax laws that fall under the department’s purview are primarily in the areas of income, transaction privilege (sales), use, luxury, withholding, property, estate, fiduciary, bingo, and severance. The director is responsible for the direction, operation, and control of the department to ensure that the administration and collection of taxes are cost effective and performed with high quality to meet taxpayers’ needs. The BRITS project is benefits funded and there are three types of benefits that comprise the funding stream: efficiency dollars, license compliance dollars, and discovery dollars. Until the contract is paid in full, efficiency and license compliance dollars are shared with the department’s vendor on an 85/15 split. The 85% goes toward paying the costs of the project while the 15% is retained by the state, county or city on whose behalf the tax is collected. Discovery dollars are not shared but are 100% attributable to the vendor. Reporting to the director is the deputy director, who assists the director in the day-to-day operations of the department and who serves as acting director when the director is absent. Also reporting to the director is the problem resolution officer, who acts as the taxpayer advocate within the department. Reporting to both the director and deputy director is the chief internal auditor, who oversees the internal audit team and acts as liaison with external auditors. The department is organized into nine divisions, each managed by an assistant director. Divisions include: Administrative Services, Audit, Collections, External Services and Special Projects, Information Technology, Process Administration, Property Tax, Taxpayer Services, and Tax Policy and Research. Each division performs specific functions which are integrated to achieve the department’s major external objectives of efficient tax collection and processing, timely enforcement of tax laws, and accurate valuation of property. In fiscal year 2007, $15.4 million in discovery benefits, $80.6 million in efficiency benefits, and $46.9 million in license compliance benefits were recognized. Through fiscal year 2007 the department generated nearly $93 million more in benefits than are needed to pay the vendor. ARIZONA DEPARTMENT OF REVENUE 2007 ANNUAL REPORT 3 ARIZONA DEPARTMENT OF REVENUE Gale Garriott DIRECTOR Nelda Coppi Exec. Asst. to Director Kristine Ward DEPUTY DIRECTOR INTERNAL AUDIT Joanne Prakapas RV Chief Internal Auditor ADMINISTRATIVE SERVICES LISA CROSS ASSISTANT DIRECTOR . . . . FINANCIAL SERVICES Budget Office Accounting Purchasing Payroll EMPLOYEE SERVICES . Human Resources . Employee Development . Facilities HEARING OFFICE Rosie Estrada Administrative Secretary Vacant Exec. Staff Asst. COLLECTIONS PROCESSING ADMINISTRATION TAXPAYER SERVICES AUDIT DIVISION FRANK BOUCHÉ SUSAN SILBERISEN LYNETTE NOWLAN MARQUETTA WHITE ASSISTANT DIRECTOR ASSISTANT DIRECTOR / CIO ASSISTANT DIRECTOR ASSISTANT DIRECTOR VINCE PEREZ ASSISTANT DIRECTOR FIELD COLLECTIONS PROJECT MANAGEMENT DOR TREASURY COMMUNITY OUTREACH & EDUCATION DEBT SET-OFF CUSTOMER SERVICE MANAGEMENT REVENUE ACCOUNTING TAXPAYER INFORMATION & ASSISTANCE ENTERPRISE ARCHITECT Special Operations INFORMATION SECURITY APPLICATION SUPPORT TECHNICAL OPERATIONS ERROR RESOLUTION PROCESSING SERVICES LICENSE & REGISTRATION UNCLAIMED PROPERTY ELECTRONIC FILING CORPORATE INCOME TAX AUDIT INDIVIDUAL INCOME TAX AUDIT SPECIAL TAXES - Estate - Luxury - Bingo TPT AUDIT LICENSE COMPLIANCE Customer SVC Infrastructure June 1-30, 2007 GENERAL COUNSEL Lisa Neuville RV Adm Appeals Officer INFORMATION TECHNOLOGY OFFICE COLLECTIONS TAXPAYER ASSIST. OFC/ PROBLEM RESOLUTION OFFICER AGENCY OVERVIEW - Page 1 EXTERNAL SERVICES & SPECIAL PROJECTS ANTHONY FORSCHINO ASSISTANT DIRECTOR Public Information Officer PROPERTY TAX CHERYL MURRAY-LEYBA ASSISTANT DIRECTOR TAX POLICY & RESEARCH FRANK MIGRAY ASSISTANT DIRECTOR Legislative Affairs ASSESSMENT STANDARDS & EQUALIZATION Tax Policy Office Forms & Publications CENTRALLY VALUED PROPERTY Corporate Income Tax Appeals Economic Research & Analysis Quality Executive SPECIAL PROJECTS . Ladewig . FERC # 2 PROPERTY SYSTEMS DEVELOPMENT Individual Income Tax Appeals RESEARCH & COMPLIANCE Transaction Privilege Tax Appeals ASSESSMENT STANDARDS Disclosure & Federal Relations INVESTIGATIONS . Criminal & Civil . Tobacco Enforcement ARIZONA DEPARTMENT OF REVENUE 2007 ANNUAL REPORT Budget Office – S. Bowen Strategic Plan Highlights MISSION, VISION, VALUES A Mission Statement is an explanation of purpose for why an organization exists. Our Mission Statement is “To administer tax laws fairly and efficiently for the people of Arizona.” A Vision statement tells what an organization wants to become or what it hopes to achieve. Our Vision Statement is “Setting the standard for tax services.” Our company culture is defined by embracing Values that are shared among all employees. Values set the ground rules for how we conduct business. Our Values for fiscal year 2007 are: • • • • • • Innovation – We encourage each other to think creatively. Integrity – We strive to exhibit the highest standards of ethics and encourage employees to take a personal responsibility in making decisions based on facts. Quality – We strive to do things right the first time and continually look for ways to improve. Respect – We believe that all customers and employees should be treated with dignity. Results – We choose our strategies based on desired outcomes. Teamwork – We believe that the best way to achieve excellence is together. TOTAL GROSS REVENUES COLLECTED Detailed gross revenues are reported under Table 1. There was an increase in revenue in all tax types in fiscal year 2007. FY06 Transaction Privilege Tax .... $7,210,783,723 Income & Withholding ....... $4,672,595,539 Corporate ............................. $ 978,239,759 Other ................................... $ 372,709,725 Total .................................. $13,234,328,747 FY07 Transaction Privilege Tax .... $7,820,458,912 Income & Withholding ....... $4,972,237,335 Corporate ............................. $1,070,710,516 Other ................................... $ 537,830,441 Total ................................. $ 14,401,237,204 ~~~~~~~~~~~~~~~~~~~~~~~~~~~ TOTAL NET ENFORCEMENT DOLLARS The enforcement numbers reported are the amounts in net dollars of revenue generated by the audit, collections and license compliance enforcement programs. FY05 ......................................$ 455,564,124 FY06 ......................................$ 530,000,447 FY07 ......................................$ 585,929,679 T OT A L N E T E N FOR C E M E N T D OLLA R S ( i n M i l l i ons) GOALS AND OBJECTIVES We continue to focus on our three core goals in fiscal year 2007: • To maximize our return on investment. • To maximize customer and stakeholder satisfaction. • To maximize employee satisfaction. KEY MEASURE RESULT HIGHLIGHTS $ 6 0 0 . 0 $ 455. 5 $ 530. 0 $ 585. 9 $ 5 0 0 . 0 $ 4 0 0 . 0 $ 3 0 0 . 0 $ 2 0 0 . 0 $ 10 0 . 0 $ 0 . 0 FY 0 5 FY 0 6 FY 0 7 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~ The results of twenty key measures for fiscal year 2007 follow with a comparison to prior years. ARIZONA DEPARTMENT OF REVENUE 2007 ANNUAL REPORT 5 NET ENFORCEMENT BREAKDOWN BY ENFORCEMENT PROGRAM This chart recaps each program’s contribution to total enforcement collections. General Fund distribution information is included. FY07 Net Targets Collections/Accounts Receivable ... $361.8M Income, Corporate, TPT Audit ....... $ 77.8M License Compliance........................ $ 17.2M Enforcement Revenue .................... $457.0M General Fund Revenue ................... $331.0M FY07 Net Actual Collections/Accounts Receivable ... $390.1M Income, Corporate, TPT Audit ....... $116.5M License Compliance........................ $ 79.3M Enforcement Revenue .................... $585.9M General Fund Revenue ................... $428.3M ENFORCEMENT PROGRAM RETURN ON INVESTMENT The enforcement program return on investment is calculated by taking the total enforcement dollars collected as they relate to each dollar spent in the DOR budget. FY05 .....................................................$7.40 FY06 .....................................................$8.33 FY07 .....................................................$8.51 G R O S S E N F O R C E M E N T P R O G R A M R E T UR N O N IN V E S T M E N T $9.00 $ 8 .3 3 $ 8 .5 1 $8.50 $8.00 $ 7 .4 0 $7.50 $7.00 $6.50 S LL CO /R /A T DI AU $3 33 .4 $4 61 .0 LIC Targets MP CO L R GF FY07 AVERAGE COLLECTIONS PER TRANSACTION PRIVILEGE TAX AUDITOR (IN THOUSANDS) Average collections per auditor include those from the field, desk, and license compliance audit areas. Increases resulted from success in the License Compliance program. $7 9. 3 TA TO FY06 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~ $4 28 .3 $5 85 .9 FY05 $1 7. 2 $1 16 .5 $8 2. 0 $3 61 .8 $3 90 .1 $ $ $ $ $ $ $0 100 200 300 400 500 600 .0 .0 .0 .0 .0 .0 .0 FY07 NET GF ENFORCEMENT PROGRAM UE EN EV Enforcement ~~~~~~~~~~~~~~~~~~~~~~~~~~~~ RETURN ON INVESTMENT Return on investment is calculated from the gross revenue dollars generated as it relates to each dollar spent in the DOR budget. FY05 .................................................$178.78 FY06 .................................................$198.86 FY07 .................................................$200.40 FY05 ................................................. $502.8 FY06 ................................................. $942.4 FY07 .............................................. $1,375.1 A V E R A G E C O LLE C T IO N S P E R T P T A UD IT O R ( in T ho us a nds ) $ 1,3 7 5 .1 $1,400.0 $1,200.0 $ 9 4 2 .4 $1,000.0 $800.0 $ 5 0 2 .8 $600.0 $400.0 GROSS RETURN ON INVESTMENT $200.0 $0.0 FY05 $205.00 $198.86 FY06 FY07 $200.40 $200.00 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~ $195.00 $190.00 $185.00 $178.78 $180.00 $175.00 $170.00 $165.00 FY05 FY06 FY07 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~ ARIZONA DEPARTMENT OF REVENUE 2007 ANNUAL REPORT 6 AVERAGE COLLECTIONS PER CORPORATE AUDITOR (IN THOUSANDS) Average collections per corporate auditor increased as new auditors completed their training. FY05 ................................................. $1,735 FY06 ................................................. $2,142 FY07 ................................................. $2,664 AVERAGE COLLECTIONS PER CORPORATE AUDITOR (in Thousands) NUMBER OF NEW BUSINESS LICENSES PROCESSED The number of licenses issued includes those issued via AZTaxes on-line applications, as well as those mailed to the License and Registration section or received at the counter. FY05 ...................................................39,717 FY06 ...................................................33,777 FY07 ...................................................32,567 NUMBER OF NEW BUSINESS LICENSES PROCESSED $2,664 $3,000 39,717 40,000 33,777 $2,142 $2,500 32,567 35,000 $1,735 $2,000 30,000 $1,500 25,000 20,000 $1,000 15,000 $500 10,000 $0 FY05 FY06 5,000 FY07 0 FY05 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~ AVERAGE COLLECTIONS PER INDIVIDUAL INCOME AUDITOR (IN THOUSANDS) Staff decreased in fiscal year 2007 accounting for the decline in per auditor collections. FY05 ................................................. $337.9 FY06 ................................................. $364.7 FY07 ................................................. $357.6 AVERAGE COLLECTIONS PER INCOME AUDITOR (in Thousands) FY06 FY07 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~ NEW BUSINESS LICENSE TURNAROUND TIME New business license processing turnaround times reflect mailed applications. Although the turnaround time increased compared to fiscal year 2006, the section did achieve their target by averaging less than three business processing days. FY05 ................................................ 3.2 days FY06 ................................................ 2.2 days FY07 ................................................ 2.7 days $364.7 $365.0 NEW BUSINESS LICENSE PROCESSING TIME (in Business Days) $357.6 $360.0 $355.0 3.2 3.5 $350.0 2.7 $345.0 3.0 $337.9 2.2 $340.0 2.5 $335.0 2.0 $330.0 1.5 $325.0 1.0 $320.0 FY05 FY06 FY07 0.5 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 0.0 FY05 FY06 FY07 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~ ARIZONA DEPARTMENT OF REVENUE 2007 ANNUAL REPORT 7 PROPERTY TAX – ACCURACY OF PROPERTY VALUES IN RELATION TO MARKET VALUE Property is required to be valued within an acceptable range of market value. Overall, 87% of properties within areas where there are an adequate number of sales, are valued in accordance with statutory valuation levels. FY05 ...................................................... 96% FY06 ...................................................... 92% FY07 ...................................................... 87% TOTAL NUMBER OF E-FILED INDIVIDUAL INCOME TAX RETURNS RECEIVED Tax returns submitted via electronic filing are processed virtually error free. Interest in alternative filing has been increasing over the last few years. FY05 ................................................. 1.01M FY06 ................................................. 1.12M FY07 ................................................. 1.31M Number of E-Filed Income Tax Returns Received (in Millions) 1.31 1.40 PROPERTY TAX VALUES WITHIN SALES RATIO STANDARDS 1.12 1.01 1.20 1.00 96% 0.80 0.60 92% 0.40 0.20 87% 0.00 FY05 FY06 FY07 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~ FY05 FY06 FY07 TOTAL NUMBER OF INDIVIDUAL INCOME TAX REFUNDS ~~~~~~~~~~~~~~~~~~~~~~~~~~~~ TOTAL NUMBER OF TAX DOCUMENTS RECEIVED Documents consist of paper and electronic tax returns. FY05 ................................................... 6.0M FY06 ................................................... 6.1M FY07 ................................................... 6.3M TOTAL NUMBER OF TAX DOCUMENTS PROCESSED (in Millions) The total number of income tax refunds processed includes both electronic direct deposits and paper refund warrants. Over 1 million refunds have been processed each year. FY05 ................................................. 1.25M FY06 ................................................. 1.88M FY07 ................................................. 2.03M 6.3 TOTAL NUMBER OF INCOME TAX REFUNDS 6.3 6.2 6.1 6.1 2,500,000 2,033,277 1,882,166 6.0 2,000,000 6.0 1,247,981 5.9 1,500,000 5.8 1,000,000 5.7 5.6 FY05 FY06 FY07 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 500,000 0 FY05 FY06 FY07 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~ ARIZONA DEPARTMENT OF REVENUE 2007 ANNUAL REPORT 8 AVERAGE TIME TO ISSUE INCOME TAX REFUNDS The average time to process an income tax refund is measured in calendar days. The data includes cycle times for both paper and electronic refunds. Each year, more of the population takes advantage of electronic filing opportunities. A portion of those electronic filers also prefer to receive their refunds electronically via direct deposit. FY05 .............................................. 6.3 days FY06 .............................................. 5.5 days FY07 .............................................. 5.1 days AVERAGE TIME TO ISSUE INCOME TAX REFUNDS (in Calendar Days) NUMBER OF TOBACCO RETAILER AND DISTRIBUTOR INSPECTION VISITS COMPLETED Tobacco inspection visits serve multi-purposes including providing education to retailers and distributors, fulfilling legislative requirements, and identifying seizure opportunities. FY05 ....................................................1,802 FY06 ....................................................2,426 FY07 ....................................................2,145 Number of Tobacco Retailer & Distributor Inspections 2,426 2,500 2,145 1,802 6.3 7 2,000 5.5 5.1 6 1,500 5 1,000 4 3 500 2 0 1 FY05 FY06 FY07 0 FY05 FY06 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~ FY07 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~ AVERAGE ANNUAL TURNOVER RATE TAXPAYER SATISFACTION RATINGS FOR THE TAXPAYER SERVICES DIVISION These scores were received from taxpayers rating the services of the employees in the Taxpayer Services division’s Taxpayer Information & Assistance call center. (All satisfaction ratings tracked at the department have a 1 to 5 scale, 5 being the highest rating.) FOR EMPLOYEES FY05 ..................................................... 4.40 FY06 ..................................................... 4.70 FY07 ..................................................... 4.80 Although there is no direct control over employee turnover, this measure is typically tracked in the public and private sectors as a standard indicator of employee satisfaction. FY05 ............................................... 14.80 % FY06 ............................................... 16.00 % FY07 ............................................... 11.16 % ANNUAL TURNOVER RATE FOR EMPLOYEES 14.80% 16.00% 16.00% 14.00% SATISFACTION RATINGS FOR THE TAXPAYER SERVICES DIVISION 11.16% 12.00% 10.00% 4.8 4.7 5 8.00% 6.00% 4.4 4.00% 4.5 2.00% 0.00% 4 FY05 FY06 FY07 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 3.5 3 FY05 FY06 FY07 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~ ARIZONA DEPARTMENT OF REVENUE 2007 ANNUAL REPORT 9 OVERALL AVERAGE SATISFACTION RATING ON THE ANNUAL EMPLOYEE SURVEY The annual employee satisfaction survey is an opportunity to see how we are doing as an agency. We are looking into some areas in need of improvement. (All satisfaction ratings tracked at the department have a 1 to 5 scale, 5 being the highest rating.) The twenty key measures reported here serve as a general overview of how the department is progressing in line with the strategic plan. The strategic plan keeps us aligned with our Mission, Values, and Vision and our day to day performance as a department. FY05 ......................................................3.68 FY06 ......................................................3.72 FY07 ......................................................3.45 SATISFACTION RATING ON THE ANNUAL EMPLOYEE SURVEY 4 3.9 3.72 3.68 3.8 3.7 3.45 3.6 3.5 3.4 3.3 3.2 3.1 3 FY05 FY06 FY07 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~ PERCENT OF TIME THE LOCAL AND WIDE AREA NETWORK (LAN/WAN) IS AVAILABLE. Local and wide area network availability is a good measure for the Information Technology Division to assess their ability as a service provider. FY05 ................................................. 99.9 % FY06 ................................................. 99.2 % FY07 ................................................. 99.9 % PERCENT OF TIME THE LAN/WAN IS AVAILABLE 99.91% 99.90% 100.00% 99.20% 99.50% 99.00% 98.50% 98.00% 97.50% 97.00% FY05 FY06 FY07 ARIZONA DEPARTMENT OF REVENUE 2007 ANNUAL REPORT 10 ADMINISTRATIVE SERVICES Mission Statement: To provide support and expertise in delivering excellent services by understanding our products and customers. The vision of the Administrative Services Division is to be the leader in innovative and proactive customer support. The Administrative Services Division is responsible for the oversight of the department’s financial and employee services. Programs administered by the division include the Employee Recognition Program, Travel Reduction Program and the Employee Suggestion Program. The division consists of the following sections/units: Accounting The Accounting Unit, which is part of the Financial Services Section, processes accounts payable invoices, provides travel services including employee reimbursement, and oversees the fixed assets inventory. Budget Office The Budget Office, which is part of the Financial Services Section, is responsible for monitoring current year expenditures against the approved budget, coordinating preparation of the department’s budget, providing staff and operating budget information and analysis to the director and the department’s Leadership Team. Employee Development The Employee Development Unit, which is part of the Employee Services Section, provides centralized training for the department’s employees. The role of the unit’s trainers is to develop and deliver inhouse training for agency-specific activities such as taxation, computer tax systems, and confidentiality guidelines. The unit offers classroom presentations; narrative self-study and computer based training courses, and coordinates with the Arizona Government University training program. Facilities Management The Facilities Management Section coordinates building facility maintenance, remodeling office areas at the department’s four buildings and coordinates capital improvements to the building in cooperation with the Arizona Department of Administration (ADOA). Facilities Management also receives and logs all goods and supplies purchased by the department; processes building security access requests; maintains temporary and vendor security access badges, monitors employee parking, and manages the security guards. The section oversees safety issues such as evacuation drills, safety inspections and other risk management issues. Hearing Office The Hearing Office holds hearings and issues written decisions on protests of department assessments and refund denials relating to income tax, withholding tax and estate tax. Human Resources The Human Resources Unit, which is part of the Employee Services Section, is responsible for administering personnel activities for the department. This includes consultations with management concerning employee relations and discipline, classifications of positions and reorganizations, recruitment, and staffing. The Human Resources Unit is also responsible for processing all personnel actions, new employee orientation, the employee benefits program, and interpreting the Department of Administration Personnel rules and implementing policies. The Section also oversees the Affirmative Action/Equal Employment Opportunity responsibilities as well as Americans with Disabilities issues. Payroll The Payroll Unit, which is part of the Financial Services Section, is responsible for oversight of the employee payroll, which includes accurate tracking of hours worked, leave taken and payroll deductions. The unit also oversees risk management issues. Purchasing The Purchasing Unit, which is part of the Financial Services Section, is responsible for contracting and purchasing all goods and services required by the department. This includes furniture and supplies along with the printing of tax booklets and forms for the department. The unit also oversees all contract and maintenance agreements. ARIZONA DEPARTMENT OF REVENUE 2007 ANNUAL REPORT 11 HIGHLIGHTS IN FISCAL YEAR 2007 • Continued enhancements of the Human Resources Information Solution (HRIS) System. • Accounting processed 99% of all invoices within 30 days. • DOR was recognized as being one of 25 agencies to pay invoices for the AzNet Communications within 15 days of receipt, scoring the department a 2% discount overall. • Employee Development completed the BRITS (Business Reengineering Integrated Tax System) Release 2 training for corporate income tax. • Responded to 97% of building maintenance work orders within 24 hours. • The Hearing Office resolved 157 cases during the fiscal year. ARIZONA DEPARTMENT OF REVENUE 2007 ANNUAL REPORT 12 AUDIT Mission Statement: To promote voluntary compliance by auditing, identifying common areas of non-compliance and educating taxpayers. The Audit Division consists of the Corporate Income Tax Audit, Individual Income Tax Audit, Transaction Privilege and Use Tax Audit and Special Taxes sections. Our mission is to promote voluntary compliance by auditing, identifying common areas of non-compliance and educating taxpayers. We do this with an emphasis on treating the diverse taxpayer base fairly, consistently and respectfully. Our staff members are professional, courteous employees whose expertise reflects in their performance and achievement of audit goals. We take pride in our accomplishments and persistently strive to be more efficient, exceed expectations and be viewed as a model audit program. In this pursuit, the Corporate and Transaction Privilege and Use Tax Section’s field audit portion of ESKORT, an automated audit system that contains a sophisticated audit select system, audit assistant and case management and tracking system, has been implemented. The desk audit operations, including Individual Income Tax Audit, will be implemented in Fiscal Year 2008. Individual Income Tax Audit The Individual Income Tax Audit Section is comprised of Desk Audit Unit, Field Audit Unit and a Support Staff Unit. The Desk Audit Unit handles the majority of the work. The main source of information continues to be the IRS; however, the operations are expanding as other sources become available and as the department’s technology is upgraded. The Field Audit Unit conducts audits for Individuals and Pass-through entities, such as Partnerships and S Corporations. The operations in this area continue expanding due to new sources and technology. The Support Staff Unit is responsible for the manual research necessary to build the audit files. This process allows the audit staff to concentrate their efforts on audits. It creates a higher level of efficiency that results in audits being accurate and issued timelier manner. Transaction Privilege and Use Tax Audit The Transaction Privilege and Use Tax Audit Section is comprised of Field Audit Unit, License Compliance Unit, Refund Unit, Desk Audit Unit and an Administrative Support Unit. The ESKORT audit system, when completed, will enhance all areas of audit production, audit preparation and audit tracking. The Field Audit Unit, with an increased emphasis on customer service, hard work and dedication, exceeded Fiscal Year 2007 expectations. Corporate Income Tax Audit The section is comprised of the Field Audit, Office Audit and the Tax Shelter units. License Compliance Unit continues to prove to be a dynamic and successful unit. The staff can be counted on to assist taxpayers and others to ensure tax compliance. License Compliance officers do both office research and field work. Their goal is to provide the best customer service possible, seek out those businesses that are not licensed for Transaction Privilege and/or Withholding tax and provide education and knowledge, so taxpayers across the state can voluntarily comply with the tax laws. The Field Audit Unit conducts the majority of its audits outside of Arizona where the corporation’s books and records are maintained. The selected audits are based upon various criteria designed to identify areas of non-compliance. The Office Audit Unit focuses its audit programs on desk audit work, including the verification of amended returns and refund claims. The Tax Shelter Unit works with the IRS, other states and tax administration organizations to identify taxpayers who have utilized abusive tax schemes in order to avoid paying state income tax. The Refund Unit is responsible for analyzing and processing taxpayer refund requests. The auditors in this unit conduct both desk and field work to verify information supplied for requested refunds. ARIZONA DEPARTMENT OF REVENUE 2007 ANNUAL REPORT 13 The Desk Audit Unit mainly works on projects dealing with use tax liabilities. The information processed in this unit is from various governmental agencies. Due to many computer system enhancements, this unit is moving into an electronic flow of information that allows the work to be more efficient and productive. obligation to file and would like to file past, current and future tax returns with the state. • The Audit Division’s revenue net of duplications for fiscal year 2007 exceeded $195.8 million. The Administrative Support Unit is responsible for processing the field audits and handling the mail for the Section. This support remains necessary because the ESKORT system is not complete. The unit has also been instrumental in the process flowcharting used to design ESKORT. • The Corporate Income Tax (CIT) Field Audit unit’s assessments produced approximately $22 million and collections $25 million. Overall, additional revenue from collections associated with audits generated $69.2 million. • The CIT Office Audit unit’s assessments were approximately $2.3 million and collections $2.8 million. The unit operates numerous programs, including the following: process review assistance, tax clearance assistance, tax-exempt status review, net operating loss audits, federal revenue agent report audits, and BRITS assistance. The unit researched, reviewed and audited 5,300 taxpayers. • The CIT Audit’s Tax Shelter Unit assessments generated approximately $1.7 million and collections $1.8 million. This unit receives leads on taxpayers that have utilized illegal tax shelters to avoid paying Arizona income taxes. The leads are obtained by collaborating with the Internal Revenue Service, Multistate Tax Commission and other State taxing agencies. • The Individual Income Tax (IIT) Audit Section completed more than 52,000 audits for total assessments of $25.8 million. Overall, additional revenue from collections associated with audits generated $17.8 million. • An essential part of IIT’s focus is to provide quality service to the taxpayers. Customer satisfaction surveys are sent with all audit determinations. Over 1,700 surveys were received during fiscal year 2007 with an average score of 4.13, using a scale of 1 to 5 with 5 being excellent. • The quality of IIT’s initial audit assessments has continued to improve. For fiscal year 2007, over 86.6% of the initial audit assessments required no additional changes. The goal is to achieve a minimum rate of 81%. Special Taxes Special Taxes is made up four separate units: Bingo and Estate Tax Unit, Discovery Unit, Luxury Tax Unit, and the Nexus Unit. The Bingo and Estate Tax Unit issues licenses, processes returns and conducts audit examinations of Bingo operators. The staff investigates complaints and violations of Bingo laws, as well as conducts workshops and consultations with Bingo licensees. The unit also processes all estate tax returns and conducts Estate Tax audits The Discovery Unit uses electronic records from outside sources paired with new technology obtained as part of the BRITS contract to create leads that are explored by the unit's auditors. The tax payments made by taxpayers that are brought into compliance through one of the unit's discovery programs are considered "Discovery Payments," thus the Discovery Unit. The Luxury Tax staff administers the taxes imposed on tobacco and liquor distributors. This includes the licensing of tobacco distributors and processing of tax returns for both tobacco and liquor, as well as performing distributor audits. The unit also supports the Office of the Attorney General in administration of the Tobacco Master Settlement Agreement. The Nexus Unit identifies companies and Individuals who have an obligation to file tax returns with the state of Arizona, including, but not limited to, corporate income tax, transaction privilege/use tax, and individual income tax. The unit also receives voluntary disclosures from taxpayers who have determined that they have an HIGHLIGHTS IN FISCAL YEAR 2007 ARIZONA DEPARTMENT OF REVENUE 2007 ANNUAL REPORT 14 of its most productive years generating assessments of approximately $64.7 million. Additional revenue generated from collections associated with Audits was $35.5 million. • The TPT customer satisfaction surveys for the Field Audit Unit averaged 4.55, using a scale of 1 to 5 with 5 being excellent. • The TPT License Compliance Unit experienced an outstanding fiscal year. Their highlights include: 9 101,069 researches 9 3,215 field visits 9 45 special event visits 9 3,289 licenses issued 9 16,418 phone inquiries from taxpayers handled 9 $91+ million in revenue generated • The TPT Refund Unit processed 470 refund claims, approving just under $23.6 million and denying approximately $ 2.8 million • The TPT Desk Audit Unit generated $10.6 million in revenue by licensing 2,622 new taxpayers. • The Audit Information Technology Section implemented the ESKORT Audit Workbench for TPT and Corporate Field Audit. This system includes Audit Selection based on rules and observation ranking. Additionally the Case Management and Tracking and Audit Support systems are used by the Field Auditors to manage, track and perform calculations on an Audit. The section has also been diligently working on the Desk Audit development for all tax types. • The Nexus Unit had another incredible year bringing 165 non-filing taxpayers into compliance. The unit generated $40.6 million during the fiscal year, which surpassed the goal by $14 million. ARIZONA DEPARTMENT OF REVENUE 2007 ANNUAL REPORT 15 COLLECTIONS Mission Statement: To collect delinquent tax liabilities in a fair manner, to promote voluntary compliance through the impartial enforcement of tax laws, and to provide efficient service to the taxpayers of this state. Office Collections After the Accounts Receivable system has completed the prescribed billing cycle, cases are referred to Office Collections. Delinquents (business accounts with returns that have not been filed) are also worked in this section. Here, collectors attempt to reach account resolution via the telephone and with targeted mailings. Office Collections uses an Automatic Call Distribution (ACD) system to process and handle incoming calls. This system has an Interactive Voice Response (IVR) module that provides automated responses for some basic collections questions such as account balances. Office Collectors can request that liens and levies be filed and can negotiate installment payment plans. If they are not able to resolve a case, it is referred to Field Collections or Special Operation for further action. Field Collections If an Office Collector determines that a case cannot be resolved by phone and that a field (on-site) approach is warranted, the case is referred to the Field Collections section. Field collectors are assigned a territory (by ZIP code) and are responsible for all types of tax cases (income, business, withholding, etc.) in the territory. Field collectors use a combination of telephone and field visits to effect closure. In addition to recommending lien and levy action, Field collectors may subpoena records, investigate Offers-in-Compromise, conduct seizures and write off cases if they are determined to be uncollectible. The objective in Field Collections is to reach closure in the least intrusive manner and seizure actions are only used as a last resort after all other more reasonable actions have failed. Special Operations This section services a growing population of individual and business tax accounts that have filed for protection under the bankruptcy code. Cases are routed here at any time during the collection process when a case is identified as having filed bankruptcy. This section is responsible for identifying all cases which involve bankruptcy filings, seeing that appropriate claims are filed and following up on actions being taken by the bankruptcy court relative to these accounts. In addition to processing bankruptcies, the section refers cases to the Attorney General’s Office that may require legal action to effect closure. This unit is responsible for all other non-mainstream collection activities. These include handling disputed audit accounts, insufficient funds check collections, lien processing, case adjustments, Letters of Good Standing, levies on Department of Administration vendors, levies on contractor and insurance bonds, internal systems training and processing Offers-in-Compromise. Debt Set-Off The area is responsible for the offsets of income tax refunds to pay other delinquent taxes and debts owed to other state agencies or courts. The process involves matching data received from other agencies against refund data, notifying participating agencies and taxpayers when matches are made, validating the information, and paying the claims when warranted. The unit’s duties also include qualifying agencies and courts for participation in the program and resolving discrepancies as necessary to protect the rights of both taxpayers and claimants. HIGHLIGHTS IN FISCAL YEAR 2007 • Field Collections continued to excel in the education of their taxpayers and in encouraging them to utilize the E-file method for their taxes. • The division was responsible for the generation of total revenues of $294 million, a $9 million (3%) increase over the target of $285 million for the year. ARIZONA DEPARTMENT OF REVENUE 2007 ANNUAL REPORT 17 EXTERNAL SERVICES & SPECIAL PROJECTS Criminal and Civil Investigations The Criminal and Civil Investigations Section is comprised of the Tobacco Enforcement Unit and the Criminal Investigations Unit. The Tobacco Enforcement Unit enforces the tobacco luxury taxes by educating retailers and wholesale suppliers, inspecting tobacco products for compliance with tax stamp requirements and seizing products that are not being sold legally in Arizona. The unit also investigates criminal activity, such as the importation and sale of counterfeit tobacco products. The Criminal Investigations Unit investigates tax evasion, improper or fraudulent tax activity by both taxpayers and preparers, and other related issues. Both units work with other law enforcement organizations to prosecute tax-related crimes. Commission and the Property Tax Oversight Commission. An individual income tax simulation model is maintained to analyze proposed changes to Arizona’s individual income tax. The department’s annual report is prepared by this Office, as well as the Tax Expenditure Report and the Report on Bonded Indebtedness. Other reports are prepared throughout the year providing statistics and information on various tax types, including the monthly publication Tax Facts, and the Arizona TaxNews (tax practitioner newsletter). Forms and Publications This unit is responsible for design and printing of all official department forms except Property Tax related forms, review and approval of all substitute forms used by software vendors in preparing Arizona tax returns. This unit is also responsible for the production of all informational publications. The Quality Office is also a part of the Office of Economic Research and Analysis. The Quality Office coordinates the strategic planning efforts of the department with programs focusing on agencywide quality initiatives. Included in these initiatives are customer satisfaction survey improvements, feedback and analysis and benchmarking studies. Legislative Services Team This team represents the department before the Legislature. Coordinates the analysis, research and testimony of tax legislation, reads, analyzes, and tracks bills through the legislative process; coordinates implementation of legislation after passage. Acts as the liaison between legislators and the department including handling constituent issues for legislators and the Governor’s office, monitors federal law changes. Public Information Officer This position is responsible for all department communication with members of the media. This position is also the official spokesperson for the department, and facilitates the flow of information to the public and responds to all media contacts and inquires. Office of Economic Research and Analysis The Office of Economic Research & Analysis provides statistical analysis and research services to the department, the Governor’s Office, the Legislature and other political subdivisions as well as the private sector. Fiscal impacts, where possible, and analysis are provided for proposals of changes to taxes administered by the department. This Office provides forecasts of general fund revenues from the major three tax types for consideration in the Governor’s budget proposal. Staff support is provided for the Economic Estimates Commission, the Debt Oversight This Office is also responsible for a variety of administrative duties involving everything from assisting in the re-engineering of the department’s computer system to directing transfers of funds from specific tax types as directed by statutes. SPECIAL PROJECTS Federal Employee Retiree Contribution (FERC) project In April of 2006, a proposed settlement was reached in a lawsuit filed by several federal employees to recover Arizona income taxes paid by federal employees on mandatory contributions to federal retirement programs during any one or more of the years 1985 to and including 1990. This case has been in litigation for more than a decade, and has been through the appeals process a number of times on several different issues, and resulted in five published Court of Appeals decisions. To be eligible for a refund under the settlement, an individual refund claim must have been filed with ARIZONA DEPARTMENT OF REVENUE 2007 ANNUAL REPORT 19 are part of the multi-agency group that is working with the Arizona Counter Terrorism Information Center. the Arizona Department of Revenue before July 9, 1998, and must also meet other eligibility requirements contained in the Settlement. All claimants, whether they received a refund or were denied a refund, had a right to appeal the decision (including the initial “denial” letter) through the Department’s administrative appeal process. Claimants that received a refund were notified of their refund amount, including interest, while denied claims were provided a specific reason the decision was based on. • Stanley Griffis embezzled over $600,000 in public funds during the time he was Pinal County Manager. An investigation was initiated by Rick Romley, former Maricopa County Attorney, who was appointed a Special Assistant Attorney General by Terry Goddard. The Criminal Investigations Section was asked by Mr. Romley to become part of the investigation. In February, 2007, Griffis pled guilty to 6 felony counts, including filing fraudulent tax returns for four years. On May 10, 2007, Griffis was sentenced to 3 ½ years in prison and was ordered to pay restitution of over $600,000, including $37,044 to DOR. • Over 100 fraudulent returns were prepared by Stephen Newberg in a multiple refund scheme wherein he used the personal information of individuals who were in prison. Newberg was indicted in October, 2006, and subsequently pled guilty and was sentenced to five years of supervised probation and was ordered not to prepare tax returns. • Monies received by DOR from court ordered criminal restitution based on our financial investigations totaled $827,869 for fiscal year 2007. • In May of 2006, the department mailed the more than 40,000 FERC claimants a “notice of settlement and settlement hearings” alerting them to the proposed settlement and informing them of the terms of the settlement. A final judgment approving the settlement was issued in August 2006. The initial refunds were issued in October and by the end of the fiscal year warrants were issued to 15,972 claimants totaling $12,155,962; an additional $3,038,946 was paid to the attorney’s representing the plaintiffs in this case. HIGHLIGHTS IN FISCAL YEAR 2007 • During fiscal year 2007, over 107,000 cigarettes were seized, along with 346,649 cigars and 585 pounds of other tobacco products based on noncompliance by the owners of retail stores or tobacco distributorships. • A total of 19 citations were issued and $4,640 in fines were assessed against retailers who were not in compliance. In addition, a $24,000 settlement was reached with an in-patient treatment facility that sold illegal cigarettes in their in-house stores. • A Springerville resident was indicted for selling illegal cigarettes to restaurants, bars, and private clubs in the Springerville area. Over 39,000 cigarettes were seized at the time of this individual’s arrest. She subsequently pled guilty, was placed on probation, and was ordered to pay restitution. • A tobacco training video was produced which has been approved by the Arizona Peace Officers Standards and Training Board and will be added to the curriculum of Arizona law enforcement academies. This video will provide information related to tobacco violations and will assist other law enforcement agencies in teaching their officers how to recognize and handle counterfeit and contraband tobacco when they run across it. • The Tobacco Enforcement Unit has become very involved in working with other law enforcement agencies due to the incidence of tobacco related crimes that are connected to other crimes including the funding of terrorist related activities. Our two tobacco supervisors ARIZONA DEPARTMENT OF REVENUE 2007 ANNUAL REPORT 20 INFORMATION TECHNOLOGY Mission Statement: The IT Division provides DOR with an integrated technology environment and automated business processes which allow for timely, efficient, and secure transfer of information to employees, taxpayers, and other agencies. Application Support Applications Support provides support for all mainframe applications, the BRITS Taxpayer Administration System (TAS), and the Executive Dashboard. Significant activities include resolving defects, supporting production processes (such as TPT Close), and implementing releases to correct defects and provide enhancements. Enhancements are developed at the users’ request and are completed based on priority. Applications Support works closely with the Project Management Office for project organization, Business Analysis & Testing for requirements and testing, Enterprise Architecture for software release management, Information Security for compliance, and Technical Services for implementation. Business Analysis & Testing The Business Analysis & Testing (BAT) group (formerly Customer Services Management) acts as a liaison between IT and the functional areas within DOR (Collections, Audit, Taxpayer Services, etc). BAT administers all System Investigation Reports (SIRs) and ensures requests are properly tracked and prioritized. BAT is responsible for establishing policies, standards, methodologies, and guidelines pertaining to business requirements gathering and application testing. BAT works closely with the functional areas to better understand their business and IT requirements and seek ways to improve efficiencies through the use of application technology. BAT is responsible for testing all software applications prior to deployment, which includes implementing changes or fixes to new and existing applications. Customer Service Center Customer Service Center (formerly Customer Infrastructure Support) covers the hardware and software that make up the network, including individual PCs. This IT Unit is the backbone for all computer services provided to our DOR customers. We are the entry point for all Customer Service and Support requests and work closely with Application Support and Technical Services to determine priorities and processes for requests. Because some of these requests require addition of hardware and software, this unit also encompasses vendor management. Enterprise Architecture Enterprise Architecture (EA) is a new IT unit, established in January, 2007. A key function of EA is to create a roadmap for the evolution of internal systems, including technology, processes, tools, and training. EA evaluates business needs and recommends technical strategies to help the agency stay current with technical developments. EA also includes oversight of development efforts and adherence to technology standards through release management. Currently, EA is assessing service-oriented architectures (SOA) and collaborative work environments, researching best practices followed in industry and other agencies, and identifying business and technical opportunities within AZ DOR. One focus is Knowledge Management. Information Security The DOR IT Information Security (InfoSec) unit is a centralized department which ensures a methodically sound program is in place throughout the DOR, with the primary focus of protecting our information and systems based upon governance and security best practices. The DOR InfoSec Program includes the following functional areas: • • • • Access and Authentication Policy and Compliance Monitoring Events and Incident Response Employee Awareness Project Management Office (PMO) The PMO is responsible for establishing, maintaining, and enforcing project management processes, procedures, and standards for IT projects. The primary goals of the PMO are to: • Facilitate the process for the Department to prioritize key IT projects and make informed business decisions based upon thorough cost- ARIZONA DEPARTMENT OF REVENUE 2007 ANNUAL REPORT 21 • • • benefit analysis and aligned with departmental goals and objectives; Guide key IT projects to a successful conclusion; Create a foundation for consistent IT project success throughout the organization, achieved through development of a strong and pervasive Project Management discipline; Support the mission, vision, and goals of the Department. The PMO consists of the PMO Director and a team of Project Managers (PMs). The PMO was established in June 2006 to better determine best practices in project methodology and standards, while actively managing a variety of projects and programs, including the BRITS program. Technical Services The technical services unit includes Technical Support, Database Administration, and Production Control. The Technical Support team is responsible for support and management of client server (BRITS) technical infrastructure, Oracle Application Server (TAS infrastructure), and Client Server Third Party software. They also act as a liaison to ADOA for technical activities, provide Tier 3 support for problem management, and handle software installations, migrations, and upgrades to ensure software/vendor compliance. The Database Administration team supports all activities in database administration, including backup/recovery, capacity management, job scheduling and monitoring, migration to production, and environment upgrades to ensure software/vendor compliance. Databases supported are ADABASE (mainframe), Oracle (TAS), SQL Server Databases, SAND (Executive Dashboard), and TeraData (for the Audit group). They also handle Tier 3 support for problem management. The Production Control team supports production mainframe and TAS batch processing. Functions supported include scheduling and execution of production jobs, printing, mainframe migrations, and tape management processes. The team supports the Applications team and other divisions in the department. HIGHLIGHTS IN FISCAL YEAR 2007 • Debt Set-off (DSO) has increased its processing frequency from every other day to every weekday, cutting its turnaround time in half. Fee Transfers (our $9 fee) have increased by $35,091 from fiscal year 2006 to fiscal year 2007. The number of matches has increased by 4,395 for a total of $1,759,502.33 over last year’s amount. • We have begun to implement Google mini, which will allow intranet searches at a very low cost to the agency. • AZDOR.gov had 2,386,360 page views in April 2007 alone, with zero downtime, making it the most visited of all AZ State sites. • The InfoSec team has centralized application security, including assuming responsibility for user access and authentication for all applications previously managed by other IT units. Streamlining has provided a “one stop shop” for managers requesting or removing employee access and troubleshooting related issues. • DOR IT implemented an IRS secure data transport solution so exchange of IRS Federal Taxpayer Information (FTI) is completed via secure electronic transfer method vs. having the FTI sent on magnetic tape through the mail. • Corporate Income Tax processing is now part of the BRITS program. All business tax processing (along with transaction privilege tax and payroll withholding tax processing) has been successfully integrated in a single system. • Implementation of Field Audit component of the BRITS program has provided the Audit division with a comprehensive tool to effectively process audits conducted in the field. • Document imaging, document management, and archival system for processing unclaimed property have been implemented. This project introduced a new generation of claims processing using an on-line image-based workflow to more efficiently and effectively process claims against unclaimed property. ARIZONA DEPARTMENT OF REVENUE 2007 ANNUAL REPORT 22 • Continued to improve project management methodology and process to benefit remaining BRITS activities. • Successfully restructured the former Help Desk to become Desktop Support Services and the Customer Service Center (CSC), each team operating with a team lead and reporting to the Customer Services Manager. • Established a Vendor Management organization within the CSC to facilitate faster response to requests, more efficient tracking of purchases, and provide a central point of responsibility for managing license compliance. • Completed a $500K network infrastructure upgrade. • Delivered eight software releases for the BRITS applications, covering a wide range of application enhancements, corrections, annual, and legal changes, including: Allowing refunds based on the Withholding Annual return (A1QRT). Released 2004 and 2005 A1QRT refunds that had been previously held due to a review item. The refunds were released in five separate refund runs. In all, refunds were sent to 11,650 taxpayers totaling over $2.4 million. o Implementation of House Bill 2086. The new statute moved the due date for Transaction Privilege Tax (TPT) electronic payments back to the second to the last business day of the month; all TPT returns received by the department on or before the second to the last business day are timely; the postmark date for a timely return remains the 25th; the due date for TPT o • returns remains the 20th and is the date from which penalties and interest are computed. In addition, the new late-filing penalty for TPT returns is based on the amount of tax showing due on the return without reduction for any tax paid for the period. o The Accounts Receivable (A/R) Summary Project was completed to comply with the Auditor General’s requirement that DOR provide comprehensive annual A/R reporting. Information provided included: a listing of every payment processed and deposited during the fiscal year, a listing of all payments applied and deposited by the Department each fiscal year, and a listing of all payments applied and deposited between July 1st and July 31st applied to underpaid periods in June. The A/R Summary includes all accounts receivable sorted by tax type, as well as a total for each type. Modified critical applications to enable processing tax year 2006 Individual Income and Corporate tax returns. Applications modified included 2-D Barcode, Data Entry, E-File, Income, and Corporate. • Implemented changes required for Real and Personal Property 2006 tax year billings. • Implemented processes and procedures for prioritizing user requests (SIRs) based on standard priority criteria, ensuring our efforts are focused on the most critical business needs. Information is communicated to the agency using various avenues, including the intranet. ARIZONA DEPARTMENT OF REVENUE 2007 ANNUAL REPORT 23 PROCESS ADMINISTRATION Mission Statement: To provide quality service by processing all tax returns and payments accurately and timely for Arizona taxpayers. The Division consists of the following sections: Processing Services Processing Services is responsible for the opening, batching and processing of all tax documents for all tax types. Mail Services is responsible for the receipt, sorting and delivery of all tax documents, payments and correspondence received by the agency. Processing is responsible for batching documents and identifying any “trouble” documents prior to being data entered for all taxes. DOR Treasury DOR Treasury is responsible for depositing all tax revenue and data entering all tax return information for the largest four tax types (Individual Income, TPT, Withholding and Corporate). Error Resolution Error Resolution, which includes the Review unit, is responsible for ensuring accuracy in the processing of the largest four tax types (Individual Income, TPT, Withholding and Corporate). Revenue Accounting Revenue Accounting is responsible for providing financial services for the Department. This includes the reconciliation and reporting of tax dollars deposited to the State’s financial institution, revenue and taxpayer accounting services, including accounts receivable management and refund/warrant management. HIGHLIGHTS IN FISCAL YEAR 2007 • 5.2 million paper tax documents were received and processed for all tax types. • 4.17 million payments were received, processed and deposited with an average deposit time of 2.92 days. • 2,033,277 refunds were issued to individual income taxpayers with an average return turnaround time of 7.73 days. • The Records Management section received 12,000 requests to pull documents and they processed 100% of those requests within 48 hours. • Corporate Income Tax was implemented and converted in to the new integrated tax system, BRITS, at the beginning of October, 2006. The Process Administration division played a significant role in the implementation and conversion by conducting data purification efforts on information that was to be converted, processing all of the corporate returns and payments in time for the conversion and completing the testing of the new system. Records Management Records Management is responsible for the filing, maintaining and storing of all tax documents. Records Management also provides access to tax returns and license applications within the department. ARIZONA DEPARTMENT OF REVENUE 2007 ANNUAL REPORT 25 PROPERTY TAX MISSION STATEMENT: To ensure fair and uniform property values for Arizona taxpayers. The vision of the Property Tax Division is to deliver excellent property tax services. The Property Tax Division is responsible for general oversight of the County Assessors in the administration of Arizona’s property tax laws and for the valuation of complex, geographically disbursed properties. Functional areas of the Division and primary responsibilities of each are discussed below. . Centrally Valued Properties The Centrally Valued Properties Unit annually determines the full cash value of all utilities, railroads, mines and other complex or geographically dispersed properties (see page 63 for a list of the industries valued by the department). Values determined for such properties are transmitted to the appropriate county treasurers for collection of property taxes. In addition, the unit assists county assessors with maintaining and updating a standardized cadastral mapping system. The unit prepares tax area code maps that depict boundaries of taxing jurisdictions authorized to levy property taxes. Assessment Standards The Assessment Standards Unit oversees and ensures the application of uniform appraisal methods and techniques used by county assessors to determine the value of property. The unit also presents technical workshops to county assessors and provides an appraiser/assessor certification program for appraisal staff. Personal Property The Personal Property Team oversees the development and application of personal property procedures and manuals and provides technical workshops to county personnel. Construction Cost The Construction Cost Team maintains the computerized “construction cost valuation system” that is used by all county assessors to value property by the cost approach. The group also provides training for county appraisers in the use of the construction cost valuation system. Central Information Services The Central Information Services Team coordinates the data processing services necessary to support property tax administration for 12 Arizona Counties. The support services provided to the counties include management of automated systems used in the preparation of assessment and tax rolls, the preparation of valuation abstracts, property tax notices of value and statements of taxes due. Computer Assisted Valuation The Computer-Assisted Mass Appraisal Team develops sales-based models for residential properties and maintains and assists County Assessors with the Land Valuation System and the Sales Tracking System. Forms and Manuals The Manuals and Forms Team is responsible for the annual compilation and updating of manuals and guidelines; review of forms prescribed for use in the administration of the property tax system; review of legislative enactments and changes to existing property tax statutes; and preparation of the "Title 42 Extract of Property Tax Statutes". Equalization The Equalization Team is responsible for annually measuring county assessor performance for compliance with established full cash/market value standards. The team conducts sales ratio studies throughout the yearly valuation cycle to assist counties in complying with valuation standards. HIGHLIGHTS IN FISCAL YEAR 2007 • The division entered into a contract with Maricopa, Pima, and Yuma counties and with the vendor that supplies property replacement cost information to build a system that will allow continued reliance on the construction cost system that is used in all counties. • The division formed a partnership with Rio Salado Community College that will allow students attending the department’s appraiser training classes to receive college credit. Students who are interested in receiving college credit for these courses will be able to apply for concurrent enrollment with Rio Salado Community College at the beginning of each ARIZONA DEPARTMENT OF REVENUE 2007 ANNUAL REPORT 27 class. Students completing Level 1 courses will be eligible for 9 credits and students completing Level 2 courses will be eligible for 6 additional hours of credit. • The Centrally Valued Properties Unit hears and decides appeals from 50-60 corporate taxpayers each year. As a result of decisions made either at that level or at the next level (State Board of Equalization), four property valuation cases involving 15 tax years are currently pending in Tax Court; two with telecommunications companies and two with electric utilities. Oneweek trials were scheduled for August, October and December. A March case has been scheduled for a 26-day trial. • Work was halted on the Arizona Property Assessment and Taxation System. ARIZONA DEPARTMENT OF REVENUE 2007 ANNUAL REPORT 28 TAXPAYER SERVICES Mission Statement: To meet the needs of our customers in a professional manner, with the highest standards of integrity. Community OutReach and Education (CORE) This section provides the department’s outreach and educational programs for taxpayers and practitioners. CORE’s primary goal is to promote voluntary compliance with tax laws through taxpayer education. The staff develops and presents workshops and seminars as well as participating in trade shows throughout the state. The programs focus on support for the small business community but services and assistance are also directed toward personal income tax. Many projects are developed in partnership with the IRS, other federal, state and local agencies and organizations as well as the Small Business Administration and business associations. Through continuing partnerships with civic and businesses organizations, CORE has been able to increase class sizes and venues throughout the state. CORE leverages the marketing opportunities provided by these organizations to increase the circulation of its class schedules. Marketing materials stress the partnership between the organization and CORE to the benefit of both. This is especially important to our program cities that rely on compliance with tax law for their funding. CORE partners with Small Business Development Centers at Community Colleges in support of small businesses. It also enjoys good relationships with Chambers of Commerce throughout the state. Some of the Cities have allowed CORE to include class information for that city to be included in utility bill mailings. These types of partnerships have increased CORE’s outreach opportunities and reduced the cost of marketing their classes. In addition to monthly workshops, CORE holds its semi-annual Arizona Employer Forum in support of small business employers throughout the state. Presenters include the IRS, Social Security Administration, Department of Labor and Immigration and Customs Enforcement. In addition to presenters, CORE provides exhibitor tables for other organizations to display their products and services to the small business community. Exhibitors include the Department of Insurance, SCORE, and the Small Business Administration. CORE recognizes the important role of educated tax practitioners in a healthy tax system. CORE regularly conducts presentations to practitioner groups including the Society of Practicing Accounts and the Society of Enrolled Agents. CORE also maintains a seat on the Arizona Forum for the Improvement of Taxation (AFIT). This organization represents a cross section of the practitioner community including CPA’s, Enrolled Agents, and the Arizona Bar. The annual Tax Talk seminar in December is designed to provide continuing education to tax practitioners and attendance continues to grow. CORE also provides education to payroll service providers including the Arizona Payroll Association. e-File This program was established to coordinate services between government agencies, the practitioner community and software industry. The staff approves software for use by practitioners and the public and markets the benefits of e-Filing to taxpayers. Tax returns that are submitted through this program are processed virtually error free and refunds are issued in days rather than weeks. License and Registration (L & R) This section processes applications for transaction privilege, use, severance and withholding taxes. The unit issues transaction privilege tax licenses for contract cities that participate in the state tax collection program. They also administer the taxpayer bonding program, which affects contracting businesses and delinquent taxpayers. The section oversees the database of licenses and continually corrects and updates taxpayer records. They provide assistance to the public through dissemination of general license information. The section handles the sale of tobacco stamps and cashiering services for customers at each of the agency’s offices. Taxpayer Information and Assistance (TIA) This section provides information concerning business and income taxes administered by the department. This is accomplished through various avenues including the telephone call center, email, ARIZONA DEPARTMENT OF REVENUE 2007 ANNUAL REPORT 29 business leaders of the Hopi Tribe in Northern Arizona that addressed their special needs. recorded tax information, correspondence and walkin services at each of the agency’s offices. They also answer questions in relation to billings, taxability, business registration, filing and payment requirements. Another important function of Taxpayer Information and Assistance is the Penalty Review Unit, which is responsible for reviewing and making a determination on all taxpayer requests for penalty abatements (except those relating to an audit). If the unit determines that reasonable cause exists and abatement is warranted, the staff handles the necessary paperwork. If abatement is not warranted, the staff represents the department in any subsequent hearings. Unclaimed Property This program is administered to return to the rightful owner abandoned property in the form of goods and money such as the contents of safe deposit boxes, insurance policy premiums, deposits in banks and security deposits, unclaimed stocks/mutual funds, layaways and uncashed checks. Through a variety of methods, staff attempts to locate property owners and processes claims in order to return the asset to the owner and also facilitates the submission of property from businesses and entities that hold the property. In addition, the unit is responsible for promoting compliance from businesses that hold abandoned property through outreach and audit efforts. • E-filing of Arizona Income Tax Returns jumped by 16.5%, with over 1.3 million returns filed electronically. This places Arizona fourth in the nation for growth in electronic filing. In addition, more than 427,800 two dimensional (2-D) barcode returns where received. Together, 75.8% of all tax year 2006 individual come tax returns received were processed without data entry up from 51% the prior year. As a result the agency saved on processing and record retention costs. • While Tax Practitioners prepare the bulk of electronic returns, this year the “home-market” prepared 30% of the eFiled returns. • Direct deposit of refunds reached another milestone with more than 586,900 taxpayers which is an increase of 21%. As a result DOR saved $39,700 in postage costs by not mailing warrants. In addition, direct debit of tax payments also increased by 1%. • One of License and Registration’s business objectives is to process business applications within 3 business days. This fiscal year License and Registration processed 48,632 applications. They excelled with a 44% increase in the number of applications processed and continued to meet their goal of 3 business days. Continued growth in the valley keeps License and Registration cashiers busy assisting customers at the counter. This year they assisted 47,246 customers, a 29% increase over last year. They processed 24,136 signature cards, a 6% increase from the prior year. Bonding is an important aspect of License and Registration and our bonding officers did a remarkable job. They received 6,589 bonds compared to the 5,710 the prior year, a 15% increase. Even with the increase in volume, the License and Registration recognizes customer service as a critical factor. They demonstrated that by yet again improving their customer survey rating to 4.96, from 4.85 last year. • Taxpayer Information and Assistance (TIA) staff routinely promote into positions elsewhere in the department. While TIA training is excellent and provides quality staff to the rest of HIGHLIGHTS IN FISCAL YEAR 2007 • The Community OutReach and Education Section (CORE) has expanded its outreach in 2007 to include radio call-in programs and minority businesses. The call-in programs were conducted in English and Spanish and were targeted at providing general information and filing assistance for business taxpayers. CORE also recognizes the importance of reaching out to minority businesses and has participated in programs with the Greater Phoenix Black Chamber of Commerce, the 11th annual Seminarios en Espanol, and the Arizona Black Expo. In addition, CORE partners with the Cities of Phoenix and Mesa to provide Spanish language Small Business Workshops. CORE was also invited to provide a seminar to ARIZONA DEPARTMENT OF REVENUE 2007 ANNUAL REPORT 30 9 36% decrease in our average wait time for income tax. 9 Overall the average wait time decreased from 7:11 (minutes:seconds) to 4:09. the department, they experience a larger that usual turnover rate. The challenge then, is for TIA is to maintain and improve customer service. • Through improved monitoring, additional crosstraining and reallocation of resources to areas in need, TIA was still able to achieve some significant improvements. Those improvements are: 9 16% increase in the number of calls answered for transaction privilege tax and withholding tax. 9 9% increase in the number of calls answered for income tax. 9 Total number of calls answered was 353,331. 9 19% reduction of our abandon rate. 9 42% decrease in our average wait time for business tax. • The number of new properties reported to Unclaimed Property in fiscal year 2007 totaled 600,946 with total collections equaling more than $97M. This is an increase of more than 230,000 properties (60%) over the number of properties reported in fiscal year 2006. For the fiscal year, the staff returned 69,370 properties valued at $22.5M to rightful owners. This represents a 75% increase in number of properties returned during the past fiscal year compared to fiscal year 2006. In addition to the dramatic increase in number of properties paid, the staff was able to significantly reduce the average number of days to pay properties from 46 to only 23 days. ARIZONA DEPARTMENT OF REVENUE 2007 ANNUAL REPORT 31 TAX POLICY & RESEARCH The division provides administrative tax policy for the department, legal and interpretative support, case resolution and advocacy for the various divisions within the department. The division also acts as liaison to the Attorney General's Tax Section and coordinates the defense of litigation with the Tax Section attorneys. The division provides additional support to the director on an as-needed basis, including services in the area of protecting taxpayer confidentiality and privacy. The division consists of Corporate Audit Appeals, Individual Income Audit Appeals, Transaction Privilege Tax Audit Appeals, and the Tax Research & Analysis Section. Tax Research & Analysis Tax Research & Analysis Section reviews, analyzes, develops and disseminates administrative tax policy for the department in numerous ways. The section also researches questions presented by other sections of the department, the Governor’s office, and the Legislature. The section is responsible for drafting formal taxpayer rulings and procedures as well as private taxpayer rulings. The section also responds to technical and complex inquiries by telephone and information letters. The section is responsible for maintaining consistency in interpretation of policy and interpretation within the department. The section is also responsible for reviewing and analyzing legislation, assisting the department in setting tax policy, and developing and promulgating administrative rules. Additionally, the section provides policy support for the Audit Division and provides guidance and interpretative advice to the audit sections on audit issues and protested cases. Tax Appeals The office consists of three appeals sections: Transaction Privilege & Use Tax, Corporate Income Tax and Individual Income Tax. The Transaction Privilege & Use Tax (TPT) Appeals Section is headed by the TPT Appeals Administrator and assists the Transaction Privilege and Use Tax Audit Section with case refinement and resolution services at the informal hearing as well as advocating the audit section’s position in cases before the State Office of Administrative Hearings, the department's Hearing Office, and the director. The section also assists the Tax Section of the Attorney General's Office with preparation and research of cases being heard before the Board of Tax Appeals, Tax Court and the appellate courts. The Administrator of the Section acts as the Disclosure Officer for the department. The Corporate Income Tax Appeals Section reviews cases from the Corporate Income Audit Section and provides case refinement, resolution and advocacy services for those cases. The section works hand-in-hand with the Corporate Audit Section, represents the Corporate Audit Section in informal hearings, before the Hearing Office, and before the director. The section also assists the Tax Section of the Attorney General's Office with preparation and research of cases being heard before the Board of Tax Appeals, Tax Court and the appellate courts. In addition, the staff will testify at various levels of the appeals process. The section may also provide interpretative advice to the Corporate Income Audit staff. The Individual Income Tax Appeals Section reviews cases from the Individual Income Audit Section and provides case refinement, resolution and advocacy services for those cases, representing the Individual Income Audit Section before the Hearing Office and before the director. The section also provides interpretative advice to the Individual Income Audit Staff. The section also assists the Tax Section of the Attorney General's Office with preparation and research of cases being heard before the Board of Tax Appeals, Tax Court and the appellate courts. In addition, the staff will testify at various levels of the appeals process. HIGHLIGHTS IN FISCAL YEAR 2007 • The division completed issued the ruling and related matrix outlining the state and city privilege tax treatment of the various activities undertaken by a transient lodging business. The department and city representatives also ARIZONA DEPARTMENT OF REVENUE 2007 ANNUAL REPORT 33 held training sessions at various locations in the state to discuss the ruling and the matrix and to answer any questions. The sessions were attended by both industry and government representatives. • The division, together with the External Services Division, worked with distributors in updating the procedures related to the affixation of Arizona tax stamps to cigarette packages for retail sale and various issues faced by cigarette distributors and retailers related to the nature and handling of tax stamps after affixation. ARIZONA DEPARTMENT OF REVENUE 2007 ANNUAL REPORT 34 ARIZONA'S TAXES Revenue Summary (Table 1) Net Revenue to State General Fund (Table 2) Gross Collections of Audit Assessments and Delinquent Tax (Table 3) Transaction Privilege, Use and Severance Tax Income Tax Property Tax ARIZONA DEPARTMENT OF REVENUE 2007 ANNUAL REPORT 35 TABLE 1 - revised 03/08 REVENUE SUMMARY GROSS REVENUE COLLECTED FISCAL YEAR 2002-03 THROUGH FISCAL YEAR 2006-07 SOURCE TRANSACTION PRIVILEGE USE AND SEVERANCE TAX Distribution Base Nonshared Portion Use Tax Education Tax Undistributed Estimated Transaction Privilege Tax Other State Revenue County and City Collections Amnesty Subtotal INCOME TAX Withholding Individual Corporate Amnesty Subtotal LUXURY TAX Spirituous Liquor Vinous Liquor Malt Liquor Tobacco - All Types (1) Licensing Amnesty Subtotal ESTATE TAX Estate Unclaimed Property Escheated Estates Subtotal OTHER REVENUES Bingo Flight Property Tax Private Car Tax Nuclear Plan Assessment Waste Tire Subtotal DEPARTMENT TOTAL State Property Tax (2) TOTAL (3) FY2002-03 $1,265,625,175 2,400,432,714 190,186,057 447,841,034 9,156,917 34,401,816 797,522,090 ----$5,145,165,803 2,310,302,093 656,586,317 518,246,330 ----$3,485,134,740 22,004,331 9,924,749 22,137,764 217,955,008 5,950 ----- FY2003-04 $1,362,143,376 2,588,439,418 232,215,946 487,214,807 14,056,241 35,802,096 889,627,518 15,315,231 $5,624,814,633 2,336,442,815 776,183,707 596,582,273 56,757,741 $3,765,966,537 23,438,818 10,404,546 22,110,426 281,795,514 6,400 187,315 FY2004-05 FY2005-06 $1,504,851,881 2,871,370,865 259,687,993 538,346,435 $1,742,272,992 3,350,808,572 306,198,808 628,471,192 24,907,681 35,242,534 1,021,007,631 ----- 33,445,892 37,070,520 1,112,515,747 ----- $6,255,415,018 $7,210,783,723 2,626,264,231 1,128,453,951 (6) 789,739,978 ----$4,544,458,160 (6) 25,085,444 11,473,203 22,664,420 290,503,381 5,325 ----- 3,041,031,728 1,631,563,811 978,239,759 ----$5,650,835,298 26,392,315 11,509,865 23,245,180 302,040,359 (6) 5,900 ----$363,193,619 (6) FY2006-07 $1,848,148,565 3,575,743,539 303,010,863 666,184,022 34,613,656 32,316,678 1,430,363,301 ----$7,890,380,625 3,294,287,540 1,677,949,795 1,070,710,516 ----$6,042,947,851 27,674,933 10,755,478 24,758,494 363,431,607 (4) 8,100 ----- $272,027,802 $337,943,019 $349,731,773 96,859,390 46,219,555 269,557 42,292,396 49,653,262 568,385 32,811,705 83,063,365 731,836 13,275,666 69,705,035 562,510 860,558 97,125,191 552,507 $143,348,502 $92,514,043 $116,606,906 $83,543,211 $98,538,256 626,770 12,741,749 1,485,996 1,012,992 7,007,444 624,501 12,641,445 1,335,056 1,036,085 7,785,148 610,055 0 1,312,163 1,168,550 8,164,120 623,480 0 1,426,435 1,198,087 8,477,996 619,387 0 1,709,362 1,367,248 8,967,577 $22,874,950 $23,422,235 $11,254,888 $11,725,998 $12,663,574 $9,068,551,797 $9,844,660,466 $11,277,466,745 9,493,897 20,188,811 31,300,125 $9,078,045,694 $9,864,849,278 $11,308,766,871 (5) (6) $13,320,081,849 (6) 30,298,197 (6) $13,350,380,047 (6) (1) Figures represent gross tobacco revenue less administrative expenses (2) Property Tax is collected and deposited in the state general fund by counties. This figure includes deposits to the General Fund derived from the minimum Qualifying Tax Rate and taxes collected within Unorganized School Districts (3) All revenues collected by the Department of Revenue, including those which are refunded or distributed, and State Property Tax (4) Growth due to increases in tobacco tax rates effective December 2007. (5) Effective FY05, all Flight Property Tax revenues will be transferred to the State Aviation Fund (6) Corrected figures. For additional detail on the current year revenue, please refer to the appropriate section within this Annual Report $426,628,612 $14,471,158,917 29,906,683 $14,501,065,600 TABLE 2 NET REVENUE TO STATE GENERAL FUND FISCAL YEAR 2002-03 THROUGH FISCAL YEAR 2006-07 FY2002-03 FY2003-04 FY2004-05 FY2005-06 FY2006-07 SOURCE Transaction Privilege, Use, and Severance Tax Transaction Privilege, Use, and Severance Tax-Amnesty Undistributed Estimated Transaction Privilege Tax Income Tax Income Tax-Amnesty Luxury Tax Luxury Tax-Amnesty Estate Tax $3,027,135,359 ----- $3,290,458,614 12,308,108 9,156,917 14,056,241 2,056,591,466 2,413,036,616 ----64,586,950 ----- 56,757,741 61,245,119 55,899 $3,650,082,271 ----- 24,907,681 3,170,987,163 (4) ----64,446,627 ----- $4,257,917,335 $4,516,215,317 ----- ----- 33,445,892 34,613,656 4,089,641,855 4,089,906,556 ----- ----- 66,732,468 65,808,829 ----- ----- 94,217,919 38,818,431 31,236,067 6,745,652 8,043,962 9,423,140 10,256,152 11,703,745 626,770 624,501 610,055 623,480 619,387 Private Car Tax 1,485,996 1,335,056 1,312,163 1,426,435 1,709,362 Nuclear Plan Assessment 1,012,992 1,036,085 1,168,550 1,198,087 1,367,248 Flight Property Tax 6,255,987 (2) 6,320,722 0 (3) 0 0 $6,954,173,717 (4) $8,472,925,307 $8,721,393,336 30,298,197 29,906,683 $8,503,223,504 $8,751,300,019 Unclaimed Property Bingo Department Total $5,267,816,008 $5,904,097,095 State Property Tax (1) 9,493,897 20,188,811 $5,277,309,905 $5,924,285,907 TOTAL 31,300,125 $6,985,473,842 (4) 11,683,603 (5) (550,764) (1) Property Tax is not collected by the Department of Revenue. It is deposited in the State General Fund by counties. This figure includes deposits to the General Fund derived from the minimum Qualifying Tax Rate and taxes collected within Unorganized School Districts. (2) A refund issued during FY 03 reduced the General Fund distribution by $114,887. (3) Effective FY05, all Flight Property Tax revenues will be transferred to the State Aviation Fund. (4) Corrected figures. (5) Arizona's estate tax was effectively repealed January 1, 2005, following the IRS's elimination of the Federal State Death Tax Credit. Figures may not add to total due to rounding. TABLE 3 GROSS COLLECTIONS OF AUDIT ASSESSMENTS AND DELINQUENT TAX FISCAL YEAR 2005-06 AND FISCAL YEAR 2006-07 GROSS COLLECTIONS FY2005-06 FY2006-07 % CHANGE Collections Audit Accounts Receivable Special Taxes $317,520,957 $164,334,686 $72,227,902 $0 $292,147,672 $216,409,417 $97,979,181 $5,152,901 -8.0% 31.7% 35.7% TOTAL GROSS COLLECTIONS $554,083,545 $611,689,171 10.4% Duplication, Credit Audits and Other Adjustments As Reported $24,083,098 $25,759,492 7.0% TOTAL ADJUSTED ENFORCEMENT COLLECTIONS (2) $530,000,447 $585,929,679 10.6% $51,718,543 $4,706,631 -90.9% ADJUSTMENTS (1) REFUND DENIALS (1) Audits resulting in credit adjustments are subtracted to produce an actual figure representing the net gain to the state from the Audit Division's efforts. (2) Actual amounts resulting from the department's enforcement effort. 41 TRANSACTION PRIVILEGE, USE AND SEVERANCE TAX MAJOR FEATURES MUNICIPAL PRIVILEGE AND USE TAX Arizona’s transaction privilege, use and severance taxes are imposed on the privilege of transacting business in the state. The department collects transaction privilege and use tax for 78 Arizona cities and towns at no charge to the municipalities. This is a service to the cities and to the taxpaying community who are therefore able to combine their reporting requirements on a single form and payment to a single governmental entity. Weekly distribution checks are processed after the department collects the local taxes (Refer to Tables 26 and 27). The rates range from 1% (cities) to 5.6% depending on the type of business, with most rates at 5.6% (Refer to Table 5). Gross revenue exceeding $7.0 billion was remitted by Transaction Privilege, Severance and Use Tax license holders during fiscal year 2007 (Refer to Table 4). SEVERANCE TAX A severance tax is imposed in lieu of a transaction privilege tax on the businesses of mining metalliferous mineral and severing timber. The severance rates are 2.5% on mining metalliferous minerals, $2.13 per thousand board feet (Ponderosa) and $1.51 per thousand board feet (other) on timbering, effective January 1995 (Refer to Table 5). DISTRIBUTION The total of transaction privilege and rental occupancy taxes creates a tax base that is divided into two parts, distribution base and non-shared. The distribution base portion is divided among municipalities (25%), counties (40.51%), and the state general fund (34.49%). The non-shared portion is deposited directly to the state general fund (Refer to Tables 7 and 8). Use tax is deposited only to the state general fund. COUNTY TAX AND SURCHARGE COLLECTION All 15 counties in Arizona levy some type of county tax or surcharge (Refer to Table 4). These taxes or surcharges are collected by the department. The rental car surcharge is imposed only in Maricopa and Pima Counties. A tax on hotels located in unincorporated areas of the county is levied in Pima County. Of the 14 counties with statutory authority to impose a general excise tax, only 13 do so. By statute, Maricopa County may not impose an excise tax. Although subject to voter approval, any county may levy a transportation excise tax or road tax. Only four counties, Gila, Maricopa, Pima, and Pinal, do so. The other types of county excise tax options are a hospital tax, a jail tax, capital projects, and health services district. USE TAX A 5% use tax is imposed on the purchase price of tangible personal property when a transaction privilege tax equal to or greater than the Arizona rate was not paid. A use tax collection responsibility is imposed on retailers whose activities in the state are insufficient to require them to pay transaction privilege tax but are nonetheless substantial enough to fall outside the protective umbrella of the United States Constitutional provision governing interstate commerce. Firms without nexus may also voluntarily collect use tax for the benefit of their customers. ARIZONA DEPARTMENT OF REVENUE 2007 ANNUAL REPORT 37 TABLE 4 - revised 03/08 GROSS TRANSACTION PRIVILEGE, USE AND SEVERANCE TAX COLLECTIONS FISCAL YEAR 2002-03 THROUGH FISCAL YEAR 2006-07 SOURCE FY2002-03 Distribution Base Nonshared Use Tax Amnesty SUBTOTAL Education Tax Undistributed Estimated Telecommunications Devices Poison Control Fund School for the Deaf Teratogen Information Program 911 Excise Municipal Water Environmentally Hazardous Products (2) Waste Tire Accounts Receivable Collections Less Collection Fees Amnesty-Other GROSS STATE COLLECTIONS Municipal Privilege Tax Pima County Hotel Tax Maricopa County Rental Car Surcharge Pima County Rental Car Surcharge Pima County R.V. Surcharge Pima County Road Tax Apache County Excise Tax Cochise County Excise Tax Coconino County Excise Tax Coconino County Jail Tax Coconino County Capitol Projects Gila County Excise Tax Gila County Transportation Graham County Excise Tax Greenlee County Excise Tax La Paz County Excise Tax La Paz County Jail Tax La Paz County Health Services District Maricopa County Road Tax Maricopa Road Tax Extension Maricopa County Stadium Tax Maricopa County Jail Tax Mohave County Excise Tax Navajo County Excise Tax Pinal County Excise Tax Pinal County Road Tax Santa Cruz County Excise Tax Santa Cruz County Jail Tax Yavapai County Excise Tax Yavapai County Jail Tax Yuma County Excise Tax Yuma County Jail Tax Yuma County Capitol Projects Tax Yuma County Health Services District Tourism/Sports Authority Amnesty-County Taxes Additional Distribution COUNTY AND CITY COLLECTIONS TOTAL DEPARTMENT OF REVENUE RECEIPTS FY2003-04 FY2004-05 FY2005-06 FY2006-07 $1,265,625,175 2,400,432,714 190,186,057 ----- $1,362,143,376 2,588,439,418 232,215,946 13,553,444 $1,504,851,881 2,871,370,865 259,687,993 ----- $1,742,272,992 3,350,808,572 306,198,808 ----- $1,848,148,565 3,575,743,539 303,010,863 ----- $3,856,243,946 $4,196,352,184 $4,635,910,738 $5,399,280,372 $5,726,902,967 $447,841,034 9,156,917 6,328,095 2,340,528 --------23,510,706 2,150,995 42 72,824 (1,375) ----$4,347,643,713 $302,626,095 2,556,951 5,267,273 1,435,901 194,949 ----960,194 5,673,861 9,467,920 5,692,968 864,263 (1) 2,519,790 2,606,712 1,174,735 700,206 862,595 862,282 143,928 (1) 268,720,901 ----98,185 98,462,479 4,874,083 5,295,310 8,062,544 8,280,451 2,186,284 ----11,279,837 4,489,617 8,084,880 8,113,092 8,041,984 ----17,921,823 --------- $487,214,807 14,056,241 5,091,661 1,437,566 1,362,312 (3) ----25,691,865 2,195,590 44 $538,346,435 24,907,681 4,035,765 1,066,833 1,363,179 53,771 (3) 26,543,285 2,156,683 0 23,068 (11) 765,008 $4,734,190,336 $628,471,192 33,445,892 3,860,508 1,128,620 867,140 (3) 48,678 (3) 28,736,693 2,403,644 0 $666,184,022 34,613,656 6,744,231 0 0 0 23,074,167 2,449,270 0 23,018 0 ----- 25,238 0 ----- 49,009 0 ----- $5,234,407,387 $6,098,267,976 $6,460,017,324 $352,320,229 2,716,687 5,556,717 1,485,916 201,697 ----959,948 6,181,770 10,079,519 6,043,452 2,454,757 2,626,335 2,709,463 1,157,663 713,868 972,286 972,523 215,928 288,009,151 ----82,139 106,323,691 5,599,830 5,322,106 9,550,194 9,757,830 2,456,163 ----12,564,395 6,190,924 9,103,289 9,100,795 9,072,298 ----19,125,954 996,779 ----- $428,527,285 2,885,159 6,024,355 1,594,810 197,740 ----1,015,316 6,363,569 10,213,403 6,128,614 2,550,207 2,608,771 2,698,164 1,229,557 803,692 1,011,440 1,011,321 1,418 316,805,562 ----416 117,322,803 6,638,796 5,777,336 11,921,052 12,173,030 2,583,595 ----14,102,433 7,045,465 10,602,218 10,601,525 10,580,860 ----19,987,721 --------- $797,522,088 $890,624,297 $1,021,007,631 $1,233,966,650 $1,430,363,301 $5,145,165,801 $5,624,814,633 $6,255,415,019 $7,332,234,626 $7,890,380,625 (1) The tax was in place for only a portion of the first fiscal year. This figure does not represent a full year's collection (2) Environmentally Hazardous Products was repealed September 1, 1992. All amounts received are for prior tax periods (3) The distribution was in place for only a portion of the fiscal year $551,992,962 6,396,637 6,493,520 1,588,913 213,599 ----1,202,364 7,084,178 11,510,952 6,904,220 2,878,151 3,014,729 3,107,708 1,616,224 1,062,011 1,147,366 1,147,361 1,124 214,045,397 (1) 153,591,999 (1) 4,796 125,919,368 7,809,442 6,613,709 16,998,069 17,279,308 3,130,804 ----16,623,589 8,310,397 11,880,763 8,310,397 11,820,404 1,811,649 (1) 22,454,539 --------- $619,189,088 8,766,453 6,211,155 1,689,669 217,530 66,810,147 1,150,488 7,626,330 12,219,377 9,143,351 3,050,257 3,308,376 3,410,721 1,977,017 1,052,972 1,168,130 1,167,821 573 1,496,644 390,953,954 2,346 145,445,860 7,717,443 6,778,153 18,826,280 19,177,206 3,458,900 3,111,567 16,971,697 8,483,152 12,400,384 12,401,312 8,240,159 2,458,301 24,267,403 ----13,085 (3) (1) TABLE 5 STATE TRANSACTION PRIVILEGE, USE AND SEVERANCE TAX RATES FISCAL YEAR 2006-07 TAXABLE ACTIVITIES 1. Transporting and Towing 2. Nonmetalliferous Mining, Oil and Gas Production 4. Utilities 5. Communications 6. Railroads and Aircraft 7/8. Private Car/Pipelines 9. Publishing 10. Printing 11. Restaurants and Bars 12. Amusements 14. Personal Property Rentals 15. Contracting (1) 17. Retail 19. Mining Severance 21. Timbering Severance - Ponderosa (per thousand board feet) (2) 22. Timbering Severance - Other (per thousand board feet) (2) 25. Hotel/Motel Tax 28. Rental Occupancy Tax (2) 29/30. Use and Use Inventory Tax 47. Membership Camping (2) 49. Jet Fuel (per gallon) 51. Jet Fuel Use ( per gallon) DISTRIBUTION BASE NONSHARED EDUCATION TOTAL TAX 1.0% 4.0% 0.6% 5.6% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 2.0% 2.0% 2.0% 1.0% 2.0% 2.0% 2.125% 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% 3.0% 3.0% 3.0% 4.0% 3.0% 0.5% 0.0% 0.6% 0.6% 0.6% 0.6% 0.6% 0.6% 0.6% 0.6% 0.6% 0.6% 0.6% 0.0% 3.125% 5.6% 5.6% 5.6% 5.6% 5.6% 5.6% 5.6% 5.6% 5.6% 5.6% 5.6% 2.5% $0.00 $0.00 $0.00 $0.00 $0.00 2.75% 0.0% 0.0% 0.0% $0.0122 $0 $0.00 2.75% 0.0% 5.0% 0.0% $0.0183 $0.0305 $0.00 0.0% 0.0% 0.6% 0.0% $0 $0 (1) Most Contracting activity is covered under class 15, at a 5.6% total tax rate. Other classes at lower rates exist. (2) Effective November 1, 2006, these rates were repealed. $0.00 5.5% 0.0% 5.6% 0.0% $0.0305 $0.0305 TABLE 6 NET TAXABLE SALES BY TRANSACTION PRIVILEGE, USE AND SEVERANCE TAX CLASSIFICATIONS (1) FISCAL YEAR 2002-03 THROUGH FISCAL YEAR 2006-07 CLASSIFICATION Transporting (5) Mining, Oil & Gas Mining Severance Utilities Communications Private Car and Pipelines Publishing Job Printing Restaurants and Bars Amusements Commercial Lease (4) Personal Property Rentals Contracting Feed Wholesale (3) Retail Hotel/Motel Rental Occupancy Tax Use Tax Membership Camping Other TOTAL FY2002-03 % OF TOTAL FY2003-04 % OF TOTAL FY2004-05 % OF TOTAL FY2005-06 $26,106,195 268,072,442 45,049,321 5,940,826,217 2,869,499,256 0.03 0.35 0.06 7.72 3.73 $67,486,501 287,786,559 261,623,478 6,430,306,112 2,809,508,501 0.08 0.34 0.31 7.69 3.36 $53,371,189 317,201,953 656,631,022 6,828,178,785 2,934,857,677 0.06 0.34 0.71 7.34 3.15 $59,800,611 321,538,409 1,219,984,252 7,679,981,999 3,220,061,678 12,492,721 133,229,181 427,730,090 6,655,027,562 782,669,793 (7,578,796) 0.02 0.17 0.56 8.65 1.02 (0.01) 15,919,891 128,910,761 348,923,705 7,202,034,300 813,488,687 (6,517,860) 0.02 0.15 0.42 8.62 0.97 (0.01) 14,832,331 134,924,680 367,010,013 7,939,964,059 872,520,031 918,894 0.02 0.14 0.39 8.53 0.94 0.00 (2) 25,751,236 133,679,534 403,686,091 8,933,458,779 998,766,714 (119,532) 3,242,363,333 16,044,846,683 0 46,378,344,449 2,063,973,281 2,413,680 5,218,535,456 2,896,795 0 $93,073,784,311 3.48 17.24 0.00 49.83 2.22 0.00 (2) 5.61 0.00 0.00 100.00 3,319,777,937 11,563,726,354 (67,256) 39,408,769,331 1,698,499,187 1,427,458 3,793,690,395 2,406,275 -----$76,941,353,662 4.31 15.03 (0.00) (2) 51.22 2.21 0.00 (2) 4.93 0.00 (2) -----100.00 3,174,944,574 13,156,489,701 (8,021) 42,409,054,932 1,831,153,519 4,201,555 4,644,318,922 2,998,348 119,004 $83,582,743,168 3.80 15.74 (0.00) 50.74 2.19 0.01 5.56 0.00 (2) 0.00 (2) 100.00 (1) Net taxable sales are based upon tax receipts. (2) Percent of total is less than 0.01%. (3) Feed Wholesale dropped to 0% effective July 17, 1994 and was repealed effective October 1, 1994. (4) Commercial Lease rate dropped to 0% effective July 1, 1997. (5) The Transportation/Towing and Railroads/Aircraft business classifications have been combined into one category and renamed Transporting. Figures may not add to total due to rounding. 3,633,373,845 20,487,917,068 0 53,147,971,363 2,268,775,586 3,471,162 6,155,958,934 2,784,840 0 $108,696,842,570 % OF TOTAL 0.06 0.30 1.12 7.07 2.96 0.02 0.12 0.37 8.22 0.92 (0.00) (2) 3.34 18.85 0.00 48.90 2.09 0.00 (2) 5.66 0.00 0.00 100.00 FY2006-07 $43,350,656 255,531,207 1,743,361,330 8,609,033,694 3,513,667,361 19,678,951 129,680,750 397,801,716 9,619,785,333 1,086,363,361 (1,707) 3,927,824,025 22,415,050,588 0 55,009,403,286 2,411,634,235 1,064,998 6,091,506,625 12,257 0 $115,274,748,666 % OF TOTAL 0.04 0.22 1.51 7.47 3.05 0.02 0.11 0.35 8.35 0.94 (0.00) (2) 3.41 19.44 0.00 47.72 2.09 0.00 (2) 5.28 0.00 (2) 0.00 100.00 TABLE 7 TRANSACTION PRIVILEGE, USE AND SEVERANCE TAX COLLECTIONS BY CLASS FISCAL YEAR 2006-07 CLASSIFICATION Transporting (1) Nonmetal Mining, Oil and Gas Mining Severance Timbering Severance - Ponderosa (3) Timbering Severance - Other (3) Utilities Communications Private Car and Pipelines Publishing Printing Restaurants and Bars Amusements Commercial Lease (2) Rentals of Personal Property Contracting Retail Hotel/Motel Rental Occupancy Tax (3) Use Tax Utilities Use Tax License Fees Membership Camping (3) Jet Fuel Tax Jet Fuel Use Tax Non Sufficient Funds Telecommunications Service Assistance TOTAL DISTRIBUTION BASE NONSHARED TOTAL COLLECTIONS ($251,960) 2,553,154 34,839,204 7,469 1,560 86,030,697 35,104,198 187,704 1,295,623 3,974,022 192,206,067 21,702,278 (20) 78,477,664 223,714,233 1,099,125,722 66,237,832 21,140 120,981 0 0 216 1,942,818 0 0 (53,297) $1,847,237,307 ($1,004,685) 5,425,452 8,709,801 1,867 390 344,122,789 140,416,791 750,817 5,182,494 15,896,089 288,309,100 32,553,417 (20) 117,716,496 894,869,413 1,648,688,583 66,237,832 10,412 483,923 302,255,656 128,878 325 2,914,227 906,377 9,075 (213,187) $3,874,372,310 ($1,256,644) 7,978,605 43,549,005 9,336 1,950 430,153,486 175,520,989 938,521 6,478,117 19,870,111 480,515,167 54,255,695 (39) 196,194,159 1,118,583,646 2,747,814,304 132,475,665 31,553 604,904 302,255,656 128,878 541 4,857,045 906,377 9,075 (266,484) $5,721,609,616 (1) Transporting/Towing has been combined with Railroads/Aircraft for confidentiality purposes. (2) Commercial Lease rate dropped to 0% effective July 1, 1997. (3) Effective November 1, 2006, these rates were repealed. Figures may not add to total due to rounding. TABLE 8 DISTRIBUTION OF TRANSACTION PRIVILEGE, USE AND SEVERANCE TAX COLLECTIONS FISCAL YEAR 2006-07 Net Regular to State General Fund Net Estimated Payments to General Fund Net to Cities Net to Counties Net to Education Fund 911 Wireline/Excise, 911 Wireless, Telecommunications Devices, Municipal Water, Environmentally Hazardous Products and Waste Tire Accounts Receivable Collections $4,516,180,842 34,613,656 462,037,141 748,684,984 666,184,022 32,316,678 TOTAL GROSS COLLECTIONS Additional Distribution to State General Fund Additional Distribution to Cities Additional Distribution to Counties $6,460,017,323 34,475 4,697 7,612 ADDITIONAL DISTRIBUTION FROM TRANSACTION PRIVILEGE, USE AND SEVERANCE TAX COLLECTIONS FISCAL YEAR 2006-07 Phoenix International Raceway - Bridge Construction Phoenix International Raceway - Highway Improvements Rio Nuevo Sports and Tourism Authority Tribal Community Colleges Figures may not add total due to rounding. $416,667 $416,667 $14,974,923 $7,347,546 $1,750,000 TABLE 9 TRANSACTION PRIVILEGE, USE AND SEVERANCE TAX COLLECTIONS (1) IN APACHE COUNTY FOR THE PERIOD BEGINNING JULY 1, 2006 AND ENDING JUNE 30, 2007 TAXABLE ACTIVITIES AND BUSINESS CLASSIFICATIONS Utilities Communications Publishing Job Printing Restaurants and Bars Amusements Rentals of Personal Property Contracting (All) Retail Hotel/Motel Other Taxable Activities TOTAL CALCULATED NET TAXABLE INCOME % CHANGE FROM FY 2005-06 COLLECTIONS $12,157,442 25,285,016 858,527 227,448 10,508,324 308,400 -8.2% -21.1% n/a n/a -5.0% n/a $607,872 1,264,251 42,926 11,372 525,416 15,420 5,368,476 79,400,398 75,232,998 13,117,561 70,804,097 -9.0% -0.3% -4.8% 8.5% n/a 268,424 3,970,020 3,761,650 721,466 3,426,735 $293,268,687 -8.4% $14,615,553 NUMBER OF ACCOUNTS FISCAL YEAR 2004-05 THROUGH FISCAL YEAR 2006-07 TAXABLE ACTIVITIES AND BUSINESS CLASSIFICATIONS Utilities Communications Publishing Job Printing Restaurants and Bars Amusements Rentals of Personal Property Contracting (All) Retail Hotel/Motel Other Taxable Activities TOTAL FY2004-05 FY2005-06 21 123 n/a n/a 66 n/a 21 133 n/a n/a 66 n/a 24 142 10 12 71 15 160 382 1,103 56 724 180 452 1,241 56 845 171 471 1,297 59 868 2,635 2,994 3,140 (1) License fees, Jet Fuel, Jet Fuel Use, Timber Severance Ponderosa/Other, NSF, Seizure/Sales Fees, Telecommunications Telecommunications Service Assistance, Subpoena Fees , Utilities Credit and Amnesty are not included. Figures may not add to total due to rounding. FY2006-07 TABLE 10 TRANSACTION PRIVILEGE, USE AND SEVERANCE TAX COLLECTIONS (1) IN COCHISE COUNTY FOR THE PERIOD BEGINNING JULY 1, 2006 AND ENDING JUNE 30, 2007 TAXABLE ACTIVITIES AND BUSINESS CLASSIFICATIONS Utilities Communications Publishing Restaurants and Bars Amusements Rentals of Personal Property Contracting (All) Retail Hotel/Motel Other Taxable Activities TOTAL CALCULATED NET TAXABLE INCOME % CHANGE FROM FY 2005-06 $155,442,234 52,925,880 1,771,567 124,654,066 2,979,764 10.7% 3.6% 9.8% 11.6% -57.0% $7,772,112 2,646,294 88,578 6,232,703 148,988 27,579,999 308,516,943 783,434,408 38,711,316 96,575,380 12.6% 15.7% 4.2% 12.8% 17.2% 1,379,000 15,425,847 39,171,720 2,129,122 4,753,791 $1,592,591,556 8.2% . $79,748,156 COLLECTIONS NUMBER OF ACCOUNTS FISCAL YEAR 2004-05 THROUGH FISCAL YEAR 2006-07 TAXABLE ACTIVITIES AND BUSINESS CLASSIFICATIONS Utilities Communications Publishing Restaurants and Bars Amusements Rentals of Personal Property Contracting (All) Retail Hotel/Motel Other Taxable Activities TOTAL FY2004-05 FY2005-06 45 195 17 339 62 46 228 n/a 350 60 55 211 25 351 58 374 962 3,222 126 1,269 409 1,162 3,452 142 1,438 403 1,201 3,580 151 1,472 6,611 7,287 7,507 (1) License fees, Jet Fuel, Jet Fuel Use, Timber Severance Ponderosa/Other, NSF, Seizure/Sales Fees, Telecommunications Service Assistance, Subpoena Fees , Utilities Credit and Amnesty are not included. Figures may not add to total due to rounding. FY2006-07 TABLE 11 TRANSACTION PRIVILEGE, USE AND SEVERANCE TAX COLLECTIONS (1) IN COCONINO COUNTY FOR THE PERIOD BEGINNING JULY 1, 2006 AND ENDING JUNE 30, 2007 TAXABLE ACTIVITIES AND CALCULATED NET % CHANGE BUSINESS CLASSIFICATIONS TAXABLE INCOME FROM FY 2005-06 $158,069,986 10.2% $7,903,499 89,443,255 6.4% 4,472,163 2,586,723 n/a 129,336 Utilities Communications Publishing Job Printing Restaurants and Bars Amusements COLLECTIONS 3,220,143 8.8% 161,007 336,927,805 7.3% 16,846,390 48,844,537 16.0% 2,442,227 Rentals of Personal Property Contracting (All) Retail 62,963,340 4.4% 3,148,167 397,182,073 6.3% 19,859,104 1,073,989,197 4.5% 53,699,460 Hotel/Motel 215,456,842 5.7% 11,850,126 Other Taxable Activities 119,249,916 n/a 5,789,612 $2,507,933,817 5.5% $126,301,092 TOTAL NUMBER OF ACCOUNTS FISCAL YEAR 2004/05 THROUGH FISCAL YEAR 2006-07 TAXABLE ACTIVITIES AND BUSINESS CLASSIFICATIONS Utilities Communications FY2004-05 FY2005-06 FY2006-07 38 34 36 226 249 259 Publishing n/a n/a 30 Job Printing NA 34 43 446 471 467 88 91 99 Restaurants and Bars Amusements Rentals of Personal 511 528 501 Contracting (All) Property 1,640 1,881 1,915 Retail 3,989 4,270 4,413 Hotel/Motel Other Taxable Activities TOTAL 256 268 257 1,658 1,801 1,841 8,852 9,627 9,861 (1) License fees, Jet Fuel, Jet Fuel Use, Timber Severance Ponderosa/Other, NSF, Seizure/Sales Fees, Telecommunications Service Assistance, Subpoena Fees , Utilities Credit and Amnesty are not included. Figures may not add to total due to rounding. TABLE 12 TRANSACTION PRIVILEGE, USE AND SEVERANCE TAX COLLECTIONS (1) IN GILA COUNTY FOR THE PERIOD BEGINNING JULY 1, 2006 AND ENDING JUNE 30, 2007 TAXABLE ACTIVITIES AND BUSINESS CLASSIFICATIONS Utilities Communications Publishing Job Printing Restaurants and Bars Amusements Rentals of Personal Property Contracting (All) Retail Hotel/Motel Other Taxable Activities TOTAL CALCULATED NET TAXABLE INCOME % CHANGE FROM FY 2005-06 COLLECTIONS $106,082,042 26,127,319 968,076 442,070 59,871,578 2,187,514 25.0% 2.5% -1.4% n/a 7.3% 58.3% $5,304,102 1,306,366 48,404 22,103 2,993,579 109,376 14,803,088 116,873,756 306,059,645 14,306,475 72,205,716 -21.0% 12.9% 3.6% 7.9% n/a 740,154 5,843,688 15,302,982 786,856 2,929,696 $719,927,278 9.5% $35,387,307 NUMBER OF ACCOUNTS FISCAL YEAR 2004-05 THROUGH FISCAL YEAR 2006-07 TAXABLE ACTIVITIES AND BUSINESS CLASSIFICATIONS Utilities Communications Publishing Job Printing Restaurants and Bars Amusements Rentals of Personal Property Contracting (All) Retail Hotel/Motel Other Taxable Activities TOTAL FY2004-05 FY2005-06 28 161 12 n/a 179 30 33 190 15 n/a 189 33 32 189 16 17 188 30 263 746 1,830 61 838 283 859 2,090 66 901 277 923 2,116 72 943 4,148 4,659 4,803 (1) License fees, Jet Fuel, Jet Fuel Use, Timber Severance Ponderosa/Other, NSF, Seizure/Sales Fees, Telecommunications Service Assistance, Subpoena Fees , Utilities Credit and Amnesty are not included. Figures may not add to total due to rounding. FY2006-07 TABLE 13 TRANSACTION PRIVILEGE, USE AND SEVERANCE TAX COLLECTIONS (1) IN GRAHAM COUNTY FOR THE PERIOD BEGINNING JULY 1, 2006 AND ENDING JUNE 30, 2007 TAXABLE ACTIVITIES AND BUSINESS CLASSIFICATIONS Communications Restaurants and Bars Rentals of Personal Property Contracting (All) Retail Other Taxable Activities TOTAL CALCULATED NET TAXABLE INCOME % CHANGE FROM FY 2005-06 COLLECTIONS $9,164,238 24,981,198 25.0% 15.6% $458,212 1,249,060 15,480,030 51,506,265 234,598,000 72,872,133 123.4% 22.5% 20.7% 11.5% 774,002 2,575,313 11,729,900 3,677,202 $408,601,864 21.0% $20,463,688 NUMBER OF ACCOUNTS FISCAL YEAR 2004-05 THROUGH FISCAL YEAR 2006-07 TAXABLE ACTIVITIES AND BUSINESS CLASSIFICATIONS Communications Restaurants and Bars Rentals of Personal Property Contracting (All) Retail Other Taxable Activities TOTAL FY2004-05 FY2005-06 127 67 143 67 141 60 149 253 985 631 157 305 1,164 684 164 334 1,230 727 2,212 2,520 2,656 (1) License fees, Jet Fuel, Jet Fuel Use, Timber Severance Ponderosa/Other, NSF, Seizure/Sales Fees, Telecommunications Service Assistance, Subpoena Fees , Utilities Credit and Amnesty are not included. Figures may not add to total due to rounding. FY2006-07 TABLE 14 TRANSACTION PRIVILEGE, USE AND SEVERANCE TAX COLLECTIONS (1) IN GREENLEE COUNTY FOR THE PERIOD BEGINNING JULY 1, 2006 AND ENDING JUNE 30, 2007 TAXABLE ACTIVITIES AND BUSINESS CLASSIFICATIONS Communications Restaurants and Bars Rentals of Personal Property Contracting (All) Retail Other Taxable Activities TOTAL CALCULATED NET TAXABLE INCOME % CHANGE FROM FY 2006-07 $2,474,231 3,690,086 6.7% 17.6% $123,712 184,504 5,875,272 83,897,710 56,039,151 865,653,965 472.8% 130.3% -46.3% 45.2% 292,764 4,194,886 2,801,958 23,255,769 $1,017,630,414 36.9% $30,853,591 COLLECTIONS NUMBER OF ACCOUNTS FISCAL YEAR 2004-05 THROUGH FISCAL YEAR 2006-07 TAXABLE ACTIVITIES AND BUSINESS CLASSIFICATIONS Communications Restaurants and Bars Rentals of Personal Property Contracting (All) Retail Other Taxable Activities TOTAL FY2004-05 FY2005-06 74 22 76 28 89 25 60 75 352 300 59 102 441 322 72 111 498 362 883 1,028 1,157 (1) License fees, Jet Fuel, Jet Fuel Use, Timber Severance Ponderosa/Other, NSF, Seizure/Sales Fees, Telecommunications Service Assistance, Subpoena Fees , Utilities Credit and Amnesty are not included. Figures may not add to total due to rounding. FY2006-07 TABLE 15 TRANSACTION PRIVILEGE, USE AND SEVERANCE TAX COLLECTIONS (1) IN LA PAZ COUNTY FOR THE PERIOD BEGINNING JULY 1, 2006 AND ENDING JUNE 30, 2007 TAXABLE ACTIVITIES AND BUSINESS CLASSIFICATIONS Utilities Communications Job Printing Restaurants and Bars Amusements Rentals of Personal Property Contracting (All) Retail Hotel/Motel Other Taxable Activities TOTAL CALCULATED NET TAXABLE INCOME % CHANGE FROM FY 2005-06 COLLECTIONS $21,462,030 7,569,626 151,826 26,898,454 186,919 14.0% -4.5% n/a 2.8% -6.1% $1,073,101 378,481 7,591 1,344,923 9,346 3,470,124 35,798,256 127,995,574 6,287,850 7,510,252 12.1% 1.0% -0.8% 0.0% n/a 173,506 1,789,913 6,399,779 345,832 368,815 $237,330,912 0.4% $11,891,287 NUMBER OF ACCOUNTS FISCAL YEAR 2004-05 THROUGH FISCAL YEAR 2006-07 TAXABLE ACTIVITIES AND BUSINESS CLASSIFICATIONS Utilities Communications Job Printing Restaurants and Bars Amusements Rentals of Personal Property Contracting (All) Retail Hotel/Motel Other Taxable Activities TOTAL FY2004-05 20 119 n/a 103 11 FY2005-06 18 122 n/a 99 13 18 127 10 102 10 156 261 1,765 57 487 178 338 1,908 55 565 167 350 1,864 57 599 2,979 3,296 3,304 (1) License fees, Jet Fuel, Jet Fuel Use, Timber Severance Ponderosa/Other, NSF, Seizure/Sales Fees, Telecommunications Service Assistance, Subpoena Fees , Utilities Credit and Amnesty are not included. Figures may not add to total due to rounding. FY2006-07 TABLE 16 TRANSACTION PRIVILEGE,USE AND SEVERANCE TAX COLLECTIONS (1) IN MARICOPA COUNTY FOR THE PERIOD BEGINNING JULY 1, 2006 AND ENDING JUNE 30, 2007 TAXABLE ACTIVITIES AND BUSINESS CLASSIFICATIONS CALCULATED NET TAXABLE INCOME Utilities Communications Publishing Job Printing Restaurants and Bars Amusements Rentals of Personal Property Contracting (All) Retail Hotel/Motel Other Taxable Activities TOTAL % CHANGE FROM FY 2005-06 COLLECTIONS $5,340,104,563 2,313,194,999 93,802,867 322,225,750 6,570,717,167 818,967,314 13.0% 5.9% 1.2% 0.2% 7.6% 8.0% $267,005,228 115,659,750 4,690,143 16,111,288 328,535,858 40,948,366 3,007,608,464 14,769,818,830 37,801,674,663 1,483,775,430 4,828,904,018 7.6% 12.1% 3.6% 7.6% 25.8% 150,380,423 738,490,942 1,890,083,733 81,607,649 239,684,048 $77,350,794,064 5.9% $3,873,197,428 NUMBER OF ACCOUNTS FISCAL YEAR 2004-05 THROUGH FISCAL YEAR 2006-07 TAXABLE ACTIVITIES AND BUSINESS CLASSIFICATIONS Utilities Communications Publishing Job Printing Restaurants and Bars Amusements Rentals of Personal Property Contracting (All) Retail Hotel/Motel Other Taxable Activities TOTAL FY2004-05 FY2005-06 128 567 270 923 5,997 727 131 658 310 911 6,442 759 143 687 314 940 6,584 720 2,869 13,918 46,602 638 11,397 3,047 15,506 48,977 686 12,226 3,035 16,516 49,535 640 11,920 84,036 89,653 91,034 (1) License fees, Jet Fuel, Jet Fuel Use, Timber Severance Ponderosa/Other, NSF, Seizure/Sales Fees, Telecommunications Service Assistance, Subpoena Fees , Utilities Credit and Amnesty are not included. Figures may not add to total due to rounding. FY2006-07 TABLE 17 TRANSACTION PRIVILEGE, USE AND SEVERANCE TAX COLLECTIONS (1) IN MOHAVE COUNTY FOR THE PERIOD BEGINNING JULY 1, 2006 AND ENDING JUNE 30, 2007 TAXABLE ACTIVITIES AND BUSINESS CLASSIFICATIONS CALCULATED NET TAXABLE INCOME Utilities Communications Publishing Job Printing Restaurants and Bars Amusements Rentals of Personal Property Contracting (All) Retail Hotel/Motel Other Taxable Activities TOTAL % CHANGE FROM FY 2005-06 COLLECTIONS $450,080,323 89,705,573 2,349,891 6,219,570 217,311,463 13,109,384 15.3% 8.9% -21.0% 1.0% 6.9% -20.7% $22,504,016 4,485,279 117,495 310,978 10,865,573 655,469 78,505,382 637,075,884 1,514,736,752 49,267,458 135,507,737 3.1% -12.3% -2.7% 2.2% 21.9% 3,925,269 31,853,794 75,736,838 2,709,710 6,456,952 $3,193,869,416 -0.8% $159,621,373 NUMBER OF ACCOUNTS FISCAL YEAR 2004-05 THROUGH FISCAL YEAR 2006-07 TAXABLE ACTIVITIES AND BUSINESS CLASSIFICATIONS Utilities Communications Publishing Job Printing Restaurants and Bars Amusements Rentals of Personal Property Contracting (All) Retail Hotel/Motel Other Taxable Activities TOTAL FY2004-05 FY2005-06 45 185 23 33 401 55 52 202 28 37 448 68 51 202 27 35 446 60 530 1,729 4,522 144 1,569 544 2,039 4,827 166 1,809 540 2,178 4,990 164 1,925 9,236 10,220 10,618 (1) License fees, Jet Fuel, Jet Fuel Use, Timber Severance Ponderosa/Other, NSF, Seizure/Sales Fees, Telecommunications Service Assistance, Subpoena Fees , Utilities Credit and Amnesty are not included. Figures may not add to total due to rounding. FY2006-07 TABLE 18 TRANSACTION PRIVILEGE, USE AND SEVERANCE TAX COLLECTIONS (1) IN NAVAJO COUNTY FOR THE PERIOD BEGINNING JULY 1, 2006 AND ENDING JUNE 30, 2007 TAXABLE ACTIVITIES AND BUSINESS CLASSIFICATIONS CALCULATED NET TAXABLE INCOME Utilities Communications Publishing Restaurants and Bars Amusements Rentals of Personal Property Contracting (All) Retail Hotel/Motel Other Taxable Activities TOTAL % CHANGE FROM FY 2005-06 COLLECTIONS $87,982,279 35,121,694 1,197,866 95,177,582 6,735,258 9.8% 24.3% n/a 10.4% n/a $4,399,114 1,756,085 59,893 4,758,879 336,763 28,671,062 257,433,160 786,854,498 34,050,385 57,973,047 16.8% 6.7% 4.1% 13.3% n/a 1,433,553 12,871,658 39,342,725 1,872,771 2,831,366 $1,391,196,831 -0.8% $69,662,807 NUMBER OF ACCOUNTS FISCAL YEAR 2004-05 THROUGH FISCAL YEAR 2006-07 TAXABLE ACTIVITIES AND BUSINESS CLASSIFICATIONS Utilities Communications Publishing Restaurants and Bars Amusements Rentals of Personal Property Contracting (All) Retail Hotel/Motel Other Taxable Activities TOTAL FY2004-05 FY2005-06 40 165 n/a 199 n/a 41 192 n/a 219 n/a 41 184 14 233 45 317 952 2,300 143 1,043 336 1,082 2,494 152 1,171 319 1,191 2,665 151 1,181 5,159 5,687 6,024 (1) License fees, Jet Fuel, Jet Fuel Use, Timber Severance Ponderosa/Other, NSF, Seizure/Sales Fees, Telecommunications Service Assistance, Subpoena Fees , Utilities Credit and Amnesty are not included. Figures may not add to total due to rounding. FY2006-07 TABLE 19 TRANSACTION PRIVILEGE, USE AND SEVERANCE TAX COLLECTIONS (1) IN PIMA COUNTY FOR THE PERIOD BEGINNING JULY 1, 2006 AND ENDING JUNE 30, 2007 TAXABLE ACTIVITIES AND BUSINESS CLASSIFICATIONS Utilities Communications Publishing Job Printing Restaurants and Bars Amusements Rentals of Personal Property Contracting (All) Retail Hotel/Motel Other Taxable Activities TOTAL CALCULATED NET TAXABLE INCOME % CHANGE FROM FY 2005-06 $1,278,206,901 482,889,845 15,059,142 48,497,756 1,443,381,949 117,606,080 6.8% 34.4% -17.2% -5.6% 7.6% 15.7% $63,910,345 24,144,492 752,957 2,424,888 72,169,097 5,880,304 463,813,222 2,423,605,573 7,818,537,872 362,516,704 1,087,259,776 8.3% 8.2% 3.3% 0.1% 30.5% 23,190,661 121,180,279 390,926,894 19,938,419 41,996,036 $15,541,374,819 7.0% $766,514,372 COLLECTIONS NUMBER OF ACCOUNTS FISCAL YEAR 2004-05 THROUGH FISCAL YEAR 2006-07 TAXABLE ACTIVITIES AND BUSINESS CLASSIFICATIONS Utilities Communications Publishing Job Printing Restaurants and Bars Amusements Rentals of Personal Property Contracting (All) Retail Hotel/Motel Other Taxable Activities TOTAL FY2004-05 FY2005-06 66 233 83 175 1,585 217 69 273 81 175 1,684 206 77 326 86 165 1,692 220 1,134 4,609 14,433 266 3,546 1,146 4,963 14,861 283 3,972 1,154 5,111 15,091 276 4,232 26,347 27,713 28,430 (1) License fees, Jet Fuel, Jet Fuel Use, Timber Severance Ponderosa/Other, NSF, Seizure/Sales Fees, Telecommunications Service Assistance, Subpoena Fees , Utilities Credit and Amnesty are not included. Figures may not add to total due to rounding. FY2006-07 TABLE 20 TRANSACTION PRIVILEGE, USE AND SEVERANCE TAX COLLECTIONS (1) IN PINAL COUNTY FOR THE PERIOD BEGINNING JULY 1, 2006 AND ENDING JUNE 30, 2007 TAXABLE ACTIVITIES AND BUSINESS CLASSIFICATIONS CALCULATED NET TAXABLE INCOME Utilities Communications Publishing Job Printing Restaurants and Bars Amusements Rentals of Personal Property Contracting (All) Retail Hotel/Motel Other Taxable Activities TOTAL % CHANGE FROM FY 2005-06 COLLECTIONS $328,860,573 144,967,732 3,203,374 1,563,187 188,814,158 27,092,315 20.4% 11.8% -0.2% n/a 15.6% 19.8% $16,443,029 7,248,387 160,169 78,159 9,440,708 1,354,616 64,076,430 1,868,637,725 1,048,949,102 21,788,811 384,785,747 32.2% 6.9% 10.4% 10.4% 13.3% 3,203,821 93,431,886 52,447,455 1,198,385 13,813,263 $4,082,739,156 10.4% $198,819,878 NUMBER OF ACCOUNTS FISCAL YEAR 2004-05 THROUGH FISCAL YEAR 2006-07 TAXABLE ACTIVITIES AND BUSINESS CLASSIFICATIONS Utilities Communications Publishing Job Printing Restaurants and Bars Amusements Rentals of Personal Property Contracting (All) Retail Hotel/Motel Other Taxable Activities TOTAL FY2004-05 FY2005-06 58 218 16 n/a 351 94 65 260 27 n/a 402 105 67 261 27 35 405 101 439 2,210 3,681 93 1,373 479 2,701 4,157 101 1,551 519 2,968 4,530 108 1,669 8,533 9,848 10,690 (1) License fees, Jet Fuel, Jet Fuel Use, Timber Severance Ponderosa/Other, NSF, Seizure/Sales Fees, Telecommunications Service Assistance, Subpoena Fees , Utilities Credit and Amnesty are not included. Figures may not add to total due to rounding. FY2006-07 TABLE 21 TRANSACTION PRIVILEGE, USE AND SEVERANCE TAX COLLECTIONS (1) IN SANTA CRUZ COUNTY FOR THE PERIOD BEGINNING JULY 1, 2006 AND ENDING JUNE 30, 2007 TAXABLE ACTIVITIES AND BUSINESS CLASSIFICATIONS CALCULATED NET TAXABLE INCOME Utilities Communications Job Printing Restaurants and Bars Amusements Rentals of Personal Property Contracting (All) Retail Hotel/Motel Other Taxable Activities TOTAL % CHANGE FROM FY 2005-06 COLLECTIONS $39,456,652 28,515,966 737,358 48,964,608 5,316,255 -3.4% 31.7% n/a 11.0% 89.4% $1,972,833 1,425,798 36,868 2,448,230 265,813 15,059,224 122,805,283 412,242,405 13,395,410 20,899,574 40.1% 12.2% 9.6% -4.0% 16.8% 752,961 6,140,264 20,612,120 736,748 1,045,010 $707,392,735 10.8% $35,436,645 NUMBER OF ACCOUNTS FISCAL YEAR 2004-05 THROUGH FISCAL YEAR 2006-07 TAXABLE ACTIVITIES AND BUSINESS CLASSIFICATIONS Utilities Communications Job Printing Restaurants and Bars Amusements Rentals of Personal Property Contracting (All) Retail Hotel/Motel Other Taxable Activities TOTAL FY2004-05 13 144 NA 128 21 FY2005-06 18 165 14 138 18 18 165 13 144 20 237 499 1,618 29 731 246 602 1,800 30 790 247 652 1,933 37 842 3,420 3,821 4,071 (1) License fees, Jet Fuel, Jet Fuel Use, Timber Severance Ponderosa/Other, NSF, Seizure/Sales Fees, Telecommunications Service Assistance, Subpoena Fees , Utilities Credit and Amnesty are not included. Figures may not add to total due to rounding. FY2006-07 TABLE 22 TRANSACTION PRIVILEGE, USE AND SEVERANCE TAX COLLECTIONS (1) IN YAVAPAI COUNTY FOR THE PERIOD BEGINNING JULY 1, 2006 AND ENDING JUNE 30, 2007 TAXABLE ACTIVITIES AND BUSINESS CLASSIFICATIONS CALCULATED NET TAXABLE INCOME Utilities Communications Publishing Job Printing Restaurants and Bars Amusements Rentals of Personal Property Contracting (All) Retail Hotel/Motel Other Taxable Activities TOTAL % CHANGE FROM FY 2005-06 COLLECTIONS $289,043,134 119,212,349 4,103,785 7,957,313 275,375,048 27,806,901 13.0% 3.2% 5.1% 0.8% 5.8% 12.9% $14,452,157 5,960,617 205,189 397,866 13,768,752 1,390,345 68,378,734 799,876,996 1,629,489,832 101,100,329 382,940,997 2.5% -5.0% 1.4% 5.9% 15.3% 3,418,937 39,993,850 81,474,492 5,560,518 11,851,222 $3,705,285,417 2.6% $178,473,945 NUMBER OF ACCOUNTS FISCAL YEAR 2004-05 THROUGH FISCAL YEAR 2006-07 TAXABLE ACTIVITIES AND BUSINESS CLASSIFICATIONS Utilities Communications Publishing Job Printing Restaurants and Bars Amusements Rentals of Personal Property Contracting (All) Retail Hotel/Motel Other Taxable Activities TOTAL FY2004-05 FY2005-06 75 226 46 59 596 88 74 240 50 62 638 93 70 256 52 60 635 93 517 2,714 5,790 198 1,688 550 3,065 6,205 199 1,890 551 3,149 6,322 180 1,965 11,997 13,066 13,333 (1) License fees, Jet Fuel, Jet Fuel Use, Timber Severance Ponderosa/Other, NSF, Seizure/Sales Fees, Telecommunications Service Assistance, Subpoena Fees , Utilities Credit and Amnesty are not included. Figures may not add to total due to rounding. FY2006-07 TABLE 23 TRANSACTION PRIVILEGE, USE AND SEVERANCE TAX COLLECTIONS (1) IN YUMA COUNTY FOR THE PERIOD BEGINNING JULY 1, 2006 AND ENDING JUNE 30, 2007 TAXABLE ACTIVITIES AND BUSINESS CLASSIFICATIONS CALCULATED NET TAXABLE INCOME Utilities Communications Restaurants and Bars Amusements Rentals of Personal Property Contracting (All) Retail Hotel/Motel Other Taxable Activities TOTAL % CHANGE FROM FY 2005-06 COLLECTIONS $238,454,958 87,069,638 192,511,847 12,998,356 12.6% -2.1% 5.2% 6.1% $11,922,748 4,353,482 9,625,592 649,918 66,171,179 462,621,737 1,339,569,190 49,461,843 88,106,932 5.5% -1.6% 4.7% 11.3% 8.1% 3,308,559 23,131,087 66,978,459 2,720,401 4,328,436 $2,536,965,680 4.2% $127,018,682 NUMBER OF ACCOUNTS FISCAL YEAR 2004-05 THROUGH FISCAL YEAR 2006-07 TAXABLE ACTIVITIES AND BUSINESS CLASSIFICATIONS Utilities Communications Restaurants and Bars Amusements Rentals of Personal Property Contracting (All) Retail Hotel/Motel Other Taxable Activities TOTAL FY2004-05 FY2005-06 31 195 312 39 32 322 348 43 37 216 348 42 450 847 3,327 100 1,357 440 997 3,599 101 1,418 469 1,084 3,784 99 1,583 6,658 7,300 7,662 (1) License fees, Jet Fuel, Jet Fuel Use, Timber Severance Ponderosa/Other, NSF, Seizure/Sales Fees, Telecommunications Service Assistance, Subpoena Fees , Utilities Credit and Amnesty are not included. Figures may not add to total due to rounding. FY2006-07 TABLE 24 STATE TRANSACTION PRIVILEGE AND SEVERANCE TAX DISTRIBUTION TO COUNTIES FISCAL YEAR 2002-03 THROUGH FISCAL YEAR 2006-07 COUNTY Apache Cochise Coconino Gila Graham Greenlee La Paz Maricopa Mohave Navajo Pima Pinal Santa Cruz Yavapai Yuma Additional Distribution FY2002-03 $3,878,392 9,344,323 13,903,149 4,058,750 2,381,979 1,750,473 1,523,806 329,197,352 13,839,979 8,287,880 77,729,083 13,328,798 3,357,505 17,000,259 13,121,508 FY2003-04 $4,135,998 10,135,220 14,362,293 4,314,601 2,500,199 1,975,250 1,665,084 355,145,845 15,239,251 8,627,859 82,562,254 14,773,417 3,627,497 18,519,004 14,220,509 ----$512,703,234 ----$551,804,281 Figures may not add to totals due to rounding. FY2004-05 $4,542,978 10,852,890 15,127,441 4,600,625 2,735,648 2,511,678 1,824,245 392,415,261 17,231,461 9,440,461 90,284,731 16,911,027 3,949,677 21,183,714 16,003,660 ----$609,615,497 FY2005-06 $5,213,591 12,250,317 16,990,411 5,347,259 3,257,813 3,918,655 2,050,126 453,769,970 20,349,087 10,785,151 102,619,310 21,298,154 4,604,423 25,131,601 18,208,919 ----$705,794,789 FY2006-07 $5,021,042 13,078,428 17,652,655 5,375,594 3,419,080 5,112,364 2,027,860 480,738,808 22,051,895 10,999,752 106,931,317 25,221,897 4,919,731 26,858,064 19,276,498 % CHANGE FROM FY 2005-06 -3.7% 6.8% 3.9% 0.5% 5.0% 30.5% -1.1% 5.9% 8.4% 2.0% 4.2% 18.4% 6.8% 6.9% 5.9% 7,612 $748,692,595 6.1% TABLE 25 STATE TRANSACTION PRIVILEGE AND SEVERANCE TAX DISTRIBUTION TO MUNICIPALITIES FISCAL YEAR 2006-07 CITIES APACHE Eagar Springerville St. Johns COCHISE Benson Bisbee Douglas Huachuca City Sierra Vista Tombstone Willcox COCONINO Flagstaff Fredonia Page Williams GILA Globe Hayden Miami Payson Star Valley Winkelman GRAHAM Pima Safford Thatcher GREENLEE Clifton Duncan LA PAZ Parker Quartzsite MARICOPA Avondale Buckeye Carefree Cave Creek Chandler El Mirage Fountain Hills Gila Bend Gilbert Glendale Goodyear Guadalupe Litchfield Park Mesa Paradise Valley Peoria Phoenix Queen Creek AMOUNT COUNTY TOTAL $421,531 196,271 367,354 $450,520 624,455 1,634,322 173,935 4,152,576 153,025 369,255 $5,815,412 105,501 675,780 298,921 $712,373 84,781 185,816 1,466,566 190,663 42,105 $985,156 $7,558,087 $6,895,614 $2,682,304 $203,679 889,634 432,461 $1,525,774 $246,740 77,178 $323,918 $311,752 342,167 $653,919 $6,592,036 2,414,748 350,151 452,991 21,940,979 3,047,282 2,327,876 188,192 16,594,544 23,036,293 4,392,378 527,982 430,370 42,589,898 1,317,628 13,129,991 140,272,664 1,560,091 City Distributions are based on relative population. Figures may not add to total due to rounding. CITIES Scottsdale Surprise Tempe Tolleson Wickenburg Youngtown MOHAVE Bullhead City Colorado City Kingman Lake Havasu City NAVAJO Holbrook Pinetop-Lakeside Show Low Snowflake Taylor Winslow PIMA Marana Oro Valley Sahuarita South Tucson Tucson PINAL Apache Junction Casa Grande Coolidge Eloy Florence Kearny Mammoth Maricopa Superior SANTA CRUZ Nogales Patagonia YAVAPAI Camp Verde Chino Valley Clarkdale Cottonwood Dewey-Humboldt Jerome Prescott Prescott Valley Sedona YUMA San Luis Somerton Wellton Yuma Additional Distribution TOTAL AMOUNT COUNTY TOTAL $22,312,325 8,389,268 15,758,308 617,612 577,597 585,771 $329,406,973 $3,631,722 387,789 2,457,899 5,078,803 $11,556,213 $515,627 395,868 939,533 469,054 389,689 934,781 $3,644,552 $2,540,114 3,744,827 1,329,699 535,111 50,352,715 $58,502,466 $3,238,230 3,086,156 777,479 1,057,391 1,951,302 213,759 167,472 1,514,469 309,281 $12,315,538 $2,074,862 87,443 $2,162,305 $1,019,847 1,171,447 349,771 1,032,204 383,037 31,365 3,875,040 3,191,182 1,039,332 $12,093,225 $2,179,413 926,702 187,241 8,437,741 $462,037,141 $11,731,098 $4,697 $462,041,838 TABLE 26 MUNICIPAL PRIVILEGE TAX COLLECTION PROGRAM COLLECTIONS BY CITY FISCAL YEAR 2006-07 CITY Apache Junction Benson Bisbee Buckeye Bullhead City Camp Verde Carefree Casa Grande Cave Creek Chino Valley Clarkdale Clifton Colorado City Coolidge Cottonwood Dewey-Humboldt Douglas Duncan Eagar El Mirage Eloy Florence Fountain Hills Fredonia Gila Bend Gilbert Globe Goodyear Guadalupe Hayden Holbrook Huachuca City Jerome Kearny Kingman Lake Havasu City Litchfield Park Mammoth Marana RATE (1) (PERCENT) 2.2* 2.5* 2.5* 2.0* 2.0* 2.0* 3.0* 1.8* 2.5* 3.0* 2.25* 3.0* 2.0* 3.0* 2.2* 2.0* 2.5* 2.0 3.0* 3.0* 3.0* 2.0* 2.6* 2.0 3.0* 1.5* 2.0* 2.0* 3.0* 3.0* 3.0* 1.5* 3.0 2.5* 2.0* 2.0* 2.0* 2.0* 2.0* COLLECTIONS $12,706,880 3,521,733 1,840,038 21,176,137 14,738,205 2,706,405 3,669,144 24,585,990 4,073,281 4,941,038 1,357,111 433,821 318,844 6,549,753 10,248,166 689,570 5,106,688 91,617 926,119 5,628,283 7,113,849 3,609,702 11,075,428 140,008 1,032,993 57,129,376 3,984,775 45,989,375 1,471,410 1,570,626 2,613,570 249,725 525,459 315,764 14,070,401 20,832,079 4,110,305 72,061 30,674,073 CITY Maricopa Miami Oro Valley Page Paradise Valley Parker Patagonia Payson Pima Pinetop-Lakeside Prescott Valley Quartzsite Queen Creek Safford Sahuarita St. Johns San Luis Sedona Show Low Sierra Vista Snowflake Somerton South Tucson Springerville Star Valley Superior Surprise Taylor Thatcher Tolleson Tombstone Wellton Wickenburg Willcox Williams Winkelman Winslow Youngtown Yuma RATE (1) (PERCENT) 2.0* 2.5* 2.0* 3.0* 1.65* 2.0* 3.0* 2.12* 2.0* 2.5* 2.33* 2.5* 2.0* 2.5* 2.0* 2.0* 3.5* 3.0* 2.0 1.75* 2.0* 2.5* 2.5* 3.0* 2.0* 2.0* 2.2* 2.0* 2.0* 2.0* 2.5* 2.5* 1.7* 3.0* 3.0* 3.5* 3.0* 2.0* 1.7 TOTAL * Jurisdiction levied at more than one rate during the fiscal year. Rate shown is the rate charged on most transactions. (1) Rate shown is effective January 1, 2007 and may have changed during the remainder of FY 07. Figures may not add to total due to rounding. COLLECTIONS $23,912,100 293,707 15,083,616 5,859,635 9,825,128 1,360,203 176,712 7,503,852 242,671 4,248,442 14,584,471 1,497,925 20,225,405 6,342,493 14,103,320 509,529 3,901,795 14,165,807 10,964,955 17,364,206 1,486,125 990,230 2,446,463 1,527,062 463,990 586,091 46,575,052 845,852 1,599,034 6,868,998 723,599 651,261 3,358,668 2,481,745 4,167,097 87,378 4,299,435 835,814 35,139,419 $619,189,088 TABLE 27 MUNICIPAL PRIVILEGE TAX COLLECTION PROGRAM FISCAL YEAR 2002-03 THROUGH FISCAL YEAR 2006-07 FISCAL YEAR TOTAL COLLECTIONS NUMBER OF CITIES IN PROGRAM 2002-03 $303,164,388 75 2003-04 $352,320,229 76 2004-05 $428,527,285 77 2005-06 $551,992,962 78 2006-07 $619,189,088 78 INCOME TAX The State of Arizona imposes two types of income tax: corporate, which applies to incorporated businesses and certain other entities operating in this state; and individual, which is levied upon those persons who reside in or earn income in the state (Refer to Table 28). CORPORATE INCOME TAX MAJOR FEATURES Every corporation doing business in Arizona is required to file a corporate income tax return. Corporations filed returns with the state and made payments of $986 million during fiscal year 2007 (Refer to Table 28). INDIVIDUAL INCOME TAX MAJOR FEATURES For tax year 2004 filed in 2005, approximately 2.3 million individual filers reported Arizona gross income (defined as federal adjusted gross income) totaling more than $ 114.5 billion. Individuals with Arizona gross income of more than $75,000, in the preceding or current year, are required to file Arizona estimated tax payments. An individual can apply any portion of an income tax refund toward the following year's income tax as an estimated payment. DISTRIBUTION State income tax collections are shared with Arizona municipalities in an Urban Revenue Sharing Program. During fiscal year 2007 an amount equal to 15 percent of net income tax collections from two years prior was distributed to cities and towns. The distribution is based on population and is given only to incorporated cities and towns. The remainder is deposited in the state general fund after amounts sufficient to pay refunds are allocated (Refer to Tables 28 and 29). Voluntary taxpayer contributions to Aid to Education Fund, Citizens Clean Elections Fund, Domestic Violence Shelter Fund, Child Abuse Prevention Fund, Arizona Wildlife Fund, Special Olympics Fund, Neighbors Helping Neighbors Fund, and political parties are distributed to the appropriate agency, political party or organization (Refer to Table 29). The graduated rate structure for the 2006 tax year ranged from 2.73 percent to a maximum of 4.79 percent on an individual's income over $150,000 (or joint income over $300,000). ARIZONA DEPARTMENT OF REVENUE 2007 ANNUAL REPORT 38 CORPORATE AND INDIVIDUAL INCOME TAX CREDITS CREDIT Agricultural Preservation District AVAILABLE TO A refundable credit for a taxpayer who owns property classified as agricultural property and who conveys ownership or development rights to an agricultural preservation district. Agricultural Water Conservation Taxpayers that incur expenses to purchase and install a Conservation System agricultural water conservation system in Arizona. Agricultural Pollution Control Equipment Taxpayers that incur expenses during the taxable year to purchase agricultural pollution control equipment. Clean Elections For donations made directly to the Clean Elections Fund or a donation made on the tax return. Contributions to Charities that Provide Assistance to the Working Poor Individual taxpayers that make cash contributions to certain charities that provide help to the working poor. The maximum amount of this credit for single taxpayers is $200. Married filing joint taxpayers can take a credit of $400. Defense Contracting Taxpayers certified by the Arizona Department of Commerce as a qualified defense contractor for qualified increases in employment. Employing Arizona National Guard Members Credit for employers who have an employee that is a member of the Arizona National Guard if the employee is placed on active duty. The credit is $1,000 for each employee placed on active duty. Employment of TANF Recipients Taxpayers that employ recipients of Temporary Assistance for Needy Families (TANF). Enterprise Zone Taxpayers whose business is located in an Arizona enterprise zone that have a net increase in qualified employment positions. Environmental Technology Taxpayers that incur expenses in constructing a qualified Facility environmental technology manufacturing, producing, or processing facility as described in ARS 41-1514.02. The qualified environmental technology manufacturer, producer, or processor must have been certified by Commerce before July 1, 1996. Family A credit for taxpayers below certain income levels, with differing amounts for different household sizes. Healthy Forest Businesses that operate a healthy forest enterprise may receive a nonrefundable credit against corporate and individual income tax liabilities for taxable years beginning from and after December 31, 2004 through December 31, 2014. Income Taxes Paid to Another State or Country Taxpayers that paid a net income tax to Arizona and another qualified state or foreign country, on the same income. Increased Excise Taxes This credit is for Arizona residents whose federal adjusted gross income is beneath a certain threshold ($25,000 or less for Married Filing Joint or Head of Household, or $12,500 for Married Filing Separately or Single) and who cannot be claimed as a dependent by any other taxpayer. ARIZONA DEPARTMENT OF REVENUE 2007 ANNUAL REPORT 39 CREDIT Military Reuse Zone AVAILABLE TO Taxpayers with a net increase in employment of full-time employees working in a military reuse zone. Motion Picture Productions Costs Provides a transferable tax credit against corporate and individual income tax liabilities for motion picture production companies that produce motion pictures completely or partially in Arizona. Pollution Control Taxpayers that purchase real or personal property that is used within Arizona in the taxpayer's trade or business to control or prevent pollution. Private School Tuition Organizations Individual taxpayers that made contributions to a school tuition organization that provides scholarships or grants to qualified schools. The credit is $500 or $1000, depending upon filing status. A.R.S § 43-1183 provides a corporate income tax credit. The amount of total credits the department may allow cannot exceed $10 million dollars in the first fiscal year. This amount will increase 20% in each following fiscal year. The state’s fiscal year begins on July 1, and ends on June 30 of the following year. Property Tax A refundable credit for property taxes accrued if certain age and income level conditions are met. Public School Extra Curricular Activity Individual taxpayers that make contributions or paid certain fees to public schools in Arizona. The credit is $200 or $400, depending upon filing status. Recycling Equipment Taxpayers who acquire and place in service recycling equipment in Arizona. This credit was repealed for corporations not individuals. Research and Development Corporate taxpayers with an increase in qualifying research and development expenses conducted in Arizona. School Site Donation This tax credit is for the donation of real property and improvements to an Arizona school district or Arizona charter school for use as a school or as a site for the construction of a school. Solar Energy Devices Individual taxpayers who install a solar energy device in his or her residence located in Arizona. Business that install one or more solar energy devices for commercial or industrial purposes in its trade or business located in Arizona. Solar Hot Water Heater Plumbing Stub Outs and Electric Vehicle Recharge Outlets Taxpayers for the installation of solar hot water heater plumbing stub outs and electric vehicle recharge outlets in houses or dwelling units constructed by the taxpayer. The houses or dwelling units must be located in Arizona. Taxes Paid for Coal Consumed in Generating Electrical Power Corporate taxpayers, a credit equal to 30 percent of the amount paid by the seller or purchaser as transaction privilege tax or use tax for coal sold to the taxpayer that is consumed in the generation of electrical power in Arizona. Technology Training A refundable credit for providing technological skills training to not more than 20 employees. ARIZONA DEPARTMENT OF REVENUE 2007 ANNUAL REPORT 40 TABLE 28 INCOME TAX COLLECTIONS FISCAL YEAR 2002-03 THROUGH FISCAL YEAR 2006-07 SOURCE Withheld from Wages Gross Revenue Amnesty Refunds and Charge-offs NET FY2002-03 FY2003-04 FY2004-05 FY2005-06 $2,310,302,093 ----(8,527,022) $2,336,442,815 $176,268 (8,422,819) $2,626,264,231 ----(5,267,886) $3,041,031,728 ----(8,992,229) $2,301,775,071 Individuals & Fiduciaries Gross Revenue Amnesty Regular Refunds and Charge-offs Attorney Fees - Ladewig refunds (2) NET Corporations Gross Revenue Amnesty Refunds and Charge-offs NET Subtotal Net Collections Less distributions for: Urban Revenue Sharing Contracted Collection Agency Wildlife Contributions Child Abuse Prevention Special Olympics Neighbors Helping Neighbors State Aid to Public Schools Domestic Violence Shelter Democratic Party Libertarian Party Republican Party Clean Elections Subtotal Distributions NET REVENUE TO STATE GENERAL FUND WQARF DISTRIBUTION (1) $2,328,196,264 $2,620,996,345 $656,586,317 ----(853,999,525) (2,000,000) $776,183,708 2,890,549 (791,230,045) (2,000,000) $1,128,453,951 ----(895,440,957) (6,249,511) ($199,413,208) ($14,155,788) $226,763,483 $518,246,330 ----(128,839,937) $596,582,273 53,690,925 (124,623,328) $389,406,393 $525,649,869 $701,859,285 $2,491,768,256 $2,839,690,345 $3,549,619,113 $430,559,053 18,110 178,190 202,941 84,062 41,330 29,420 149,012 18,246 2,182 16,557 3,877,564 $365,065,158 409 167,014 198,467 79,498 42,269 46,052 132,713 27,252 1,570 19,561 4,116,022 (3) $789,739,978 ----(87,880,694) $373,072,580 0 174,101 200,870 87,888 37,509 42,696 142,058 23,860 2,292 16,777 4,831,319 $3,274,317,624 $1,631,563,811 ----(1,012,026,853) (5,107,102) $1,677,949,795 ----(1,285,344,591) (4,853,277) $614,429,855 $387,751,926 $369,895,987 $378,631,950 $2,056,591,590 $2,469,794,358 $3,170,987,163 (3) $10,000,000 $10,000,000 $11,000,000 (3) 70.4% 8.3% $1,070,710,516 ----(84,540,518) $874,219,472 $986,169,998 21.2% $4,520,688,826 $4,648,239,549 100.0% $425,228,927 0 212,208 240,323 100,319 51,410 37,991 178,520 27,679 2,436 19,190 4,947,968 $435,176,665 $3,294,287,540 ----(19,969,915) $3,032,039,499 $978,239,759 ----(104,020,287) (3) PERCENT OF NET COLLECTIONS FY2006-07 IN FY2006-07 $551,230,661 0 255,738 250,683 106,425 53,507 38,309 195,840 31,304 3,315 21,444 6,145,768 $431,046,971 $558,332,993 $4,089,641,855 $4,089,906,556 $15,000,000 (3) (1) Beginning July 1, 1999, a transfer is made to the Water Quality Assurance Revolving Fund from corporate income tax collections. (2) Attorney fees relating to the Ladewig class action lawsuit were paid from individual income tax refunds. (3) Corrected figures. Figures may not add to total due to rounding. $15,000,000 TABLE 29 EXEMPTIONS, DEDUCTIONS AND CREDITS TAX YEAR 2003 THROUGH TAX YEAR 2006 TAX YEAR 2003 2004 2005 2006 PERSONAL EXEMPTION (2) BLIND EXEMPTION AGE 65 AND OVER EXEMPTION DEPENDENT EXEMPTION STANDARD DEDUCTION LIMIT (1) MAXIMUM PROPERTY TAX CREDIT MAXIMUM FAMILY TAX CREDIT 2,100 2,100 2,100 2,100 1,500 1,500 1,500 1,500 2,100 2,100 2,100 2,100 2,300 2,300 2,300 2,300 4,050/8,100 4,050/8,100 4,125/8,250 4,247/8,494 502 502 502 502 240 240 240 240 (1) Amounts shown are for individual and married-filing-jointly returns. (2) Beginning with tax year 1997, married filers claiming at least one dependent are entititled to an additional $2,100 personal exemption. INDIVIDUAL INCOME TAX CREDITS TAX YEAR 2003 THROUGH TAX YEAR 2005 CREDIT Agricultural Pollution Control Agricultural Preservation District Agricultural Water Conservation Alternative Fuel - Non Refundable --Delivery System --Vehicles --Refuel Apparatus/Infrastructure --Neighborhood Electric Vehicles Clean Elections Construction Materials Contributions to Charities Providing Help to Working Poor Defense Contracting Employment of TANF Recipients Enterprise Zone Environmental Technology Family Tax Credit Income Taxes Paid to Other States Increased Excise Taxes Paid Military Reuse Zone Pollution Control Device Private School Tuition Organization (3) Property Tax Public School Extra Curricular Activity (3) Recycling Equipment Research and Development School Site Donation Solar Energy Solar Hot Water Heater & Plumbing Stub Outs Technology Training Underground Storage Tanks Total TAX YEAR 2003 CLAIMANTS CREDITS TAX YEAR 2004 CLAIMANTS CREDITS TAX YEAR 2005 CLAIMANTS CREDITS (2) 0 151 (2) $0 $1,611,928 (2) 0 109 (2) $0 $2,444,313 (2) 0 (2) (2) $0 (2) 0 50 5 1,168 32,042 (1) $0 $60,504 $8,960 $1,533,072 $727,224 (1) 0 26 (1) (2) 32,338 (1) $0 $34,972 (1) (2) $739,774 (1) (2) (2) --(2) 31,075 --- (2) (2) --(2) $801,435 --- 17,467 0 (1) 193 0 417,451 25,722 548,831 0 67 58,122 15,028 201,407 4 82 38 1,171 $3,259,400 $0 (1) $1,698,443 $0 $7,445,937 $62,484,651 $29,581,905 $0 $48,826 $29,445,494 $5,301,879 $27,753,764 $2,380 $765,768 $933,599 $480,091 20,736 0 0 164 0 425,484 29,956 555,762 0 9 63,830 14,768 213,987 (1) 103 99 1,875 $3,851,700 $0 $0 $1,271,630 $0 $7,709,270 $80,229,015 $29,924,907 $0 $31,986 $31,871,900 $5,242,685 $30,958,872 (1) $1,315,373 $3,510,857 $787,155 25,587 0 (2) 189 0 439,056 34,664 546,678 0 (2) 69,234 13,943 215,369 0 (2) 75 (2) $6,589,000 $0 (2) $1,384,760 $0 $7,661,867 $119,416,310 $29,358,243 $0 (2) $42,192,973 $4,977,070 $35,416,279 $0 (2) $6,012,397 (2) (1) 0 0 1,319,005 (1) $0 $0 $173,145,791 17 0 0 1,359,286 (2) 0 --1,375,870 (2) $0 --$253,810,334 $5,677 $0 $0 $199,934,333 (1) Too few claimants to allow release of information without violating confidentiality laws. (2) Credits claimed for tax years are being reviewed. No data is available at this time. (3) Data reported is based on donation information provided to the Department of Revenue by the Private School Tuition Organizations and the Public Schools. For the purposes of this report, it is assumed that all credit was used in the tax year. Figures for all credits shown here are subject to change, due to the verification process. TABLE 30 RESIDENT INDIVIDUAL INCOME TAX LIABILITY BY FEDERAL ADJUSTED GROSS INCOME TAX YEAR 2004 (1) FEDERAL ADJUSTED GROSS INCOME # OF FILERS % OF TOTAL LIABILITY % OF TOTAL Negative Income $0.01 to $1,999 $2,000 to $5,999 $6,000 to $9,999 $10,000 to $13,999 $14,000 to $19,999 $20,000 to $24,999 $25,000 to $29,999 $30,000 to $39,999 $40,000 to $49,999 $50,000 to $74,999 $75,000 to $99,999 $100,000 to $199,999 $200,000 to $499,999 $500,000 to $999,999 $1,000,000 to $4,999,999 $5,000,000 and over 28,705 38,123 119,298 143,612 147,943 228,483 171,901 148,666 237,861 176,381 294,620 164,199 155,597 36,492 6,547 3,257 399 1.37% 1.81% 5.68% 6.83% 7.04% 10.87% 8.18% 7.07% 11.32% 8.39% 14.02% 7.81% 7.40% 1.74% 0.31% 0.15% 0.02% $334,297 34,952 109,406 3,981,242 11,207,734 33,465,214 44,950,144 57,108,370 133,198,327 138,480,115 343,777,468 301,808,584 521,383,671 359,456,378 182,660,548 267,736,064 206,803,966 0.01% 0.00% 0.00% 0.15% 0.43% 1.28% 1.72% 2.19% 5.11% 5.31% 13.19% 11.58% 20.00% 13.79% 7.01% 10.27% 7.93% 2,102,084 100.00% $2,606,496,480 100.00% TOTAL (1) This summary combines all liability reported on the Arizona Form 140 and 140A Individual Income tax returns for tax year 2004, filed from January 2005 forward. TABLE 31 NONRESIDENT/ PART YEAR RESIDENT INDIVIDUAL INCOME TAX LIABILITY BY FEDERAL ADJUSTED GROSS INCOME TAX YEAR 2004 (1) ARIZONA PORTION OF FEDERAL ADJUSTED GROSS INCOME Negative Income $0.01 to $1,999 $2,000 to $5,999 $6,000 to $9,999 $10,000 to $13,999 $14,000 to $19,999 $20,000 to $24,999 $25,000 to $29,999 $30,000 to $39,999 $40,000 to $49,999 $50,000 to $74,999 $75,000 to $99,999 $100,000 to $199,999 $200,000 to $499,999 $500,000 to $999,999 $1,000,000 to $4,999,999 $5,000,000 and over TOTAL # OF FILERS % OF TOTAL LIABILITY % OF TOTAL 21,515 20,348 33,834 25,470 19,779 21,900 12,778 9,745 13,652 8,595 11,535 5,109 5,820 2,417 636 463 67 10.07% 9.52% 15.84% 11.92% 9.26% 10.25% 5.98% 4.56% 6.39% 4.02% 5.40% 2.39% 2.72% 1.13% 0.30% 0.22% 0.03% $628,913 29,912 408,981 1,092,643 2,186,409 4,706,465 4,433,934 4,547,472 8,859,631 7,924,815 15,967,932 11,194,555 23,501,813 26,776,258 17,775,491 36,688,758 31,602,054 0.32% 0.02% 0.21% 0.55% 1.10% 2.37% 2.24% 2.29% 4.47% 4.00% 8.05% 5.64% 11.85% 13.50% 8.96% 18.50% 15.93% 213,663 100.00% $198,326,036 100.00% (1) This summary combines all liability reported on the Arizona Form 140NR and 140PY Individual Income tax returns for tax year 2004, filed from January 2005 forward. TABLE 32 CORPORATE INCOME TAX CORPORATE TAXPAYER BY SIZE OF TAX LIABILITY TAX YEAR 2003(1) CORPORATE TAX LIABILITY $50 Minimum $50.01 to $99.99 $100 to $499.99 $500 to $999.99 $1,000 to $4,999.99 $5,000 to $9,999.99 $10,000 to $49,999.99 $50,000 to $99,999.99 $100,000 to $499,999.99 $500,000 to $999,999.99 $1,000,000 to $15,000,000 TOTAL # OF FILERS 35,569 1,051 3,396 1,874 4,644 1,471 1,664 385 507 95 107 50,763 % OF TOTAL 70.1% 2.1% 6.7% 3.7% 9.1% 2.9% 3.3% 0.8% 1.0% 0.2% 0.2% 100.0% LIABILITY $1,775,088 77,273 892,017 1,351,730 11,553,493 10,297,740 36,669,542 27,033,581 108,641,087 66,145,064 385,824,667 $650,261,282 CORPORATE INCOME TAX CREDITS TAX YEAR 2004 CREDIT TYPE Agricultural Pollution Control Equipment Agricultural Preservation District Agricultural Water Conservation Alternative Fuel - Non Refundable --Fuel Delivery System --Vehicles --Refueling Apparatus & Infrastructure --Neighborhood Electric Vehicles Clean Elections Coal Used for Electric Generation Consolidated Filers Construction Materials Defense Contracting Employment of TANF Recipients Enterprise Zone Environmental Technology Military Reuse Zone Pollution Control Equipment Recycling Equipment Research & Development # OF FILERS * 0 * CREDIT USED * $0 * * 3 * 10 90 3 30 * * 14 113 * * 22 * 154 * $2,837 * $11,380 $562 $908,990 $2,280,960 * * $485,190 $7,532,667 * * $1,174,893 * $32,799,603 CARRYFORWARD AVAILABLE * $0 * * $0 * $779,883 $0 $1,799,254 $55,108,438 * * $5,985 $4,615,711 * * $4,267,084 * $590,769,464 % OF TOTAL 0.3% 0.0% 0.1% 0.2% 1.8% 1.6% 5.6% 4.2% 16.7% 10.2% 59.3% 100.0% TABLE 33 AVERAGE FEDERAL ADJUSTED GROSS INCOME AND AVERAGE TAX LIABILITY PER RETURN BY COUNTY FOR TAX YEAR 2004 APACHE COCONINO Average FAGI $28,510 Average Liability $769 Average FAGI $45,685 Average Liability $1,422 MOHAVE Average FAGI $8,892 Average Liability $1,094 NAVAJO Average FAGI $36,153 Average Liability $992 GREENLEE YAVAPAI Average FAGI $39,556 Average Liability $1,013 Average FAGI $44,986 Average Liability $1,283 LA PAZ Average FAGI $32,644 Average Liability $885 GILA Average FAGI $35,723 Average Liability $896 MARICOPA Average FAGI $56,588 Average Liability $1,755 YUMA Average FAGI $35,296 Average Liability $1,008 STATEWIDE AVERAGES Average FAGI $51,372 Average Liability $1,564 PINAL Average FAGI $40,629 Average Liability $1,040 PIMA COCHISE Average FAGI $45,695 Average Liability $1,294 Average FAGI is the average federal adjusted gross income reported on the Arizona resident income tax return. Average liability is the average tax liability for all resident Arizona income tax returns filed. GRAHAM Average FAGI $35,870 Average Liability $908 Average FAGI $39,229 Average Liability $1,077 SANTA CRUZ Average FAGI $36,178 Average Liability $1,083 ARIZONA DEPARTMENT OF REVENUE 2007 ANNUAL REPORT 41 TABLE 34 URBAN REVENUE SHARING FISCAL YEAR 2002-03 THROUGH FISCAL YEAR 2006-07 FISCAL YEAR AMOUNT 2002-03 $430,559,053 2003-04 $365,065,158 2004-05 $373,072,580 2005-06 $425,228,927 2006-07 $551,230,661 TABLE 35 DISTRIBUTION OF INCOME TAX AS URBAN REVENUE SHARING TO MUNICIPALITIES IN FISCAL YEAR 2006-07 CITIES BY COUNTY APACHE Eagar St. Johns Springerville COCHISE Benson Bisbee Douglas Huachuca City Sierra Vista Tombstone Willcox COCONINO Flagstaff Fredonia Page Williams GILA Globe Hayden Miami Payson Star Valley Winkelman GRAHAM Pima Safford Thatcher GREENLEE Clifton Duncan LA PAZ Parker Quartzsite MARICOPA Avondale Buckeye Carefree Cave Creek Chandler El Mirage Fountain Hills Gila Bend Gilbert Glendale Goodyear Guadalupe Litchfield Park Mesa Paradise Valley Peoria Phoenix AMOUNT % OF TOTAL $503,531 438,815 234,451 0.09% 0.08% 0.04% 538,159 745,929 1,952,246 207,770 4,960,373 182,792 441,086 0.10% 0.14% 0.35% 0.04% 0.90% 0.03% 0.08% 6,946,680 126,025 807,239 357,070 1.26% 0.02% 0.15% 0.06% 850,950 101,274 221,962 1,751,855 227,753 50,296 0.15% 0.02% 0.04% 0.32% 0.04% 0.01% 241,309 1,062,694 516,587 0.04% 0.19% 0.09% 294,739 92,191 0.05% 0.02% 372,397 408,728 0.07% 0.07% 7,874,379 2,884,487 418,265 541,111 26,209,140 3,640,067 2,780,715 224,801 19,761,466 27,517,525 5,246,824 630,691 514,089 50,874,877 1,573,945 15,684,157 167,559,793 1.43% 0.52% 0.08% 0.10% 4.75% 0.66% 0.50% 0.04% 3.58% 4.99% 0.95% 0.11% 0.09% 9.23% 0.29% 2.85% 30.40% City distributions are based on relative population CITIES BY COUNTY Queen Creek Scottsdale Surprise Tempe Tolleson Wickenburg Youngtown MOHAVE Bullhead City Colorado City Kingman Lake Havasu City NAVAJO Holbrook Pinetop-Lakeside Show Low Snowflake Taylor Winslow PIMA Marana Oro Valley Sahuarita South Tucson Tucson PINAL Apache Junction Casa Grande Coolidge Eloy Florence Kearny Mammoth Maricopa Superior SANTA CRUZ Nogales Patagonia YAVAPAI Camp Verde Chino Valley Clarkdale Cottonwood Dewey-Humboldt Jerome Prescott Prescott Valley Sedona YUMA San Luis Somerton Wellton Yuma TOTAL AMOUNT % OF TOTAL $1,863,574 26,652,724 10,021,225 18,823,759 737,755 689,956 699,720 0.34% 4.84% 1.82% 3.41% 0.13% 0.13% 0.13% 4,338,198 463,226 2,936,032 6,066,778 0.79% 0.08% 0.53% 1.10% 615,931 472,876 1,122,300 560,299 465,496 1,116,623 0.11% 0.09% 0.20% 0.10% 0.08% 0.20% 3,034,241 4,473,305 1,588,364 639,206 60,147,789 0.55% 0.81% 0.29% 0.12% 10.91% 3,868,160 3,686,503 928,722 1,263,084 2,330,887 255,342 200,050 1,206,112 369,445 0.70% 0.67% 0.17% 0.23% 0.42% 0.05% 0.04% 0.22% 0.07% 2,478,484 104,453 0.45% 0.02% 1,218,238 1,399,327 417,811 1,232,997 457,549 37,467 4,628,849 3,811,960 1,241,512 0.22% 0.25% 0.08% 0.22% 0.08% 0.01% 0.84% 0.69% 0.23% 2,603,373 1,086,932 223,665 10,079,129 0.47% 0.20% 0.04% 1.83% $551,230,661 100.00% PROPERTY TAX In Arizona, property taxation is based upon the "ad valorem" value of property (ad valorem, meaning "according to value"). The tax is calculated from two different bases: full cash value (or market value) and limited value (i.e., statutorily-controlled value). The full cash value is used to calculate tax rates to pay for voter-initiated bonds, overrides, and special district levies (Refer to Table 37). Taxes based upon the limited (controlled) value produce funds to maintain the basic operations of state, county and city government, schools, and other public entities (Refer to Table 36). Limited values cannot exceed the full cash value of each property. Taxes calculated on the limited value, called primary taxes, are added to those derived from the full cash value, or secondary taxes, to produce the total annual tax bill. All taxable property in Arizona is classified according to its actual use. Each classification is assigned a specific assessment ratio prescribed by law which is multiplied by the full cash and limited values to produce an assessed value (See Figure 1). The assessed value is the basis for calculating tax bills. GENERAL PROPERTY TAX ADMINISTRATION The duties of valuing property for tax purposes are divided between the department and the fifteen County Assessors’ Offices. The department values utilities, airlines, railroads, mines, and other geographically-dispersed properties (Centrally Valued Properties). Values determined by the department for those properties are transmitted to the County Boards of Supervisors for entry upon the county tax rolls for levy and collection of property taxes. County Assessors, utilizing appraisal standards and manuals prescribed by the department, are responsible for assessment of other classes of property, including residential, commercial, industrial, and agricultural properties (Locally Assessed Properties). Appeals of valuation or classification determined by the county assessors for locally assessed properties originate with the property owner’s petition for review filed with the county assessor. Such appeals may be continued to either the local County Board of Equalization, or to the State Board of Equalization and the Tax Court, a division of the Maricopa County Superior Court. Appeals may also be filed directly with the Tax Court. TAX COLLECTION AND DISTRIBUTION County Treasurers collect all property taxes (except airline and private car companies) and distribute receipts to all taxing entities. Taxes levied on airline flight properties and private rail car properties are collected by the department and deposited with the Arizona State Treasurer. Taxes on airline flight properties and private car companies are levied at the average state tax rate. This rate is derived by dividing the total of all of the levies in the state by the total net assessed value in the state. This calculation produces the weighted average of all of the levies in the state and is referred to as the "average state tax rate." EQUALIZATION The department’s primary tool in evaluating assessors’ assessment performance is its sales ratio study, which compares values established by the County Assessors with sales prices of recently sold properties. These studies are performed several times each year by county, type of property, and area. Sales ratios are derived by dividing full cash values by sales prices of recently sold properties. The median sales ratio is the middle sales ratio when the ratios are arrayed in order of magnitude; in other words, there are an equal number of properties above and below the median. The sales ratio studies include coefficients of dispersion which are a measure of how equally all taxpayers are treated. Coefficient of dispersion targets are currently 25 % for vacant land and commercial properties, 15 % for residential properties in Maricopa and Pima counties, and 20 % on residential properties in all other counties. Lower coefficients of dispersion indicate greater equity in property assessments. Centrally Valued Properties The Centrally Valued Properties Unit is responsible for the annual valuation of 13 industries for ad valorem property tax purposes (see chart next page). ARIZONA DEPARTMENT OF REVENUE 2007 ANNUAL REPORT 43 Generally, these are large, complex properties which are often located in more than one county and/or in more than one state. Values are determined for the entire system and then apportioned to Arizona and to the individual taxing jurisdictions. They are referred to as “centrally valued” because they are valued by the department rather than the 15 County Assessors. Beginning with tax year 1998, the assessment and appeals calendar for centrally valued properties was changed to coincide with the calendar for locally assessed properties. Figure 1 Class Legal Classification Assessment Ratio 1.1 1.3-1.7, 1.11 1.12 1.13 Mines Utilities Commercial Real Commercial Personal 2R 2P Agricultural Real; Vacant Land Agricultural Personal 3 4 5 6 Residential Rental Residential Railroads, Airlines Historic Property; Foreign Trade Zones; Qualified Environmental Technology Facilities 5% Commercial Historic Combination 1% and 24.5% Rental Residential Historic Combination 1% and 10% Improvements on government property 1% 7 8 9 24.5% 24.5% 24.5% First $59,099 exempt; 24.5% on the remainder 16% First $59,099 exempt; 16% on the remainder 10% 10% 22% ARIZONA DEPARTMENT OF REVENUE 2007 ANNUAL REPORT 44 INDUSTRIES VALUED BY THE DEPARTMENT Industry Number of Companies 2005................2006................2007 Airlines (Flight Property)...............................................................37....................35....................34 Electric & Gas* Generation ......................................................................24....................24....................24 Transmission and Distribution........................................35....................35....................35 Mines (non-producing) ....................................................................3......................5......................5 Mines (producing)..........................................................................34....................33....................31 Pipelines (Gas Transmission) ..........................................................9......................9......................9 Private Rail Cars ..........................................................................256..................256..................262 Producing Oil & Gas Interests .........................................................4......................4......................4 Railroads ........................................................................................11....................11....................11 Telecommunications .....................................................................81....................76....................77 Water Utilities..............................................................................321..................330..................328 Total ............................................................................................808..................815..................818 * Includes Salt River Project ARIZONA DEPARTMENT OF REVENUE 2007 ANNUAL REPORT 45 TABLE 36 STATE OF ARIZONA TAX YEAR 2007 PRIMARY PROPERTY TAX LEVIES TAX AUTHORITY APACHE COCHISE COCONINO GILA GRAHAM GREENLEE LA PAZ MARICOPA MOHAVE NAVAJO PIMA PINAL SANTA CRUZ YAVAPAI YUMA TOTAL STATE NET ASSESSED VALUATION STATE $336,596,256 $0 $812,722,290 $281,529 $1,514,258,140 $559,128 $453,078,054 $0 $135,117,570 $0 $289,217,635 $0 $170,555,367 $0 $38,930,267,550 $18,730,011 $1,890,688,680 $0 $812,314,271 $14,858 $7,353,331,088 $179,827 $1,908,801,658 $2,634 $312,714,438 $2,437 $2,470,265,871 $657,561 $937,839,418 $0 $58,327,768,286 $20,427,985 COUNTY CITIES & TOWNS $1,603,545 $23,286,932 $6,636,993 $18,621,508 $2,342,398 $1,340,524 $3,591,725 $430,333,525 $28,923,755 $4,907,191 $264,866,986 $76,783,734 $9,947,132 $37,775,306 $18,936,854 $929,898,108 $0 $2,001,178 $5,167,135 $1,871,239 $187,936 $212,199 $0 $172,793,690 $4,488,486 $329,942 $10,373,546 $10,638,767 $0 $1,457,152 $8,365,288 $217,886,558 AVERAGE STATE PRIMARY TAX RATE PER $100 COMMUNITY COLLEGES SCHOOLS $0 $13,251,088 $14,165,750 $36,910,823 $5,628,498 $48,403,460 $2,712,578 $16,912,741 $2,706,810 $5,173,891 $0 $7,072,886 $2,958,283 $4,312,547 $321,018,986 $1,441,573,430 $15,543,352 $62,510,019 $9,956,536 $25,827,281 $74,937,796 $341,151,614 $34,358,431 $94,097,025 $0 $15,816,596 $33,094,152 $79,158,169 $16,266,825 $43,819,725 $533,347,997 $2,235,991,295 ALL OTHER $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 TOTAL $14,854,633 $76,646,212 $66,395,214 $40,118,066 $10,411,035 $8,625,609 $10,862,555 $2,384,449,642 $111,465,612 $41,035,807 $691,509,769 $215,880,591 $25,766,165 $152,142,340 $87,388,692 $3,937,551,943 PRIMARY RATE 4.41 9.43 4.38 8.85 7.71 2.98 6.37 6.12 5.90 5.05 9.40 11.31 8.24 6.16 9.32 6.75 6.75 TAX YEAR 2006 PRIMARY PROPERTY TAX LEVIES TAX AUTHORITY APACHE COCHISE COCONINO GILA GRAHAM GREENLEE LA PAZ MARICOPA MOHAVE NAVAJO PIMA PINAL SANTA CRUZ YAVAPAI YUMA TOTAL STATE NET ASSESSED VALUATION STATE $316,510,258 $0 $734,609,559 $271,895 $1,367,963,404 $559,000 $412,254,721 $0 $115,866,166 $0 $226,709,610 $0 $154,507,381 $0 $33,807,465,267 $27,106,867 $1,604,391,585 $0 $734,836,821 $17,364 $6,467,201,516 $162,985 $1,472,159,592 $2,638 $280,155,394 $2,322 $2,125,710,207 $618,153 $820,782,919 $0 $50,641,124,400 $28,741,224 AVERAGE STATE PRIMARY TAX RATE PER $100 COUNTY CITIES & TOWNS $1,482,218 $21,421,215 $6,322,727 $17,928,132 $2,039,361 $1,261,412 $3,409,669 $399,013,484 $26,916,878 $4,577,299 $248,469,882 $63,428,688 $9,259,136 $35,184,002 $17,588,577 $858,302,680 $0 $1,939,466 $4,880,677 $1,829,699 $181,378 $11,128 $0 $156,365,069 $4,536,245 $313,058 $9,729,668 $6,061,705 $0 $1,506,354 $7,600,954 $194,955,401 COMMUNITY COLLEGES 7.24 All figures are current as of September 1, 2007. Note: Some increase/decrease due to reporting tax levies in different authorities than in previous years. SCHOOLS $0 $10,347,759 $13,126,004 $26,322,643 $5,362,417 $49,398,371 $2,556,391 $16,740,708 $2,393,563 $4,833,455 $0 $6,308,775 $2,894,541 $4,428,411 $298,014,922 $1,381,296,194 $14,410,838 $56,643,473 $9,287,601 $25,307,243 $68,358,320 $320,381,536 $30,221,007 $68,742,744 $0 $14,175,106 $30,414,662 $69,142,161 $15,472,994 $36,009,872 $492,513,260 $2,090,078,451 ALL OTHER $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 TOTAL $11,829,977 $63,081,223 $66,523,192 $39,054,930 $9,447,757 $7,581,315 $10,732,621 $2,261,796,536 $102,507,434 $39,502,565 $647,102,391 $168,456,782 $23,436,564 $136,865,332 $76,672,397 $3,664,591,016 PRIMARY RATE 3.74 8.59 4.86 9.47 8.15 3.34 6.95 6.69 6.39 5.38 10.01 11.44 8.37 6.44 9.34 7.24 TABLE 37 STATE OF ARIZONA TAX YEAR 2007 SECONDARY PROPERTY TAX LEVIES TAX AUTHORITY APACHE COCHISE COCONINO GILA GRAHAM GREENLEE LA PAZ MARICOPA MOHAVE NAVAJO PIMA PINAL SANTA CRUZ YAVAPAI YUMA TOTAL STATE NET ASSESSED VALUATION $352,863,759 $872,912,337 $1,744,822,563 $477,902,533 $140,072,106 $289,414,018 $200,054,271 $49,534,573,831 $2,516,012,949 $851,317,372 $8,220,395,835 $2,334,827,334 $341,683,683 $2,853,059,731 $1,107,186,911 $71,837,099,233 STATE $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 COUNTY CITIES & TOWNS $5,466,119 $3,894,525 $7,444,637 $1,433,708 $172,768 $627,260 $172,148 $92,422,485 $24,247,864 $4,891,393 $117,676,604 $5,682,713 $2,242,325 $9,738,414 $13,480,009 $289,592,972 $0 $158,462 $6,279,004 $205,000 $0 $0 $0 $330,163,218 $436,575 $0 $27,962,810 $0 $0 $1,915,789 $0 $367,120,858 AVERAGE STATE SECONDARY TAX RATE PER $100 COMMUNITY COLLEGES $1,231,847 $0 $2,003,056 $0 $0 $0 $884,640 $74,981,944 $0 $1,659,075 $13,596,535 $0 $0 $5,214,651 $4,893,288 $104,465,036 SCHOOLS $1,063,329 $11,483,966 $21,003,998 $5,042,866 $1,834,284 $1,978,733 $1,476,159 $919,992,983 $18,004,508 $12,050,785 $139,990,117 $46,804,558 $6,725,382 $15,609,948 $14,607,029 $1,217,668,646 ALL OTHER $3,800,803 $8,313,771 $15,290,495 $5,681,073 $382,722 $45,348 $3,457,267 $179,390,983 $26,588,443 $12,087,179 $63,767,444 $21,654,821 $4,673,510 $37,791,617 $630,973 $383,556,449 TOTAL $11,562,098 $23,850,724 $52,021,190 $12,362,647 $2,389,774 $2,651,341 $5,990,214 $1,596,951,613 $69,277,390 $30,688,433 $362,993,510 $74,142,092 $13,641,217 $70,270,419 $33,611,299 $2,362,403,961 SECONDARY RATE 3.28 2.73 2.98 2.59 1.71 0.92 2.99 3.22 2.75 3.60 4.42 3.18 3.99 2.46 3.04 3.29 3.29 TAX YEAR 2006 SECONDARY PROPERTY TAX LEVIES TAX AUTHORITY APACHE COCHISE COCONINO GILA GRAHAM GREENLEE LA PAZ MARICOPA MOHAVE NAVAJO PIMA PINAL SANTA CRUZ YAVAPAI YUMA TOTAL STATE NET ASSESSED VALUATION $323,062,906 $767,433,022 $1,473,342,694 $422,267,703 $119,712,036 $226,907,616 $172,147,917 $36,294,693,601 $1,908,996,588 $754,945,315 $6,869,955,457 $1,547,005,089 $294,247,098 $2,302,712,940 $917,331,539 $54,394,761,521 STATE $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 AVERAGE STATE SECONDARY TAX RATE PER $100 COUNTY CITIES & TOWNS $4,021,254 $3,497,787 $5,850,539 $1,266,803 $152,641 $283,052 $172,148 $87,964,669 $18,187,807 $4,803,717 $100,121,166 $3,634,561 $1,918,450 $8,504,423 $11,095,341 $251,474,358 $0 $136,912 $5,222,056 $160,000 $0 $0 $0 $248,325,777 $433,475 $44,248 $26,681,580 $0 $0 $1,706,825 $0 $282,710,873 3.75 All figures are current as of September 1, 2007. Note: Some increase/decrease due to reporting tax levies in different authorities than in previous years. COMMUNITY COLLEGES $1,377,864 $0 $1,988,055 $0 $0 $0 $859,535 $66,462,148 $0 $1,675,224 $13,362,063 $0 $0 $5,214,983 $4,580,354 $95,520,226 SCHOOLS $1,377,082 $10,629,070 $23,134,859 $4,263,179 $1,764,372 $1,563,441 $1,449,517 $831,303,500 $14,312,274 $11,248,363 $124,762,769 $32,386,046 $5,927,603 $14,564,165 $14,543,208 $1,093,229,448 ALL OTHER $3,339,283 $7,058,405 $13,191,954 $4,935,240 $341,448 $317,348 $3,624,361 $150,328,696 $19,019,502 $10,371,805 $51,378,932 $20,170,832 $3,519,112 $29,065,681 $498,143 $317,160,742 TOTAL $10,115,483 $21,322,174 $49,387,463 $10,625,222 $2,258,460 $2,163,841 $6,105,561 $1,384,384,790 $51,953,058 $28,143,357 $316,306,510 $56,191,439 $11,365,165 $59,056,077 $30,717,046 $2,040,095,646 SECONDARY RATE 3.13 2.78 3.35 2.52 1.89 0.95 3.55 3.81 2.72 3.73 4.60 3.63 3.86 2.56 3.35 3.75 TABLE 38 AVERAGE PROPERTY TAX RATES PER $100 OF ASSESSED VALUATION TAX YEAR 2004 THROUGH TAX YEAR 2007 2004 School Districts Counties State Cities Community Colleges Special Districts PRIMARY $4.45 2.21 0.03 0.39 1.01 0.00 2005 SECONDARY $2.15 0.35 0.00 0.53 0.13 0.56 $8.09 TOTAL $3.72 TOTAL SECONDARY $2.06 0.54 0.00 0.53 0.15 0.47 $7.81 $3.75 $11.81 $11.56 2006 2007 PRIMARY School Districts Counties State Cities Community Colleges Special Districts PRIMARY $4.23 2.17 0.03 0.39 0.99 0.00 SECONDARY PRIMARY SECONDARY $4.16 1.69 0.02 0.38 0.97 0.00 $2.01 0.56 0.00 0.52 0.18 0.48 $3.83 1.59 0.04 0.37 0.91 0.00 $1.70 0.40 0.00 0.51 0.15 0.53 $7.24 $3.75 $6.75 $3.29 $10.99 School district rate includes Unorganized School Districts. Figures may not add to total due to rounding. $10.04 ALL OTHER SOURCES OF REVENUE Bingo Estate Tax Luxury Tax Unclaimed Property & Escheated Estates Waste Tire Fees ARIZONA DEPARTMENT OF REVENUE 2007 ANNUAL REPORT 47 ARIZONA DEPARTMENT OF REVENUE 2007 ANNUAL REPORT 48 BINGO The tax on state licensed bingo operations is based on a multi-tiered licensing structure. There are three classes of bingo licenses, each of which has a different tax rate. Each licensee’s tax rate is based on bingo receipts. Class A licensees, whose gross receipts do not exceed $15,600 per year, are taxed at 2.5 percent of their adjusted gross receipts. (Adjusted gross receipts are the monies left after paying prizes.) Class B and Class C licensees are taxed on their gross receipts. Class B licensees, whose gross receipts do not exceed $300,000, are taxed at 1.5 percent of their gross receipts. Class C licensees, whose gross receipts exceed $300,000 per year, are taxed at 2 percent of their gross receipts from bingo. All taxes collected are deposited in the state general fund. A total of $ 619,387 was deposited in fiscal year 2007 (Refer to Table 39). TABLE 39 BINGO COLLECTIONS FISCAL YEAR 2002-03 THROUGH FISCAL YEAR 2006-07 Fiscal Year Amount 2002-03 $626,770 2003-04 $624,501 2004-05 $610,055 2005-06 $623,480 2007-08 $619,387 BINGO COLLECTIONS Licenses Proceeds Penalty, Interest and Miscellaneous TOTAL FY2002-03 FY2003-04 FY2004-05 FY2005-06 FY2006-07 $26,110 598,465 $19,121 603,306 $19,070 585,289 $18,788 599,400 $18,092 596,773 2,194 2,074 5,697 5,292 4,522 $626,770 $624,501 $610,055 $623,480 $619,387 ARIZONA DEPARTMENT OF REVENUE 2007 ANNUAL REPORT 49 ESTATE TAX Arizona’s Estate Tax was effectively repealed January 1, 2005, following the IRS’s elimination of the Federal State Death Tax Credit. No Arizona estate tax is owed on the estate of a person who dies after 2004 and there is no requirement to file an Arizona Form 76. We will continue to receive late original returns and amended tax returns for decedents with a date of death prior to 2005 as it can take years to settle a complicated estate. The Arizona estate tax is a tax on the transfer of property or interest in property that takes effect upon the owner’s death. The estate tax is imposed on the net taxable estate before distribution, differing from the inheritance tax, which is imposed on the portion of the estate received by a beneficiary. Arizona does not impose inheritance or gift taxes. Estate taxes are deposited into the state general fund. (Refer to Table 40.) The Special Taxes Unit of the Arizona Department of Revenue is responsible for the collection of estate taxes and the processing of estate tax returns and reports of personal representative of decedent. Only estates that are required to file a federal estate tax return are required to file an Arizona Estate Tax return. The Arizona estate tax for an Arizona resident decedent is an amount equal to the federal credit for state death taxes. If the decedent owned real or tangible personal property located in another state, the Arizona tax is reduced by either the amount of death tax paid to the other state or a prorated share of the federal credit, whichever is less. The Arizona estate tax for a nonresident decedent is a prorated share of the federal credit, based on the value of real property and tangible personal property having actual situs in Arizona this year. TABLE 40 COLLECTIONS OF ESTATE TAXES FISCAL YEAR 2002-03 THROUGH FISCAL YEAR 2006-07 Fiscal Year Collections Refunds Net 2002-03 $96,859,390 $2,641,471 $94,217,919 2003-04 $42,292,396 $3,473,964 $38,818,431 2004-05 $32,811,705 $1,575,639 $31,236,066 2005-06 $13,275,666 $1,592,063 $11,683,603 2006-07 $860,033 $1,410,797 ($550,764) Figures may not add to total due to rounding. ARIZONA DEPARTMENT OF REVENUE 2007 ANNUAL REPORT 50 LUXURY TAX Arizona’s luxury tax applies to cigarettes, other tobacco products, and alcoholic beverages. The department is responsible for issuing tobacco licenses and stamps and collecting taxes on tobacco products and alcoholic beverages. The department also investigates and confiscates contraband tobacco products. During the 2007 fiscal year, over $421 million was received in luxury tax collections. Of the monies collected per the Tobacco Products Referendum (Prop 303), $60.2 million was distributed to the Prop 204 Protection Account, $38.7 million to the Medically Needy Account, $28.7 million for Emergency Health Services, $7.1 million for Health Research, and $2.9 million for Health Education. Due to the passage of the Tobacco Tax and Health Care Initiative in November 1994, $71.6 million was allocated to the Medically Needy Fund, $23.8 million to the Health Education Fund and $5.2 million to the Health Research Fund. The Corrections Fund, established by the Legislature in 1984 to pay for prison construction, received $28.7 million, and the Arizona Wine Promotional Fund received $35,965. The Drug Treatment and Education Fund received $8.3 million, and the Corrections Revolving Fund received $3.3 million due to the passage of Proposition 200 in 1994. The Smoke Free AZ fund received $1.8 due to the passage of Proposition 201 in 2006. The Early Childhood Development and Health Fund received $74.4 million due to the passage of Proposition 203 in 2006. The remaining $65.9 million was deposited into the state general fund. (Refer to Table 41) Luxury Tax Rates Prior to 12/8/2006 $ 0.059 $1.18 $ 1.475 After 12/7/2006 $ 0.10 $ 2.00 $ 2.50 Cigars small cigars weighing not more than 3 lbs/1,000 package of 20 or less selling for $0.05 or less (each 3 cigars) selling for more than $0.05 (each cigar) $ 0.2625 $ 0.13 $ 0.13 $ 0.441 $ 0.218 $ 0.218 Smoking Tobacco snuff, fine cut, chewing, etc. (per ounce) Cavendish, plug, or twist (per ounce) $ 0.1325 $ 0.0325 $ 0.223 $ 0.055 Cigarettes per cigarette package of 20 package of 25 Spirituous Liquors per gallon $ 3.00 Vinous Liquors more than 24% alcohol (per gallon) $ 4.00 Vinous Liquors less than 24% alcohol (per gallon) $ 0.84 Malt Liquor (Beer) per gallon per barrel (31 gallons) $ 0.16 $ 4.96 ARIZONA DEPARTMENT OF REVENUE 2007 ANNUAL REPORT 51 TABLE 41 LUXURY TAX COLLECTIONS FISCAL YEAR 2002-03 THROUGH FISCAL YEAR 2006-07 SOURCE: Spirituous Liquor Vinous Liquor Malt Liquor Liquor Collections Tobacco - All Types (1) Gross Revenue Refunds Licenses Administrative Expenses Net Tobacco Collections Amnesty Luxury Collections TOTAL COLLECTIONS FY2002-03 FY2003-04 FY2004-05 FY2005-06 PERCENT OF COLLECTIONS FY2006-07 IN FY2006-07 $22,004,331 9,924,749 22,137,764 $54,066,844 $23,438,818 10,404,545 22,110,426 $55,953,790 $25,085,444 11,473,203 22,664,420 $59,223,067 $26,392,315 11,509,865 23,245,180 $61,147,360 $27,674,933 10,755,478 24,758,494 $63,188,905 218,358,747 (5,614,159) 5,950 (403,739) $212,346,798 282,209,893 (7,273,023) 6,400 (414,329) $274,528,941 290,948,888 (5,109,215) 5,325 (445,507) $285,399,491 $302,509,034 (4,040,057) 5,900 (468,675) $298,006,202 $363,934,467 (5,317,826) 8,100 (502,860) $358,121,881 ----$266,413,642 $187,315 $330,670,046 ----$344,622,558 ----$359,153,562 6.6% 2.6% 5.9% 85.0% ----$421,310,786 DISTRIBUTIONS: State General Fund Wine Promotional Fund Tobacco Tax & Health Care Fund-Prop. 200 (1) Tobacco Products Tax Fund-Prop. 303 (1) Drug Treatment & Education Fund DOC Revolving Fund Department of Corrections Fund DOC Transfer from Prop 200 Funds Prop 200 Transfer from Prop 303 Funds (1) Smoke Free AZ - Prop 201 (2) Early Childhood Development and Health Fund - Prop 203 (3) $64,586,950 25,497 102,529,785 59,938,321 7,306,966 2,902,721 26,348,946 277,104 2,497,352 ----- $61,301,017 27,995 92,599,453 133,563,168 7,490,976 2,978,318 26,613,423 531,839 5,563,857 ----- $64,446,627 34,667 96,540,601 138,521,611 7,894,513 3,139,770 28,049,051 226,191 5,769,526 ----- $66,732,468 38,481 100,765,613 145,399,774 8,096,444 3,221,929 28,480,322 363,099 6,055,432 ----- $65,808,829 35,965 94,770,504 137,624,177 8,323,287 3,313,709 28,697,521 783,145 5,729,557 1,778,847 ----- ----- ----- ----- 74,445,246 TOTAL DISTRIBUTIONS $266,413,642 $330,670,046 $344,622,558 $359,153,562 $421,310,786 (1) In November 2002, Proposition 303 increased the Luxury tax on cigarettes from $0.029 to $0.059 per cigarette and created the Tobacco Products Tax Fund. Tax rates on other tobacco products also increased. Distributions of the increased rates are made to the Tobacco Products Tax Fund. Proposition 303 also changed the name of the Health Care Fund to the Tobacco Tax & Health Care Fund and established a hold harmless fund for the Prop 200 accounts. (2) In December 2006, Proposition 201 increased the Luxury tax on cigarettes from $0.059 to $0.061 per cigarette and created the Smoke Free Arizona Fund. Tax rates on other tobacco products were not increased. Distribution of the increased cigarette rate is made to the Smoke Free Arizona Fund. (3) In December 2006, Proposition 203 increased the Luxury tax on cigarettes from $0.061 to $.10 per cigarette and created the Early Childhood Development and Health Fund. Tax rates on other tobacco products were also increased. Distributions of the increased rates are made to the Early Childhood Development and Health Fund. Figures may not add to total due to rounding. UNCLAIMED PROPERTY Responsibilities of the Unclaimed Property Program include the collection, safekeeping, and disposition of abandoned property and escheated estates. The Unclaimed Property staff establishes and maintains records of these types of funds along with other personal property that is presumed to be abandoned. This property is received from business associations, banking and financial institutions, insurance companies, utility companies, fiduciaries, state courts, and governmental agencies. The most common examples of unclaimed property are: • Payroll checks written to employees not cashed after one year. • Utility deposits not claimed in two years. • Contents of safe deposit boxes on which rent has not been paid for three years. • Government and Court property not claimed in three years. • Stock or other equity interest in a business association or financial institution with no activity for three years. • Checks written to vendors or customers not cashed after five years. • Bank or credit union accounts with no activity for five years. • Cashier and other official checks not cashed in five years. • Money orders not cashed in seven years. • Traveler’s checks not cashed in fifteen years. There is no statute of limitations for filing a claim for unclaimed property. Owners may recover their property at any time with proper documentation. ESCHEATED ESTATES In addition to their Unclaimed Property responsibilities, staff members also establish and maintain records of Escheated Estates. An Escheated Estate is created when a person dies without leaving a will and has no known heirs. When this condition exists, his or her property reverts to the state as the original and ultimate proprietor after seven years. Funds received from escheated estates are deposited into the permanent school fund. (Refer to Table 42.) ARIZONA DEPARTMENT OF REVENUE 2007 ANNUAL REPORT 52 TABLE 42 COLLECTIONS AND DISTRIBUTION OF UNCLAIMED PROPERTY FISCAL YEAR 2002-03 THROUGH FISCAL YEAR 2006-07 SOURCE: UNCLAIMED PROPERTY Refunds Expenses NET ESCHEATED ESTATES Refunds NET TOTAL NET REVENUE FY2002-03 FY2003-04 FY2004-05 FY2005-06 FY2006-07 PERCENT OF COLLECTIONS IN FY2006-07 $46,219,555 (10,333,078) (1,325,764) $34,560,714 $49,653,262 (10,093,832) (1,368,887) $38,190,543 $83,063,365 (16,241,154) (1,459,889) $65,362,322 $69,705,035 (17,693,745) (1,564,120) $50,447,170 $97,125,191 (22,541,073) (3,112,161) $71,471,956 99.2% 269,557 (55,504) $214,052 568,385 (223,945) $344,441 731,836 (339,712) $392,124 562,510 (195,735) $366,776 552,507 (7,679) $544,828 0.8% $34,774,766 $38,534,984 $65,754,446 $50,813,946 $72,016,784 100.0% DISTRIBUTIONS: General Fund Housing Fund Ladewig Kerr Utility Assistance Fund Racing Fund Victim Restitution Fund 6,745,652 17,950,660 --------1,118,958 6,527,513 2,128,019 Net to Permanent School Fund: Escheated Estates Unclaimed Shares/dividends Storage Facility (2) 214,052 0 ----- Retained by Unclaimed Property 89,912 TOTAL DISTRIBUTION $34,774,766 8,043,962 20,708,267 (4) --------1,307,953 7,530,279 547,274 344,441 43,788 9,021 (3) 9,423,140 23,942,665 21,292,088 (5) ----1,664,467 8,706,424 299,565 392,124 29,359 4,614 10,256,152 26,004,597 3,704,599 (5) ----855,505 9,456,217 128,281 366,776 18,955 22,865 11,703,745 40,972,902 0 83,340 2,550,675 14,899,237 1,250,347 (6) (7) 544,828 (1) 9,482 2,227 0 0 0 0 $38,534,984 $65,754,446 $50,813,946 $72,016,784 (1) FY 07 Escheated Estates will be transferred in FY 08. (2) FY04 was the first year that the Department of Revenue made deposits to the Permanent School Fund from Unclaimed Storage Facility property pursuant to A.R.S. §33-1704. (3) This amount was retained by Unclaimed Property due to an overpayment to the General Fund in FY 02 (4) $2,750,000 from the Housing fund was transferred to the General fund in FY 04. This transaction should have taken place in FY 03 Per HB 2002. (5) Ladewig Unclaimed Property for FY05 and FY06 is to be deposited to the State General Fund, per SB1524, signed by the Governor May 20, 2005 (6) Ladewig Claims paid during FY07 exceeded their collections; therefore no transfer was required. (7) Kerr Unclaimed Property for FY07 is to be deposited to the State General Fund, per HB2867. WASTE TIRE The Arizona waste tire fee is a fee applied to the sale of new motor vehicle tires. The fee is to be collected quarterly at a rate of two percent of the purchase price not to exceed two dollars per tire. During fiscal year 2007, the department collected $8,967,577 and distributed 3.5% percent to the Department of Environmental Quality with the remainder being distributed to the counties based on the number of motor vehicles registered in the county (Refer to Tables 43). The distribution is performed quarterly. TABLE 43 WASTE TIRE FEE DISTRIBUTIONS FISCAL YEAR 2002-03 THROUGH FISCAL YEAR 2006-07 COUNTY Apache Cochise Coconino Gila Graham Greenlee La Paz Maricopa Mohave Navajo Pima Pinal Santa Cruz Yavapai Yuma Arizona Dept of Environmental Quality Total FY 2002-03 FY 2003-04 FY 2004-05 FY 2005-06 FY 2006-07 $88,265 188,526 182,060 100,584 42,055 14,267 40,230 3,837,502 305,722 143,348 991,330 231,521 67,292 323,797 205,684 $100,750 208,639 202,203 109,692 45,472 14,571 46,334 4,245,363 355,631 162,789 1,085,793 256,738 74,443 369,140 235,110 $104,593 218,301 210,871 113,751 47,489 15,401 48,427 4,452,595 375,524 169,024 1,138,071 272,484 78,802 386,285 246,759 $101,645 215,348 204,129 111,143 46,809 15,008 47,146 4,742,763 387,372 165,729 1,136,415 291,962 78,006 391,322 246,469 $105,927 223,763 211,377 116,236 49,226 15,915 49,332 4,995,305 413,274 174,781 1,190,164 353,172 80,076 416,633 258,530 245,261 272,480 285,744 296,730 313,865 $7,007,444 $7,785,148 $8,164,120 $8,477,996 $8,967,577 Figures may not add to total due to rounding. ARIZONA DEPARTMENT OF REVENUE 2007 ANNUAL REPORT 53 ARIZONA DEPARTMENT OF REVENUE 2007 ANNUAL REPORT 54 LEGISLATIVE SUMMARY ARIZONA DEPARTMENT OF REVENUE 2007 ANNUAL REPORT 55 ARIZONA DEPARTMENT OF REVENUE 2007 ANNUAL REPORT 56 LEGISLATIVE SUMMARY The following is intended to give a brief summary of the 2007 tax-related legislation impacting the Department of Revenue (DOR) and not intended to discuss the details of any specific enactment. Please refer to the particular legislation for more definitive information. The general effective date for legislation is September 19, 2007. All legislation will have this effective date unless otherwise noted in the summary. Copies of these bills can be downloaded at www.azleg.state.az.us/FinalDisposition.asp or may be requested from the Secretary of State’s Office by calling (602) 542-4086. Income Tax House Bill 2079 (Chapter 7) Income tax credit review schedule HB2079 is the annual bill to update the income tax credit review schedule based on the recommendations of the Joint Legislative Income Tax Credit Review Committee. The bill has scheduled the following individual and corporate income tax credits for review in 2012. House Bill 2491 (Chapter 180) Solar energy tax credit; application See summary under Multiple Tax Types. House Bill 2784 (Chapter 258) 2007 tax reduction package See summary under Multiple Tax Types. Senate Bill 1036 (Chapter 132) Tax liabilities; suspension Individual income 43-1073 Family tax credit 43-1089 Credit for contributions to school tuition organizations 43-1089.01 Tax credit; public school fees and contributions 43-1089.02 Credit for donation of school site See summary under Multiple Tax Types. Corporate income 43-1181 Credit of donation of school site A taxpayer is no longer required to submit an amended return at the time they file a federal amended return. Instead, the taxpayer is allowed to file 90 days after the final determination is made on their federal amended return. However, it does not prevent taxpayers from filing intermittent amended returns to make a payment to stop the accrual of interest. House Bill 2084 (Chapter 112) Income tax credit; other states HB2084 provides a credit for taxes paid to another state for taxpayers that are domiciled in Arizona, but considered a resident of another state under the laws of that other state. The credit may only be claimed for the amount of taxes paid on income derived from within the other state. This bill will be effective retroactively to taxable years from and after December 31, 2001. Any claim for refund must be filed according to the four year statute of limitations. House Bill 2322 (Chapter 225) Tax credit accountability; motion picture See summary under Multiple Tax Types. Senate Bill 1157 (Chapter 1 E) Income tax deadlines See summary under Multiple Tax Types. Senate Bill 1233 (Chapter 160) Recomputation of tax; final determination SB1233 provides a statutory definition of final determination for Arizona income tax purposes: • • Final determination, occurs when the appeal rights of the Internal Revenue Service (IRS) and the taxpayer have been exhausted relative to the tax year. Stipulates that a partial agreement, closing agreements, jeopardy or advance payment assessment is part of the final determination and must be submitted to DOR. ARIZONA DEPARTMENT OF REVENUE 2007 ANNUAL REPORT 57 • • • Specifies that partial, closing or other IRS agreements that would be final except for flow through adjustments are considered as a final determination when the taxpayer signs the agreement. Clarifies that flow through adjustments are finally determined when appeal rights have been exhausted. DOR is not required to issue refunds until the final determination has been made. These changes are retroactive to final determinations issued by the United States Treasury Department from and after December 31, 2006. Transaction Privilege Tax/ Use Tax House Bill 2300 (Chapter 252) Water district; Upper San Pedro HB2300 allows the Upper San Pedro Water District and Board of Directors to be established if approved by qualified voters of the District. The bill outlines the powers, duties, responsibilities and limitation of the District and the Board. It also creates an Organizing Board to prepare organizational, financial, comprehensive and election plans for the District. For DOR purposes, this bill calls for the formation of the Upper San Pedro Water District and provides that District with the authority to impose a transaction privilege tax. House Bill 2515 (Chapter 276) Municipal sales tax incentives; prohibition HB2515 penalizes certain Maricopa County and Pinal County municipalities that offer tax incentives to retail business facilities to locate or relocate into their city or town. House Bill 2627 (Chapter 188) Prime contracting; property owners HB2627 changes the "prime contractor" definition under A.R.S. § 42-5075 retroactive to January 8, 1991 to generally exclude persons who might commonly be considered 'owner-developers': that is, persons who hire contractors to perform the modifications and who do not perform those activities themselves. Any claim for refund must be filed no later than December 31, 2007. Failure to file a claim by this date constitutes a waiver of the claim. The aggregate amount of refunds may not exceed $10,000. House Bill 2784 (Chapter 258) 2007 tax reduction package See summary under Multiple Tax Types. Senate Bill 1036 (Chapter 132) Tax liabilities; suspension See summary under Multiple Tax Types. Senate Bill 1592 (Chapter 174) Contractors; violations; sales tax SB1592 requires all contractors who have been convicted of a misdemeanor to pay their outstanding state, county and city transaction privilege taxes from the acts arising from the violation before they are determined eligible for probation or suspension of sentence. Property Tax House Bill 2078 (Chapter 41) Property Tax Commission; sunset continuation The Property Tax Oversight Commission (PTOC) is intended to provide oversight of the budgeting and taxation process of counties, municipalities, school districts and community college districts. The PTOC was set to sunset on July 1, 2007, but this bill extends the sunset date until July 1, 2017. House Bill 2091 (Chapter 8) Parcel splits; taxing districts HB2091 states that a special taxing district that submits proposed boundaries after November 1, 2007 must only include whole parcels, not partial parcels. House Bill 2207 (Chapter 117) County treasurers; property tax collection HB2207 makes the following changes for the county treasurers in regard to collection of property taxes on mobile homes. ARIZONA DEPARTMENT OF REVENUE 2007 ANNUAL REPORT 52 • • • Allows MVD to identify mobile homes with delinquent taxes by taxpayer ID number or tax roll ID. Previously it was tax roll ID only. Establishes a method for the County Treasurer to allocate taxes between parcels that have been split or consolidated. Eliminates the second deferral of taxes for the purchaser of a personal property mobile home subject to delinquent taxes. Multiple Tax Types House Bill 2322 (Chapter 225) Tax credit accountability; motion picture HB2322 adds new corporate and individual income tax credits for motion picture infrastructure projects (building studios, etc.) as well as making changes to the current motion picture production credit. • House Bill 2476 (Chapter 106 E) Government property tax exemption; retroactivity In 2006, A.R.S. § 42-11102 was amended to remove subsection D which specifically taxed a group of buildings in Tempe owned by SRP. HB2476 makes the 2006 legislation retroactive to September 18, 2003. This bill had an emergency clause and went into effect on April 20, 2007 with the Governor’s signature. • • • House Bill 2491 (Chapter 180) Solar energy tax credit; application See summary under Multiple Tax Types. House Bill 2657 (Chapter 203) Property tax; electric generation valuation HB2657 requires DOR to value the land used in operating electric generation facilities at “the cost to the current owner as of December 31 of the preceding calendar year”. • This bill is retroactive to “valuation years beginning from and after December 31, 2006.” This means that it is effective for the 2007 valuation year (2008 tax year). The revised land values were included in the preliminary valuation notices that were mailed on June 15, 2007. House Bill 2784 (Chapter 258) 2007 tax reduction package See summary under Multiple Tax Types. Senate Bill 1554 (Chapter 37) Board of equalization; hearing officers • SB1554 increases the allowable pay for hearing officers employed by the State Board of Equalization. • The new infrastructure credits will be subject to the same cap limits as the motion picture production credits with 5% of the cap limit reserved for commercials and music videos. The infrastructure credit is based on 15% of the cost of the infrastructure project and the credit is transferable. Motion picture production credits were amended to increase the credits from 10-20% of costs to 20-30% of the costs. Credits may now be claimed on the first available timely filed return that is due after the final approval from the Department of Commerce as long as it is not earlier than the cap year when the credit was pre-approved. For example, if a taxpayer was pre-approved for a credit from the 2007-cap year and finishes the production and receive post-approval from DOC on 3/31/08, the taxpayer could claim the credit on their timely filed 2007 return that is due 4/15/08 rather than waiting for their 2008 return to be filed. Both credits now have provisions to allow the motion picture production company or the infrastructure company to request a limited managed audit of the credit. The audit would have to be done by an independent CPA paid for by the taxpayer and conducted pursuant to a limited managed audit agreement entered into with DOR. If DOR denies the outcome, then the taxpayer may appeal the denial in the same manner as any other protested audit. If DOR approves, then the taxpayer is issued a certification that the credit would not be subject to recapture from the transferees. Made changes regarding the expenses that qualify for the credits. Allows taxpayers to apply for post-approval from DOC before a viewable copy of the ARIZONA DEPARTMENT OF REVENUE 2007 ANNUAL REPORT 53 production is available by submitting a letter of credit payable to DOR. If the DOC later determines that the motion picture does not qualify for the credit, DOR would draw on the letter of credit and hold the monies in an interest bearing account pending the outcome of any appeal. • House Bill 2491 (Chapter 180) Solar energy tax credit; application HB2491 amends the corporate and individual income tax credits available for installing or financing a solar energy device. • Provisions: • Expands the credit to solar energy devices installed for any nonresidential application, not just for commercial or industrial purposes. • Allows the device to be installed in the taxpayer’s facility, which is broader than the taxpayer’s trade or business location. • Expands the credit to allow a taxable entity or an entity exempt from tax under Chapter 12 of Title 43 to transfer the credit to a third party organization that either installed, developed or financed the solar energy device placed in service during the taxable year. The change is retroactive to years beginning from and after 12/31/2005, which is when the original statute was effective. House Bill 2784 (Chapter 258) 2007 tax reduction package Provisions: Military Relief Fund • Establishes the Military Family Relief Fund. The money in the fund must be used to provide financial assistance to family members of military personnel who were killed or wounded in the line of duty and who were deployed from a military base in Arizona or who were members of the Arizona Army or Air National Guard. • Administered by the Arizona Department of Veterans’ Services. • Contributions made to the fund may qualify for an income tax credit, however, donations to the fund that exceed a combined total of • one million dollars in any calendar year do not qualify for the credit. The credit is the amount contributed to the fund by the taxpayer during the taxable year, up to $200 for a single person or head of household and $400 for a married couple filing a joint return. Married taxpayers that file separate returns may each claim only one-half of the tax credit that would have been allowed on a joint return. The credit cannot exceed the taxpayer’s tax liability for the taxable year. For a taxpayer to be eligible for the credit, the taxpayer must have received receipt from the Department of Veterans’ Services that indicates the donation was within the one million dollar total annual limit for the credit, shows the taxpayer’s name, address, last four digits of the taxpayer’s social security number and whether the donation qualifies under the limits. The Department of Veterans’ Services must furnish a copy of each receipt to DOR. This credit is effective for taxable years beginning from and after December 31, 2007 with an automatic repeal on December 31, 2012. Business Personal Property • Changes the schedule of additional depreciation allowed for Legal Class 1 and 2 business personal property that are initially classified during or after tax year 2008. • Allows a higher percentage of additional depreciation, and also extends the number of years that property receives additional depreciation from 4 to 5 years. Class One Property • Speeds up the reduction of the assessment ratio for Legal Class 1 and Legal Class 6.4 (Enterprise Zone Full Cash Value) so that a 20% assessment ratio is reached in 2010 rather than 2014. To accomplish this, the rate will decrease 1% per year instead of the current ½% per year. College Savings Plan • Provides individuals with a subtraction from Arizona gross income for the amount ARIZONA DEPARTMENT OF REVENUE 2007 ANNUAL REPORT 54 • • • contributed to a college savings plan established pursuant to I.R.C. § 529, to the extent that the contributions were not deducted in computing federal adjusted gross income. The subtraction is limited to $750 for a single individual or a head of household and $1,500 for a married couple filing a joint return. If a husband and wife file separate returns, the subtraction can be taken by either taxpayer, or may be divided between them, but may not exceed $1,500. Requires a recapture of subtracted amounts when such amounts are used for unqualified purposes. The subtraction is effective for taxable years beginning from and after December 31, 2007 with an automatic repeal on December 31, 2012. NBA All-Star TPT Exemption • Provides a TPT exemption for admission sales to the 2009 NBA All-Star game and other related events with a conditional enactment that requires the City of Phoenix to provide a municipal TPT exemption for the same events if it is chosen as the host city. or legal holiday, if the original deadline falls on one of those days. Defines legal holiday to include legal holidays in the State of Arizona or as determined by the U.S. Secretary of the Treasury relating to due dates established by the IRS. This bill had an emergency clause and went into effect on April 4, 2007 with the Governor’s signature. Miscellaneous House Bill 2681 (Chapter 218) Utility assistance; qualified fuel fund HB2681 repeals the statutes governing the Utility Assistance Fund (UAF) and requires a utility to transfer annually all abandoned deposits to a qualified fuel fund entity for the purposes of assisting eligible Arizona residents in making deposits, repairs, and replacement of utility related appliances or systems. House Bill 2786 (Chapter 260) Budget reconciliation; general revenues Senate Bill 1036 (Chapter 132) Provisions related to the Department of Revenue and the Unclaimed Property Statutes: Tax liabilities; suspension • SB1036 allows the director to grant a filing extension and penalty and interest relief for a period of up to one year to taxpayers eligible for disaster relief under I.R.C. § 7508A and taxpayers affected by a state of emergency declared by the Governor. This legislation will grant relief to all tax types administered under Title 42. Senate Bill 1157 (Chapter 1 E) Income tax deadlines; conformity SB1157 conforms the starting point for computing Arizona taxable income for 2006 to include the federal changes made to the Internal Revenue Code during 2006. The bill also conforms the starting point for computing Arizona taxable income in 2007 to the current Internal Revenue Code. • • • • Decreases the abandonment period for corporate debt instruments from five to three years. Creates a three year abandonment period for dividends and other sums payable to shareholders. Eliminates requirement for DOR to pay appreciation to claimants if securities are sold prior to the three year holding period after the holder delivers the securities to DOR. Entitles claimants to the net proceeds from the sale of securities. Requires all proceeds from the sales of securities in fiscal year 2007-08 be deposited into the state General Fund. Retroactive to December 31, 2006 the filing or payment of income tax is considered timely filed on the next business day that is not a Saturday, Sunday ARIZONA DEPARTMENT OF REVENUE 2007 ANNUAL REPORT 55 House Bill 2789 (Chapter 263) Budget reconciliation; health and welfare Amends the current language of the Health Insurance Premium Tax Credit found in A.R.S. § 43-210. The bill: • Requires the application for a certificate of eligibility to contain a written declaration made under the penalty of perjury; and • Requires the applicant to obtain health insurance within ninety days for the certificate to remain valid for one year rather than apply for health insurance within 30 days. These changes become effective with the general effective date of September 19, 2007 with a retroactivity provision to September 21, 2006 when the Health Insurance Premium Tax Credit began. ARIZONA DEPARTMENT OF REVENUE 2007 ANNUAL REPORT 56