ARIZONA DEPARTMENT OF REVENUE FY 2008 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 14, 2008 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 2008 was another milestone year in that we collected more than $14 billion as an agency for the second consecutive year. Total taxes collected by the Department during fiscal year 2008 exceeded $14.0 billion, including more than $7.9 billion that was deposited directly into the state General Fund. Included in this total is $556.4 million that was collected through the Department’s tax enforcement efforts. By collecting $556.4 million through the audit, license compliance and collections programs, the Department exceeded the $524.7 million fiscal year 2008, performing at 106% 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 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 $40.4 million in taxes for fiscal year 2008. This is quite an accomplishment as the Unit exceeded $40 million in collections for two years in a row. Another noteworthy highlight is that the Department processed over 1.5 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 Department’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 fourth and final system conversion occurred in January 2008 with the successful implementation of the Income Tax system to BRITS. 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 Department. • 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 2008 ANNUAL REPORT 3 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. 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. 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. 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. 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. In fiscal year 2008, $15.8 million in discovery benefits, $92.6 million in efficiency benefits, and $27.8 million in license compliance benefits were recognized. Through fiscal year 2008 the department generated nearly $226 million more in benefits than were needed to pay the vendor. ARIZONA DEPARTMENT OF REVENUE 2008 ANNUAL REPORT 5 ARIZONA DEPARTMENT OF REVENUE Gale Garriott DIRECTOR Nelda Coppi Exec. Asst. to Director Kristine Ward DEPUTY DIRECTOR INTERNAL AUDIT 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. MANAGEMENT ANALYST COLLECTIONS PROCESSING ADMINISTRATION TAXPAYER SERVICES AUDIT DIVISION FRANK BOUCHÉ SUSAN SILBERISEN LYNETTE NOWLAN MICHAEL CARVELLI ASSISTANT DIRECTOR ASSISTANT DIRECTOR / CIO ASSISTANT DIRECTOR VINCE PEREZ ASSISTANT DIRECTOR 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 GENERAL COUNSEL Lisa Neuville RV Adm Appeals Officer INFORMATION TECHNOLOGY OFFICE COLLECTIONS TAXPAYER ASSIST. OFC/ PROBLEM RESOLUTION OFFICER 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 EXTERNAL SERVICES & SPECIAL PROJECTS ANTHONY FORSCHINO ASSISTANT DIRECTOR Administrative Services Legislative Affairs Economic Research & Analysis Quality Executive SPECIAL PROJECTS INVESTIGATIONS . Criminal & Civil . Tobacco Enforcement PROPERTY TAX CHERYL MURRAY-LEYBA ASSISTANT DIRECTOR TAX POLICY & RESEARCH FRANK MIGRAY ASSISTANT DIRECTOR ASSESSMENT STANDARDS & EQUALIZATION Tax Policy Office CENTRALLY VALUED PROPERTY Corporate Income Tax Appeals PROPERTY SYSTEMS DEVELOPMENT UNIT Individual Income Tax Appeals RESEARCH & COMPLIANCE UNIT Transaction Privilege Tax Appeals ASSESSMENT STANDARDS UNIT Disclosure & Federal Relations LICENSE COMPLIANCE Customer SVC Infrastructure June 1-30, 2008 AGENCY OVERVIEW ARIZONA DEPARTMENT OF REVENUE 2008 ANNUAL REPORT 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 2008 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. GOALS AND OBJECTIVES We continue to focus on our three core goals in fiscal year 2008: • To maximize our return on investment. • To maximize customer and stakeholder satisfaction. • To maximize employee satisfaction. TOTAL GROSS REVENUES COLLECTED Detailed gross revenues are reported under Table 1. FY07 Transaction Privilege Tax .... $7,890,380,625 Income & Withholding ....... $4,972,237,335 Corporate ............................. $1,070,710,516 Other ................................... $ 553,133,139 Total ................................. $ 14,486,461,614 FY08 Transaction Privilege Tax .... $7,597,257,813 Income & Withholding ....... $4,805,821,218 Corporate ............................. $ 985,126,064 Other ................................... $ 640,983,162 Total ................................. $ 14,029,188,258 ~~~~~~~~~~~~~~~~~~~~~~~~~~~ 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. FY06 ......................................$ 530,000,447 FY07 ......................................$ 585,929,679 FY08 ......................................$ 556,416,693 TOTAL NET ENFORCEM ENT DOLLARS (in M illions) $ 585.9 $590.0 $580.0 $570.0 $560.0 $ 556.4 $550.0 $540.0 $530.0 $ 530.0 $520.0 $510.0 $500.0 FY06 FY07 FY08 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~ KEY MEASURE RESULT HIGHLIGHTS The results of these key measures for fiscal year 2008 follow with a comparison to prior years. ARIZONA DEPARTMENT OF REVENUE 2008 ANNUAL REPORT 7 NET ENFORCEMENT BREAKDOWN BY ENFORCEMENT PROGRAM This chart recaps each program’s contribution to total enforcement collections. General Fund distribution information is included. FY08 Net Targets Collections/Accounts Receivable ... $395.1M Income, Corporate, TPT Audit ....... $ 86.2M License Compliance........................ $ 43.3M Enforcement Revenue .................... $524.7M General Fund Revenue ................... $369.7M FY08 Net Actual Collections/Accounts Receivable ... $393.4M Income, Corporate, TPT Audit ....... $120.0M License Compliance........................ $ 42.9M Enforcement Revenue .................... $556.4M General Fund Revenue ................... $390.7M 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. Net figures are reported for all years this year instead of gross numbers reported in previous reports. FY06 .....................................................$8.05 FY07 .....................................................$8.12 FY08 .....................................................$7.48 N E T 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 $8 . 12 $8 .0 5 $ 8. 20 $ 8. 10 $ 8. 00 $ 7. 90 $ 7. 80 $ 7. 70 $7.4 8 $ 7. 60 $ 7. 50 $ 7. 40 $ 7. 30 N E T E N F O R C E M E N T R E V E N UE ( in m illio ns ) wit h G E N E R A L F UN D T O T A LS $ 7. 20 $ 7. 10 $ $ $ $ $ $ $0 100 200 300 400 500 600 .0 .0 .0 .0 .0 .0 .0 FY 06 / LL CO FY 0 7 FY 0 8 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~ R A/ AU T DI LIC Targets MP CO TA TO L R GF U EN EV AVERAGE GROSS COLLECTIONS PER TRANSACTION PRIVILEGE TAX AUDITOR (IN MILLIONS) Average collections per auditor include those from the field, desk, and license compliance audit areas. E 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. FY06 .................................................$198.86 FY07 .................................................$200.40 FY08 .................................................$188.68 FY06 ....................................................$3.43 FY07 ..................................................$11.88 FY08 ....................................................$4.86 AVERAGE GROSS COLLECTIONS P ER TP T AUDITOR (in M illions) $11. 8 8 $ 12.00 $ 10.00 GROSS RETURN ON INVESTMENT $ 8.00 $4 .8 6 $ 6.00 $ 200.40 $3 .4 3 $ 178.78 $202.00 $ 4.00 $200.00 $198.00 $ 2.00 $196.00 $194.00 $ 0.00 $192.00 $ 2 0 0 .4 0 $190.00 FY 0 6 FY 0 7 FY 0 8 $188.00 $186.00 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~ $184.00 $182.00 FY06 FY07 FY08 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~ ARIZONA DEPARTMENT OF REVENUE 2008 ANNUAL REPORT 8 AVERAGE COLLECTIONS PER CORPORATE AUDITOR (IN MILLIONS) Productivity decreased due to vacancies. FY06 ................................................... $1.96 FY07 ................................................... $2.88 FY08 ................................................... $1.02 A V ER A G E GR O SS C O LLEC T IO N S PER C OR POR A T E A U D IT O R ( in M il li o ns) 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. FY06 ...................................................33,777 FY07 ...................................................32,567 FY08 ...................................................29,248 $ 2 .8 8 N U M B ER OF N EW B U S I N ES S L I C EN S ES P R OC ES S ED $3.00 $ 1.9 6 $2.50 33,777 $2.00 34,000 $ 1.0 2 $1.50 32,567 33,000 32,000 $1.00 3 1, 0 0 0 $0.50 29,248 30,000 $0.00 29,000 FY06 FY07 FY08 28,000 27,000 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~ AVERAGE COLLECTIONS PER INDIVIDUAL INCOME AUDITOR Collections per income tax auditor decreased slightly due to the conversion of the legacy system to BRITS in December 2007 and the necessary staff training that occurred before and after BRITS conversion. FY06 ............................................. $434,187 FY07 ............................................. $470,476 FY08 ............................................. $445,687 A V E R A G E G R O S S C O LLE C T IO N S P E R IN C O M E A UD IT O R 26,000 F Y0 6 F Y0 7 F Y0 8 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~ NEW BUSINESS LICENSE TURNAROUND TIME The License & Registration staff maintained a 2.7 business day turnaround for license processing for the second year in a row. Although there were fewer licenses processed this year compared to last, perhaps due to a slowing economy, staff was able to process them in an efficient manner. FY06 ................................................ 2.2 days FY07 ................................................ 2.7 days FY08 ................................................ 2.7 days N EW B U S I N ES S LI C EN S E P R OC ES S I N G TI M E ( i n B u si ne ss D a y s) $ 4 7 0 ,4 7 6 $480,000 $470,000 2.7 $460,000 $450,000 $ 4 4 5 ,6 8 7 2.7 3.0 2.2 2.5 $ 4 3 4 ,18 7 $440,000 2.0 $430,000 1. 5 $420,000 1. 0 $410,000 FY06 FY07 FY08 0.5 0.0 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~ FY0 6 FY0 7 F Y0 8 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~ ARIZONA DEPARTMENT OF REVENUE 2008 ANNUAL REPORT 9 TOTAL NUMBER OF TAX DOCUMENTS RECEIVED Documents consist of paper and electronic tax returns. FY06 ................................................... 5.5M FY07 ................................................... 5.5M FY08 ................................................... 5.6M T OTAL NUM BER OF TAX DOCUM ENTS P ROCESSED (in M illions) TOTAL NUMBER OF INDIVIDUAL INCOME TAX REFUNDS The total number of income tax refunds processed includes both electronic direct deposits and paper refund warrants. FY06 ............................................ 1,882,166 FY07 ............................................ 2,033,277 FY08 ............................................ 1,750,370 5.7 TOTAL NUM BER OF INCOM E TAX REFUNDS (in M ILLIONS) 5.6 5.6 5.5 2.03 5.5 2.05 5.5 2.00 1.95 5.4 1.88 1.90 1.85 5.3 FY06 FY07 FY08 1.75 1.80 1.75 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 1.70 1.65 1.60 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. FY06 ................................................. 1.12M FY07 ................................................. 1.31M FY08 ................................................. 1.50M Number of E-Filed Income Tax Returns Received (in M illions) 1.50 1.60 1.40 1.31 1.12 1.20 FY06 FY07 FY08 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 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. FY06 .............................................. 5.5 days FY07 .............................................. 5.1 days FY08 .............................................. 7.6 days 1.00 0.80 A V E R A G E T IM E T O IS S UE IN C O M E T A X R E F UN D S ( in C a le nda r D a ys ) 0.60 0.40 7 .6 8 7 0.20 0.00 FY06 FY07 FY08 5 .5 5 .5 6 5 4 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 3 2 1 0 FY06 FY07 FY08 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~ ARIZONA DEPARTMENT OF REVENUE 2008 ANNUAL REPORT 10 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.) FY06 ..................................................... 4.70 FY07 ..................................................... 4.85 FY08 ..................................................... 4.75 4 .8 5 5.00 FOR EMPLOYEES 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. FY06 ............................................... 16.00 % FY07 ............................................... 11.16 % FY08 ............................................... 18.27 % ANNUAL TURNOVER RATE FOR EM P LOYEES 20.00% 18.00% SA T ISF A C T I ON R A T IN GS F O R T HE T A X PA Y ER SER V IC ES D IV ISIO N 18.27% 16.00% 16.00% 14.00% 4 . 75 4 .70 AVERAGE ANNUAL TURNOVER RATE 11.16% 12.00% 4.50 10.00% 8.00% 4.00 6.00% 4.00% 2.00% 3.50 0.00% FY06 FY07 FY08 3.00 F Y0 6 F Y0 7 F Y0 8 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~ ~~~~~~~~~~~~~~~~~~~~~~~~~~~~ OVERALL AVERAGE SATISFACTION RATING ON THE 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. FY06 ....................................................2,426 FY07 ....................................................2,145 FY08 ....................................................1,652 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.) FY06 ......................................................3.72 FY07 ......................................................3.45 FY08 ......................................................3.68 Number of Tobacco Retailer & Distributor Inspections S A T IS F A C T IO N R A T IN G O N A N N UA L E M P LO Y E E S UR V E Y 2,426 2,500 3 .72 3.75 3 .6 8 3.7 2,145 3.65 2,000 3.6 1,652 3.55 1,500 3 .4 5 3.5 3.45 1,000 3.4 3.35 500 3.3 F Y0 6 FY0 7 F Y0 8 0 FY06 FY07 FY08 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~ ~~~~~~~~~~~~~~~~~~~~~~~~~~~~ ARIZONA DEPARTMENT OF REVENUE 2008 ANNUAL REPORT 11 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. The 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. FY06 ................................................. 99.2 % FY07 ................................................. 99.9 % FY08 ............................................... 100.0 % P ERCENT OF TIM E THE LAN/ WAN IS AVAILABLE 10 0 .0 0 % 9 9 .9 1% 100.00% 9 9 .2 0 % 99.50% 99.00% 98.50% 98.00% 97.50% 97.00% FY06 FY07 FY08 ARIZONA DEPARTMENT OF REVENUE 2008 ANNUAL REPORT 12 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 Arizona 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 and is the program administration area for the State Purchasing Card Program (P-Card). ARIZONA DEPARTMENT OF REVENUE 2008 ANNUAL REPORT 13 HIGHLIGHTS IN FISCAL YEAR 2008 • Accounting processed 99% of all invoices within 30 days. • EDU completed training for BRITS (Business Reengineering Integrated Tax System) Releases 3.0, 3.1, 3.2, and 3.3. • Facilities responded to 99% of building maintenance work orders within 24 hours. • Facilities scheduled and worked with the contractors in getting the entire fire alarm system replaced to include detection system, new audible speakers and strobes, PA system, new panels, and fire department phones and hookups. • • Facilities scheduled and worked with the contractors in having all restrooms renovated throughout the building (10 floors). Handicap accessible restrooms have been constructed on the first, fifth and eighth floors. Water saving fixtures have been installed in bathrooms throughout the building and all were designed with a pipe chase for accessibility for maintenance crews. The Hearing Office resolved 167 cases during the fiscal year. • Staffing and Recruiting coordinated four job fairs during fiscal year 2008 resulting in the hiring of 48 new employees. • Human Resources Benefits successfully enrolled 98% of all DOR employees during the 2007 benefits positive open enrollment period. • Human Resources implemented new I-9 E-Verify process in December with 100% success rate. • Payroll processed payroll time sheets bi-weekly for a staff of approximately 950. It also processed 465 direct deposit forms, 56 written employment verification forms, 80 retirement forms and 24 industrial injury claims. • The Purchasing Office attended the Purchasing Maze VI event at ASU West explaining to almost 1,000 small-business, women-business and minority-business owners “how to do business with the State of Arizona”. • The Purchasing Office staff completed the Certification in Arizona State Public Procurement and the procurement authority was raised from $100,000 to $250,000. ARIZONA DEPARTMENT OF REVENUE 2008 ANNUAL REPORT 14 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. We carry out our mission statement 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. Training and educating our employees is instrumental in developing skilled auditors. We take pride in our accomplishments and consistently strive to be more efficient, exceed expectations and be viewed as a model audit program. Corporate Income Tax Audit The section is comprised of the Field Audit, Office Audit and Tax Shelter units. The Field Audit Unit conducts the majority of its audits outside of Arizona at the corporate headquarters where the corporation’s books and records are maintained. The Office Audit Unit focuses its audit work on desk audit programs such as analyzing, verifying, and processing of amended returns and refund claims, tax clearance letters, verification of net operating losses, including audits based upon federal revenue agent reports. 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. The Tax Shelter Unit, working with the Internal Revenue Service, other states and tax administration organizations identifies potential offenders who have utilized abusive tax schemes in order to avoid paying state income tax. The Administrative Support Unit is responsible for processing the field, office, and abusive tax avoidance transaction (ATAT) audits, as well as a myriad of other duties such as microfilming, handling the mail, timesheets and payroll, and report production. In the spirit of cooperation with other state agencies, the department entered into an interservice agency agreement with the Arizona Department of Commerce regarding the motion picture tax credit. Under this agreement, the department is lending corporate income tax expertise to assist in the review of filings by production companies seeking tax credits. In a related program, newly authorized by the legislature, production companies may also request a “limited managed audit” to verify their request for motion picture tax credits. This program is proving to be very popular and assures that any tax credits claimed are valid and correct. Individual Income Tax Audit The Individual Income Tax Audit Section is comprised of staff dedicated to providing quality service in educating taxpayers by ensuring the correct amount of tax is reported. Audits are conducted in both the office and field of Individuals and Pass-through entities such as Partnerships and S Corporations. The Section has placed an emphasis on treating taxpayers in a courteous and professional manner. In fiscal year 2008, the Section continued to provide assistance with the BRITS project, which is the department’s reengineering project. Part of this project is the development of a new base audit system which will further modernize the Section’s processes. Employees are encouraged to provide feedback and ideas to assist the efforts of the department. Data warehousing will allow continual improvement in the quality of the audit process by matching of information available to the Section. Revenue Agents Reports received from the Internal Revenue Service are being increasingly referred to the department in an electronic format. Receiving this data in an electronic format allows the department to create a more complete audit file that includes all other department data and information on the taxpayer and tax year involved without requiring manual research by our clerical support staff. Most of the audit files now contain all information that an auditor would need in order to process the audit and make all necessary adjustments. This results in an audit being issued in ARIZONA DEPARTMENT OF REVENUE 2008 ANNUAL REPORT 15 a more timely manner as manual clerical support research is not required. Special Taxes Special Taxes is comprised of four separate units: Bingo and Estate Tax, Discovery, Luxury Tax, and Nexus. The Field Audit Unit, with an increased emphasis on customer service, hard work and dedication, exceeded expectations. The Bingo and Estate Tax Unit issues licenses, processes returns and conducts audit examinations of bingo licensees. 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 License Compliance Unit continues to prove to be a dynamic and successful unit. The staff can be counted on to assist taxpayers 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 Discovery Unit uses electronic records from outside sources paired with technology to create non-filer leads that are explored by the unit's auditors. 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. The Luxury Tax staff administers the taxes imposed on tobacco distributors and liquor wholesalers. This includes the licensing of tobacco distributors and processing of tax returns for both tobacco and liquor, as well as performing distributor audits and collecting taxes from consumers who purchase tobacco products via the internet or through mail order. The unit also supports the Office of the Attorney General in administration of the Tobacco Master Settlement Agreement. The Desk Audit Unit mainly works on projects dealing with use tax liabilities. The information processed in this unit is from various governmental agencies. 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. Nexus is Latin, from nectere to bind. For tax purposes, it describes the connection (or link) that an out of state company/individual has within a taxing jurisdiction. The unit is also responsible for maintaining the department’s Voluntary Disclosure Program. This program facilitates the process for taxpayers, who have determined that they have an obligation to come into compliance with their filing requirement(s) with the department. 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. HIGHLIGHTS IN FISCAL YEAR 2008 • The Audit Division’s gross enforcement collections exceeded $184 million. • The Corporate Section exceeded fiscal year revenue goals with hard work and dedication. The customer service survey rating averaged 4.6 with 44% of taxpayer surveys rating the corporate auditors a perfect 5.0 score, on a scale of 1 to 5 with 5 being excellent. • The Corporate Income Tax (CIT) Field Audit unit’s assessed approximately $26 million and collected $20.5 million. Overall, additional revenue from collections associated with audits generated $35.1 million. In addition, the field audit unit issued refund denials of $23.4 million. • The CIT Office Audit unit’s assessed approximately $2.3 million and collected $1.2 million. The unit researched, reviewed and audited 7,214 taxpayers. The CIT office unit had refund denials of $1.7 million. • The CIT Audit’s Tax Shelter Unit assessed approximately $9.7 million and collected $9.4 million. ARIZONA DEPARTMENT OF REVENUE 2008 ANNUAL REPORT 16 • • • The Individual Income Tax (IIT) Audit Section completed just over 49,500 audits for total assessments of $39.7 million. Additional revenue associated with audits generated $17.4 million. • TPT Field Audit had an outstanding year with assessments totaling just over $45.3 million • TPT License Compliance licensed 2,190 new businesses with $48.4 million in generated revenue. The computer generated assessment (CGA) program was enhanced to increase the number of accounts eligible to be processed. Over 5,500 audits were issued for total assessments of $1.6 million in IIT. • TPT Desk Audit Unit licensed 3,160 new businesses with $15.5 million in generated revenue. • TPT Refund Unit has approved and processed 255 refunds with $21.7 million as the total refunded amount. • The Audit Information Technology Unit started the system test phase of the ESKORT project for the Desk Audit Release. The Desk Release will encompass all tax types for both field and desk. In completing phase 1 of system test, the unit identified and defined necessary changes needed in the application to comply with requirements. An essential part of IIT’s focus is to provide quality service to the taxpayers. Surveys are sent to all taxpayers who are contacted by the Section. Over 1,400 surveys were returned during the fiscal year with an average score of 3.95, using a scale of 1 to 5 with 5 being excellent. • The quality of IIT initial audit assessments has continued to improve. Over 89.3% of the initial audit assessments required no changes. The goal is to achieve a rate of 82%. • The Nexus Unit had another remarkable fiscal year generating $40.4 million. • Transaction Privilege Tax Section (TPT) customer satisfaction surveys for the fiscal year averaged 4.70, using a scale of 1 to 5 with 5 being excellent. ARIZONA DEPARTMENT OF REVENUE 2008 ANNUAL REPORT 17 ARIZONA DEPARTMENT OF REVENUE 2008 ANNUAL REPORT 18 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. Delinquencies (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. 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; and is responsible for all other non-mainstream collection activities. These include handling insufficient funds check collections, Letters of Good Standing, levies on Arizona Department of Administration vendors, levies on contractor and insurance bonds, internal systems training and processing Offers-inCompromise. 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 2008 • 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 over $275 million, a $29 million (10 %) shortfall over the target of $305 million for the year. ARIZONA DEPARTMENT OF REVENUE 2008 ANNUAL REPORT 19 ARIZONA DEPARTMENT OF REVENUE 2008 ANNUAL REPORT 20 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. Forms and Publications This unit is responsible for design and printing of all official department forms, except Property Tax related forms, and 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 informational publications. 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. 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 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. 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. 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. Public Information Officer This position is the official spokesperson for the department, facilitates the flow of information to the public, and responds to all media contacts and inquiries. HIGHLIGHTS IN FISCAL YEAR 2008 • Restitution payments received during fiscal year 2008 totaled $37,189. This total is a combination of both financial-related and tobacco-related prosecutions wherein the suspect(s) were ordered to pay restitution. • Eight individuals in Gilbert, Arizona, who had been preparing fraudulent Arizona individual income tax returns for several years, were indicted in September, 2007, on 136 different counts related to these tax returns. During the investigation and review of search warrant evidence it was discovered that there were approximately 7,000 clients, and the loss to DOR in tax revenue exceeded $10,000,000. The two main subjects have pled guilty and agreed to reimburse DOR $2 million. The civil side of DOR is currently auditing their clients. ARIZONA DEPARTMENT OF REVENUE 2008 ANNUAL REPORT 21 • Tobacco training was provided by our POSTcertified agents to various law enforcement and state agencies during the year, including the Four-State Peace Officers Association, the Organized Retail Crime Alliance, a district court judge’s conference, the West Valley Chief’s Meeting, and at the Arizona Department of Health Services. • A tobacco training video was created to teach law enforcement officers throughout the state about tobacco violations. This video has been accepted as part of the curriculum at the training academies. • • Due to information received from an agent with the California Board of Equalization who was investigating a California tobacco distributor, our Arizona agents contacted an Arizona retailer who had been buying untaxed tobacco from the California distributor and selling it to customers. Due to this information, the Arizona retailer has filed tobacco tax returns and paid $28,620 to date in delinquent taxes. Eighteen (18) citations were issued during fiscal year 2008. Of these eighteen citations, ten citations included a charge for failing to produce tobacco invoices as required, in violation of A.R.S. §42-1127(I)(1). Two citations were issued to retailers who were selling cigarettes that were not on the Arizona Cigarette Directory in violation of A.R.S. §44-7111(3)(c). Many of the citations had more than one charge. Additional charges included knowingly selling tobacco on which no taxes had been paid in violation of A.R.S. §42-1127(G), and knowingly selling cigarettes without tax stamps in violation of A.R.S. §42-1127(H). Fines assessed by the courts on these citations during fiscal year 2008 totaled $6,950. • There were a total of 1,652 retail inspections that were conducted during the year, along with 198 distributor inspections. The following tobacco products were seized during the year: a) 135,895 cigarette sticks b) 453,488 cigars c) 18,298 blunts d) 1,856 lbs OTP (other tobacco products) • The Supervisor for Criminal and Civil Investigations was named Supervisor of the Year for fiscal year 2008. • The Office of Economic Research and Analysis was named Small Unit of the Year for fiscal year 2008. ARIZONA DEPARTMENT OF REVENUE 2008 ANNUAL REPORT 22 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. based on the Information Technology Infrastructure Library (ITIL) framework. Application Support Application Support provides maintenance support for all mainframe applications, the BRITS Taxpayer Administration System (TAS), and the Executive Dashboard. Significant activities include working with Technical Operations to schedule production runs, supporting production processes (such as TPT Close), and resolving defects either on an emergency basis or as a part of packaged releases. Defects are completed based on user priority. Applications Support works closely with the Customer Service Center in responding to customer requests for support; Business Analysis & Testing for requirements and testing; Technical Services for prevention of recurring incidents; Enterprise Architecture for software release management, implementation, and performance enhancement; and Information Security for compliance. Problem Management’s purpose is to minimize the adverse impact of incidents and problems on the business caused by errors within the IT infrastructure, and to prevent recurrence of incidents related to these errors. Business Analysis & Testing The Business Analysis & Testing (BAT) group 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. Technical Services The Continual Service Improvement unit consists of Production Control, Problem Management, and Continual Service Improvement. These groups are Production Control’s primary objective is ensuring batch scheduling and processing on both the Legacy and BRITS systems are completed. Through research conducted, Continual Service Improvement focuses on existing processes that are candidates for improvement, including reviewing Service Level Agreements (SLAs), policies, and standards, and developing procedures for improvement. Customer Service Center During the past year, the Customer Service Center has continued to evolve. The Database and Technical Operations support teams have been reassigned under the Customer Service Center to consolidate the management of the customer support roles. This allows for the consolidation of processes and reduces duplication of effort from multiple teams. By including the additional support teams under the Customer Service Center, DOR IT support staff is better able to address the needs of the department, communicate to the end users, and resolve issues. The Customer Service Center 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 Continual Service Improvement to determine priorities and processes for requests. The Technical Operations 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 the Arizona Department of Administration (ADOA) for technical activities, provide Tier 3 support for problem management, and handle ARIZONA DEPARTMENT OF REVENUE 2008 ANNUAL REPORT 23 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. Enterprise Architecture Enterprise Architecture’s (EA) key function 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. • • • The PMO consists of the PMO Director and a team of Project Managers (PMs). The PMO was established to better determine best practices in project methodology and standards, while actively managing a variety of projects and programs, including the very large, multi-year BRITS program. HIGHLIGHTS IN FISCAL YEAR 2008 • Individual Income Tax processing is now part of the BRITS program. This final tax type for the department’s integrated tax system was a major milestone and was converted in December, 2007. The BRITS system is now successfully being used to process all individual income tax transactions. • Information Security established an Information Security Steering Committee (ISSC) for oversight of the InfoSec program. The members of the committee include key personnel throughout the agency who have a critical interest in the program because of the relationship between InfoSec and the duties for which they are responsible. The ISSC: - provides oversight of the InfoSec Program; - reviews and assesses InfoSec policy for effectiveness, impact, and appropriateness; - identifies information security control mechanisms for security standards as appropriate; - provides input on information security issues; - promotes sound information security practices; and - provides expert advice, recommendations, and guidance to give Leadership an 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 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: Promote excellence in Project Management for all IT projects, both by supplying experienced and qualified Project Managers and by providing guidance to project team members; Guide key IT projects to a successful conclusion; Create a foundation for consistent IT project success throughout the organization through development of a strong and pervasive Project Management discipline; Support the mission, vision, and goals of the department. ARIZONA DEPARTMENT OF REVENUE 2008 ANNUAL REPORT 24 understanding of the InfoSec program and its regulations, risks, concerns, and issues for sound decision making. • - A $500,000 network refresh project was completed with minimal disruption to the end users: - replaced all network switches and routers in all three DOR locations (Phoenix, Tucson and East Valley); - increased data throughput of the system; and - segmented various areas to improve data transfer between sites. • A middleware support team was developed to monitor and troubleshoot issues as they happen. • The Data Center RFP process was completed, resulting in the selection of Infocrossing as the new Data Center vendor. • IT saw continued improvement of business analysis and testing processes. Restructuring both areas helped support the final phases of the BRITS project, which included providing Tier 2 support for our Customer Service Center. • Requirements gathering and system test functions were transitioned successfully from Accenture to DOR staff. • Application Support delivered seven maintenance releases for the BRITS application. These releases were designed to increase performance, adapt to new business rules, correct defects, and provide annual and legal changes. The number of code modules updated in a maintenance release varies between 40 and 80, depending on the complexity and demands of the Agency. Examples of maintenance release items include: - - Monitoring of the BRITS processes led to the identification and resolution of numerous performance bottlenecks. Included in these were changes that resulted in performance improvements of up to 98% for some data searches. Implemented changes to enable the Integrated Voice Response (IVR) job to run in 13 hours instead of 24. Implemented changes to the BRITS application to support 2007 tax return processing for Income and Corporate. • Implemented new rate and legislative changes required for Real and Personal Property 2007 tax year billings. • The BRITS Application Support Team oversees and manages more than 31 separate processes supporting various DOR functional areas. Of large significance is management of taxpayer correspondence letters reviewed and sent electronically to our vendor, for printing and mailing. Included are over 40,000 notices of enforced action, 90,000 tax correction notices, 208,000 accounts receivable demands, 40,000 final demands, 111,000 refund adjustments, 80,000 delinquency notices, and 17,000 payment plan notices. • Management and support of the BRITS application has been transitioned from vendor consultants to DOR IT staff, thereby reducing our dependence on the consultants and their associated cost. A reduced number of vendor consultants remain to complete their contractual obligations. ARIZONA DEPARTMENT OF REVENUE 2008 ANNUAL REPORT 25 ARIZONA DEPARTMENT OF REVENUE 2008 ANNUAL REPORT 26 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 tax documents for the four major tax types. Mail Services is responsible for the receipt, sorting and delivery of 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 2008 • 5.6 million paper tax documents were received and processed for the four major tax types. • 4.27 million payments were received, processed and deposited with an average deposit time of 1.84 days. • 1.7 million refunds were issued to individual income taxpayers with an average refund turnaround time of 7.6 days. • The Records Management section received 14,300 requests to pull documents and they processed 100% of those requests within 48 hours. • Individual Income Tax was implemented and converted in to the new integrated tax system, BRITS, at the beginning of December, 2007. 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 Individual Income tax 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 2008 ANNUAL REPORT 27 ARIZONA DEPARTMENT OF REVENUE 2008 ANNUAL REPORT 28 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 The Assessment Team 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 11 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 2008 • The Centrally Valued Property Unit (CVP) had two property valuation cases go to trial. One case involved the valuation of a telecommunications company; the other involved the valuation of an electric generation facility. In both cases, after trials lasting several days, the Tax Court upheld CVP’s values. The CVP Unit also settled a major telecommunications case involving complex valuation issues covering eight tax years. This settlement ended seven years of litigation over those claims. ARIZONA DEPARTMENT OF REVENUE 2008 ANNUAL REPORT 29 • Over the past two years, the division, in partnership with several counties, spearheaded a critical project to replace the current cost system which is used by Arizona County Assessors to value approximately 90% of all commercial and industrial property in the state, as well as some residential property. The project involved strict timelines, multiple stakeholders, and highly technical issues. The division successfully completed the project on time, allowing the division to continue to provide a reliable valuation model for assessors to use. • The division formed a partnership with Rio Salado Community College that allows students attending the department’s appraiser training classes to receive college credit. Students completing Level 1 courses are eligible for 9 credits and students completing Level 2 courses are eligible for 6 additional hours of credit. A total of 47 students completed the Level 1 series of courses and 34 students completed the Level 2 series of courses in the Rio Salado program this fiscal year. The Assessment Standards Unit provided training to a total of 498 students who attended Level 1 courses and 197 students who attended Level 2 courses. Among these students, 65 appraisers received their Level 1 certification and 29 appraisers received their Level 2 certification. ARIZONA DEPARTMENT OF REVENUE 2008 ANNUAL REPORT 30 TAXPAYER SERVICES Mission Statement: To meet the needs of our customers in a professional manner, with the highest standards of integrity. Department of Insurance, SCORE, the Small Business Administration, and the Arizona Department of Commerce. 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 and practitioner education. The staff develops and presents workshops and seminars and specialty presentations, and participates in trade, business, and government events throughout the state. The programs focus on support for the small business community; and services and assistance are also directed toward the needs of personal income tax filers. Many projects are developed in partnership with the Internal Revenue Service, other federal, state, and local agencies, and Small Business Development Centers, as well as the Small Business Administration and other business associations. CORE also enjoys good relationships with Chambers of Commerce throughout the state. CORE recognizes the important role of educated tax practitioners in a healthy tax system. CORE conducts presentations to practitioner groups including the Society of Practicing Accountants, the Phoenix Tax Workshop, and the Society of Enrolled Agents. CORE also maintains a Board seat on the Arizona Forum for the Improvement of Taxation. 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. Through continuing partnerships with civic and business organizations, CORE has been able to increase class attendance and develop new 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. Some cities have allowed CORE to include class information for that city to be included in utility bill and other mailings. These types of partnerships have increased CORE’s outreach opportunities and reduced the cost of marketing the 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, US Department of Labor, Arizona Department of Economic Security, and Immigrations and Customs Enforcement. In addition to the presentations, CORE provides exhibitor tables for other organizations to display their products and services to the small business community. Exhibitors have included the Arizona CORE is also the liaison between the department and the Earned Income Tax Credit (EITC) and the Volunteer Income Tax Assistance (VITA) programs that provides tax preparation services for the poor, elderly, and non-English speaking populations. CORE provides tax preparation sites, preparer training, training materials, and logistical support for these programs. 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) The License and Registration Section processes applications for transaction privilege, use, severance, and withholding Taxes. The unit also issues transaction privilege tax licenses for program cities that participate in the state tax collection program. They also administer the taxpayer bonding program that protects the state against potential losses of tax revenue from contracting businesses and other high risk taxpayers. ARIZONA DEPARTMENT OF REVENUE 2008 ANNUAL REPORT 31 The section oversees and maintains the database of licensed businesses. They provide assistance to the public through dissemination of licensing information, publications, and referrals as needed. The section handles the over-the-counter sales of tobacco stamps and provides cashiering services at each of the department’s locations. Taxpayer Information and Assistance (TIA) This is the vital hub of employees who provide tax information to individual income and business customers, corporate officers, tax practitioners, enrolled agents and other authorized representatives. TIA is responsible for responding to customer inquiries concerning business and income taxes administered by the department. Staff also answers questions and offers resolution for account disputes in relation to billing, taxability, business registration, filing and payment. The various avenues of communication come to DOR through the telephone call center, webmail, written correspondence and our walk-in offices located in Phoenix, Chandler and Tucson. Unclaimed Property This program is administered to return abandoned property such as contents of safe deposit boxes, dormant bank accounts, insurance policy proceeds, security deposits, unclaimed stocks, bonds, and mutual fund accounts, and all types of uncashed checks to rightful owners. Through a variety of methods, the unclaimed property staff attempts to locate the owners and processes claims in order to return the property. The staff facilitates the reporting and remitting of abandoned property from businesses, financial institutions, and other entities that hold the property. The unit is also responsible for promoting compliance with the Unclaimed Property Statutes through outreach and audit. HIGHLIGHTS IN FISCAL YEAR 2008 • The Community OutReach and Education Section (CORE) expanded its outreach in fiscal year 2008 to include video conferencing and online training. This was achieved through the Gila Community College Small Business Development Center which set up an interactive television production that connected classrooms in Globe and Payson. The online training presentation covering charitable contributions was also available on the department’s website and had over 1,000 hits in the two months. In addition, CORE partnered with the Arizona Small Business Association to use WebEx technology to increase attendance of out-of-state businesses that would like to take advantage of the classroom training provided by CORE. CORE is also exploring a partnership with the Arizona Department of Administration (DOA) to leverage DOA’s training technology with CORE’s constituency of business owners and practitioners. Through its continuing partnerships with the cities and towns, Chambers of Commerce, Small Business Development Centers, and other civic and government agencies, CORE had classroom and seminar attendance of over 12,000 in fiscal year 2008. • eFiling of individual income tax returns increased 14% with over 1.5 million returns filed electronically. This places Arizona above the national growth rate of 11%. In addition, more than 526,000 2-D (two dimensional) barcode income tax returns were received. Staff handles individual income tax forms distribution every tax season via mail and telephone orders. This is an enormous task that is performed to ensure all form distribution sites in Arizona are adequately stocked with Arizona state tax forms and instructions. Thanks to the clerical support team, thousands of Power of Attorney and Disclosure forms received daily are processed every year. This is quite a task considering hundreds may be received from a single payroll company in one day. In addition to other duties, this team is responsible for providing guidance for walk-in customers at the lobby reception desk in our Phoenix office. Another important aspect of TIA is the Penalty Review Unit (PRU). This unit is responsible for reviewing and making decisions on requests for abatement of penalties for non-audit periods. In the event of a subsequent hearing in cases where abatement was denied, a representative from PRU will attend the hearing to present their case substantiating their decision. ARIZONA DEPARTMENT OF REVENUE 2008 ANNUAL REPORT 32 business calls include license and registration, transaction privilege and use tax (TPT) and withholding tax. Income calls answered totaled 159,510; income calls include individual and corporate income tax. Together, 71% of all 2007 income tax returns received were processed without data entry which results in agency savings in processing costs and administration of records retention. • • • • This year the “home-market” prepared 35% of the eFiled returns which indicates a growing confidence in this product. Additionally, tax payments by direct debit increased by 23%, which is another sign of confidence in electronic transactions with government. 9 Correspondence cases worked were 29,331. This is a 43% increase from the prior year. Cases worked include all four tax types; TPT, withholding, corporate and individual. 9 Web mail inquiries received were 12,886. This is a 153% increase year on year. Web mail responses for the year were 12,832, a 181% increase from the prior year. Direct deposit of refunds increased by 31% on eFiled returns this year. Taxpayers who choose this option receive their refunds in an average of three working days. In addition, DOR saved more than $300,000 in postage costs by not mailing these warrants. 9 Penalty abatement cases reviewed for nonaudit tax periods ended the year with 2,618. Turnaround time for review and determination improved by 44% for this year. One of the License & Registration (L&R) business objectives is to process all Transaction Privilege, Use, Severance, City Only, and Withholding tax applications received within 3 days. This goal was achieved in fiscal year 2008 by processing nearly 43,000 applications. The applications were a part of the 162,000 total documents processed by the section. During the year, L&R also assisted over 27,000 customers over the counter and cashiered $364 million in payments. Signature cards, still required for all electronic registrations, increased by 19%. This indicates increased use of AZTaxes.gov to process license applications. Nearly 40% of all license applications are now done online. L&R staff processed over 5,000 taxpayer bonds and collected over $946,000 in delinquencies. Taxpayer Information and Assistance had a very successful fiscal year 2008 as evidenced by the accomplishments listed below: 9 Calls offered for the year were 572,166. This is an increase of 8% from the prior year. Broken down; business calls ended the year with 237,571 an increase of 5% and income calls were 334,595, an increase of 10%. 9 Calls answered ended at 300,772 for the year. Business calls answered were 141,262; 9 Tax form orders processed internally included 14,420 booklets and 12,573 flats. There were 208 Booklet X orders processed. There were 127 distribution centers throughout Arizona and one in California. 2,125 cases were delivered (by our vendor) to those distribution centers. 9 Power of Attorney and disclosure forms processed for the year are 17,014. 9 Walk-in office staff assisted a total of 11,990 customers; 7,326 in Phoenix and 4,664 in Tucson. 9 Lobby receptionist provided guidance and reception services for 109,457 customers. Of this, our Phoenix office serviced 90,006 customers and Tucson serviced 19, 451 customers. • The number of new properties reported to Unclaimed Property in fiscal year 2008 totaled 313,756 with total collections equaling more than $136M. The claims processing staff returned 30,433 properties valued at $27.8M to rightful owners. The average time to process and pay a claim was 67 days. ARIZONA DEPARTMENT OF REVENUE 2008 ANNUAL REPORT 33 ARIZONA DEPARTMENT OF REVENUE 2008 ANNUAL REPORT 34 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 testifies at various levels of the appeals process. The section provides 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 testifies at various levels of the appeals process. HIGHLIGHTS IN FISCAL YEAR 2008 • The Multistate Tax Commission has initiated a project to develop recommended amendments for the Uniform Division of Income for Tax Purposes Act (UDITPA). UDITPA is used by many states, including Arizona, to allocate the income of corporations to the various states ARIZONA DEPARTMENT OF REVENUE 2008 ANNUAL REPORT 35 where the corporations have business activities. The Tax Research Section has been monitoring this project. • The section also provides the Arizona representative to the Streamlined Sales Tax Project, a nationwide effort to simplify the sales and use tax reporting amongst the states. While Arizona has not become a member of the Project, this representative monitors the progress of the effort and also acts as a resource for the department and others on the subject. ARIZONA DEPARTMENT OF REVENUE 2008 ANNUAL REPORT 36 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 2008 ANNUAL REPORT 37 ARIZONA DEPARTMENT OF REVENUE 2008 ANNUAL REPORT 38 TABLE 1 REVENUE SUMMARY GROSS REVENUE COLLECTED FISCAL YEAR 2003-04 THROUGH FISCAL YEAR 2007-08 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 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 Subtotal $5,624,814,633 INCOME TAX Withholding Individual Corporate Amnesty 2,336,442,815 776,183,707 596,582,273 56,757,741 Subtotal $3,765,966,537 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) 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 ----- $7,335,804,976 2,626,264,231 1,128,453,951 (6) 789,739,978 ----(6) 25,085,444 11,473,203 22,664,420 290,503,381 5,325 ----- FY2007-08 $1,848,148,565 3,575,743,539 303,010,863 666,184,022 33,445,892 37,070,520 1,237,537,000 (6) ----- $6,255,415,018 $4,544,458,160 FY2006-07 $1,788,242,630 3,448,839,624 340,535,252 645,827,821 34,613,656 32,316,678 1,430,363,301 ----- (28,064,558) 26,543,638 1,375,333,407 ----- $7,890,380,625 3,041,031,728 1,631,563,811 978,239,759 ----- $7,597,257,813 3,294,287,540 1,677,949,795 1,070,710,516 ----- $5,650,835,298 3,344,770,438 1,461,050,780 985,126,064 ----- $6,042,947,851 26,392,315 11,509,865 23,245,180 302,040,359 (6) 5,900 ----$363,193,619 (6) $5,790,947,282 27,674,933 10,755,478 24,758,494 363,431,607 (4) 8,100 ----- 27,613,939 13,006,487 23,936,126 412,769,855 7,075 ----- $337,943,019 $349,731,773 42,292,396 49,653,262 568,385 32,811,705 83,063,365 731,836 $92,514,043 $116,606,906 624,501 12,641,445 1,335,056 1,036,085 7,785,148 610,055 13,180,039 1,312,163 1,168,550 8,164,120 $23,422,235 $24,434,927 (6) $25,411,934 (6) $27,966,271 (6) $26,140,542 $9,844,660,466 $11,290,646,784 (6) $13,458,789,039 (6) $14,486,461,614 (6) $14,029,188,258 20,188,811 31,300,125 $9,864,849,278 $11,321,946,909 (7) (5) $426,628,612 $477,333,481 13,275,666 69,705,035 562,510 860,558 97,125,191 552,507 414,711 136,446,760 647,669 $83,543,211 $98,538,256 $137,509,139 623,480 13,685,936 1,426,435 1,198,087 8,477,996 619,387 15,302,697 1,709,362 1,367,248 8,967,577 558,330 13,821,790 1,615,246 1,440,492 8,704,684 30,298,197 (6) $13,489,087,236 29,906,683 (6) $14,516,368,297 (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 are transferred to the State Aviation Fund (6) Corrected figures. (7) Arizona's estate tax was effectively repealed January 1, 2005, following the IRS's elimination of the Federal State Death Tax Credit. For additional detail on the current year revenue, please refer to the appropriate section within this report. Figures may not add to total due to rounding 39 28,558,411 $14,057,746,669 TABLE 2 NET REVENUE TO STATE GENERAL FUND FISCAL YEAR 2003-04 THROUGH FISCAL YEAR 2007-08 FY2003-04 FY2004-05 FY2005-06 FY2006-07 FY2007-08 SOURCE Transaction Privilege, Use, and Severance Tax $3,290,458,614 Transaction Privilege, Use, and Severance Tax-Amnesty 12,308,108 Undistributed Estimated Transaction Privilege Tax 14,056,241 Income Tax 2,413,036,616 Income Tax-Amnesty 56,757,741 Luxury Tax 61,245,119 Luxury Tax-Amnesty Estate Tax Unclaimed Property 55,899 38,818,431 $3,650,082,271 ----- 24,907,681 3,170,987,163 (4) ----64,446,627 ----31,236,067 (5) $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 ----11,683,603 $4,406,139,759 ----- (28,064,558) 3,506,425,271 ----- ----- 65,808,829 61,037,231 ----- ----- (550,764) 320,203 8,043,962 9,423,140 10,256,152 11,703,745 9,755,359 624,501 610,055 623,480 619,387 558,330 Private Car Tax 1,335,056 1,312,163 1,426,435 1,709,362 1,615,246 Nuclear Plan Assessment 1,036,085 1,168,550 1,198,087 1,367,248 1,440,492 Flight Property Tax 6,320,722 ----- (3) Department Total $5,904,097,095 $6,954,173,717 (4) State Property Tax (1) 20,188,811 Bingo TOTAL $5,924,285,907 31,300,125 $6,985,473,842 (4) ----- ----- ----- $8,472,925,307 $8,721,393,336 $7,959,227,334 30,298,197 29,906,683 28,558,411 $8,503,223,504 $8,751,300,019 $7,987,785,745 (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 are 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. 40 TABLE 3 GROSS COLLECTIONS OF AUDIT ASSESSMENTS AND DELINQUENT TAX FISCAL YEAR 2006-07 AND FISCAL YEAR 2007-08 GROSS COLLECTIONS FY2006-07 FY2007-08 % CHANGE Collections Audit Accounts Receivable $292,147,672 $221,562,318 $97,979,181 $275,528,300 $184,263,380 $117,918,382 -5.7% -16.8% 20.4% TOTAL GROSS COLLECTIONS $611,689,171 $577,710,062 -5.6% $25,759,492 $21,293,369 -17.3% $585,929,679 $556,416,693 -5.0% ADJUSTMENTS (1) Duplication, Credit Audits and Other Adjustments As Reported TOTAL ADJUSTED NET ENFORCEMENT COLLECTIONS (2) (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 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 state tax rates range from 2.5% to 5.6% depending on the type of business, with most rates at 5.6% (Refer to Table 5). Gross revenue exceeding $7.5 billion was remitted by Transaction Privilege, Severance and Use Tax license holders during fiscal year 2008 (Refer to Table 4). The department collects transaction privilege and use tax for 77 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 to the cities are processed after the department collects the local taxes (Refer to Tables 26 and 27). SEVERANCE TAX COUNTY TAX AND SURCHARGE COLLECTION A severance tax is imposed in lieu of a transaction privilege tax on the businesses of mining metalliferous mineral. The severance rate is 2.5% on mining metalliferous minerals (Refer to Table 5). DISTRIBUTION The transaction privilege tax creates a tax base that is divided into two parts, distribution base and nonshared. 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. USE TAX A 5.6% 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. 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. ARIZONA DEPARTMENT OF REVENUE 2008 ANNUAL REPORT 43 TABLE 4 GROSS TRANSACTION PRIVILEGE, USE AND SEVERANCE TAX COLLECTIONS FISCAL YEAR 2003-04 THROUGH FISCAL YEAR 2007-08 SOURCE FY2003-04 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 Apache County Excise Tax Cochise County Excise Tax Coconino County Excise Tax Coconino County Jail Tax Coconino County Capitol Projects Tax Gila County Excise Tax Gila County Road Tax 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 County Road Tax Extension Maricopa County Stadium Tax Maricopa County Jail Tax Maricopa County Rental Car Surcharge Mohave County Excise Tax Navajo County Excise Tax Pima County Hotel Tax Pima County Rental Car Surcharge Pima County R.V. Surcharge Pima County Road Tax Pinal County Excise Tax Pinal County Health Services District 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 FY2004-05 FY2005-06 FY2006-07 FY2007-08 $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 ----- $1,788,242,630 3,448,839,624 340,535,252 ----- $4,196,352,184 $4,635,910,738 $5,399,280,372 $5,726,902,967 $5,577,617,505 $487,214,807 14,056,241 5,091,661 1,437,566 1,362,312 (3) ----25,691,865 2,195,590 44 23,068 (11) 765,008 $4,734,190,336 $538,346,435 24,907,681 4,035,765 1,066,833 1,363,179 53,771 (3) 26,543,285 2,156,683 ----- $628,471,192 33,445,892 3,860,508 1,128,620 867,140 48,678 28,736,693 2,403,644 ----- (3) (3) $666,184,022 34,613,656 6,744,231 (3) ------------23,074,167 2,449,270 ----- $645,827,821 (28,064,558) 6,581,940 ------------17,332,349 2,550,646 ----- 23,018 --------- 25,238 --------- 49,009 --------- 78,702 --------- $5,234,407,387 $6,098,267,976 $6,460,017,324 $6,221,924,406 $352,320,229 959,948 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 5,556,717 5,599,830 5,322,106 2,716,687 1,485,916 201,697 ----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 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 6,024,355 6,638,796 5,777,336 2,885,159 1,594,810 197,740 ----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 --------- $551,992,962 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 6,493,520 7,809,442 6,613,709 6,396,637 1,588,913 213,599 ----16,998,069 ----17,279,308 3,130,804 ----16,623,589 8,310,397 11,880,763 11,880,747 (4) 11,820,404 1,811,649 (1) 22,454,539 --------- $890,624,297 $1,021,007,631 $1,237,537,000 $1,430,363,301 $1,375,333,407 $5,624,814,633 $6,255,415,019 $7,335,804,975 $7,890,380,625 $7,597,257,813 (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 (4) Corrected figure 44 $619,189,088 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 6,211,155 7,717,443 6,778,153 8,766,453 1,689,669 217,530 66,810,147 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 (1) 2,458,301 24,267,403 ----13,085 $581,066,050 1,402,145 7,801,411 12,455,849 12,400,413 3,108,226 3,287,537 3,391,644 2,258,906 1,641,764 1,122,268 1,122,266 41 715,372 379,350,183 884 139,699,551 6,206,305 7,070,208 7,083,165 8,215,104 1,731,469 208,287 74,768,398 17,449,950 2,319,086 (1) 17,856,916 3,267,685 3,241,021 15,908,075 7,952,863 12,339,424 12,338,683 49,866 2,474,852 24,027,540 --------- TABLE 5 STATE TRANSACTION PRIVILEGE, USE AND SEVERANCE TAX RATES FISCAL YEAR 2007-08 TAXABLE ACTIVITIES 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% 2.75% 0.0% $0.0122 $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% 2.75% 5.0% $0.0183 $0.0305 0.0% 0.6% 0.6% 0.6% 0.6% 0.6% 0.6% 0.6% 0.6% 0.6% 0.6% 0.6% 0.0% 0.0% 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% 5.5% 5.6% $0.0305 $0.0305 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 17. Retail 19. Mining Severance 25. Hotel/Motel Tax 29/30. Use and Use Inventory Tax 49. Jet Fuel (per gallon) 51. Jet Fuel Use ( per gallon) 45 TABLE 6 NET TAXABLE SALES BY TRANSACTION PRIVILEGE, USE AND SEVERANCE TAX CLASSIFICATIONS (1) FISCAL YEAR 2003-04 THROUGH FISCAL YEAR 2007-08 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 Use Tax-Utilities Membership Camping Other TOTAL FY2003-04 % OF TOTAL FY2004-05 % OF TOTAL FY2005-06 % OF TOTAL FY2006-07 % OF TOTAL FY2007-08 % OF TOTAL $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 0.06 0.30 1.12 7.06 2.96 $43,350,656 255,531,207 1,743,361,330 8,609,033,694 3,513,667,361 0.04 0.22 1.51 7.47 3.05 $48,715,871 216,674,568 1,752,522,103 9,237,778,527 3,669,682,556 0.04 0.19 1.56 8.23 3.27 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 n/a (2) 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) 0.02 0.12 0.37 8.22 0.92 n/a (2) 19,678,951 129,680,750 397,801,716 9,619,785,333 1,086,363,361 (1,707) 0.02 0.11 0.35 8.34 0.94 n/a (2) 16,021,363 122,652,124 391,037,724 9,663,958,579 1,146,344,296 (443,473) 0.01 0.11 0.35 8.61 1.02 n/a (2) 3,242,363,333 16,044,846,683 0 46,378,344,449 2,063,973,281 2,413,680 5,218,535,456 234,400 2,896,795 0 $93,074,018,711 3.48 17.24 0.00 49.83 2.22 0.00 (2) 5.61 0.00 (2) 0.00 (2) 0.00 100.00 3.41 19.44 0.00 47.72 2.09 0.00 (2) 5.28 0.01 0.00 (2) 0.00 100.00 3,995,696,708 20,156,298,616 0 52,626,992,989 2,405,704,851 (2,669,444) 6,837,880,265 12,461,292 51,662 0 $112,297,361,177 3.56 17.95 0.00 46.86 2.14 n/a (2) 6.09 0.01 0.00 (2) 0.00 100.00 3,174,944,574 13,156,489,701 (8,021) 42,409,054,932 1,831,153,519 4,201,555 4,644,318,922 126,773 2,998,348 119,004 $83,582,869,941 3.80 15.74 n/a 50.74 2.19 0.01 5.56 0.00 0.00 0.00 100.00 (2) (2) (2) (2) 3,633,373,845 20,487,917,068 0 53,147,971,363 2,268,775,586 3,471,162 6,155,958,934 16,581,719 2,784,840 0 $108,713,424,289 (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. 46 3.34 18.85 0.00 48.89 2.09 0.00 (2) 5.66 0.02 0.00 (2) 0.00 100.00 3,927,824,025 22,415,050,588 0 55,009,403,286 2,411,634,235 1,064,998 6,091,506,625 12,153,982 12,257 0 $115,286,902,648 TABLE 7 TRANSACTION PRIVILEGE, USE AND SEVERANCE TAX COLLECTIONS BY CLASS FISCAL YEAR 2007-08 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 $483,574 2,163,633 35,001,290 (81) 3,878 92,290,973 36,657,900 159,930 1,225,014 3,905,624 193,065,666 22,898,794 (8,847) 79,827,746 201,304,042 1,051,304,403 66,081,718 (53,580) 124,548 0 0 1,003 1,854,516 0 0 (49,114) $1,788,242,630 $1,934,351 4,597,721 8,750,323 (20) 970 369,163,891 146,631,598 639,719 4,900,057 15,622,495 289,598,499 34,348,191 (7,845) 119,741,619 805,216,169 1,576,956,604 66,081,718 (26,390) 498,192 340,535,252 561,898 1,505 2,781,774 1,045,498 (2,457) (196,455) $3,789,374,876 $2,417,925 6,761,355 43,751,613 (101) 4,847 461,454,863 183,289,498 799,649 6,125,071 19,528,119 482,664,165 57,246,984 (16,692) 199,569,365 1,006,520,211 2,628,261,007 132,163,437 (79,971) 622,740 340,535,252 561,898 2,508 4,636,291 1,045,498 (2,457) (245,568) $5,577,617,505 (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. 47 TABLE 8 DISTRIBUTION OF TRANSACTION PRIVILEGE, USE AND SEVERANCE TAX COLLECTIONS FISCAL YEAR 2007-08 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, and Waste Tire Accounts Receivable Collections $4,406,139,759 (28,064,558) 447,060,657 724,417,089 645,827,821 26,543,638 TOTAL GROSS COLLECTIONS $6,221,924,406 ADDITIONAL DISTRIBUTION FROM TRANSACTION PRIVILEGE, USE AND SEVERANCE TAX COLLECTIONS FISCAL YEAR 2007-08 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. 48 $416,667 $416,667 $15,456,187 $6,887,503 $1,750,000 TABLE 9 TRANSACTION PRIVILEGE, USE AND SEVERANCE TAX COLLECTIONS (1) IN APACHE COUNTY FOR THE PERIOD BEGINNING JULY 1, 2007 AND ENDING JUNE 30, 2008 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 (2) TOTAL CALCULATED NET TAXABLE INCOME % CHANGE FROM FY 2006-07 COLLECTIONS $13,304,340 17,528,171 151,341 10,462,084 350,710 9.4% -30.7% -33.5% -0.4% 13.7% $665,217 876,409 7,567 523,104 17,535 7,231,393 91,176,608 114,527,756 12,752,509 109,327,963 34.7% 14.8% 52.2% -2.8% 54.4% 361,570 4,558,830 5,726,388 701,388 5,193,329 $376,812,875 28.9% $18,631,337 NUMBER OF ACCOUNTS FISCAL YEAR 2005-06 THROUGH FISCAL YEAR 2007-08 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 FY2005-06 21 133 n/a 66 n/a FY2006-07 FY2007-08 24 142 12 71 15 26 123 12 74 9 180 452 1,241 56 845 171 471 1,297 59 878 181 477 1,307 60 918 2,994 3,140 3,187 (1) License fees, Jet Fuel, Jet Fuel Use, Timber Severance, NSF, and Telecommunications Service Assistance are not included. (2) For FY08, more categories have been classified under Other Taxable Activities compared to FY07. Figures may not add to total due to rounding. 49 TABLE 10 TRANSACTION PRIVILEGE, USE AND SEVERANCE TAX COLLECTIONS (1) IN COCHISE COUNTY FOR THE PERIOD BEGINNING JULY 1, 2007 AND ENDING JUNE 30, 2008 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 2006-07 $180,059,819 55,460,583 1,143,434 128,070,420 5,530,959 15.8% 4.8% -35.5% 2.7% 85.6% $9,002,991 2,773,029 57,172 6,403,521 276,548 28,236,534 308,775,576 800,525,261 43,939,052 85,922,026 2.4% 0.1% 2.2% 13.5% -11.0% 1,411,827 15,438,779 40,026,263 2,416,648 4,217,448 $1,637,663,664 2.8% . $82,024,226 COLLECTIONS NUMBER OF ACCOUNTS FISCAL YEAR 2005-06 THROUGH FISCAL YEAR 2007-08 TAXABLE ACTIVITIES AND BUSINESS CLASSIFICATIONS FY2005-06 Utilities Communications Publishing Restaurants and Bars Amusements Rentals of Personal Property Contracting (All) Retail Hotel/Motel Other Taxable Activities 46 228 n/a 350 60 TOTAL FY2006-07 FY2007-08 55 211 25 351 58 53 198 20 353 62 409 1,162 3,452 142 1,438 403 1,201 3,580 151 1,472 381 1,240 3,541 152 1,521 7,287 7,507 7,521 (1) License fees, Jet Fuel, Jet Fuel Use, Timber Severance, NSF, and Telecommunications Service Assistance are not included. Figures may not add to total due to rounding. 50 TABLE 11 TRANSACTION PRIVILEGE, USE AND SEVERANCE TAX COLLECTIONS (1) IN COCONINO COUNTY FOR THE PERIOD BEGINNING JULY 1, 2007 AND ENDING JUNE 30, 2008 TAXABLE ACTIVITIES AND CALCULATED NET % CHANGE BUSINESS CLASSIFICATIONS TAXABLE INCOME FROM FY 2006-07 $163,936,934 3.7% $8,196,847 84,630,092 -5.4% 4,231,505 2,079,384 -19.6% 103,969 Utilities Communications Publishing Job Printing Restaurants and Bars Amusements COLLECTIONS 2,322,472 -27.9% 116,124 343,057,328 1.8% 17,152,866 69,830,101 43.0% 3,491,505 Rentals of Personal Property Contracting (All) Retail 78,666,862 24.9% 3,933,343 423,950,333 6.7% 21,197,517 1,053,022,228 -2.0% 52,651,111 Hotel/Motel 231,614,677 7.5% 12,738,807 Other Taxable Activities 119,406,985 0.1% 5,811,374 $2,572,517,396 2.6% $129,624,968 TOTAL NUMBER OF ACCOUNTS FISCAL YEAR 2005-06 THROUGH FISCAL YEAR 2007-08 TAXABLE ACTIVITIES AND BUSINESS CLASSIFICATIONS FY2005-06 Utilities Communications FY2006-07 FY2007-08 34 36 42 249 259 234 Publishing n/a 30 30 Job Printing 34 43 42 471 467 475 91 99 87 Restaurants and Bars Amusements Rentals of Personal 528 501 489 Contracting (All) Property 1,881 1,915 1,957 Retail 4,270 4,413 4,343 268 257 245 1,801 1,841 1,874 9,627 9,861 9,818 Hotel/Motel Other Taxable Activities TOTAL (1) License fees, Jet Fuel, Jet Fuel Use, Timber Severance, NSF, and Telecommunications Service Assistance are not included. Figures may not add to total due to rounding. 51 TABLE 12 TRANSACTION PRIVILEGE, USE AND SEVERANCE TAX COLLECTIONS (1) IN GILA COUNTY FOR THE PERIOD BEGINNING JULY 1, 2007 AND ENDING JUNE 30, 2008 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 2006-07 COLLECTIONS $118,123,905 25,394,010 720,275 440,298 58,555,682 1,639,457 11.4% -2.8% -25.6% -0.4% -2.2% -25.1% $5,906,195 1,269,701 36,014 22,015 2,927,784 81,973 13,216,970 112,357,550 308,440,601 12,739,997 101,775,011 -10.7% -3.9% 0.8% -10.9% 41.0% 660,848 5,617,877 15,422,030 700,700 3,775,275 $753,403,756 4.6% $36,420,412 NUMBER OF ACCOUNTS FISCAL YEAR 2005-06 THROUGH FISCAL YEAR 2007-08 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 FY2005-06 33 190 15 n/a 189 33 FY2006-07 FY2007-08 32 189 16 17 188 30 32 161 15 18 184 30 283 859 2,090 66 901 277 923 2,116 72 943 281 948 2,095 69 1,034 4,659 4,803 4,867 (1) License fees, Jet Fuel, Jet Fuel Use, Timber Severance, NSF, and Telecommunications Service Assistance are not included. Figures may not add to total due to rounding. 52 TABLE 13 TRANSACTION PRIVILEGE, USE AND SEVERANCE TAX COLLECTIONS (1) IN GRAHAM COUNTY FOR THE PERIOD BEGINNING JULY 1, 2007 AND ENDING JUNE 30, 2008 TAXABLE ACTIVITIES AND BUSINESS CLASSIFICATIONS CALCULATED NET TAXABLE INCOME Communications Restaurants and Bars Rentals of Personal Property Contracting (All) Retail Other Taxable Activities TOTAL % CHANGE FROM FY 2006-07 COLLECTIONS $14,500,654 26,755,083 58.2% 7.1% $725,033 1,337,754 20,180,264 64,153,601 263,300,619 76,978,664 30.4% 24.6% 12.2% 5.6% 1,009,013 3,207,680 13,165,031 3,731,138 $465,868,885 14.0% $23,175,649 NUMBER OF ACCOUNTS FISCAL YEAR 2005-06 THROUGH FISCAL YEAR 2007-08 TAXABLE ACTIVITIES AND BUSINESS CLASSIFICATIONS FY2005-06 Communications Restaurants and Bars Rentals of Personal Property Contracting (All) Retail Other Taxable Activities TOTAL FY2006-07 FY2007-08 143 67 141 60 119 61 157 305 1,164 684 164 334 1,230 727 161 406 1,275 819 2,520 2,656 2,841 (1) License fees, Jet Fuel, Jet Fuel Use, Timber Severance, NSF, and Telecommunications Service Assistance are not included. Figures may not add to total due to rounding. 53 TABLE 14 TRANSACTION PRIVILEGE, USE AND SEVERANCE TAX COLLECTIONS (1) IN GREENLEE COUNTY FOR THE PERIOD BEGINNING JULY 1, 2007 AND ENDING JUNE 30, 2008 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 $3,711,889 5,052,353 50.0% 36.9% $185,594 252,618 1,735,764 81,544,520 146,854,818 759,718,744 -70.5% -2.8% 162.1% -12.2% 86,788 4,077,226 7,342,741 21,403,777 $998,618,088 -1.9% $33,348,744 COLLECTIONS NUMBER OF ACCOUNTS FISCAL YEAR 2005-06 THROUGH FISCAL YEAR 2007-08 TAXABLE ACTIVITIES AND BUSINESS CLASSIFICATIONS FY2005-06 Communications Restaurants and Bars Rentals of Personal Property Contracting (All) Retail Other Taxable Activities TOTAL FY2006-07 FY2007-08 76 28 89 25 76 26 59 102 441 322 72 111 498 362 71 137 516 410 1,028 1,157 1,236 (1) License fees, Jet Fuel, Jet Fuel Use, Timber Severance, NSF, and Telecommunications Service Assistance are not included. Figures may not add to total due to rounding. 54 TABLE 15 TRANSACTION PRIVILEGE, USE AND SEVERANCE TAX COLLECTIONS (1) IN LA PAZ COUNTY FOR THE PERIOD BEGINNING JULY 1, 2007 AND ENDING JUNE 30, 2008 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 2006-07 COLLECTIONS $22,711,352 7,571,608 126,763 27,187,687 175,763 5.8% 0.0% -16.5% 1.1% -6.0% $1,135,568 378,580 6,338 1,359,384 8,788 2,835,278 33,007,878 123,602,020 5,948,451 7,585,055 -18.3% -7.8% -3.4% -5.4% 1.0% 141,764 1,652,392 6,180,101 327,165 374,256 $230,751,855 -2.8% $11,564,336 NUMBER OF ACCOUNTS FISCAL YEAR 2005-06 THROUGH FISCAL YEAR 2007-08 TAXABLE ACTIVITIES AND BUSINESS CLASSIFICATIONS FY2005-06 Utilities Communications Job Printing Restaurants and Bars Amusements Rentals of Personal Property Contracting (All) Retail Hotel/Motel Other Taxable Activities 18 122 n/a 99 13 TOTAL FY2006-07 FY2007-08 18 127 10 102 10 16 107 11 114 17 178 338 1,908 55 565 167 350 1,864 57 599 170 347 1,777 50 619 3,296 3,304 3,228 (1) License fees, Jet Fuel, Jet Fuel Use, Timber Severance, NSF, and Telecommunications Service Assistance are not included. Figures may not add to total due to rounding. 55 TABLE 16 TRANSACTION PRIVILEGE,USE AND SEVERANCE TAX COLLECTIONS (1) IN MARICOPA COUNTY FOR THE PERIOD BEGINNING JULY 1, 2007 AND ENDING JUNE 30, 2008 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 2006-07 COLLECTIONS $5,727,793,111 2,468,306,652 85,876,221 317,782,971 6,565,944,950 853,063,207 7.3% 6.7% -8.5% -1.4% -0.1% 4.2% $286,389,656 123,415,333 4,293,811 15,889,149 328,297,248 42,653,160 3,048,813,224 13,315,477,503 35,592,784,696 1,489,312,952 5,418,695,227 1.4% -9.8% -5.8% 0.4% 12.2% 152,440,661 665,773,875 1,779,639,235 81,912,212 269,450,398 $74,883,850,713 -3.2% $3,750,154,737 NUMBER OF ACCOUNTS FISCAL YEAR 2005-06 THROUGH FISCAL YEAR 2007-08 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 FY2005-06 FY2006-07 FY2007-08 131 658 310 911 6,442 759 143 687 314 940 6,584 720 144 654 306 921 6,759 752 3,047 15,506 48,977 686 12,226 3,035 16,516 49,535 640 11,920 3,057 16,546 49,466 663 11,441 89,653 91,034 90,709 (1) License fees, Jet Fuel, Jet Fuel Use, Timber Severance, NSF, and Telecommunications Service Assistance are not included. Figures may not add to total due to rounding. 56 TABLE 17 TRANSACTION PRIVILEGE, USE AND SEVERANCE TAX COLLECTIONS (1) IN MOHAVE COUNTY FOR THE PERIOD BEGINNING JULY 1, 2007 AND ENDING JUNE 30, 2008 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 2006-07 COLLECTIONS $482,942,652 93,661,070 2,405,150 5,264,581 216,041,736 16,666,318 7.3% 4.4% 2.4% -15.4% -0.6% 27.1% $24,147,133 4,683,054 120,257 263,229 10,802,087 833,316 80,060,984 489,986,329 1,371,519,438 46,951,991 140,456,677 2.0% -23.1% -9.5% -4.7% 3.7% 4,003,049 24,499,316 68,575,972 2,582,359 6,679,095 $2,945,956,925 -7.8% $147,188,867 NUMBER OF ACCOUNTS FISCAL YEAR 2005-06 THROUGH FISCAL YEAR 2007-08 TAXABLE ACTIVITIES AND BUSINESS CLASSIFICATIONS FY2005-06 Utilities Communications Publishing Job Printing Restaurants and Bars Amusements Rentals of Personal Property Contracting (All) Retail Hotel/Motel Other Taxable Activities TOTAL FY2006-07 FY2007-08 52 202 28 37 448 68 51 202 27 35 446 60 49 187 28 36 445 74 544 2,039 4,827 166 1,809 540 2,178 4,990 164 1,925 539 2,014 4,885 152 1,921 10,220 10,618 10,330 (1) License fees, Jet Fuel, Jet Fuel Use, Timber Severance, NSF, and Telecommunications Service Assistance are not included. Figures may not add to total due to rounding. 57 TABLE 18 TRANSACTION PRIVILEGE, USE AND SEVERANCE TAX COLLECTIONS (1) IN NAVAJO COUNTY FOR THE PERIOD BEGINNING JULY 1, 2007 AND ENDING JUNE 30, 2008 TAXABLE ACTIVITIES AND BUSINESS CLASSIFICATIONS CALCULATED NET TAXABLE INCOME Utilities Communications Publishing Restaurants and Bars Rentals of Personal Property Contracting (All) Retail Hotel/Motel Other Taxable Activities TOTAL % CHANGE FROM FY 2006-07 COLLECTIONS $92,255,352 40,135,719 1,135,152 95,570,042 4.9% 14.3% -5.2% 0.4% $4,612,768 2,006,786 56,758 4,778,502 37,319,981 279,562,880 818,594,217 34,756,271 71,219,440 30.2% 8.6% 4.0% 2.1% 22.8% 1,865,999 13,978,144 40,929,711 1,911,595 3,498,387 $1,470,549,054 6.2% $73,638,649 NUMBER OF ACCOUNTS FISCAL YEAR 2005-06 THROUGH FISCAL YEAR 2007-08 TAXABLE ACTIVITIES AND BUSINESS CLASSIFICATIONS FY2005-06 Utilities Communications Publishing Restaurants and Bars Amusements Rentals of Personal Property Contracting (All) Retail Hotel/Motel Other Taxable Activities 41 192 n/a 219 n/a TOTAL FY2006-07 41 184 14 233 45 38 163 19 235 44 336 1,082 2,494 152 1,171 319 1,191 2,665 151 1,181 299 1,199 2,691 151 1,234 5,687 6,024 6,073 (1) License fees, Jet Fuel, Jet Fuel Use, Timber Severance, NSF, and Telecommunications Service Assistance are not included. Figures may not add to total due to rounding. 58 FY2007-08 TABLE 19 TRANSACTION PRIVILEGE, USE AND SEVERANCE TAX COLLECTIONS (1) IN PIMA COUNTY FOR THE PERIOD BEGINNING JULY 1, 2007 AND ENDING JUNE 30, 2008 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 2006-07 $1,291,244,638 479,967,215 17,692,637 47,689,021 1,451,212,168 112,085,954 1.0% -0.6% 17.5% -1.7% 0.5% -4.7% $64,562,232 23,998,361 884,632 2,384,451 72,560,608 5,604,298 466,395,063 2,288,608,409 7,651,258,490 319,154,819 1,243,472,126 0.6% -5.6% -2.1% -12.0% 30.5% 23,319,753 114,430,420 382,562,925 17,553,515 47,017,232 $15,368,780,541 -1.1% $754,878,426 COLLECTIONS NUMBER OF ACCOUNTS FISCAL YEAR 2005-06 THROUGH FISCAL YEAR 2007-08 TAXABLE ACTIVITIES AND BUSINESS CLASSIFICATIONS FY2005-06 Utilities Communications Publishing Job Printing Restaurants and Bars Amusements Rentals of Personal Property Contracting (All) Retail Hotel/Motel Other Taxable Activities TOTAL FY2006-07 69 273 81 175 1,684 206 77 326 86 165 1,692 220 79 316 84 171 1,703 213 1,146 4,963 14,861 283 3,972 1,154 5,111 15,091 276 4,232 1,143 5,278 14,988 273 4,122 27,713 28,430 28,370 (1) License fees, Jet Fuel, Jet Fuel Use, Timber Severance, NSF, and Telecommunications Service Assistance are not included. Figures may not add to total due to rounding. 59 FY2007-08 TABLE 20 TRANSACTION PRIVILEGE, USE AND SEVERANCE TAX COLLECTIONS (1) IN PINAL COUNTY FOR THE PERIOD BEGINNING JULY 1, 2007 AND ENDING JUNE 30, 2008 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 2006-07 COLLECTIONS $391,610,466 157,103,201 3,610,864 1,452,576 203,069,968 28,074,518 19.1% 8.4% 12.7% -7.1% 7.6% 3.6% $19,580,523 7,855,160 180,543 72,629 10,153,498 1,403,726 62,567,755 1,461,402,552 1,112,778,763 23,528,275 413,788,236 -2.4% -21.8% 6.1% 8.0% 7.5% 3,128,388 73,070,128 55,638,938 1,294,055 15,649,173 $3,858,987,176 -5.5% $188,026,762 NUMBER OF ACCOUNTS FISCAL YEAR 2005-06 THROUGH FISCAL YEAR 2007-08 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 FY2005-06 65 260 27 n/a 402 105 FY2006-07 FY2007-08 67 261 27 35 405 101 70 236 28 33 435 101 479 2,701 4,157 101 1,551 519 2,968 4,530 108 1,669 505 3,077 4,711 109 1,773 9,848 10,690 11,078 (1) License fees, Jet Fuel, Jet Fuel Use, Timber Severance, NSF, and Telecommunications Service Assistance are not included. Figures may not add to total due to rounding. 60 TABLE 21 TRANSACTION PRIVILEGE, USE AND SEVERANCE TAX COLLECTIONS (1) IN SANTA CRUZ COUNTY FOR THE PERIOD BEGINNING JULY 1, 2007 AND ENDING JUNE 30, 2008 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 2006-07 COLLECTIONS $44,284,102 29,678,429 648,775 50,153,975 6,477,330 12.2% 4.1% -12.0% 2.4% 21.8% $2,214,205 1,483,921 32,439 2,507,699 323,867 11,385,081 100,692,022 389,075,734 16,458,729 21,847,128 -24.4% -18.0% -5.6% 22.9% 4.5% 569,254 5,034,601 19,453,787 905,230 1,092,302 $670,701,305 -5.2% $33,617,305 NUMBER OF ACCOUNTS FISCAL YEAR 2005-06 THROUGH FISCAL YEAR 2007-08 TAXABLE ACTIVITIES AND BUSINESS CLASSIFICATIONS FY2005-06 Utilities Communications Job Printing Restaurants and Bars Amusements Rentals of Personal Property Contracting (All) Retail Hotel/Motel Other Taxable Activities TOTAL FY2006-07 18 165 14 138 18 18 165 13 144 20 16 146 11 158 24 246 602 1,800 30 790 247 652 1,933 37 842 252 672 1,996 38 902 3,821 4,071 4,215 (1) License fees, Jet Fuel, Jet Fuel Use, Timber Severance, NSF, and Telecommunications Service Assistance are not included. Figures may not add to total due to rounding. 61 FY2007-08 TABLE 22 TRANSACTION PRIVILEGE, USE AND SEVERANCE TAX COLLECTIONS (1) IN YAVAPAI COUNTY FOR THE PERIOD BEGINNING JULY 1, 2007 AND ENDING JUNE 30, 2008 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 (2) TOTAL % CHANGE FROM FY 2006-07 COLLECTIONS $312,148,297 113,956,125 7,501,386 280,197,443 31,238,503 8.0% -4.4% -5.7% 1.8% 12.3% $15,607,415 5,697,806 375,069 14,009,872 1,561,925 65,041,731 675,722,242 1,539,569,029 109,530,781 392,547,538 -4.9% -15.5% -5.5% 8.3% 2.5% 3,252,087 33,786,108 76,978,451 6,024,193 12,536,516 $3,527,453,075 -4.7% $169,829,443 NUMBER OF ACCOUNTS FISCAL YEAR 2005-06 THROUGH FISCAL YEAR 2007-08 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 FY2005-06 FY2006-07 FY2007-08 74 240 62 638 93 70 256 60 635 93 74 231 65 643 100 550 3,065 6,205 199 1,940 551 3,149 6,322 180 2,017 519 3,066 6,320 188 2,063 13,066 13,333 13,269 (1) License fees, Jet Fuel, Jet Fuel Use, Timber Severance, NSF, and Telecommunications Service Assistance are not included. (2) For FY08, more categories have been classified under Other Taxable Activities compared to FY07. Figures may not add to total due to rounding. 62 TABLE 23 TRANSACTION PRIVILEGE, USE AND SEVERANCE TAX COLLECTIONS (1) IN YUMA COUNTY FOR THE PERIOD BEGINNING JULY 1, 2007 AND ENDING JUNE 30, 2008 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 2006-07 COLLECTIONS $258,162,995 78,077,139 202,627,659 13,551,703 8.3% -10.3% 5.3% 4.3% $12,908,150 3,903,857 10,131,383 677,585 72,009,823 429,880,615 1,341,139,317 50,086,961 89,909,654 8.8% -7.1% 0.1% 1.3% 2.0% 3,600,491 21,494,031 67,056,966 2,754,783 4,428,655 $2,535,445,865 -0.1% $126,955,900 NUMBER OF ACCOUNTS FISCAL YEAR 2005-06 THROUGH FISCAL YEAR 2007-08 TAXABLE ACTIVITIES AND BUSINESS CLASSIFICATIONS Utilities Communications Restaurants and Bars Amusements Rentals of Personal Property Contracting (All) Retail Hotel/Motel Other Taxable Activities TOTAL FY2005-06 FY2006-07 FY2007-08 32 322 348 43 37 216 348 42 36 199 340 46 440 997 3,599 101 1,418 469 1,084 3,784 99 1,583 473 1,042 3,762 104 1,611 7,300 7,662 7,613 (1) License fees, Jet Fuel, Jet Fuel Use, Timber Severance, NSF, and Telecommunications Service Assistance are not included. Figures may not add to total due to rounding. 63 TABLE 24 STATE TRANSACTION PRIVILEGE AND SEVERANCE TAX DISTRIBUTION TO COUNTIES FISCAL YEAR 2003-04 THROUGH FISCAL YEAR 2007-08 COUNTY Apache Cochise Coconino Gila Graham Greenlee La Paz Maricopa Mohave Navajo Pima Pinal Santa Cruz Yavapai Yuma Additional Distribution 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 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 ----$551,804,281 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 ----$609,615,497 ----$705,794,789 Figures may not add to totals due to rounding. 64 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 7,612 $748,692,595 FY2007-08 $5,074,805 12,547,126 17,161,720 5,370,720 3,551,781 4,893,205 1,962,689 465,016,355 21,046,522 10,977,266 104,069,379 24,071,466 4,703,843 25,136,960 18,833,253 % CHANGE FROM FY 2006-07 1.1% -4.1% -2.8% -0.1% 3.9% -4.3% -3.2% -3.3% -4.6% -0.2% -2.7% -4.6% -4.4% -6.4% -2.3% ----$724,417,089 -3.2% TABLE 25 STATE TRANSACTION PRIVILEGE AND SEVERANCE TAX DISTRIBUTION TO MUNICIPALITIES FISCAL YEAR 2007-08 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 $407,594 189,782 355,209 $435,625 603,809 1,580,288 168,184 4,015,284 147,965 357,047 $5,623,144 102,013 653,437 289,038 $688,820 81,978 179,672 1,418,078 184,359 40,713 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 $952,585 $7,308,203 $6,667,632 $2,593,622 $200,535 860,221 418,163 $1,478,919 $238,583 74,626 $313,209 $301,445 330,854 $632,299 $6,374,091 2,334,912 338,574 438,014 21,215,570 2,946,533 2,250,912 181,970 16,316,997 22,274,671 4,247,158 510,526 416,141 41,181,798 1,274,065 12,695,889 135,634,993 1,508,512 City Distributions are based on relative population. Figures may not add to total due to rounding. TOTAL 65 AMOUNT COUNTY TOTAL $21,574,639 8,111,903 15,237,309 597,192 558,500 566,404 $318,787,274 $3,511,650 374,968 2,376,636 4,910,888 $11,174,143 $498,579 382,780 908,471 453,546 376,806 903,876 $3,524,058 $2,456,133 3,621,016 1,285,736 517,419 48,687,962 $56,568,267 $3,131,168 2,984,122 751,774 1,022,432 1,886,788 206,692 161,935 1,464,398 299,055 $11,908,364 $2,006,263 84,552 $2,090,815 $986,129 1,132,716 338,207 998,077 370,373 30,328 3,746,925 3,085,676 1,004,970 $11,693,401 $2,107,358 896,064 181,051 8,183,395 $11,367,867 $447,060,657 $447,060,657 TABLE 26 MUNICIPAL PRIVILEGE TAX COLLECTION PROGRAM COLLECTIONS BY CITY FISCAL YEAR 2007-08 CITY Apache Junction (2) 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* 4.0* 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 CITY $879,901 3,473,007 1,887,421 18,897,494 12,657,372 2,457,285 3,710,156 28,444,072 4,178,992 4,935,395 891,512 554,200 273,849 5,315,977 9,911,065 420,587 5,350,489 92,250 857,687 5,929,568 8,441,969 5,626,375 10,470,882 271,315 1,136,127 56,533,469 4,057,521 40,346,762 1,551,378 1,577,738 3,012,807 219,333 507,224 355,937 12,990,503 18,222,454 3,133,416 73,762 27,319,468 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* 2.25* 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* 2.5* 2.5* 2.5* 1.7* 3.0* 3.0* 3.5* 3.0* 2.0* 1.7 COLLECTIONS $18,574,745 416,891 16,603,028 6,642,357 10,126,499 1,274,949 241,986 7,302,297 310,311 4,197,926 12,351,045 1,626,602 18,015,415 7,385,031 10,576,590 526,085 4,621,222 14,254,478 10,942,341 17,797,427 1,376,873 1,363,902 2,149,998 1,871,366 551,411 197,566 40,087,807 836,269 2,220,472 7,959,492 727,836 688,163 3,146,665 2,516,769 4,249,660 97,171 4,294,927 1,164,200 34,811,560 TOTAL $581,066,050 * 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, 2008 and may have changed during the remainder of FY 08. (2) Effective July 1, 2007, Apache Junction no longer participates in the municipal privilege tax collection program. Collections shown here are from periods prior to July 1, 2007. Figures may not add to total due to rounding. 66 TABLE 27 MUNICIPAL PRIVILEGE TAX COLLECTION PROGRAM FISCAL YEAR 2003-04 THROUGH FISCAL YEAR 2007-08 FISCAL YEAR TOTAL COLLECTIONS NUMBER OF CITIES IN PROGRAM 2003-04 $352,320,229 76 2004-05 $428,527,285 77 2005-06 $551,992,962 78 2006-07 $619,189,088 78 2007-08 $581,066,050 77 67 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 $784 million during fiscal year 2008 (Refer to Table 28). INDIVIDUAL INCOME TAX MAJOR FEATURES For tax year 2005 filed in 2006, approximately 2.4 million individual filers reported Arizona gross income (defined as federal adjusted gross income) totaling more than $136.7 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 2008 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, Veteran’s Donation Fund, National Guard Relief 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 2008 ANNUAL REPORT 69 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 System Taxpayers that incur expenses to purchase and install an 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. Corporate Contributions To School Tuition Organizations Corporate taxpayers that make cash contributions to school tuition organizations. The amount of the donation must be pre-approved by the department. There is an annual limit to the aggregate amount of donations made. 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 Facility Taxpayers that incur expenses in constructing a qualified 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 Enterprises 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. Investment in Qualified Small Businesses Allows a credit for investments in qualified small businesses to individuals. ARIZONA DEPARTMENT OF REVENUE 2008 ANNUAL REPORT 70 CREDIT Increased Excise Taxes AVAILABLE TO This credit is for Arizona residents whose federal adjusted gross income is beneath a certain threshold ($25,000 or less for Married Filing Joint or Head of Household, or $12,500 for Married Filing Separately or Single) and who cannot be claimed as a dependent by any other taxpayer. Military Reuse Zone Taxpayers with a net increase in employment of full-time employees working in a military reuse zone. 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. Solar Energy Devices – Commercial & Industrial Applications This credit is available to individuals, corporations and S corporations. The credit is 10% of the cost of the installed device, not to exceed $25,000 with respect to the same building in the same tax Year, or $50,000 in total credits in any given year. 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. ARIZONA DEPARTMENT OF REVENUE 2008 ANNUAL REPORT 71 CREDIT Taxes Paid for Coal Consumed in Generating Electrical Power AVAILABLE TO 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. Water Conservation System An individual may qualify for this credit if the taxpayer installed a qualifying water conservation system in the taxpayer’s residence located in Arizona. ARIZONA DEPARTMENT OF REVENUE 2008 ANNUAL REPORT 72 TABLE 28 INCOME TAX COLLECTIONS FISCAL YEAR 2003-04 THROUGH FISCAL YEAR 2007-08 SOURCE Withheld from Wages Gross Revenue Amnesty Refunds and Charge-offs NET FY2003-04 FY2004-05 FY2005-06 FY2006-07 FY2007-08 $2,336,442,815 $176,268 (8,422,819) $2,626,264,231 ----(5,267,886) $3,041,031,728 ----(8,992,229) $3,294,287,540 ----(19,969,915) $3,344,770,438 ----(22,167,786) $2,328,196,264 Individuals & Fiduciaries Gross Revenue Amnesty Regular Refunds and Charge-offs Attorney Fees - Ladewig refunds (1) NET Corporations Gross Revenue Amnesty Refunds and Charge-offs NET Subtotal Net Collections Less distributions for: Urban Revenue Sharing Contracted Collection Agency Child Abuse Prevention Veteran's Donation Fund Aid to Education Domestic Violence Shelter Special Olympics Wildlife Contributions Neighbors Helping Neighbors Clean Elections National Guard Relief Fund Democratic Party Libertarian Party Republican Party Green Party Subtotal Distributions NET REVENUE TO STATE GENERAL FUND WQARF DISTRIBUTION $2,620,996,345 $776,183,708 2,890,549 (791,230,045) (2,000,000) $1,128,453,951 ----(895,440,957) (6,249,511) ($14,155,788) $226,763,483 $596,582,273 53,690,925 (124,623,328) $789,739,978 ----(87,880,694) $525,649,869 $701,859,285 $2,839,690,345 $3,549,619,113 $365,065,158 409 198,467 ----46,052 132,713 79,498 167,014 42,269 4,116,022 ----27,252 1,570 19,561 1 (2) $378,631,950 $2,469,794,357 $3,170,987,163 $10,000,000 $11,000,000 $3,274,317,624 $3,322,602,653 $1,631,563,811 ----(1,012,026,853) (5,107,102) $1,677,949,795 ----(1,285,344,591) (4,853,277) $1,461,050,780 ----(1,369,350,067) (2,575) $614,429,855 $387,751,926 $91,698,139 $1,070,710,516 ----(84,540,518) $985,126,064 ----(200,615,179) $978,239,759 ----(104,020,287) (2) $373,072,580 ----200,870 ----42,696 142,058 87,888 174,101 37,509 4,831,319 ----23,860 2,292 16,777 0 $369,895,988 $3,032,039,499 79.1% 2.2% $874,219,472 $986,169,998 $784,510,885 18.7% $4,520,688,826 $4,648,239,549 $4,198,811,676 100.0% $425,228,927 ----240,323 ----37,991 178,520 100,319 212,208 51,410 4,947,968 ----27,679 2,436 19,190 0 $551,230,661 ----250,683 ----38,309 195,840 106,425 255,738 53,507 6,145,768 ----31,304 3,315 21,444 0 $684,538,927 ----260,062 65,085 107,173 196,622 105,085 235,199 55,421 6,505,822 264,523 31,539 2,310 18,081 557 $431,046,971 $558,332,993 $692,386,405 (2) $4,089,641,855 $4,089,906,556 $3,506,425,271 (2) $15,000,000 $15,000,000 $15,000,000 (1) Attorney fees relating to the Ladewig class action lawsuit were paid from individual income tax refunds. (2) Corrected figures. Figures may not add to total due to rounding. 73 PERCENT OF NET COLLECTIONS IN FY2007-08 TABLE 29 EXEMPTIONS, DEDUCTIONS AND CREDITS TAX YEAR 2004 THROUGH TAX YEAR 2007 TAX YEAR 2004 2005 2006 2007 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 4,125/8,250 4,247/8,494 4,373/8,745 502 502 502 502 240 240 240 240 (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 2004 THROUGH TAX YEAR 2006 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 Commercial & Industrial Solar Energy Construction Materials Contributions to Charities Providing Help to Working Poor Defense Contracting Employing National Guard Members Employment of TANF Recipients Enterprise Zone Environmental Technology Family Tax Credit Healthy Forest Enterprises Income Taxes Paid to Other States Increased Excise Taxes Paid Military Reuse Zone Motion Picture Production & Infrastructure 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 2004 CLAIMANTS CREDITS TAX YEAR 2005 CLAIMANTS CREDITS TAX YEAR 2006 CLAIMANTS CREDITS (1) 0 141 (1) $0 $2,784,783 (1) 0 132 (1) $0 $1,829,142 (2) --79 (2) --$967,778 0 26 (1) 737 32,338 --(1) $0 $34,972 (1) $1,119,036 $739,774 --(1) ------348 31,075 ----- ------$739,258 $801,435 ----- ------(2) 32,563 (2) --- ------(2) $801,655 (2) --- 20,736 0 --0 165 0 425,484 --29,956 555,762 0 --28 63,830 14,768 213,987 (1) 143 100 1,979 $3,851,700 $0 --$0 $1,339,705 $0 $7,709,270 --$80,229,015 $29,924,907 $0 --$16,385 $31,871,474 $5,242,685 $30,958,872 (1) $1,452,305 $3,511,441 $817,331 25,587 0 --5 191 0 439,056 --34,664 546,678 0 --21 69,239 13,943 215,369 0 165 79 (2) $6,589,000 $0 --$1,652 $1,441,581 $0 $7,661,867 --$119,416,310 $29,358,243 $0 --$71,440 $42,194,898 $4,977,070 $35,416,279 $0 $2,963,936 $6,027,400 (2) 29,202 0 (1) (2) 188 0 448,960 0 34,880 536,940 0 0 (2) 73,617 13,247 218,664 0 223 87 (2) $7,939,507 $0 (1) (2) $1,569,267 $0 $6,867,294 $0 $124,937,274 $28,751,332 $0 $0 (2) $51,011,815 $4,776,863 $43,230,433 $0 $3,617,562 $7,702,030 (2) 23 0 --1,376,577 $10,437 $0 --$259,516,031 (2) ----1,388,650 (2) ----$282,172,810 17 0 0 1,360,221 $5,677 $0 $0 $201,618,616 (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. 74 TABLE 30 RESIDENT INDIVIDUAL INCOME TAX LIABILITY BY FEDERAL ADJUSTED GROSS INCOME TAX YEAR 2005 (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 27,672 37,918 117,686 142,298 147,565 229,858 175,419 154,131 249,719 183,654 309,212 178,703 182,796 47,678 8,966 4,840 603 1.26% 1.72% 5.35% 6.47% 6.71% 10.45% 7.98% 7.01% 11.36% 8.35% 14.06% 8.13% 8.31% 2.17% 0.41% 0.22% 0.03% $284,867 23,637 65,155 3,829,376 11,256,679 33,647,694 45,436,187 58,468,192 137,725,814 141,864,962 353,138,192 321,471,600 607,249,913 467,328,872 246,854,018 404,734,349 395,705,523 0.01% 0.00% 0.00% 0.12% 0.35% 1.04% 1.41% 1.81% 4.27% 4.39% 10.94% 9.96% 18.81% 14.47% 7.64% 12.53% 12.25% 2,198,718 100.00% TOTAL $3,229,085,030 100.00% (1) This summary combines all liability reported on the Arizona Form 140 and 140A Individual Income tax returns for tax year 2005, filed from January 2006 forward. 75 TABLE 31 NONRESIDENT/ PART YEAR RESIDENT INDIVIDUAL INCOME TAX LIABILITY BY FEDERAL ADJUSTED GROSS INCOME TAX YEAR 2005 (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 26,495 22,627 36,993 28,133 22,087 24,887 14,792 11,145 15,871 10,602 14,457 6,977 8,453 3,591 1,090 756 111 10.64% 9.08% 14.85% 11.30% 8.87% 9.99% 5.94% 4.47% 6.37% 4.26% 5.80% 2.80% 3.39% 1.44% 0.44% 0.30% 0.04% $2,203,553 22,606 156,944 1,181,173 2,405,230 5,346,126 5,062,574 5,124,850 10,191,548 9,643,224 19,854,105 15,078,593 33,989,129 39,538,467 30,747,222 65,847,623 60,366,254 0.72% 0.01% 0.05% 0.39% 0.78% 1.74% 1.65% 1.67% 3.32% 3.14% 6.47% 4.92% 11.08% 12.89% 10.02% 21.47% 19.68% 249,067 100.00% $306,759,221 100.00% (1) This summary combines all liability reported on the Arizona Form 140NR and 140PY Individual Income tax returns for tax year 2005, filed from January 2006 forward. 76 TABLE 32 CORPORATE INCOME TAX CORPORATE TAXPAYER BY SIZE OF TAX LIABILITY TAX YEAR 2005 (1) CORPORATE TAX LIABILITY $50 Minimum $50.01 to $99.99 $100 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 34,826 1,128 5,465 4,977 1,574 1,921 445 570 135 134 51,175 % OF TOTAL 68.1% 2.2% 10.7% 9.7% 3.1% 3.8% 0.9% 1.1% 0.3% 0.3% 100.0% LIABILITY $1,727,927 81,883 2,307,964 12,458,644 11,106,340 44,044,859 31,990,189 121,877,818 95,499,542 506,797,629 $827,892,795 % OF TOTAL 0.2% 0.0% 0.3% 1.5% 1.3% 5.3% 3.9% 14.7% 11.5% 61.2% 100.0% CORPORATE INCOME TAX CREDITS TAX YEAR 2005 CREDIT TYPE Agricultural Pollution Control Equipment Agricultural Preservation District Agricultural Water Conservation Alternative Fuel - Non Refundable --Neighborhood Electric Vehicles Clean Elections Coal Used for Electric Generation Consolidated Filers Contributions to School Tuition Organizations Defense Contracting Employment of TANF Recipients Enterprise Zone Environmental Technology Healthy Forest Enterprises Military Reuse Zone Pollution Control Equipment Recycling Equipment Research & Development School Site Donation Solar Hot Water Heater Plumbing Stub-Outs Technology Training TOTAL (2) # OF FILERS 0 0 * CREDIT USED $0 $0 * CARRYFORWARD AVAILABLE $0 $0 * 4 102 3 28 4 * 13 118 * 0 * 23 * 180 5 0 3 488 $3,041 $2,019 $843,909 $4,680,893 $526,210 * $99,575 $7,620,213 * $0 * $2,100,899 * $47,414,678 $1,272,504 $0 $46,356 $64,610,435 $677,874 $0 $1,870,939 $32,171,333 $2,790 * $24,822 $3,568,964 * $0 * $4,144,624 * $660,691,988 $1,177 $0 $0 $734,994,261 (1) This summary combines all liability on the Arizona Form 120 Corporate Income Tax returns for tax year 2005 filed from January 2006 forward. (2) Total is for all credits, including those for which information cannot be divulged individually. * The single asterisk indicates that no information can be released due to confidentiality laws in Arizona. Figures may not add to total due to rounding. 77 TABLE 33 AVERAGE FEDERAL ADJUSTED GROSS INCOME AND AVERAGE TAX LIABILITY PER RETURN BY COUNTY FOR TAX YEAR 2005 APACHE COCONINO Average FAGI $30,081 Average Liability $857 Average FAGI $50,203 Average Liability $1,573 MOHAVE Average FAGI $42,842 Average Liability $1,228 NAVAJO Average FAGI $39,622 Average Liability $1,103 GREENLEE YAVAPAI Average FAGI $42,100 Average Liability $1,079 Average FAGI $50,112 Average Liability $1,478 LA PAZ GILA Average FAGI $37,652 Average Liability $1,056 Average FAGI $43,899 Average Liability $1,235 MARICOPA Average FAGI $64,473 Average Liability $2,087 YUMA Average FAGI $38,983 Average Liability $1,158 STATEWIDE AVERAGES Average FAGI $57,924 Average Liability $1,838 PINAL Average FAGI $45,454 Average Liability $1,221 PIMA COCHISE Average FAGI $50,198 Average Liability $1,461 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 $39,715 Average Liability $1,057 Average FAGI $43,227 Average Liability $1,212 SANTA CRUZ Average FAGI $40,836 Average Liability $1,309 ARIZONA DEPARTMENT OF REVENUE 2008 ANNUAL REPORT 78 TABLE 34 URBAN REVENUE SHARING FISCAL YEAR 2003-04 THROUGH FISCAL YEAR 2007-08 FISCAL YEAR AMOUNT 2003-04 $365,065,158 2004-05 $373,072,580 2005-06 $425,228,927 2006-07 $551,230,661 2007-08 $684,538,927 79 TABLE 35 DISTRIBUTION OF INCOME TAX AS URBAN REVENUE SHARING TO MUNICIPALITIES IN FISCAL YEAR 2007-08 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 $624,132 543,917 290,605 0.09% 0.08% 0.04% 667,054 924,588 2,419,831 257,534 6,148,439 226,573 546,731 0.10% 0.14% 0.35% 0.04% 0.90% 0.03% 0.08% 8,610,488 156,209 1,000,581 442,592 1.26% 0.02% 0.15% 0.06% 1,054,762 125,530 275,125 2,171,445 282,302 62,343 0.15% 0.02% 0.04% 0.32% 0.04% 0.01% 307,070 1,317,221 640,316 0.04% 0.19% 0.09% 365,332 114,272 0.05% 0.02% 461,590 506,623 0.07% 0.07% 9,760,383 3,575,354 518,445 670,713 32,486,527 4,511,904 3,446,728 278,643 24,985,544 34,108,285 6,503,497 781,748 637,220 63,059,988 1,950,923 19,440,691 207,692,266 1.43% 0.52% 0.08% 0.10% 4.75% 0.66% 0.50% 0.04% 3.65% 4.98% 0.95% 0.11% 0.09% 9.21% 0.28% 2.84% 30.34% 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 City distributions are based on relative population TOTAL 80 AMOUNT % OF TOTAL $2,309,922 33,036,354 12,421,423 23,332,263 914,455 855,209 867,311 0.34% 4.83% 1.81% 3.41% 0.13% 0.12% 0.13% 5,377,245 574,173 3,639,245 7,519,840 0.79% 0.08% 0.53% 1.10% 763,453 586,135 1,391,104 694,496 576,988 1,384,067 0.11% 0.09% 0.20% 0.10% 0.08% 0.20% 3,760,976 5,544,713 1,968,795 792,303 74,553,867 0.55% 0.81% 0.29% 0.12% 10.89% 4,794,628 4,569,462 1,151,161 1,565,607 2,889,161 316,499 247,964 2,242,372 457,931 0.70% 0.67% 0.17% 0.23% 0.42% 0.05% 0.04% 0.33% 0.07% 3,072,108 129,470 0.45% 0.02% 1,510,019 1,734,482 517,882 1,528,314 567,137 46,440 5,737,511 4,724,968 1,538,869 0.22% 0.25% 0.08% 0.22% 0.08% 0.01% 0.84% 0.69% 0.22% 3,226,910 1,352,065 277,236 12,524,328 0.47% 0.20% 0.04% 1.83% $684,538,927 100.00% 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 2008 ANNUAL REPORT 81 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 23% Rental Residential Historic Combination 1% and 10% Improvements on government property 1% 7 8 9 23% 23% 23% First $63,242 exempt; 23% on the remainder 16% First $63,242 exempt; 16% on the remainder 10% 10% 21% ARIZONA DEPARTMENT OF REVENUE 2008 ANNUAL REPORT 82 INDUSTRIES VALUED BY THE DEPARTMENT Industry Number of Companies 2006 2007 2008 Airlines (Flight Property)................................................................... 35 ................ 34 ...............30 Electric & Gas* Generation ................................................................................... 24 ................ 24 ...............35 Transmission and Distribution..................................................... 35 ................ 35 ...............29 Mines (non-producing) ........................................................................ 5 .................. 5 .................1 Mines (producing).............................................................................. 33 ................ 31 ...............33 Pipelines (Gas Transmission) .............................................................. 9 .................. 9 .................8 Private Rail Cars .............................................................................. 256 .............. 262 .............271 Producing Oil & Gas Interests ............................................................. 4 .................. 4 .................3 Railroads ............................................................................................ 11 ................ 11 ...............11 Telecommunications ......................................................................... 76 ................ 77 ...............73 Water Utilities.................................................................................. 330 .............. 328 .............331 Total ................................................................................................ 815 .............. 818 .............829 * Includes Salt River Project ARIZONA DEPARTMENT OF REVENUE 2008 ANNUAL REPORT 83 TABLE 36 STATE OF ARIZONA TAX YEAR 2008 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 $435,342,926 $0 $903,521,761 $194,777 $1,686,709,736 $771,987 $513,379,379 $0 $175,244,227 $0 $445,025,593 $0 $191,349,824 $0 $44,881,602,698 $18,146,524 $2,286,744,927 $0 $908,393,696 $14,827 $8,230,966,534 $174,735 $2,473,499,660 $3,288 $352,686,375 $2,856 $2,954,598,732 $1,006,441 $1,079,816,171 $0 $67,518,882,239 $20,315,435 COUNTY CITIES & TOWNS $2,016,000 $24,177,339 $7,317,594 $20,124,472 $2,851,749 $1,563,813 $3,751,987 $463,836,389 $30,434,288 $5,246,080 $279,136,768 $85,003,375 $10,630,673 $40,429,914 $20,327,539 $996,847,980 $0 $2,138,391 $5,419,020 $1,922,762 $196,268 $212,057 $0 $186,976,059 $4,699,922 $346,659 $10,962,909 $12,965,537 $0 $1,553,141 $9,087,371 $236,480,096 AVERAGE STATE PRIMARY TAX RATE PER $100 COMMUNITY COLLEGES SCHOOLS $0 $13,428,266 $15,002,075 $34,724,754 $6,159,864 $53,954,916 $2,872,358 $18,984,170 $3,299,498 $6,621,187 $0 $7,731,200 $3,114,122 $4,472,218 $347,905,170 $1,537,781,426 $16,355,145 $72,528,464 $10,644,746 $27,028,938 $81,023,355 $357,525,926 $34,850,119 $107,777,764 $0 $16,918,905 $35,424,260 $80,694,877 $17,573,465 $43,273,164 $574,224,177 $2,383,446,175 ALL OTHER $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 TOTAL $15,444,266 $76,237,336 $73,623,381 $43,903,762 $12,968,702 $9,507,070 $11,338,327 $2,554,645,568 $124,017,819 $43,281,250 $728,823,693 $240,600,083 $27,552,434 $159,108,633 $90,261,539 $4,211,313,863 PRIMARY RATE 3.55 8.44 4.36 8.55 7.40 2.14 5.93 5.69 5.42 4.76 8.85 9.73 7.81 5.39 8.36 6.24 6.24 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 AVERAGE STATE PRIMARY TAX RATE PER $100 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 COMMUNITY COLLEGES 6.75 All figures are current as of September 1, 2008. Note: Some increase/decrease due to reporting tax levies in different authorities than in previous years. 84 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 TABLE 37 STATE OF ARIZONA TAX YEAR 2008 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 $471,596,971 $1,018,740,280 $2,057,478,154 $574,203,136 $189,364,668 $445,239,742 $235,112,575 $58,303,635,287 $3,231,835,989 $998,760,072 $9,594,861,519 $3,449,599,026 $404,365,519 $3,746,625,208 $1,369,161,501 $86,090,579,647 STATE $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 COUNTY CITIES & TOWNS $6,843,466 $4,534,536 $9,107,640 $1,722,609 $232,354 $788,613 $235,113 $98,361,011 $31,322,950 $5,825,597 $120,036,983 $9,557,568 $2,653,693 $12,399,561 $14,328,693 $317,950,387 $0 $183,661 $7,345,050 $150,000 $0 $0 $0 $395,767,107 $444,150 $0 $24,814,860 $2,769,751 $0 $1,939,408 $0 $433,413,987 AVERAGE STATE SECONDARY TAX RATE PER $100 COMMUNITY COLLEGES $1,988,252 $0 $2,020,293 $0 $0 $0 $858,631 $95,293,956 $0 $1,661,175 $14,502,170 $0 $0 $5,264,245 $5,000,045 $126,588,767 SCHOOLS $2,652,729 $11,618,656 $23,374,450 $5,699,983 $2,516,870 $1,857,194 $1,323,232 $922,460,582 $18,553,330 $13,321,938 $147,520,317 $55,470,771 $6,852,222 $14,776,440 $15,916,186 $1,243,914,901 ALL OTHER $5,008,327 $9,078,381 $18,295,259 $6,946,102 $481,249 $34,898 $3,961,910 $204,533,281 $32,462,213 $14,589,888 $78,235,150 $29,455,191 $6,061,300 $44,656,008 $858,563 $454,657,720 TOTAL $16,492,774 $25,415,234 $60,142,692 $14,518,694 $3,230,473 $2,680,705 $6,378,886 $1,716,415,937 $82,782,643 $35,398,598 $385,109,480 $97,253,281 $15,567,215 $79,035,662 $36,103,487 $2,576,525,762 SECONDARY RATE 3.50 2.49 2.92 2.53 1.71 0.60 2.71 2.94 2.56 3.54 4.01 2.82 3.85 2.11 2.64 2.99 2.99 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 AVERAGE STATE SECONDARY TAX RATE PER $100 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 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 3.29 All figures are current as of September 1, 2008. 85 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 TABLE 38 AVERAGE PROPERTY TAX RATES PER $100 OF ASSESSED VALUATION TAX YEAR 2005 THROUGH TAX YEAR 2008 2005 School Districts Counties State Cities Community Colleges Special Districts PRIMARY $4.23 2.17 0.03 0.39 0.99 0.00 2006 SECONDARY $2.06 0.54 0.00 0.53 0.15 0.47 $7.81 TOTAL $3.75 TOTAL SECONDARY $2.01 0.56 0.00 0.52 0.18 0.48 $7.24 $3.75 $11.56 $10.99 2007 2008 PRIMARY School Districts Counties State Cities Community Colleges Special Districts PRIMARY $4.16 1.69 0.02 0.38 0.97 0.00 SECONDARY PRIMARY SECONDARY $3.83 1.59 0.04 0.37 0.91 0.00 $1.70 0.40 0.00 0.51 0.15 0.53 $3.53 1.48 0.03 0.35 0.85 0.00 $1.44 0.37 0.00 0.50 0.15 0.53 $6.75 $3.29 $6.24 $2.99 $10.04 $9.23 School district rate includes Unorganized School Districts. Figures may not add to total due to rounding. 86 ALL OTHER SOURCES OF REVENUE Bingo Estate Tax Luxury Tax Unclaimed Property & Escheated Estates Waste Tire Fees ARIZONA DEPARTMENT OF REVENUE 2008 ANNUAL REPORT 87 ARIZONA DEPARTMENT OF REVENUE 2008 ANNUAL REPORT 88 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 $ 558,330 was deposited in fiscal year 2008 (Refer to Table 39). TABLE 39 BINGO COLLECTIONS FISCAL YEAR 2003-04 THROUGH FISCAL YEAR 2007-08 Fiscal Year Amount 2003-04 $624,501 2004-05 $610,055 2005-06 $623,480 2006-07 $619,387 2007-08 $558,330 BINGO COLLECTIONS Licenses Proceeds Penalty, Interest and Miscellaneous TOTAL FY2003-04 FY2004-05 FY2005-06 FY2006-07 FY2007-08 $19,121 603,306 $19,070 585,289 $18,788 599,400 $18,092 596,773 $18,393 539,576 2,074 5,697 5,292 4,522 361 $624,501 $610,055 $623,480 $619,387 $558,330 ARIZONA DEPARTMENT OF REVENUE 2008 ANNUAL REPORT 89 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 2003-04 THROUGH FISCAL YEAR 2007-08 Fiscal Year Collections Refunds Net 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 ($550,763) 2007-08 $414,711 $94,508 $320,203 Figures may not add to total due to rounding. ARIZONA DEPARTMENT OF REVENUE 2008 ANNUAL REPORT 90 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 2008 fiscal year, over $471 million was received in luxury tax collections. Of the monies collected per the Tobacco Products Referendum (Prop 303), $50.8 million was distributed to the Prop 204 Protection Account, $32.7 million to the Medically Needy Account, $24.2 million for Emergency Health Services, $6.0 million for Health Research, and $2.4 million for Health Education. Due to the passage of the Tobacco Tax and Health Care Initiative in November 1994, $59.9 million was allocated to the Medically Needy Fund, $19.7 million to the Health Education Fund and $4.3 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 $29,003. The Drug Treatment and Education Fund received $8.6 million, and the Corrections Revolving Fund received $3.4 million due to the passage of Proposition 200 in 1994. The Smoke Free AZ fund received $3.9 million due to the passage of Proposition 201 in 2006. The Early Childhood Development and Health Fund received $164.8 million due to the passage of Proposition 203 in 2006. The remaining $61.0 million was deposited into the state general fund. (Refer to Table 41) Luxury Tax Rates per cigarette package of 20 package of 25 $ 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) $ 0.441 $ 0.218 $ 0.218 Smoking Tobacco snuff, fine cut, chewing, etc. (per ounce) Cavendish, plug, or twist (per ounce) $ 0.223 $ 0.055 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 2008 ANNUAL REPORT 91 TABLE 41 LUXURY TAX COLLECTIONS FISCAL YEAR 2003-04 THROUGH FISCAL YEAR 2007-08 SOURCE: Spirituous Liquor Vinous Liquor Malt Liquor Liquor Collections Tobacco - All Types Gross Revenue Refunds Licenses Administrative Expenses Net Tobacco Collections Amnesty Luxury Collections TOTAL COLLECTIONS FY2003-04 PERCENT OF COLLECTIONS FY2007-08 IN FY2007-08 FY2004-05 FY2005-06 FY2006-07 $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 $27,613,939 13,006,487 23,936,126 $64,556,551 282,209,893 (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 $412,769,855 (4,761,258) 7,100 (587,463) $407,428,234 $187,315 $330,670,046 ----$344,622,558 ----$359,153,562 ----$421,310,786 5.9% 2.8% 5.1% 86.3% ----$471,984,785 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) $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 $61,037,231 29,003 79,033,025 116,127,254 8,576,309 3,411,936 28,703,383 1,479,783 4,835,440 3,946,308 ----- ----- ----- 74,445,246 164,805,113 TOTAL DISTRIBUTIONS $330,670,046 $344,622,558 $359,153,562 $421,310,786 $471,984,785 (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. 92 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 tangible 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: • State warrants not cashed after six months. • Payroll checks written to employees not cashed after one year. • 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. • Bank or credit union accounts with no activity for five years. • Cashier and other official checks not cashed in five years. • Checks written to vendors or customers not cashed after 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 2008 ANNUAL REPORT 93 TABLE 42 COLLECTIONS AND DISTRIBUTION OF UNCLAIMED PROPERTY FISCAL YEAR 2003-04 THROUGH FISCAL YEAR 2007-08 SOURCE: UNCLAIMED PROPERTY Refunds Expenses NET ESCHEATED ESTATES Refunds NET TOTAL NET REVENUE FY2003-04 FY2004-05 FY2005-06 FY2006-07 FY2007-08 PERCENT OF COLLECTIONS IN FY2007-08 $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 $136,446,760 (27,859,528) (5,555,692) $103,031,540 99.6% 568,385 (223,945) $344,441 731,836 (339,712) $392,124 562,510 (195,735) $366,776 552,507 (7,679) $544,828 647,669 (281,484) $366,184 0.4% $38,534,984 $65,754,446 $50,813,946 $72,016,784 $103,397,724 DISTRIBUTIONS: General Fund Housing Fund Ladewig Kerr Utility Assistance Fund Racing Fund Victim Restitution Fund HB 2786 Sec Sale (6) Net to Permanent School Fund: Escheated Estates Unclaimed Shares/dividends Storage Facility TOTAL DISTRIBUTION 8,043,962 20,708,267 (2) --------1,307,953 7,530,279 547,274 ----- 344,441 43,788 9,021 $38,534,984 9,423,140 23,942,665 21,292,088 (3) ----1,664,467 8,706,424 299,565 ----- 392,124 29,359 4,614 $65,754,446 10,256,152 26,004,597 3,704,599 (3) ----855,505 9,456,217 128,281 ----- 366,776 18,955 22,865 $50,813,946 11,703,745 40,972,902 0 (4) 83,340 (5) 2,550,675 14,899,237 1,250,347 ----- 544,828 9,482 2,227 $72,016,784 9,755,359 33,684,313 0 0 26,336 12,248,841 173,068 47,132,471 366,184 (1) 7,208 3,944 $103,397,724 (1) FY 08 Escheated Estates will be transferred in FY 09. (2) $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. (3) Ladewig Unclaimed Property for FY05 and FY06 is to be deposited to the State General Fund, per SB1524. (4) Ladewig Claims paid during FY07 exceeded their collections; therefore no transfer was required. (5) Kerr Unclaimed Property for FY07 is to be deposited to the State General Fund, per HB2867. (6) Proceeds from the sale of securities in FY08 were deposited in the General Fund per HB 2786, Chapter 260, 1st Regular Session, 2007. Figures may not add to total due to rounding. 94 100.0% 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 2008, the department collected $8,704,684 and distributed 3.5% percent to the Arizona 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 2003-04 THROUGH FISCAL YEAR 2007-08 COUNTY Apache Cochise Coconino Gila Graham Greenlee La Paz Maricopa Mohave Navajo Pima Pinal Santa Cruz Yavapai Yuma AZ Dept of Environmental Quality Total FY2003-04 FY2004-05 FY2005-06 FY2006-07 FY2007-08 $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 $103,134 216,915 205,128 112,443 49,073 16,192 47,522 4,814,030 403,198 171,073 1,152,277 369,984 78,644 406,174 254,235 272,480 285,744 296,730 313,865 304,664 $7,785,148 $8,164,120 $8,477,996 $8,967,577 $8,704,684 Figures may not add to total due to rounding. ARIZONA DEPARTMENT OF REVENUE 2008 ANNUAL REPORT 95 ARIZONA DEPARTMENT OF REVENUE 2008 ANNUAL REPORT 96 LEGISLATIVE SUMMARY ARIZONA DEPARTMENT OF REVENUE 2008 ANNUAL REPORT 97 ARIZONA DEPARTMENT OF REVENUE 2008 ANNUAL REPORT 98 LEGISLATIVE SUMMARY The following is intended to give a brief summary of the 2008 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 26, 2008. 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 2589 (Chapter 220) House Bill 2103 (Chapter 60) Income tax credit; other states 2008 tax corrections act HB2589 amends the Arizona resident credit for taxes paid to another state or country to define the terms “entire income on which the other state’s or country’s tax is imposed”, “entire income on which the tax is imposed by this chapter”, “income subject to tax in the other state or country and also taxable under this title”, and “tax payable under this chapter”. These are the terms used in the numerator and the denominator of the formula residents use for computing the credit. See summary under Multiple Tax Types. House Bill 2104 (Chapter 94) Internal revenue code conformity HB2104 updates Arizona’s definition of internal revenue code to include all Internal Revenue Code provisions that were in effect as of January 1, 2008. Tax year 2007 includes all Internal Revenue Code provisions passed with retroactive federal effective dates between December 31, 2006 and December 31, 2007 which includes the Small Business and Work Opportunity Tax Act of 2007, the Energy Independence and Security Act of 2007, Prevent Taxation of payment to Virginia Tech Victims and Families of 2007, Mortgage Forgiveness Debt Relief Act of 2007 and the Tax Technical Corrections Act of 2007. House Bill 2107 (Chapter 204) Delinquent information tax returns; penalty HB 2107 amends the penalty for filing a late or incomplete informational return from a one time five hundred dollar penalty to a graduated penalty of one hundred dollars per month. Provisions: • Provides that an information return that is incomplete or filed after its due date (including extensions) is subject to a penalty of $100 for each month, or fraction of a month, that the failure continues, up to a maximum penalty of $500. • If the failure is due to reasonable cause and not willful neglect, the penalty can be abated. The bill also amends the nonresident credit for taxes paid to another state or country to define the terms “entire income on which the taxes paid to the state or country of residence are imposed”, “entire income taxable under this title”, “income taxable under this title and also subject to tax in the state or country of residence” and “tax payable under this title”. These are the terms used in the numerator and the denominator of the formula nonresidents use for computing the credit. These terms are being defined to clarify what amounts a taxpayer must use for the denominator and the numerator when computing a tax credit under the statutory formula. The definitions from this bill are similar to the definitions in the rule that was in effect prior to the Arizona Court of Appeals overruling those definitions. This will allow taxpayers to compute the credit in the same manner as they did prior to the Arizona Court of Appeals decision in Sterns v. Arizona Department of Revenue, 212 Ariz. 333,131 P.3d 1063 (App. 2006). This legislation applies retroactively to taxable years beginning from and after December 31, 2007. ARIZONA DEPARTMENT OF REVENUE 2008 ANNUAL REPORT 99 Transaction Privilege Tax/ Use Tax House Bill 2106 (Chapter 21) • • Transaction privilege tax; electronic payment delinquency HB2106 amends the transaction privilege tax statutes to provide an alternative delinquency date for persons filing and paying their tax electronically on or before the last business day of the month. The return or payment for taxpayers electing to file and pay electronically in any month, will be delinquent if not received by the department on or before the last business day of the month. This bill is effective on January 1, 2009. House Bill 2356 (Chapter 303) Prime contracting TPT; deduction HB 2356 amends the transaction privilege tax statutes to clarify the deduction allowed under the prime contracting classification for development fees paid to the state, county or a municipality. The legislation provides an effective date retroactively to September 1, 2006. House Bill 2622 (Chapter 255) Exemption; preconstruction services HB2622 exempts transaction privilege tax for design phase services and professional services related to prime contracting. Provisions: • Adds gross proceeds of sales or gross income attributable to design phase services and professional services that are provided pursuant to a separate contract requiring those design services or professional services to the list of items exempt from TPT. • Defines “design phase services”, “construction phase services” and “professional services”. • Stipulates that a taxpayer may not claim a refund of TPT based on the retroactivity of this act. • Specifies that a separate and written design phase services contract or professional services contract that is executed before modification begins is not subject to tax regardless of the timing of the services. • Clarifies that the tax base does include the gross proceeds of sales or gross income attributable to construction phase services. Defines “construction phase services” as services for the execution and completion of any modification, including: • administration or supervision of any modification performed on the project including team management and coordination; scheduling; cost controls; submittal process management; field management; safety program; close-out process; and warranty period services. • administration or supervision of any modification performed pursuant to a punch list, change orders or change directives. • inspection to determine the dates of substantial completion or final completion. • preparation of manuals, warranties, as-built drawings, spares or other items the prime contractor must furnish pursuant to the contract for modification work. • preparation of status reports after modification work has begun detailing the progress of work performed. • preparation of daily logs of modification work that can include documentation of personnel, weather conditions and on-site occurrences. • preparation of any submittals or shop drawings used by the prime contractor to illustrate details of the modification work performed. • administration or supervision of any other activities for which a prime contractor receives a certificate for payment or certificate for final payment based on the progress of modification work performed on the project. Defines “design phase services” as services for developing and completing a design for a project that are not construction phase services that can include: • evaluating surveys, reports, test results or any other information for on-site conditions for the project, including physical ARIZONA DEPARTMENT OF REVENUE 2008 ANNUAL REPORT 100 • • • • • • characteristics, legal limitations and utility locations for the site. evaluating any criteria or programming objectives for the project to ascertain requirements for the project. preparing drawings and specifications for architectural program documents, schematic design documents, design development documents, modification work documents or documents that identify the scope of or materials for the project. preparing an initial schedule for the project but excluding the preparation of updates to the master schedule after modification work has begun. preparing preliminary estimates of costs of modification work before completion of the final design of the project. reviewing and evaluating cost estimates and project documents to prepare recommendations on site use; site improvements; selection of materials, building systems and equipment; modification feasibility; availability of materials and labor; local modification activity as related to schedules and time requirements for modification work. preparing the plan and procedures for selection of subcontractors, including any prequalification of subcontractor candidates. • Defines “professional services” as architect, assayer, engineer, geologist, land surveying or landscape architect services. • Makes technical and conforming changes This legislation becomes effective on the general effective date, retroactive to January 1, 2001. House Bill 2732 (Chapter 246) Vehicles; nonresident purchasers; tax liability HB2732 addresses retail sales of motor vehicles to nonresidents of Arizona, and establishes new documentation requirements for the four state transaction privilege tax exemptions and the one city privilege tax exemption that mirrors a state exemption, that may apply to these sales. The Department of Revenue is required to prescribe forms for certificates that will document the necessary criteria for these state and city tax exemptions. HB 2732 also contains a retroactive provision regarding the documentation that will satisfy the statutory exemptions for sales of motor vehicles to nonresidents, for sales made prior to the effective date of this bill. These separate documentation requirements apply to sales that were made between August 25, 2004 and September 26, 2008. If a nonresident who has purchased a motor vehicle exempt from tax under one of the statutory provisions registers the motor vehicle in Arizona within one year, that purchaser will now be liable for an amount that is equal to the state, county, and city taxes that would have applied to the original sale, plus penalties and interest. HB 2732 also amends A.R.S. § 28-2001, which provides a definition of “resident” for the purpose of the operation and registration of motor vehicles, to include “a person who is registered to vote in this state.” The bill also amends A.R.S. § 28-2055, which addresses the certificate of title for a motor vehicle, to add a “transfer on death provision” that will allow the owner of a vehicle to designate a beneficiary of the title in the event of the owner’s death. Senate Bill 1340 (Chapter 194) Tax exemptions; internet applications SB1340 provides deductions under the retail, personal property rental and telecommunications classifications of the transaction privilege tax and an exemption under the use tax for application services that are designed to assess or test student learning or to promote curriculum design or enhancement sold to or purchased by or for any school district, charter school, community college or state university. This bill becomes effective on the general effective date retroactive for taxable years beginning on January 1, 2000. Senate Bill 1450 (Chapter 297) Regional attraction districts See summary under Multiple Tax Types. ARIZONA DEPARTMENT OF REVENUE 2008 ANNUAL REPORT 101 Property Tax House Bill 2130 (Chapter 49) • Residential property tax; homesite area HB2130 allows up to 10 acres on a single parcel to be classified as legal class 3 property if all other existing requirements are met. Additionally, more than 10, but not more than 40 acres may be classified as class three if it is zoned exclusively for residential purposes, or contains legal restrictions or physical conditions that prevent the division of the parcel. “Physical conditions” is defined as topography, mountains, washes, rivers, roads or any other configuration that limits the residential usable land area. This bill becomes effective from and after December 31, 2008. House Bill 2191 (Chapter 178) Property classification; bed and breakfast HB2191 increases the allowable number of rooms a bed and breakfast may operate from four to six and still qualify for a class 4 assessment ratio. House Bill 2330 (Chapter 252) Property tax exemption; charter schools HB2330 clarifies the charter school exemption and related procedures by adding subsections stating that: • Property and buildings owned by a non-profit 501(c)(3) and operated as a charter school are exempt from taxation beginning on the date that the property was first owned by the 501(c)(3) and operated as a charter school. • Within ten days of receiving an affidavit of eligibility from a nonprofit organization described above, the assessor must issue a receipt for the affidavit. • The exemption will remain in place until the property is no longer used by a charter school or owned by the 501(c)(3). • If the property is sold by one 501(c)(3) to another, the new owner must re-establish eligibility. • If the 501(c)(3) owner of the property fails to timely file the affidavit required to establish the exemption, but otherwise qualifies, the county • board of supervisors must direct the county treasurer to: Refund any taxes paid by the organization within 30 days if the taxpayer submits a claim within one year after the date the taxes were paid. Forgive any property taxes and accrued interest and penalties that are due but not paid. House Bill 2351 (Chapter 65) Property tax lien interest calculation HB2351 establishes that interest on the purchase of delinquent tax liens begins to accrue on the first day of the month following the purchase of the tax lien. House Bill 2420 (Chapter 107) Flood control districts HB2420 allows flood control districts to sell land to the state or a county after obtaining an appraisal without having a public auction. House Bill 2523 (Chapter 174) Tax lien sale; regulation HB2523 allows the treasurer to sell tax deeds of property that has been foreclosed due to nonpayment of delinquent taxes to adjacent property owners if the property meets certain qualifications. The bill became effective May 6, 2008, immediately upon the Governor’s signature. House Bill 2614 (Chapter 306) Renewable energy valuation; expiration extension HB2614 states that renewable energy systems and any other device or system designed primarily for the production of renewable energy of which the majority will be used on-site are considered to add no value to the property if the property is a class three or class four property. This means that grid connected photovoltaic (PV) systems installed on residential property may not be included in the value of the property. “Renewable energy systems” is defined as electric generation systems and electrical transmission and distribution that is used or useful for the generation, storage, transmission or distribution of electric power, energy or fuel derived from solar, wind or other non-petroleum renewable sources, including materials and supplies. ARIZONA DEPARTMENT OF REVENUE 2008 ANNUAL REPORT 102 The bill also extends the sunset date for the 20% valuation factor for renewable energy equipment (centrally valued) from 2011 until 2040. Senate Bill 1189 (Chapter 83) • • Private historic cemeteries; historic preservation SB1189 exempts historic private burial sites and historic private cemeteries from taxation. The owner of the historic private burial site or historic private cemetery must establish qualification for the exemption in the same manner as all other cemetery property. No further filing is required until any part of the property is either used for a different purpose, rezoned, or sold. In the 2000 General election, voters approved Proposition 105 which permits the legislature to exempt cemetery property. The legislature previously enacted ARS §42-11110 which exempted cemetery property as defined in ARS § 32-2101. While this exempted the majority of cemetery property in Arizona, some historic private burial sites were not covered by this exemption. • • • • • Senate Bill 1450 (Chapter 297) Regional attraction districts See summary under Multiple Tax Types. Multiple Tax Types • • House Bill 2103 (Chapter 60) 2008 tax corrections act HB2103 makes technical, conforming and clarifying changes to Arizona tax statutes. Provisions: • Clarifies the requirement of domestic microbreweries that sell or deliver beer to pay all luxury and transaction privilege taxes. • Reinstates definitions used in the calculation of additional state aid to education that were incorrectly referenced after the passage of the property valuation protection for senior property owners. • Removes obsolete references to “unsecured” personal property. • Clarifies statutes relating to the failure to affix proper luxury tax stamps on cigarettes also apply to other tobacco products. • • • Corrects references to the Code of Federal Regulations, the U.S. Code and a federal farm program. Creates a use tax exemption for the purchase of solar energy devices bought from a retailer that is registered with DOR as a solar energy retailer or a solar energy contractor. Defines “solar daylighting” and “solar energy” devices. Specifies that Indian-owned, low-income housing properties that are exempt from property tax are exempt from filing an annual affidavit. Clarifies that accelerated depreciation for personal property applies to class 2 properties. Adds, retroactive to property tax years beginning from and after December 31, 2006, a cross-reference for the clarification of the classification of property used for the manufacture of bio-diesel fuel. Creates a cross reference to clarify grants for displaced students are an income tax subtraction. Corrects internal references and revised definitions associated with motion picture tax credits. Eliminates the provision for DOR to report on the fiscal impact of alternative fuel income tax credits. Specifies that values used to determine net contributions shall not be included in the publication of net assessed values. Specifies, retroactive to tax years beginning from and after December 31, 2006, that only a residential graywater system that is a water conservation system must comply with rules set forth by the Arizona Department of Environmental Quality. Makes other technical and conforming changes. This bill becomes effective on the general effective date, with a retroactive provision as noted. ARIZONA DEPARTMENT OF REVENUE 2008 ANNUAL REPORT 103 House Bill 2391 (Chapter 290) Budget reconciliation; general revenues HB 2391 makes various changes related to state revenues necessary to implement the fiscal year 2008-09 state budget. Provisions: • Establishes a minimum annual distribution of Urban Revenue Sharing funds to incorporated cities and towns to at least equal the amount a city or town with a population of 1,500 or more receives. • Increases, for tax year (TY) 2010, both the corporate and individual income research tax credits from 20 percent to 22 percent of qualified expenses up to $2.5 million. • Increases, for TY 2010, both the corporate and individual income research tax credits from $500,000 plus 11 percent, to $550,000, plus 13 percent of the excess of $2.5 million. • Increases, beginning TY 2011, the corporate and individual income tax credits to 24 percent of qualified expenses up to $2.5 million. • • Increases, beginning TY 2011, the corporate and individual income tax credits to $750,000, plus 15 percent of the excess of $2.5 million. Repeals the changes to the research and development tax credits beginning on January 1, 2018, and restores current credit evaluation methodology. Senate Bill 1450 (Chapter 297) Regional attraction districts SB 1450 allows for the creation of a Regional Attraction District (RAD) which is a “tax levying public improvement district” that “is regarded as performing a governmental function.” The purpose of the RAD will be to establish and operate a permanent amusement park (Regional Attraction Venue or RAV). The RAD may issue tax exempt bonds. To pay off the bonds, the RAD is authorized to levy a 10% excise tax in addition to the existing state TPT. The tax expires when the bonds have been paid. The bill provides a property tax exemption for RAV property. However, the language allows, in lieu of property tax, voluntary payments to taxing jurisdictions on the valuation of the property in the theme park area and requires in lieu payment to taxing jurisdictions on the valuation of property located outside the theme park area. Miscellaneous House Bill 2317 (Chapter 38) Luxury tax; tobacco stamps HB2317 Codifies provisions of Arizona Luxury Tax Procedure LTP 07-1 regarding the department’s presumptions used during compliance inspections of cigarette distributors’ and retailers’ inventories of stamped cigarette packages. House Bill 2483 (Chapter 159) Ignition strength of cigarettes; regulation HB2483 establishes a new standard for cigarette ignition propensity, with associated testing and manufacturer certification requirements, civil penalties for violations, and designates the State Fire Marshal to approve and oversee the program. This bill is effective on August 1, 2009. House Bill 2638 (Chapter 151) Municipal tax incentive penalty; application HB2638 extends the prohibition for offering or providing municipal tax incentives to retailers “as an inducement or in exchange for locating or relocating” to a particular city or town to any city or town that has at least sixty-five per cent of its geographical area within a “metropolitan statistical area” (MSA) with a population of two million. There is one city in the Phoenix area that is not completely within the Phoenix MSA. The combination of the prior statutory language and geography gave that city an exemption from the requirements and a competitive advantage over other Valley cities. House Bill 2692 (Chapter 221) Taxpayer information ruling HB 2692 allows DOR to issue a new form of specific taxpayer guidance called taxpayer information rulings (TIRs), which, like private taxpayers rulings (PTRs) currently issued, provide specific tax determinations based on the specific fact situations of requesting taxpayers. Unlike ARIZONA DEPARTMENT OF REVENUE 2008 ANNUAL REPORT 104 PTRs, taxpayers can request TIRs anonymously, but must still reveal their identities to DOR after issuance if they wish for the rulings to be binding for purposes of abating tax, interest, and penalties. Additionally, HB 2692 allows taxpayers to submit written requests that the Director of DOR consider withholding publication of their PTRs or TIRs based on their unique facts and circumstances. Based on the Director's nonappealable determination on whether to publish a ruling, the taxpayer may withdraw its ruling request. House Bill 2745 (Chapter 152) • • • political subdivisions are required to verify authorized presence prior to issuing a license. Adds a new chapter to Title 41, chapter 44, Government Procurement. Under the new provision a government entity shall not issue a contract to a contractor or subcontractor who fails to comply with the requirement to register with the E-Verify program. Provides for the non-severability of the act. Provides an emergency clause, therefore, the bill became effective May 1, 2008, immediately upon the Governor’s signature. Employer sanctions HB 2745 makes several amendments to the Employer Sanctions bill that was enacted in 2007. Provisions: • Provides a defense to the identity theft provisions for persons under the age of 21. • Addresses the sale of identity information. • Amends the definitions related to the Legal Arizona Workers Act. • Clarifies the provisions relating to knowingly employing an unauthorized alien. • Provides a separate statute to address the intentional employment of unauthorized aliens and the consequences of the intentional actions of the employer. • Adds the requirement that before a government entity awards an economic development incentive, the employer must be registered with the E-Verify program and that if it is determined that the employer has not complied with this requirement that the employer shall be required to repay all monies received as an economic development incentive. The determination can be appealed. Tax incentives are excluded from this provision. • Provides for a voluntary employer enhance compliance program and addresses independent contractors. • Provides requirements for employers paying wages in cash. • Amends the Administrative Procedures Act (APA) by addressing licensing eligibility. Under the new provision state agencies and ARIZONA DEPARTMENT OF REVENUE 2008 ANNUAL REPORT 105