ARIZONA DEPARTMENT OF REVENUE FISCAL YEAR 2011 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 Janice K. Brewer Governor November 15, 2011 John A. Greene Director The Honorable Janice K. Brewer Governor of the State of Arizona 1700 West Washington Street, 9th floor Phoenix, Arizona 85007 Dear Governor Brewer and the Taxpayers of Arizona: While my name appears on the face page of this annual report, the accomplishments were achieved under the department’s former director, Gale Garriott. Fiscal year 2011 can be considered a milestone year in that we collected more than $12 billion as an agency despite the challenges of a poor economy. Total taxes collected by the department during the year exceeded $12.2 billion, including more than $6.5 billion that was deposited directly into the state General Fund. Included in this total is over $487 million that was collected through the department’s tax enforcement efforts. By collecting over $487 million through the audit, license compliance, and collections programs, the department nearly met its $504 million target set at the beginning of the year; performing at 97% of goal. Having only joined the department in July of this year along with new Chief Deputy Director David Raber and Deputy Director Vince Perez, I am impressed with the dedication and esprit de corps that exists in the agency. The department has a great team of employees who take pride in their abilities and look forward to continue moving to their goals in the next fiscal year. With that said, Department of Revenue employees achieved several noteworthy accomplishments in fiscal year 2011 including: processing approximately 3.5 million paper and 1.9 million electronic tax returns; processing over 35,000 new business licenses, and achieving an overall Department customer service survey rating of 4.40 (out of 5.00) from the 1,433 taxpayers who completed satisfaction surveys. You can review more of our results in the Strategic Plan Highlights section of this report. Additionally, we, as a Department, continue to focus on our three core goals:    To increase our return on investment. To increase customer and stakeholder satisfaction. To increase employee satisfaction. We are continuing our commitment to excellence and quality. I wish to thank our hard working employees for making this possible. Please contact me if I can provide you with any additional information. Sincerely, John Greene Director 1600 West Monroe Street, Phoenix AZ 85007-2650 www.azdor.gov 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. Commencing in July, 2011, the chief deputy director and deputy director report to the director. The chief deputy director assists the director in the day-to-day operations of the department serving 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 the chief deputy director is the chief internal auditor, who oversees the internal audit team and acts as liaison with external auditors. Commencing in July 2011, the department was reorganized into eight divisions, each managed by an assistant director. Divisions include: Administrative Services, Audit, Collections, Taxpayer and External Services, 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. ARIZONA DEPARTMENT OF REVENUE 2011 ANNUAL REPORT Page 1 ARIZONA DEPARTMENT OF REVENUEOF REVENUE ARIZONA DEPARTMENT DIRECTOR DEPUTY DIRECTOR CHIEF DEPUTY DIRECTOR John Greene Vince Perez David Raber General Fund FTE- 921 Other Fund FTE – 14 Total FTE - 935 INTERNAL AUDIT Loretta Bowdish RV EXEC. ASST. to the DIRECTOR COLLECTIONS FTE – 225 Frank Bouché Assistant Director Office Collections Special Operations Field Collections Debt Set-Off Administrative Support Bankruptcy Collections Information Technology September 1-30, 2011 TAXPAYER & EXTERNAL SERVICES PROPERTY TAX FTE – 124 FTE - 43 Anthony Forschino Assistant Director Frank Boucek Assistant Director Administrative Services Assessment Standards & Equalization Legislative Affairs Economic Research & Analysis Quality Executive Special Projects Investigations . Criminal & Civil . Tobacco Enforcement Taxpayer Information & Assistance Centrally Valued Property Property Systems Development Unit TAX POLICY & RESEARCH FTE – 37 Michael Kempner Assistant Director Tax Research & Analysis Jorge Frank PROBLEM RESOLUTION OFFICER ADMINISTRATIVE SERVICES AUDIT DIVISION INFORMATION TECHNOLOGY PROCESS ADMINISTRATION FTE - 27 FTE – 214 FTE - 104 FTE - 153 Lisa Cross Assistant Director Miguel Teposte Acting Assistant Director Carole Martin Assistant Director Lynette Nowlan Assistant Director Budget Office Corporate Income Tax Audit Application Support Processing Services Corporate Income Tax Appeals Accounting Individual Income Tax Audit Business Analysis & Testing Error Resolution Individual Income Tax Appeals Purchasing Special Taxes - Luxury - Nexus - Bingo Technical Operations & Security Transaction Privilege Tax Audit Project Management & Software Development Transaction Privilege Tax Appeals Payroll Disclosure & Federal Relations Human Resources Revenue Accounting Records Management Audit Information Technology License & Registration Facilities Audit Processing Unclaimed Property Hearing Office Special Programs & Projects Section Director’s Office - Page 1 Page 2 DOR Treasury ARIZONA DEPARTMENT OF REVENUE 2011 ANNUAL REPORT Budget Office – S. Bowen Updated: 11/09/11 Strategic Plan Highlights MISSION, VISION, VALUES The Mission Statement of the Department of Revenue is “to administer tax laws fairly and efficiently for the people of Arizona”. This statement of purpose guides our sense of direction, agency actions and decision making. Our Vision Statement, “setting the standard for tax services”, sets the marker for the kind of agency we want to become and what we hope to achieve. Our company culture is defined by embracing values that are shared among all employees. Our Values 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:  To maximize our return on investment.  To maximize customer and stakeholder satisfaction.  To maximize employee satisfaction. KEY MEASURE RESULT HIGHLIGHTS TOTAL GROSS REVENUES COLLECTED FY10 Transaction Privilege Tax .... $5,982,149,321 Income & Withholding ....... $3,785,268,107 Corporate ............................. $ 650,925,393 Other ................................... $ 589,389,470 Total .................................. $11,007,732,292 FY11 Transaction Privilege Tax .... $6,951,173,293 Income & Withholding ....... $4,101,777,020 Corporate ............................. $ 659,266,690 Other ................................... $ 547,627,761 Total ................................. $ 12,259,844,763 Detailed gross revenues are reported under Table 1. ~~~~~~~~~~~~~~~~~~~~~~~~~~~ TOTAL NUMBER OF TAX RETURNS PROCESSED BY TAX TYPE All tax returns are processed through the BRITS system. Corporate Income Tax ......................191,248 Individual Income Tax ...................2,895,396 Transaction Privilege .....................1,653,676 Withholding ......................................669,084 Total Returns Processed .................5,409,404 Total Number of Tax Returns Processed by Tax Type 191,248 669,084 Corporate 1,653,676 Income 2,895,396 TPT W/H The results of these key measures for fiscal year 2011 are presented as well as comparisons to prior years. ~~~~~~~~~~~~~~~~~~~~~~~~~~~ ARIZONA DEPARTMENT OF REVENUE 2011 ANNUAL REPORT Page 3 TOTAL NUMBER OF E-FILED INDIVIDUAL INCOME TAX RETURNS RECEIVED FY09 ................................................. 1.55M FY10 ................................................. 1.67M FY11 ................................................. 1.86M Number of E‐Filed Income Tax Returns (in Millions) 1.90 1.86 1.55 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. A portion of those electronic filers also elect to receive their refunds electronically via direct deposit. FY09 .............................................. 6.4 days FY10 .............................................. 5.2 days FY11 .............................................. 4.2 days 1.67 Average Time To Issue Income Tax Refunds 1.40 (in Calendar Days) 0.90 8.0 0.40 6.0 FY09 FY10 FY11 6.4 5.2 4.0 4.2 2.0 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 0.0 TOTAL NUMBER OF INDIVIDUAL INCOME TAX REFUNDS The total number of income tax refunds processed includes both electronic direct deposits and paper refund warrants. FY09 ............................................ 1,765,865 FY10 ............................................ 1,742,324 FY11 ............................................ 1,932,100 Number of Income Tax Refunds Processed (in Millions) 1.76 1.74 FY11 NUMBER OF NEW BUSINESS LICENSES PROCESSED New business licenses are processed at walk-in counters, through the mail and via on-line services. FY09 ...................................................38,623 FY10 ...................................................36,577 FY11 ...................................................35,318 Number of New Business Licenses Processed 40,000 1.60 FY10 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 1.93 2.00 1.80 FY09 38,623 36,577 1.40 35,318 35,000 1.20 30,000 1.00 FY09 FY10 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~ FY11 25,000 FY09 FY10 FY11 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ ARIZONA DEPARTMENT OF REVENUE 2011 ANNUAL REPORT Page 4 NEW BUSINESS LICENSE TURNAROUND TIME License turnaround time is defined as the point from when the initial application or request is received via walk-in, mail or electronically and ending when the approved license is mailed to the taxpayer. Higher turnaround times were due to turnover and staffing freeze. FY09 ................................................ 2.1 days FY10 ................................................ 3.8 days FY11 ................................................ 8.0 days New Business License Turnaround Times 2.1 FY09 Net Enforcement Dollars Compared to Targets (in Millions) 8.0 8.0 6.0 2.0 3.8 0.0 FY10 FY11 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~ TOTAL NET ENFORCEMENT DOLLARS Total net enforcement dollars represent all revenue collected by collectors and auditors through their various enforcement programs. FY09 ......................................$ 513,880,714 FY10 ......................................$ 476,471,539 FY11 ......................................$ 487,948,450 Net Enforcement Dollars $600.0 $500.0 $400.0 $300.0 $200.0 $100.0 $0.0 Targets Actual $ Collected ~~~~~~~~~~~~~~~~~~~~~~~~~~~~ (in Millions) $520.0 $510.0 $500.0 $490.0 $480.0 $470.0 $460.0 $450.0 FY11 Net Targets Collections ...................................... $249.0M Accounts Receivable ...................... $ 95.8M All Audit ......................................... $158.6M Total Revenue ................................ $503.5M General Fund Revenue ................... $382.1M FY11 Net Actual Collections ...................................... $220.9M Accounts Receivable ...................... $131.0M All Audit ......................................... $136.0M Total Revenue ................................ $487.9M General Fund Revenue ................... $374.0M 10.0 4.0 NET ENFORCEMENT REVENUE WITH GENERAL FUND TOTALS The enforcement program generated results at 96.9% of goal, almost reaching fiscal year 2011 targets. This chart also shows how much of the enforcement revenues went to the General Fund. $513.9 $487.9 $476.5 FY09 FY10 FY11 ~~~~~~~~~~~~~~~~~~~~~~~~~~~ ARIZONA DEPARTMENT OF REVENUE 2011 ANNUAL REPORT Page 5 RETURN ON INVESTMENT Return on investment is calculated by dividing the total number of gross revenue dollars received and processed by the department’s total operating budget. For fiscal year 2011, $182.00 was produced for each dollar spent in the total DOR budget. FY09 .................................................$185.30 FY10 .................................................$181.40 FY11 .................................................$182.00 Return on Investment $190.00 AVERAGE COLLECTOR AND AUDITOR PRODUCTIVITY Collectors collected an average of $1.4 million dollars per collector in fiscal year 2011. Auditors collected at different levels depending upon the type of audit work they performed; ranging from over $730,000 per individual income (IIT) auditor to over $1.1 million per transaction privilege tax (TPT) auditor. Collector ......................................$1,482,774 TPT Auditor .................................$1,109,434 IIT Auditor ...................................$ 730,700 Corporate Auditor ....................... $1,007,661 $185.30 $185.00 $181.40 $182.00 Average Collections Generated by Collectors and Auditors $180.00 (in Millions) $2.00 $175.00 $1.48 $1.50 $170.00 FY09 FY10 FY11 $1.11 $1.00 $0.73 $1.01 IIT Auditor Corp Auditor $0.50 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~ RETURN ON INVESTMENT FOR ENFORCEMENT PROGRAM The return on investment for the enforcement program is calculated by dividing the total number of net enforcement dollars collected by the department’s total operating budget. For fiscal year 2011, $7.24 of enforcement revenue was collected for each dollar spent in the total DOR budget. FY09 .....................................................$7.98 FY10 .....................................................$7.85 FY11 .....................................................$7.24 $0.00 Collector TPT Auditor ~~~~~~~~~~~~~~~~~~~~~~~~~~~~ Return on Investment for Enforcement Program $10.00 $8.00 $7.98 $7.85 FY09 FY10 $7.24 $6.00 $4.00 $2.00 $0.00 FY11 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~ ARIZONA DEPARTMENT OF REVENUE 2011 ANNUAL REPORT Page 6 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.) FY09 ..................................................... 4.50 FY10 ..................................................... 4.32 FY11 ..................................................... 4.48 PERCENT OF TIME THE LOCAL AND WIDE AREA NETWORK (LAN/WAN) IS AVAILABLE. Local and wide area network availability is a measure for the Information Technology Division to assess their ability as a service provider. FY09 ............................................... 100.0 % FY10 ............................................... 100.0 % FY11 ............................................... 100.0 % Computer System Availability 100% 100% 100% FY09 FY10 FY11 Satisfaction Ratings for Taxpayer Services Division 5.00 4.50 4.48 4.32 4.00 3.00 2.00 1.00 0.00 FY09 FY10 FY11 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~ ~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 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, Vision, and our day to day performance as a department. ARIZONA DEPARTMENT OF REVENUE 2011 ANNUAL REPORT Page 7 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. The division consists of the following sections/units: and staffing. The Human Resources Unit is also responsible for processing all personnel actions through the State’s Personnel System (HRIS), new employee orientation, new employee training, employee benefits program, and interpreting ADOA Personnel rules and policies that govern personnel within the ADOA Personnel System. The unit also oversees the Affirmative Action/Equal Opportunity responsibilities, Family Medical Leave Act and Americans with Disabilities issues. Accounting The Accounting Unit processes accounts payable invoices, provides travel services including employee reimbursement, and oversees the fixed assets inventory. Payroll The Payroll Unit is responsible for oversight of the department’s employee payroll, which includes accurate tracking of hours worked, leave taken and payroll deductions through HRIS. The unit also oversees risk management issues. Budget Office The Budget Office is responsible for monitoring current year expenditures against the approved budget, coordinating preparation of the department’s budget, providing budget information and analysis to the Director and the department’s Leadership Team. Facilities Management The Facilities Management Section coordinates building facility maintenance, remodeling office areas at the department’s four buildings and coordinates tenant improvements to the buildings in cooperation with ADOA or the landlord. Facilities Management receives and logs all goods and supplies purchased by the department, manages building security access and the security guards. The section oversees safety issues such as fire drills, safety inspections, and interaction with the State Fire Marshall. Purchasing The Purchasing Unit is responsible for contracting and purchasing all goods and services required by the department. The unit oversees all contract and maintenance agreements and is the program administration area for the State Purchasing Card Program (P-Card). HIGHLIGHTS IN FISCAL YEAR 2011    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 is responsible for administering personnel activities for the department. This includes consultations with management concerning employee relations and discipline, classifications of positions, recruitment,  The Accounting Unit processed 99% of all invoices within 30 days. The Hearing Office resolved 281 cases during the fiscal year. Human resources implemented a new department-wide background check process. The process was changed from postemployment fingerprint cards to preemployment online background screening. Background checks are now completed prior to the employee’s first day of employment thus providing additional security for staff, computer systems and information. The processing time has been reduced from an average of 14 days to 3 days. Facilities completed building energy conservation programs to include new lighting for the Phoenix building and the garage. Also installed motion sensors throughout the Phoenix building for lighting controls. ARIZONA DEPARTMENT OF REVENUE 2011 ANNUAL REPORT Page 9 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, Special Taxes, Processing and Information Technology sections. The division’s major emphasis is to treat taxpayers equitably, fairly and respectfully. Training and educating our employees is instrumental in developing skilled auditors. Staff members are professional, courteous employees whose expertise is reflected in their performance and achievement of audit goals and objectives. 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 (CIT) Audit The Corporate Income Tax Audit Section is comprised of the Field Audit and Office Audit 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, verification of net operating losses, including audits based upon federal revenue agent reports. Individual Income Tax (IIT) Audit The Individual Income Tax Audit Section is made up 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. While most taxpayers are overwhelmed by the audit process, the Section has placed an emphasis on treating taxpayers in a courteous and professional manner. Data from the Internal Revenue Service are being increasingly referred to the department in an electronic format that creates 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 clerical support staff. This results in an audit being issued in a timelier manner since manual clerical support research is not required. Transaction Privilege and Use Tax (TPT) Audit The Transaction Privilege and Use Tax Audit Section is comprised of Field Audit and the Compliance Unit. The Field Audit Unit conducts the majority of its audits within Arizona but out-of-state audits are conducted as well. The determining factor is the location of the taxpayer’s books and records. The Compliance Unit consists of License Compliance and Desk Audit. The License Compliance Unit continues to prove to be a dynamic and successful unit. License Compliance officers do both office research and field work. Their goal is to seek out those businesses that are not licensed for transaction privilege and/or withholding tax and provide education and knowledge, so taxpayers can voluntarily comply with the tax laws. The Desk Audit Unit works on twenty-four different audit projects ranging from use tax to personal property rentals. The information processed in this unit is from various sources including governmental agencies. Special Taxes (ST) Special Taxes comprises three separate units: Bingo and Estate Tax, Luxury Tax, and Nexus. 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 estate tax returns and issues Arizona Income Tax Certificates required by the probate court to close an estate. 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 ARIZONA DEPARTMENT OF REVENUE 2011 ANNUAL REPORT Page 11 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 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. Audit Processing Audit Processing handles audit support for all audit operations; TPT Audit, Corporate Audit, Individual Audit, and Special Taxes. The Section keys all of the audit assessments into the system (BRITS), hand stuffs and mails all assessments, maintains all audit files and researches and corrects system issues. Audit Information Technology (AIT) The Audit IT Team is made up of tax specialists from the three major tax types, Individual Income Tax, Corporate Income Tax and Transaction Privilege Tax. These personnel have acquired the technical backgrounds in the various software and hardware that the department uses to support the daily functions of the Audit Division. They utilize their tax backgrounds with their IT technical backgrounds to support the large volume of data that the Audit Division needs to perform their function of auditing under the various taxing sections. The Audit IT Team creates, develops, and supports the various tracking databases which retain all the information on the activities which take place in each of the taxing section. This includes but is not limited to the selection of the audits, the assignment of the audits, and the capturing of the final data of each of the audits. HIGHLIGHTS IN FISCAL YEAR 2011 Corporate Income Tax Audit (CIT) Section  Hired 21 new field staff and production has increased accordingly.  Field Audit Unit assessed approximately $38 million and collected approximately $24 million.  Office Audit Unit assessed approximately $3 million and collected approximately $7 million. The discrepancy results from a large assessment paid in this year, but assessed in a prior fiscal year. Individual Income Tax (IIT) Audit  Completed over 62,700 audits for total assessments of $36.5 million and collected $22.7 million in additional revenue.  The computer generated assessment (CGA) program was enhanced to increase the number of accounts eligible to be processed by this program. The results were the issuance of 18,423 audits for total assessments of $6.3 million.  Customer surveys averaged a score of 4.38, using a scale of 1 to 5 with 5 being excellent.  Initial audit assessment quality continues to improve; 93% of initial audit assessments required no changes. The goal to achieve was established at 85%.  The section continued to provide assistance with the AIMS project, which is the department’s data warehousing project. This will allow continual improvement in the quality of the audit process by the matching of information available to the section. Transaction Privilege and Use Tax (TPT) Audit  Field Audit Unit audited 421 taxpayers, produced 1,728 units, assessed over $35 million and collected in excess of $23 million in tax revenue.  License Compliance Unit licensed 1,216 new taxpayers and collected over $37 million.  Desk Audit produced over 3,850 new billings that generated over $13 million in tax revenue. ARIZONA DEPARTMENT OF REVENUE 2011 ANNUAL REPORT Page 12  Customer surveys averaged a score of 4.51, using a scale of 1 to 5 with 5 being excellent. Special Taxes (ST)  The Nexus Unit brought 339 businesses into compliance and collected over $41 million. Information Technology (AIT)  The Audit IT Section has been involved in the requirements definition and analysis phases of the AIMS Audit Selection Project. This is a critical project for Audit as it will replace programs from a platform that will no longer be supported. The programs being transferred to the new platform are vital to the TPT Desk unit. Additionally, the Section continues to work diligently to support the applications for the programs run. ARIZONA DEPARTMENT OF REVENUE 2011 ANNUAL REPORT Page 13 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 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 might be referred to Field Collections or Special Operation for further action. Office collections continue to accept payments over the phone for individual income tax. This includes payments through checking accounts, credit cards, and some debit cards (Visa© and MasterCard©). 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. Seizure actions are only used as a last resort after all other more reasonable actions have failed. Administrative Support Provides all support functions for the division: payroll, mail, maintenance on collection accounts, request levies, filing and releasing of tax liens and providing Certificates of Compliance. Debt Set-Off The area is responsible for the offset 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 2011 • • • • The division was responsible for the generation of total revenues of $221 million, a $9 million (4%) increase over prior fiscal year 2010. The Federal Matching System (FMS) program generated $16 million in revenue, a $12 million increase over fiscal year 2010. Office Collections successfully launched best practices inbound / outbound calling strategies resulting in: • 70,000 more inbound telephone calls • Increased total cases worked by 30,000 cases • Increased answer percent by 2% (93 – 95%) • Reinstated High Balance Collection team • Expanded Office Collections to East Valley Facilities Developed on the job training program (OJT), quality control program (QC) and continuous training program (CT). ARIZONA DEPARTMENT OF REVENUE 2011 ANNUAL REPORT Page 15 EXTERNAL SERVICES & SPECIAL PROJECTS Criminal and Civil Investigations The Criminal and Civil Investigations Section includes 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. 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 as well as the department’s informational publications. 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. 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. Legislative Liaison The liaison represents the department at the Legislature. The liaison coordinates the analysis, research and testimony of tax legislation, reads, analyzes, and tracks bills through the legislative process; coordinates implementation of legislation after passage. Also acts as the liaison between legislators and the department including handling constituent issues for legislators and the Governor’s office, and monitoring 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, when 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 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. Commencing in August 2011, Taxpayer Services merged with External Services and Special Projects to become Taxpayer and External Services. HIGHLIGHTS IN FISCAL YEAR 2011    The Criminal Investigations and Tobacco Enforcement Units received restitution payments totaling $222,795 during fiscal year 2011, an increase of over 600 percent compared to fiscal year 2010. This total is a combination of both financial-related and tobacco-related prosecutions wherein the suspect(s) were ordered to pay restitution. Fines assessed by the court for both financial-related and tobaccorelated cases totaled $18,789. The Financial Investigations Unit stopped/recouped $3,193,855 in fraudulent refunds in fiscal year 2011 which is also a marked increase over last year’s figures. The Tobacco Enforcement Unit issued fifty-nine criminal citations during fiscal year 2011. Many of the citations are for knowingly selling tobacco on which no taxes have been paid or ARIZONA DEPARTMENT OF REVENUE 2011 ANNUAL REPORT Page 17   knowingly selling cigarettes without tax stamps. Others are for failing to produce tobacco invoices as required during an inspection. The Tobacco Enforcement Unit conducted 1,691 retail inspections with an additional 197 licensed distributor inspections during fiscal year 2011. Seventy-three separate seizures were conducted which included over 69,000 cigars, over 722 pounds of molasses tobacco and over 345 pounds of smokeless tobacco, on which no tobacco taxes were paid. During this same period, 108,362 cigarettes were confiscated which included untaxed cigarettes and cigarettes which were non-Arizona directory compliant. The Office of Economic Research and Analysis accomplished several things over the fiscal year. These include:  Calculated and/or authorized transfers to the Tourism & Sports Authority, Rio Nuevo, Phoenix Convention Center, WQARF and Phoenix International Raceway.  Sent out 911 Certificates of Eligibility for the Health Insurance Premium Tax Credit to individuals and small businesses.  Sent out 291 approvals for the Water Conservation Credit.  Approved 110 corporate donations for the Corporate Income Tax Credit for Donations      to School Tuition Organizations and the Corporate Income Tax Credit for Donations to School Tuition Organizations for Disabled/Displaced Student Scholarships. Confirmed 171 Disabled/Displaced Student Scholarship Awards. Approved 42 Disabled/Displaced Student Eligibility Applications. Held 3 meetings (Phoenix, Tucson and Payson) to educate school tuition organizations on extensive new law governing the private school tax credit programs. Assisted in the creation of an online, searchable database containing bonded indebtedness information of all political subdivisions in Arizona. Approved 84 new charities as Qualified Charitable Organizations for purposes of the income tax credit for contributions to charities that provide assistance to the working poor. Satisfied 2,216 information requests. Administered the FY11 Employee Satisfaction Survey. Completed the 2005 individual income tax simulation model. ARIZONA DEPARTMENT OF REVENUE 2011 ANNUAL REPORT Page 18 INFORMATION TECHNOLOGY Mission Statement: The IT Division provides the department 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. Operations and Security The Operations and Security team consists of the Desktop Support, Server and Network Engineering and Support, Database Administration, Information Security, Production Control and Systems Integration and Support. Applications Support Applications Support provides maintenance services for the BRITS Taxpayer Administration System (TAS), AZ Taxes (www.aztaxes.gov), eFile and BRITS feeder applications like Data Entry, Cashier, Remittance and 2D Barcode. Support is also provided for business Reporting Functions, and more than a dozen mainframe applications including the Property and Audit applications. Activities include working with the various divisions (Process Administration, Collections, Taxpayer Services, Audit, Property Tax, External Services and Special Projects) to resolve defects, and supporting production processes such as the monthly Transaction Privilege Tax (TPT) Close. Application Support works closely with the Managed Services Group in responding to customer requests for support, software release management, software implementation and performance enhancement. Desktop Support ensures that all employees have the required telephone and end-user computer hardware, software, and peripherals necessary to perform their job functions as well as providing the technical support to keep them up and running. Server and Network Engineering & Support is responsible for the support and management of the hardware and operations systems for all servers, storage systems, backup/archive, email, and networks. This team is responsible for operations and oversight of all of the agency’s data centers. The Database Administration Team supports various activities in database administration which include ensuring availability, performing backup/recovery, capacity management, maintenance, database performance diagnostics, tuning and monitoring, and upgrades to ensure software/vendor compliance. The databases include Oracle (TAS), SQL Server (AZTAXES, e-File, Cashier, Remittance, etc), SAND (Executive Dashboard), and Teradata (for the Audit division). Information Security (InfoSec) ensures a sound security program is in place throughout the department, with the primary focus of protecting the information and systems based upon governance and security best practices. The InfoSec Program includes the following functional areas:  Access and Authentication  Policy and Compliance  Monitoring Events and Incident Response  Employee Awareness Production Control manages system scheduling and processing services on the mainframe and BRITS systems, ensuring system processes are completed successfully. Systems Integration and Support is responsible for support, management and monitoring of the tax systems infrastructure, application services and more than 200 system and inter-agency interfaces. Managed Services Group The Managed Services Group (MSG) acts as a liaison between IT and the functional areas within DOR (Collections, Audit, Taxpayer Services, etc). MSG administers all System Investigation Reports (SIRs) and ensures requests are properly tracked and prioritized. MSG is responsible for establishing policies, standards, methodologies, and guidelines pertaining to business requirements gathering and application testing, and the Help Desk. MSG 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. MSG is responsible for testing all software applications prior to deployment, which includes implementing changes or fixes to new and existing applications. ARIZONA DEPARTMENT OF REVENUE 2011 ANNUAL REPORT Page 19 This team also supports services that ensure usability and availability of the AZTaxes.gov and AZDOR.gov websites for taxpayers. Business Solutions Group The Business Solutions Group (BSG) is responsible for information technology, project management and software development. BSG is made up of three teams: Project Management Office (PMO). The PMO is responsible for establishing, maintaining, and enforcing project management processes, procedures, and standards for IT projects. The PMO was established to better determine best practices in project methodology and standards, while actively managing a variety of projects and programs. Systems Analysts and Design. The purpose of this team of business applications architects is to provide system design and technology expertise for the design of effective and efficient solutions to business requirements. Software Development. This team is responsible for building quality software to meet legislative mandates, and to provide on-going enhancements to improve efficiency of the department’s information systems. The primary goals of the Business Solutions Group are:  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;  Design and development high quality, cost effective, sustainable software solutions that utilize appropriate technical standards; Look for opportunities to continually improve processes, tools, and standards in order to provide improved service;  Support the mission, vision and goals of the department. The Vendor Management Office The Vendor Management Office (VMO) is responsible for building and managing relationships with the department’s IT suppliers and service providers to increase customer satisfaction, reduce costs, and improve services. The primary goal of the VMO is to partner with vendors, not only to negotiate the lowest price possible, but to gain commitment to assist and support operations of the department. Our core competencies include:  Vendor Selection based on specific business requirements/needs.  Vendor/Customer Relationship Management.  IT Contract Management and Administration.  Asset/Life Cycle Management. HIGHLIGHTS IN FISCAL YEAR 2011  Sustained the technical environments that are used to process all tax filings, payments and returns.  Automated key financial transactions.  Disk hardware upgrade of key system databases increasing availability during the primary tax season.  Successfully completed 2010 year end form changes, government lease database, and local government debt database projects.  Started a multi-year Agency Information Management (AIMs) program which will consolidate our data warehouse and business intelligence environments, replacing aging technologies and modernizing mission critical applications.  Supported more than 3,500 business-driven changes to the tax systems.  Effectively addressed critical legislative mandates from the legislative session including: o Statute of Limitations alignment o Supporting Transparency through the establishment of a public database of government property leases o Supporting Transparency through the establishment of an online accessible and searchable database of local government debts reported to the department o Business license fees increase o The one percent (1%) transaction privilege tax increase ARIZONA DEPARTMENT OF REVENUE 2011 ANNUAL REPORT Page 20 PROCESS ADMINISTRATION Mission Statement: To provide quality service by processing all tax returns and payments accurately and timely for Arizona taxpayers. The Process Administration Division serves as the catalyst and cornerstone of the Department of Revenue. The division is responsible for the initial processing of all tax returns, remittances, supporting documentation, and correspondence received by the department. This includes opening, sorting, and reviewing all returns and accompanying mail, performing archival capture functions, remittance deposit preparation, and data entry into the computer systems. These functions are performed using both manual input of documents and imaging technologies. The division processes over five million returns and remittances each year. Processing Services Processing Services is responsible for the opening, batching and processing of tax documents for the largest four tax types: Individual Income, Transaction Privilege Tax, Withholding, and Corporate. 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 documents missing proper information prior to data being entered for all taxes. Revenue Accounting Revenue Accounting is responsible for providing monetary 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. 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. HIGHLIGHTS IN FISCAL YEAR 2011  The Process Administration Division continues its amazing performance. Constant process review for the purpose of streamlining the work flow assists the division to become more efficient and effective. An improvement to the process this year was the procurement of automated mail opening equipment. Division leadership is proud to declare that through the collective team efforts of all employees, turnaround time for the processing of returns and payments continue to be within the goals set. With the assistance of an increase in electronically filed individual income tax returns and combined efficiencies, the Division generated savings in labor costs but maintained refund turnaround times. 5.4 million tax documents were received and processed for the largest four tax types. DOR Treasury Treasury ensures efficiency and is responsible for processing taxpayer payments, entering taxpayer data, keying stray payments into the cashiering system, and researching problem payments. Treasury consists of three integrated units: Remittance, Data Entry, and Payment Stray.   Error Resolution Error Resolution, which includes the Review unit, is responsible for ensuring accuracy in the processing of returns and payments for the largest four tax types. 4.2 million payments were received, processed and deposited with an average deposit time of 1.23 days.  1.9 million refunds were issued to individual income taxpayers. ARIZONA DEPARTMENT OF REVENUE 2011 ANNUAL REPORT Page 21 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 Property Tax Division and primary responsibilities of each are discussed below. Centrally Valued Properties The Centrally Valued Properties Team annually determines the full cash value of all utilities, railroads, mines and other complex or geographically dispersed properties (see page 83 for a list of the industries the department values). Values determined for such properties, with the exception of flight property and private rail cars, are transmitted to the appropriate county treasurers for collection of property taxes. The department collects taxes levied on flight property and private rail cars and deposits the taxes with the State Aviation Fund and the General Fund, respectively. In addition, the team assists county assessors with maintaining and updating a standardized cadastral mapping system. The team prepares tax area code maps that depict boundaries of taxing jurisdictions authorized to levy property taxes. Assessment Standards and Training The Assessment Standards and Training Team oversees and ensures the application of uniform appraisal methods and techniques used by county assessors to determine the value of locally assessed property. The team 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 valuation procedures and manuals, and provides technical workshops to county personnel. Construction Cost The Construction Cost Team maintains the computerized Construction Cost Valuation System and provides it for use by the Maricopa and Pima County Assessors to value property by the cost approach. The team 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. The support services provided 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. Manuals and Forms The Manuals and Forms Team is responsible for producing and updating manuals, guidelines, and forms prescribed for use in the administration of the property tax system. The team also reviews legislative enactments and changes to existing property tax statutes, and prepares an extract of the property tax statutes found in Title 42. 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 2011  The Centrally Valued Property Team valued approximately 800 taxpayers, totaling $34.3 billion in full cash value. There were 23 taxpayers (less than 3%) who appealed their values to the department in the first level of appeal; 11 taxpayers went on to file petitions with the State Board of Equalization. Of those 11 petitions, one was withdrawn; four were ARIZONA DEPARTMENT OF REVENUE 2011 ANNUAL REPORT Page 23 government lessor and the county treasurer of the county in which the property is located. The lessee may also use the return form to calculate the amount of GPLET due. In addition, the Team developed a GPLET reporting form for use by the county treasurers to report GPLET returns and payments received for the preceding calendar year to the department and respective government lessors. settled, and six were heard before the Board. The Board decided in favor of the department in five of the six cases. There were ten new cases filed in tax court for the 2011 tax year.  The department also prevailed, at the Tax Court level, on its litigation (2008 through 2010) with Southwest Airlines in November 2010. That case is now on appeal. In addition, two other court cases that involved appeals of Board decisions were dismissed by the taxpayer in June 2010.  The Assessment Standards and Training Team completed on-site meetings with eight county assessors’ offices during the fiscal year. The agenda for each meeting included statewide issues concerning the valuation and classification of property, provisions of newly passed legislation and the resulting changes required in DOR Guidelines and Manuals, and new requirements for appraiser training and certification as impacted by each county installing new computer systems. Agendas also included specific concerns unique to each county. The Team conducted five appraiser continuing education Income Workshops throughout the state this fiscal year. The Team also reviewed and entered lease data from approximately 1,000 leases into a statewide database for use with the Government Property Lease Excise Tax (GPLET) program.  The Manuals and Forms Team completed return forms, instructions and tax rate charts for use with the Government Property Lease Excise Tax (GPLET) program. The return forms are designed to be filed by prime lessees of government property improvements with their  The Training and Certification Team reviewed and revised course materials used in the Appraiser Training and Certification Program to incorporate changes brought about in part, by the county assessors adopting new computerized mass appraisal systems. The Training and Certification Team provided training to 36 students attending Level 1 certification courses and 42 students attending Level 2 certification courses in the DOR Appraiser Training and Certification Program this fiscal year. A total of 32 appraisers received their Level 1 certification and 30 appraisers received their Level 2 certification during the fiscal year. The Property Tax Division continued its partnership with Rio Salado Community College this fiscal year. The partnership allows students attending DOR appraiser training courses to receive 9 semester hours of college credit for completing Level 1 courses, and 6 additional semester hours of credit for Level 2 courses. A total of 30 students completed the Level 1 series of courses and 35 students completed the Level 2 series of courses in the Rio Salado program this fiscal year. ARIZONA DEPARTMENT OF REVENUE 2011 ANNUAL REPORT Page 24 TAXPAYER SERVICES Mission Statement: To meet the needs of our customers in a professional manner, with the highest standards of integrity. abatement was denied, a representative from PRU will attend the hearing to present their case substantiating their decision. 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. 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. 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. Taxpayer Information and Assistance (TIA) Taxpayer Information and Assistance provides 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. The staff 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 the department through the telephone call center, webmail, written correspondence and our walk-in offices at each of the department’s locations. Every year the clerical support team processes thousands of Power of Attorney and Disclosure forms. In addition to other duties, this team is responsible for providing guidance to walk-in customers at the lobby reception desk in our Phoenix office. The Penalty Review Unit (PRU) 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 Commencing in August 2011, Taxpayer Services merged with External Services and Special Projects to become Taxpayer and External Services. HIGHLIGHTS IN FISCAL YEAR 2011  The License & Registration team processed 35,308 applications with an average turnaround of 8 days. The applications were a part of the nearly 140,410 total documents processed by the section. Nearly 52% of all license applications are now done online. L&R staff processed over 2,700 taxpayer bonds and collected over $79,000 in delinquencies.  During the year, L&R also assisted almost 11,000 customers over the counter and cashiered over $438 million in payments.  Taxpayer Information and Assistance accomplishments include:  Calls offered for the year were 432,257, an increase of over 60,000 calls from fiscal year 2010.  Answered 257,535 calls and replied to 4,993 emails.  Worked 15,171 correspondence cases with 86 percent resolved in less than 30 days. ARIZONA DEPARTMENT OF REVENUE 2011 ANNUAL REPORT Page 25  PRU reviewed 2,443 requests for penalty abatement and approved 1,548 cases.  Walk-in office staff assisted a total of 15,052 customers.  Unclaimed property claims processing staff returned properties valued at over $34 million to its rightful owners, which was the highest annual return total in the unit’s history.  The average time to process and pay a claim was 74 days.  The number of new properties reported to Unclaimed Property totaled 990,071 with total collections equaling more than $121 million. ARIZONA DEPARTMENT OF REVENUE 2011 ANNUAL REPORT Page 26 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 Appeals, Individual Income Audit Appeals, Transaction Privilege Tax Audit Appeals, and the Tax Research & Analysis Section. 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 (OAH), the department's Hearing Office, and the director. It also represents the department at OAH in matters involving other issues, such as tobacco, luxury tax, and administrative determinations. The section also assists the Tax Section of the Attorney General's Office with preparation of cases being heard before the Board of Tax Appeals, Tax Court and the appellate courts. The administrator of the section acts as the General Counsel and Disclosure Officer for the department. Tax Research & Analysis The 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 within 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 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, staff testifies at various levels of the appeals process. The section provides interpretative advice to the Corporate Income Audit staff. The section reviews and analyzes legislation, assists the department in setting tax policy, and develops and promulgates 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. 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. 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 includes the TPT Protest unit. TPT Appeals assists the Transaction Privilege and ARIZONA DEPARTMENT OF REVENUE 2011 ANNUAL REPORT Page 27 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 2011 ANNUAL REPORT Page 29 ARIZONA DEPARTMENT OF REVENUE 2011 ANNUAL REPORT Page 30 TABLE 1 REVENUE SUMMARY GROSS REVENUE COLLECTED FISCAL YEAR 2006-07 THROUGH FISCAL YEAR 2010-11 SOURCE TRANSACTION PRIVILEGE USE AND SEVERANCE TAX Distribution Base Nonshared Portion Use Tax Education Tax Temporary Tax (6) Undistributed Estimated Transaction Privilege Tax Other State Revenue County and City Collections FY2006-07 FY2007-08 FY2008-09 FY2009-10 FY2010-11 $1,848,148,565 3,575,743,539 303,010,863 666,184,022 ----- $1,788,242,630 3,448,839,624 340,535,252 645,827,821 ----- $1,548,202,473 2,965,242,162 292,698,574 558,899,709 ----- $1,427,991,054 2,653,983,212 271,763,845 504,391,092 544,136 $1,493,036,999 2,719,128,171 229,250,912 514,345,951 835,801,251 34,613,656 32,316,678 1,430,363,301 (28,064,558) 26,543,638 1,375,333,407 (17,219,713) 26,453,838 1,199,517,669 26,197,663 24,955,212 1,072,323,109 36,915,698 25,467,086 1,097,227,224 Subtotal $7,890,380,625 $7,597,257,813 $6,573,794,714 $5,982,149,321 $6,951,173,293 INCOME TAX Withholding Individual Corporate (3) 3,294,287,540 1,677,949,795 1,070,723,965 3,344,770,438 1,461,050,780 985,305,494 3,092,546,185 967,788,513 749,362,551 3,017,256,893 768,011,214 650,925,393 3,234,666,688 867,110,332 659,266,690 Subtotal $6,042,961,300 $5,791,126,712 $4,809,697,249 $4,436,193,500 $4,761,043,709 27,674,933 10,755,478 24,758,494 363,431,607 8,100 27,613,939 13,006,487 23,936,126 412,769,855 7,100 28,341,033 13,006,125 22,831,547 380,593,991 7,075 $426,628,612 $477,333,506 $444,779,771 $406,266,670 $404,127,163 860,558 97,125,191 552,507 414,711 136,446,760 647,669 234,065 74,337,392 643,679 363,755 161,637,025 320,538 437,372 121,263,602 370,786 $98,538,256 $137,509,139 $75,215,136 $162,321,318 $122,071,760 619,387 15,302,697 1,709,362 1,367,248 8,967,577 558,330 13,821,790 1,615,246 1,440,492 8,704,684 531,588 11,975,326 1,435,069 0 7,890,076 520,655 9,451,430 1,335,091 1,569,091 7,925,216 504,905 9,673,124 1,283,026 1,812,420 8,155,363 $27,966,271 (3) $26,140,542 $21,832,059 $20,801,482 $21,428,838 $14,486,475,063 (3) $14,029,367,713 $11,925,318,928 $11,007,732,292 $12,259,844,763 LUXURY TAX Spirituous Liquor Vinous Liquor Malt Liquor Tobacco - All Types (1) Licensing Subtotal ESTATE TAX Estate (4) Unclaimed Property Escheated Estates Subtotal OTHER REVENUES Bingo Flight Property Tax Private Car Tax Nuclear Plan Assessment Waste Tire Subtotal TOTAL (2) 29,304,713 13,881,407 22,232,715 340,839,935 7,900 (5) 28,202,704 13,596,155 21,566,369 340,754,224 7,710 (1) Figures represent gross tobacco revenue less administrative expenses. (2) All revenues collected by the Department of Revenue, including those which are later refunded or distributed. (3) Corrected figures. (4) Arizona's estate tax was effectively repealed January 1, 2005, following the elimination of the Federal State Death Tax Credit by Congress. (5) Due to an extended legislative session, the Nuclear Assessment bill was not signed in FY09. This amount will be reflected in FY10. (6) On May 18, 2010, voters approved Proposition 100 which temporarily increases the state transaction privilege and use tax rates on most transactions by one percentage point beginning June 1, 2010, and ending May 31, 2013. 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. ARIZONA DEPARTMENT OF REVENUE 2011 ANNUAL REPORT Page 31 TABLE 2 NET REVENUE TO STATE GENERAL FUND FISCAL YEAR 2006-07 THROUGH FISCAL YEAR 2010-11 FY2006-07 FY2007-08 FY2008-09 FY2009-10 FY2010-11 SOURCE Transaction Privilege, Use, and Severance Tax Undistributed Estimated Transaction Privilege Tax $4,516,215,317 34,613,656 $4,406,139,759 (28,064,558) $3,791,915,770 (17,219,713) $3,418,261,171 $3,463,327,544 26,197,663 8,215,241 Income Tax 4,089,906,556 3,506,425,271 2,432,366,069 2,200,844,986 2,949,887,110 Luxury Tax 65,808,829 61,037,231 57,878,187 55,352,260 53,599,408 320,203 210,372 363,755 437,372 11,703,745 9,755,359 9,526,605 100,034,835 49,120,855 619,387 558,330 531,588 520,655 504,905 Private Car Tax 1,709,362 1,615,246 1,435,069 1,335,091 1,283,026 Nuclear Plan Assessment 1,367,248 1,440,492 1,569,091 1,812,420 $8,721,393,336 $7,959,227,334 $5,804,479,506 $6,528,187,881 Estate Tax (1) Unclaimed Property Bingo Total (550,764) 0 (2) $6,276,643,947 (1) Arizona's estate tax was effectively repealed January 1, 2005, following the elimination of the Federal State Death Tax Credit by Congress. (2) Due to an extended legislative session, the Nuclear Assessment bill was not signed in FY09. This amount will be reflected in FY10. Figures may not add to total due to rounding. ARIZONA DEPARTMENT OF REVENUE 2011 ANNUAL REPORT Page 32 TABLE 3 GROSS COLLECTIONS OF AUDIT ASSESSMENTS AND DELINQUENT TAX FISCAL YEAR 2009-10 AND FISCAL YEAR 2010-11 GROSS COLLECTIONS FY2009-10 Collections FY2010-11 % CHANGE 4.3% Audit Accounts Receivable $211,849,992 $176,910,617 $106,116,400 $220,933,377 $157,401,770 $131,005,775 -11.0% 23.5% TOTAL GROSS COLLECTIONS $494,877,009 $509,340,922 2.9% $18,405,470 $21,392,472 16.2% $476,471,539 $487,948,450 2.4% 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. ARIZONA DEPARTMENT OF REVENUE 2011 ANNUAL REPORT Page 33 ARIZONA DEPARTMENT OF REVENUE 2011 ANNUAL REPORT Page 34 TRANSACTION PRIVILEGE, USE AND SEVERANCE TAX MAJOR FEATURES MUNICIPAL PRIVILEGE AND USE TAX During fiscal year 2011, the state tax rates range from 2.5% to 6.6% depending on the type of business, with most rates at 5.6% (Refer to Table 5). Gross revenue exceeding $6.95 billion was remitted by Transaction Privilege, Severance and Use Tax license holders during fiscal year 2011 (Refer to Table 4). COUNTY TAX AND SURCHARGE COLLECTION Arizona’s transaction privilege, use and severance taxes are imposed on the privilege of transacting business in the state. On May 18, 2010, voters approved Proposition 100 which temporarily increases the state transaction privilege and use rate on most transactions by one percentage point beginning June 1, 2010 and ending May 31, 2013. SEVERANCE TAX 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. The department collects transaction privilege and use tax for 73 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). All 15 counties in Arizona levy some type of county tax or surcharge (Refer to Table 4). These taxes or surcharges are collected by the department. The rental car surcharge is imposed only in Maricopa and Pima Counties. A tax on hotels located in unincorporated areas of the county is levied in Pima County. Of the 14 counties with statutory authority to impose a general excise tax, only 13 do so. By statute, Maricopa County may not impose an excise tax. Although subject to voter approval, any county may levy a transportation excise tax or road tax. Only four counties, Gila, Maricopa, Pima, and Pinal, do so. The other types of county excise tax options are a hospital tax, a jail tax, capital projects, and health services district. USE TAX A 6.6% 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. ARIZONA DEPARTMENT OF REVENUE 2011 ANNUAL REPORT Page 35 TABLE 4 GROSS TRANSACTION PRIVILEGE, USE AND SEVERANCE TAX COLLECTIONS FISCAL YEAR 2006-07 THROUGH FISCAL YEAR 2010-11 SOURCE Distribution Base Nonshared Use Tax SUBTOTAL Education Tax Temporary Tax (3) Temporary Tax Estimated Payment Undistributed Estimated Payment Telecommunications Devices 911 Excise Municipal Water Waste Tire Accounts Receivable Collections 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 Additional Distribution COUNTY AND CITY COLLECTIONS TOTAL DEPARTMENT OF REVENUE RECEIPTS FY2006-07 FY2007-08 FY2008-09 FY2009-10 FY2010-11 $1,848,148,565 3,575,743,539 303,010,863 $1,788,242,630 3,448,839,624 340,535,252 $1,548,202,473 2,965,242,162 292,698,574 $1,427,991,054 2,653,983,212 271,763,845 $1,493,036,999 2,719,128,171 229,250,912 $5,726,902,967 $5,577,617,505 $4,806,143,210 $4,353,738,110 $4,441,416,082 $645,827,821 --------(28,064,558) 6,581,940 17,332,349 2,550,646 78,702 $558,899,709 --------(17,219,713) 6,274,404 17,774,128 2,375,423 29,883 $6,221,924,406 $5,374,277,044 $4,909,826,212 $5,853,946,069 $506,884,596 1,443,180 7,457,788 11,697,597 11,680,202 2,921,475 3,041,923 3,152,896 1,982,088 1,553,396 1,027,828 1,027,827 61 797,117 327,388,602 1,104 118,527,726 5,318,690 6,429,137 6,330,588 6,700,311 1,388,670 167,218 67,221,351 14,335,789 2,881,911 14,830,503 2,961,238 2,951,355 13,657,537 6,829,627 11,937,204 11,937,082 65,276 2,372,996 20,615,783 ----- $443,808,996 1,057,667 7,136,677 10,722,220 10,741,640 2,676,492 2,689,763 2,799,473 1,601,005 842,107 1,038,469 1,037,994 16 671,246 298,352,305 1,736 107,492,524 4,669,860 5,654,783 5,480,598 5,637,658 1,339,960 180,969 62,936,950 12,130,566 2,414,381 12,599,660 2,547,860 2,445,901 11,818,833 5,908,756 10,463,855 10,463,970 18,633 2,083,126 20,856,461 ----- $450,148,563 1,052,062 6,951,160 11,110,639 11,101,630 2,773,896 2,690,335 2,766,830 1,682,449 1,281,394 1,025,763 1,025,659 (7) 859,919 308,374,052 252 111,547,857 4,971,979 5,710,609 5,889,027 5,590,968 1,372,901 164,805 64,540,737 12,032,993 2,401,515 12,561,088 2,571,487 2,609,373 11,703,512 5,850,290 10,761,578 10,761,452 37,106 2,138,596 21,164,757 ----- $666,184,022 --------34,613,656 6,744,231 (2) 23,074,167 2,449,270 49,009 $6,460,017,324 $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 ----- $504,391,092 544,136 (1) ----26,197,663 6,086,692 16,453,500 2,392,765 22,255 $514,345,951 835,801,251 28,700,457 8,215,241 6,452,762 16,606,135 2,377,136 31,053 $1,430,363,301 $1,375,333,407 $1,199,517,669 $1,072,323,109 $1,097,227,224 $7,890,380,625 $7,597,257,813 $6,573,794,714 $5,982,149,321 $6,951,173,292 (1) The tax was in place for only a portion of the fiscal year. This figure does not represent a full year's collection. (2) The distribution was in place for only a portion of the fiscal year. (3) On May 18, 2010, voters approved Proposition 100 which temporarily increases the state transaction privilege and use tax rates on most transactions by one percentage point beginning June 1, 2010, and ending May 31, 2013. ARIZONA DEPARTMENT OF REVENUE 2011 ANNUAL REPORT Page 36 TABLE 5 STATE TRANSACTION PRIVILEGE, USE AND SEVERANCE TAX RATES FISCAL YEAR 2010-11 (1) TAXABLE ACTIVITIES 1. Transporting and Towing 2. Nonmetalliferous Mining, Oil and Gas Production 4. Utilities 5. Communications 6. Railroads and Aircraft 7/8. Private Car/Pipelines 9. Publishing 10. Printing 11. Restaurants and Bars 12. Amusements 14. Personal Property Rentals 15. Contracting 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) DISTRIBUTION BASE NONSHARED EDUCATION TEMPORARY TAX TOTAL TAX 1.0% 4.0% 0.6% 1.0% 6.6% 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 0.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 0.0% 1.0% 1.0% $0 $0 3.125% 6.6% 6.6% 6.6% 6.6% 6.6% 6.6% 6.6% 6.6% 6.6% 6.6% 6.6% 2.5% 6.5% 6.6% $0.0305 $0.0305 (1) On May 18, 2010, voters approved Proposition 100 which temporarily increases the state transaction privilege and use tax rates on most transactions by one percentage point beginning June 1, 2010 and ending May 31, 2013. This rate is not reflected on this table. ARIZONA DEPARTMENT OF REVENUE 2011 ANNUAL REPORT Page 37 TABLE 6 NET TAXABLE SALES BY TRANSACTION PRIVILEGE, USE AND SEVERANCE TAX CLASSIFICATIONS (1) FISCAL YEAR 2006-07 THROUGH FISCAL YEAR 2010-11 CLASSIFICATION Transporting (4) Mining, Oil & Gas Mining Severance Utilities Communications Private Car and Pipelines Publishing Job Printing Restaurants and Bars Amusements Commercial Lease (3) Personal Property Rentals Contracting Retail Hotel/Motel Rental Occupancy Tax Use Tax Use Tax-Utilities Membership Camping TOTAL FY2006-07 $43,350,656 255,531,207 1,743,361,330 8,609,033,694 3,513,667,361 19,678,951 129,680,750 397,801,716 9,619,785,333 1,086,363,361 (1,707) 3,927,824,025 22,415,050,588 55,009,403,286 2,411,634,235 1,064,998 6,091,506,625 12,153,982 12,257 $115,286,902,648 % OF TOTAL 0.04 0.22 1.51 7.47 3.05 0.02 0.11 0.35 8.34 0.94 n/a (2) 3.41 19.44 47.72 2.09 n/a (2) 5.28 0.01 0.00 (2) 100.00 FY2007-08 $48,715,871 216,674,568 1,752,522,103 9,237,778,527 3,669,682,556 16,021,363 122,652,124 391,037,724 9,663,958,579 1,146,344,296 (443,473) 3,995,696,708 20,156,298,616 52,626,992,989 2,405,704,851 (2,669,444) 6,837,880,265 12,461,292 51,662 $112,297,361,177 % OF TOTAL FY2008-09 0.04 0.19 1.56 8.23 3.27 0.01 0.11 0.35 8.61 1.02 n/a (2) 3.56 17.95 46.86 2.14 n/a (2) 6.09 0.01 0.00 (2) 100.00 $37,920,229 175,743,314 729,481,920 9,236,365,624 2,928,433,210 7,742,692 102,456,538 307,581,474 9,094,485,498 1,053,047,833 874 3,552,696,373 14,882,705,766 46,174,068,033 2,117,241,787 (24,871) 5,882,941,979 38,653,312 10,780 $96,321,552,366 % OF TOTAL 0.04 0.18 0.76 9.59 3.04 0.01 0.11 0.32 9.44 1.09 n/a (2) 3.69 15.45 47.94 2.20 n/a (2) 6.11 0.04 0.00 (2) 100.00 FY2009-10 $41,990,223 102,899,820 1,164,231,217 9,354,244,929 3,618,207,813 1,639,838 103,681,055 236,985,401 9,020,794,923 1,051,919,242 141,375 3,127,828,157 9,311,612,411 42,913,931,049 1,949,717,696 (62,113) 5,464,504,380 (35,593,960) 9,730 $87,428,683,185 % OF TOTAL 0.05 0.12 1.33 10.70 4.14 n/a 0.12 0.27 10.32 1.20 n/a (2) 3.58 10.65 49.08 2.23 n/a (2) 6.25 (0.04) n/a (2) 100.00 FY2010-11 $41,555,032 96,513,978 1,609,450,811 9,394,361,056 2,853,538,386 1,908,310 98,343,131 266,564,040 9,311,826,427 994,092,112 1,750 3,056,386,064 8,983,260,649 45,898,838,365 2,039,282,838 42,581 4,610,920,668 10,039,995 728 $89,266,926,922 (1) Net taxable sales are based upon tax receipts. (2) Percent of total is less than 0.01%. (3) Commercial Lease rate dropped to 0% effective July 1, 1997 (4) 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. ARIZONA DEPARTMENT OF REVENUE 2011 ANNUAL REPORT Page 38 % OF TOTAL 0.05 0.11 1.80 10.52 3.20 n/a 0.11 0.30 10.43 1.11 n/a 3.42 10.06 51.42 2.28 n/a 5.17 0.01 n/a 100.00 (2) (2) (2) (2) TABLE 7 TRANSACTION PRIVILEGE, USE AND SEVERANCE TAX COLLECTIONS BY CLASS FISCAL YEAR 2010-11 DISTRIBUTION CLASSIFICATION BASE Transporting (1) TOTAL NONSHARED COLLECTIONS $415,551 $1,662,203 $2,077,754 965,140 2,050,922 3,016,062 32,189,016 8,047,254 40,236,270 587 147 734 Utilities 93,943,611 375,774,442 469,718,053 Communications 28,526,112 114,104,447 142,630,559 19,083 76,332 95,416 Nonmetal Mining, Oil and Gas Mining Severance Timbering Severance - Ponderosa (3) Private Car and Pipelines Publishing Job Printing Restaurants and Bars Amusements 983,431 3,933,725 4,917,157 2,665,661 10,662,643 13,328,303 186,238,560 279,357,840 465,596,399 19,881,842 29,822,763 49,704,606 Commercial Lease (2) Rentals of Personal Property Contracting 31 32 63 61,131,224 91,696,835 152,828,059 89,833,151 359,332,617 449,165,769 918,026,834 1,377,040,252 2,295,067,086 56,080,378 56,080,378 112,160,756 856 422 1,277 100,400 401,600 502,000 Use Tax 0 229,250,912 229,250,912 License Fees 0 5,796,968 5,796,968 Retail Hotel/Motel Rental Occupancy Tax (3) Use Tax Utilities Membership Camping (3) 15 22 36 2,070,464 3,105,696 5,176,159 Jet Fuel Use Tax 0 320,137 320,137 Non Sufficient Funds 0 279 279 Jet Fuel Tax Telecommunications Service Assistance TOTAL (34,946) $1,493,037,000 (139,783) $2,948,379,086 (174,728) $4,441,416,085 (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. ARIZONA DEPARTMENT OF REVENUE 2011 ANNUAL REPORT Page 39 TABLE 8 DISTRIBUTION OF TRANSACTION PRIVILEGE, USE AND SEVERANCE TAX COLLECTIONS FISCAL YEAR 2010-11 Net Regular to State General Fund Net Estimated Payments to General Fund Net to Cities Net to Counties Net to Education Fund Net to Temporary Tax (1) Temporary Tax Estimated Payment 911 Wireline/Excise, 911 Wireless, Telecommunications Devices, Municipal Water, and Waste Tire Accounts Receivable Collections $3,463,327,544 8,215,241 373,259,250 604,829,288 514,345,951 835,801,251 28,700,457 25,467,086 5,853,946,069 TOTAL GROSS COLLECTIONS ADDITIONAL DISTRIBUTION FROM TRANSACTION PRIVILEGE, USE AND SEVERANCE TAX COLLECTIONS FISCAL YEAR 2010-11 Phoenix International Raceway - Highway Improvements Rio Nuevo Sports and Tourism Authority Tribal Community Colleges Convention Center Additional distribution of city collections $416,667 14,099,949 * 8,111,976 * 1,750,000 30,000,000 (852,796) (1) On May 18, 2010, voters approved Proposition 100 which temporarily increases the state transaction privilege and use tax rates on most transactions by one percentage point beginning June 1, 2010, and ending May 31, 2013. * These figures include an estimate of the June distribution that occurred after the close of the fiscal year. Figures may not add total due to rounding. ARIZONA DEPARTMENT OF REVENUE 2011 ANNUAL REPORT Page 40 TABLE 9 TRANSACTION PRIVILEGE, USE AND SEVERANCE TAX COLLECTIONS (1) IN APACHE COUNTY FOR THE PERIOD BEGINNING JULY 1, 2010 AND ENDING JUNE 30, 2011 TAXABLE ACTIVITIES AND CALCULATED NET % CHANGE BUSINESS CLASSIFICATIONS TAXABLE INCOME FROM FY 2009-10 Utilities Communications COLLECTIONS $14,854,754 7.1% $742,738 18,147,663 6.4% 1,616,383 Publishing 194,973 -36.4% 9,749 Job Printing 83,786 -43.2% 4,189 Restaurants and Bars 13,293,764 15.5% 664,688 5,745,324 38.4% 287,266 Contracting (All) 77,657,101 -11.9% 3,882,855 Retail 63,384,969 -0.8% 3,169,248 Rentals of Personal Property Hotel/Motel Other Taxable Activities TOTAL 12,023,044 -8.6% 661,267 123,441,929 3.4% 6,116,996 $328,827,306 -0.9% $17,155,380 NUMBER OF ACCOUNTS FISCAL YEAR 2008-09 THROUGH FISCAL YEAR 2010-11 TAXABLE ACTIVITIES AND BUSINESS CLASSIFICATIONS Utilities FY2008-09 FY2009-10 FY2010-11 24 26 24 115 115 120 Publishing 12 14 14 Job Printing 10 11 12 Communications Restaurants and Bars 65 75 76 Rentals of Personal Property 176 171 150 Contracting (All) 472 452 438 1,349 1,277 1,370 58 56 52 960 953 955 3,241 3,150 3,211 Retail 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. ARIZONA DEPARTMENT OF REVENUE 2011 ANNUAL REPORT Page 41 TABLE 10 TRANSACTION PRIVILEGE, USE AND SEVERANCE TAX COLLECTIONS (1) IN COCHISE COUNTY FOR THE PERIOD BEGINNING JULY 1, 2010 AND ENDING JUNE 30, 2011 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 (2) TOTAL CALCULATED NET TAXABLE INCOME % CHANGE FROM FY 2009-10 $181,770,459 54,217,977 958,023 2,231,950 131,614,670 6,113,067 16,698,477 210,886,243 732,815,898 44,112,703 70,903,412 -0.2% -4.6% NA 23.9% 0.9% 0.9% -36.2% -10.5% 0.6% 2.6% NA $9,088,523 2,710,899 47,901 111,597 6,580,733 305,653 834,924 10,544,312 36,640,795 2,426,199 3,430,628 $1,452,322,880 -2.4% $72,722,165 COLLECTIONS . NUMBER OF ACCOUNTS FISCAL YEAR 2008-09 THROUGH FISCAL YEAR 2010-11 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 (2) TOTAL FY2008-09 FY2009-10 FY2010-11 57 208 NA NA 339 63 392 1,179 3,437 154 1,542 61 198 NA 28 345 65 385 1,144 3,371 154 1,488 54 193 20 27 368 55 345 1,131 3,545 145 1,521 7,371 7,239 7,404 (1) License fees, Jet Fuel, Jet Fuel Use, Timber Severance, NSF, and Telecommunications Service Assistance are not included (2) For FY11, fewer categories have been classified under Other Taxable Activities compared to FY10. Figures may not add to total due to rounding. ARIZONA DEPARTMENT OF REVENUE 2011 ANNUAL REPORT Page 42 TABLE 11 TRANSACTION PRIVILEGE, USE AND SEVERANCE TAX COLLECTIONS (1) IN COCONINO COUNTY FOR THE PERIOD BEGINNING JULY 1, 2010 AND ENDING JUNE 30, 2011 TAXABLE ACTIVITIES AND CALCULATED NET % CHANGE BUSINESS CLASSIFICATIONS TAXABLE INCOME FROM FY 2009-10 $164,505,378 -3.4% $8,225,269 Utilities Communications COLLECTIONS 58,959,776 -29.5% 2,947,989 Publishing 2,074,926 35.4% 103,746 Job Printing 1,720,486 -14.5% 86,024 326,512,270 3.5% 16,325,613 65,000,878 0.6% 3,250,044 Restaurants and Bars Amusements Rentals of Personal Property 65,146,690 8.5% 3,257,334 Contracting (All) 290,777,728 13.1% 14,538,886 Retail 959,438,865 3.4% 47,971,943 Hotel/Motel 241,808,229 7.4% 13,299,453 Other Taxable Activities 110,758,385 27.5% 5,445,673 $2,286,703,611 4.2% $115,451,976 TOTAL NUMBER OF ACCOUNTS FISCAL YEAR 2008-09 THROUGH FISCAL YEAR 2010-11 TAXABLE ACTIVITIES AND BUSINESS CLASSIFICATIONS Utilities FY2008-09 FY2009-10 FY2010-11 43 41 45 229 227 238 Publishing 31 33 33 Job Printing 45 44 42 468 461 465 Communications Restaurants and Bars Amusements Rentals of Personal Property 99 97 102 504 495 473 Contracting (All) 1,826 1,719 1,695 Retail 4,352 4,243 4,491 252 245 259 1,876 1,889 1,907 9,725 9,494 9,750 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. ARIZONA DEPARTMENT OF REVENUE 2011 ANNUAL REPORT Page 43 TABLE 12 TRANSACTION PRIVILEGE, USE AND SEVERANCE TAX COLLECTIONS (1) IN GILA COUNTY FOR THE PERIOD BEGINNING JULY 1, 2010 AND ENDING JUNE 30, 2011 TAXABLE ACTIVITIES AND BUSINESS CLASSIFICATIONS Utilities Communications CALCULATED NET TAXABLE INCOME % CHANGE FROM FY 2009-10 COLLECTIONS $116,344,910 3.9% $5,817,245 20,151,574 -18.0% 1,007,579 29,286 Publishing 585,726 4.2% Job Printing 290,128 -24.6% 14,506 53,451,635 -2.0% 2,672,582 Restaurants and Bars Amusements Rentals of Personal Property Contracting (All) 2,097,918 41.0% 104,896 14,154,626 -16.0% 707,731 69,808,619 -3.1% 3,490,431 245,276,546 0.9% 12,263,827 Hotel/Motel 10,122,688 2.4% 556,748 Other Taxable Activities 47,437,734 4.4% 1,756,182 $579,722,104 -0.2% $28,421,014 Retail TOTAL NUMBER OF ACCOUNTS FISCAL YEAR 2008-09 THROUGH FISCAL YEAR 2010-11 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 FY2008-09 FY2009-10 FY2010-11 37 34 31 167 158 166 17 14 17 20 14 11 171 162 175 34 32 34 277 261 227 841 794 790 2,107 2,039 2,174 63 66 65 1,018 978 1,060 4,752 4,552 4,750 (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. ARIZONA DEPARTMENT OF REVENUE 2011 ANNUAL REPORT Page 44 TABLE 13 TRANSACTION PRIVILEGE, USE AND SEVERANCE TAX COLLECTIONS (1) IN GRAHAM COUNTY FOR THE PERIOD BEGINNING JULY 1, 2010 AND ENDING JUNE 30, 2011 TAXABLE ACTIVITIES AND BUSINESS CLASSIFICATIONS Communications Restaurants and Bars CALCULATED NET TAXABLE INCOME % CHANGE FROM FY 2009-10 $10,392,314 -24.0% $519,616 24,689,619 7.7% 1,234,481 COLLECTIONS Amusements 1,124,709 NA 56,235 Rentals of Personal Property 8,560,296 3.4% 428,015 28,220,413 -14.3% 1,411,021 Retail 202,421,794 10.4% 10,121,090 Other Taxable Activities (2) 182,689,898 NA 6,579,031 $458,099,042 -8.2% $20,349,488 Contracting (All) TOTAL NUMBER OF ACCOUNTS FISCAL YEAR 2008-09 THROUGH FISCAL YEAR 2010-11 TAXABLE ACTIVITIES AND BUSINESS CLASSIFICATIONS Communications Restaurants and Bars Amusements Rentals of Personal Property Contracting (All) Retail Other Taxable Activities (2) TOTAL FY2008-09 FY2009-10 FY2010-11 118 122 117 67 68 62 NA 167 NA 164 11 143 401 356 328 1,283 1,270 1,326 847 833 885 2,883 2,813 2,872 (1) License fees, Jet Fuel, Jet Fuel Use, Timber Severance, NSF, and Telecommunications Service Assistance are not included. (2) For FY11, fewer categories have been classified under the Other Taxable Activities compared to FY10. Figures may not add to total due to rounding. ARIZONA DEPARTMENT OF REVENUE 2011 ANNUAL REPORT Page 45 TABLE 14 TRANSACTION PRIVILEGE, USE AND SEVERANCE TAX COLLECTIONS (1) IN GREENLEE COUNTY FOR THE PERIOD BEGINNING JULY 1, 2010 AND ENDING JUNE 30, 2011 TAXABLE ACTIVITIES AND CALCULATED NET % CHANGE BUSINESS CLASSIFICATIONS TAXABLE INCOME FROM FY 2009-10 $3,443,876 -6.7% $172,194 4,183,467 5.0% 209,173 Communications Restaurants and Bars Rentals of Personal Property COLLECTIONS 2,606,607 56.9% 130,330 32,443,507 327.8% 1,622,175 Retail 149,161,906 61.5% 7,458,095 Other Taxable Activities 574,223,111 43.4% 16,066,232 $766,062,475 50.3% $25,658,200 Contracting (All) TOTAL NUMBER OF ACCOUNTS FISCAL YEAR 2008-09 THROUGH FISCAL YEAR 2010-11 TAXABLE ACTIVITIES AND BUSINESS CLASSIFICATIONS FY2008-09 FY2009-10 FY2010-11 Communications 80 71 76 Restaurants and Bars 29 25 23 Rentals of Personal Property 71 69 63 Contracting (All) 147 117 131 Retail 500 482 552 Other Taxable Activities 393 398 428 1,220 1,162 1,273 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. ARIZONA DEPARTMENT OF REVENUE 2011 ANNUAL REPORT Page 46 TABLE 15 TRANSACTION PRIVILEGE, USE AND SEVERANCE TAX COLLECTIONS (1) IN LA PAZ COUNTY FOR THE PERIOD BEGINNING JULY 1, 2010 AND ENDING JUNE 30, 2011 TAXABLE ACTIVITIES AND BUSINESS CLASSIFICATIONS Utilities Communications Restaurants and Bars Amusements Rentals of Personal Property Contracting (All) Retail Hotel/Motel Other Taxable Activities TOTAL CALCULATED NET TAXABLE INCOME % CHANGE FROM FY 2009-10 COLLECTIONS $25,392,770 5,618,337 21,623,388 136,450 2,949,712 18,272,527 124,608,528 4,979,356 6,112,214 -3.0% -36.7% -25.1% -47.8% 291.7% -21.6% -1.5% -21.4% -54.1% $1,269,639 280,917 1,081,169 6,823 147,486 913,626 6,230,426 273,865 294,966 $209,693,282 -10.5% $10,498,917 NUMBER OF ACCOUNTS FISCAL YEAR 2008-09 THROUGH FISCAL YEAR 2010-11 TAXABLE ACTIVITIES AND BUSINESS CLASSIFICATIONS Utilities Communications Restaurants and Bars Amusements Rentals of Personal Property Contracting (All) Retail Hotel/Motel Other Taxable Activities TOTAL FY2008-09 FY2009-10 FY2010-11 19 122 104 10 152 328 1,681 48 628 19 115 105 9 146 331 1,674 46 671 19 115 96 8 128 324 1,731 50 703 3,092 3,116 3,174 (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. ARIZONA DEPARTMENT OF REVENUE 2011 ANNUAL REPORT Page 47 TABLE 16 TRANSACTION PRIVILEGE, USE AND SEVERANCE TAX COLLECTIONS (1) IN MARICOPA COUNTY FOR THE PERIOD BEGINNING JULY 1, 2010 AND ENDING JUNE 30, 2011 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 2009-10 COLLECTIONS $5,899,757,247 1,844,985,092 67,074,275 218,091,144 6,311,663,712 719,130,343 2,327,017,746 5,600,658,554 30,989,829,989 1,200,751,509 3,431,270,093 0.4% -23.1% -12.2% 17.8% 3.9% -7.8% -2.9% -3.8% 8.3% 5.4% -19.4% $294,987,862 92,249,255 3,353,714 10,904,557 315,583,186 35,956,517 116,350,887 280,032,928 1,549,491,499 66,041,333 170,934,008 $58,610,229,705 1.7% $2,935,885,746 NUMBER OF ACCOUNTS FISCAL YEAR 2008-09 THROUGH FISCAL YEAR 2010-11 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 FY2008-09 FY2009-10 FY2010-11 144 608 285 905 6,458 732 3,055 15,341 46,571 648 10,676 132 637 269 810 6,346 707 2,763 14,147 44,305 663 10,025 152 640 261 809 6,593 720 2,619 13,866 45,017 666 10,153 85,423 80,804 81,496 (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. ARIZONA DEPARTMENT OF REVENUE 2011 ANNUAL REPORT Page 48 TABLE 17 TRANSACTION PRIVILEGE, USE AND SEVERANCE TAX COLLECTIONS (1) IN MOHAVE COUNTY FOR THE PERIOD BEGINNING JULY 1, 2010 AND ENDING JUNE 30, 2011 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 2009-10 COLLECTIONS $393,980,111 81,125,975 1,187,755 3,420,662 202,947,760 14,716,501 53,720,875 206,735,195 1,259,518,625 42,038,413 110,760,364 4.5% -8.8% -3.6% -8.8% 1.3% -0.1% -8.1% -29.2% 7.4% 1.7% 10.6% $19,699,006 4,056,299 59,388 171,033 10,147,388 735,825 2,686,044 10,336,760 62,975,931 2,312,113 4,834,292 $2,370,152,237 0.8% $118,014,077 NUMBER OF ACCOUNTS FISCAL YEAR 2008-09 THROUGH FISCAL YEAR 2010-11 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 FY2008-09 FY2009-10 FY2010-11 58 186 24 46 443 76 514 1,686 4,706 154 1,909 58 178 19 33 456 75 477 1,502 4,538 147 1,884 54 175 26 33 434 64 454 1,384 4,661 152 1,957 9,802 9,367 9,394 (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. ARIZONA DEPARTMENT OF REVENUE 2011 ANNUAL REPORT Page 49 TABLE 18 TRANSACTION PRIVILEGE, USE AND SEVERANCE TAX COLLECTIONS (1) IN NAVAJO COUNTY FOR THE PERIOD BEGINNING JULY 1, 2010 AND ENDING JUNE 30, 2011 TAXABLE ACTIVITIES AND CALCULATED NET % CHANGE BUSINESS CLASSIFICATIONS TAXABLE INCOME FROM FY 2009-10 $88,069,618 -6.3% $4,403,481 42,765,076 2.0% 2,138,254 Utilities Communications COLLECTIONS Publishing 747,100 22.0% 37,355 Printing 749,608 -19.0% 37,480 Restaurants and Bars 85,396,495 0.9% 4,269,825 Rentals of Personal Property 23,583,922 -3.7% 1,179,196 Contracting (All) 131,311,459 23.8% 6,565,573 Retail 758,732,589 7.5% 37,936,629 Hotel/Motel 30,973,496 1.7% 1,703,542 Other Taxable Activities (2) 49,702,396 NA 2,460,318 $1,212,031,760 6.9% $60,731,654 TOTAL NUMBER OF ACCOUNTS FISCAL YEAR 2008-09 THROUGH FISCAL YEAR 2010-11 TAXABLE ACTIVITIES AND BUSINESS CLASSIFICATIONS Utilities Communications Publishing Printing Restaurants and Bars Rentals of Personal Property FY2008-09 FY2009-10 FY2010-11 39 39 40 158 158 160 22 21 23 NA 210 20 24 213 220 308 319 281 Contracting (All) 1,073 979 912 Retail 2,610 2,526 2,676 153 148 146 1,266 1,236 1,295 5,839 5,659 5,777 Hotel/Motel Other Taxable Activities (2) TOTAL (1) License fees, Jet Fuel, Jet Fuel Use, Timber Severance, NSF, and Telecommunications Service Assistance are not included. (2) For FY11, more categories have been classified under the Other Taxable Activities compared to FY10. Figures may not add to total due to rounding. ARIZONA DEPARTMENT OF REVENUE 2011 ANNUAL REPORT Page 50 TABLE 19 TRANSACTION PRIVILEGE, USE AND SEVERANCE TAX COLLECTIONS (1) IN PIMA COUNTY FOR THE PERIOD BEGINNING JULY 1, 2010 AND ENDING JUNE 30, 2011 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 2009-10 $1,325,735,031 407,930,368 17,095,593 32,032,590 1,416,093,033 100,930,067 359,081,837 1,327,137,628 6,625,513,140 271,797,389 1,052,079,153 0.2% -17.7% 29.4% -5.3% 2.2% 3.9% 2.4% 4.9% 2.1% 0.0% 20.2% $66,286,752 20,396,518 854,780 1,601,630 70,804,652 5,046,503 17,954,092 66,356,881 331,275,657 14,948,856 39,042,796 $12,935,425,830 2.7% $634,569,117 COLLECTIONS NUMBER OF ACCOUNTS FISCAL YEAR 2008-09 THROUGH FISCAL YEAR 2010-11 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 FY2008-09 FY2009-10 FY2010-11 90 325 74 167 1,678 210 1,145 4,983 14,306 261 4,008 77 318 85 154 1,659 204 1,069 4,672 13,839 257 3,870 87 303 87 160 1,684 203 1,010 4,552 14,278 254 4,062 27,247 26,204 26,680 (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. ARIZONA DEPARTMENT OF REVENUE 2011 ANNUAL REPORT Page 51 TABLE 20 TRANSACTION PRIVILEGE, USE AND SEVERANCE TAX COLLECTIONS (1) IN PINAL COUNTY FOR THE PERIOD BEGINNING JULY 1, 2010 AND ENDING JUNE 30, 2011 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 2009-10 COLLECTIONS $462,610,104 121,035,545 3,375,609 1,546,190 210,437,576 35,075,840 59,630,646 398,424,490 1,049,018,789 21,897,135 317,884,827 -3.4% -22.6% -11.1% 0.5% 0.3% 4.9% 7.9% -16.4% 9.1% 12.8% 21.0% $23,130,505 6,051,777 168,780 77,310 10,521,879 1,753,792 2,981,532 19,921,224 52,450,939 1,204,342 11,509,229 $2,680,936,751 0.8% $129,771,311 NUMBER OF ACCOUNTS FISCAL YEAR 2008-09 THROUGH FISCAL YEAR 2010-11 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 FY2008-09 64 227 24 36 433 98 506 2,887 4,676 106 1,756 10,813 FY2009-10 72 228 26 40 436 89 471 2,700 4,533 110 1,740 FY2010-11 73 223 26 32 441 93 437 2,644 4,660 114 1,816 10,445 10,559 (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. ARIZONA DEPARTMENT OF REVENUE 2011 ANNUAL REPORT Page 52 TABLE 21 TRANSACTION PRIVILEGE, USE AND SEVERANCE TAX COLLECTIONS (1) IN SANTA CRUZ COUNTY FOR THE PERIOD BEGINNING JULY 1, 2010 AND ENDING JUNE 30, 2011 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 2009-10 COLLECTIONS $47,941,846 26,077,683 469,589 42,171,454 4,298,279 11,988,808 72,831,278 301,465,100 12,084,992 13,979,095 37.2% -4.1% 3.8% -3.3% -11.8% -6.7% 18.8% 1.1% -3.3% -8.9% $2,397,092 1,303,884 23,479 2,108,573 214,914 599,440 3,641,564 15,073,255 664,675 695,252 $533,308,125 4.3% $26,722,128 NUMBER OF ACCOUNTS FISCAL YEAR 2008-09 THROUGH FISCAL YEAR 2010-11 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 FY2008-09 FY2009-10 FY2010-11 20 136 12 137 21 244 633 1,889 39 902 21 133 13 133 21 235 572 1,894 41 925 21 133 13 131 19 214 546 1,998 36 959 4,033 3,988 4,070 (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. ARIZONA DEPARTMENT OF REVENUE 2011 ANNUAL REPORT Page 53 TABLE 22 TRANSACTION PRIVILEGE, USE AND SEVERANCE TAX COLLECTIONS (1) IN YAVAPAI COUNTY FOR THE PERIOD BEGINNING JULY 1, 2010 AND ENDING JUNE 30, 2011 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 2009-10 COLLECTIONS $311,621,139 90,036,971 2,721,586 3,667,210 261,217,374 26,242,374 40,866,266 250,529,257 1,226,629,138 91,184,158 345,203,225 0.3% -20.1% 6.2% -16.8% 2.7% 0.0% -11.8% -15.7% 2.7% 6.8% 29.7% $15,581,057 4,501,849 136,079 183,360 13,060,869 1,312,119 2,043,313 12,526,463 61,331,457 5,015,129 10,654,698 $2,649,918,697 1.9% $126,346,392 NUMBER OF ACCOUNTS FISCAL YEAR 2008-09 THROUGH FISCAL YEAR 2010-11 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 FY2008-09 FY2009-10 FY2010-11 77 227 44 67 641 100 537 2,756 6,193 202 1,968 74 223 42 59 611 99 493 2,472 5,956 199 1,907 75 222 48 57 623 92 462 2,326 6,140 206 2,025 12,812 12,135 12,276 (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. ARIZONA DEPARTMENT OF REVENUE 2011 ANNUAL REPORT Page 54 TABLE 23 TRANSACTION PRIVILEGE, USE AND SEVERANCE TAX COLLECTIONS (1) IN YUMA COUNTY FOR THE PERIOD BEGINNING JULY 1, 2010 AND ENDING JUNE 30, 2011 TAXABLE ACTIVITIES AND BUSINESS CLASSIFICATIONS Utilities Communications Restaurants and Bars Amusements Rentals of Personal Property Contracting (All) Retail Hotel/Motel Other Taxable Activities TOTAL CALCULATED NET TAXABLE INCOME % CHANGE FROM FY 2009-10 COLLECTIONS $247,551,518 68,650,158 206,530,211 13,500,781 64,634,232 267,566,651 1,211,022,488 48,254,861 65,782,215 -0.6% -22.1% 2.2% -10.3% -2.1% -2.5% 6.6% 2.5% -3.4% $12,377,576 3,432,508 10,326,511 675,039 3,231,712 13,378,333 60,551,124 2,654,017 3,280,590 $2,193,493,116 2.2% $109,907,410 NUMBER OF ACCOUNTS FISCAL YEAR 2008-09 THROUGH FISCAL YEAR 2010-11 TAXABLE ACTIVITIES AND BUSINESS CLASSIFICATIONS Utilities Communications Restaurants and Bars Amusements Rentals of Personal Property Contracting (All) Retail Hotel/Motel Other Taxable Activities TOTAL FY2008-09 FY2009-10 FY2010-11 40 202 356 46 446 1,018 3,651 112 1,629 41 188 342 41 430 969 3,557 104 1,616 32 191 364 45 411 974 3,669 102 1,681 7,500 7,288 7,469 (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. ARIZONA DEPARTMENT OF REVENUE 2011 ANNUAL REPORT Page 55 TABLE 24 STATE TRANSACTION PRIVILEGE AND SEVERANCE TAX DISTRIBUTION TO COUNTIES FISCAL YEAR 2006-07 THROUGH FISCAL YEAR 2010-11 COUNTY Apache Coconino Cochise Gila Graham Greenlee La Paz Maricopa Mohave Navajo Pima Pinal Santa Cruz Yavapai Yuma Additional Distribution FY2006-07 $5,021,042 17,652,655 13,078,428 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 17,161,720 12,547,126 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 ----$724,417,089 FY2008-09 $4,487,263 15,301,303 11,305,289 4,696,318 3,146,715 3,078,106 1,742,796 400,099,771 19,087,627 9,747,301 90,391,382 20,740,073 4,101,137 22,136,382 17,115,359 ----$627,176,822 FY2009-10 $3,985,796 14,350,374 10,616,654 4,225,153 3,321,780 3,337,405 1,654,035 367,202,478 17,295,217 8,831,817 84,769,872 18,910,351 3,709,093 20,676,049 15,593,103 ----$578,479,176 FY2010-11 $4,116,316 15,586,920 10,880,090 4,381,303 3,234,712 3,945,202 1,717,668 383,243,745 17,551,555 9,326,061 88,630,774 20,318,239 3,874,088 21,703,058 16,319,557 % CHANGE FROM FY 2009-10 3.3% 8.6% 2.5% 3.7% -2.6% 18.2% 3.8% 4.4% 1.5% 5.6% 4.6% 7.4% 4.4% 5.0% 4.7% ----$604,829,288 4.6% Figures may not add to totals due to rounding. ARIZONA DEPARTMENT OF REVENUE 2011 ANNUAL REPORT Page 56 TABLE 25 STATE TRANSACTION PRIVILEGE AND SEVERANCE TAX DISTRIBUTION TO MUNICIPALITIES FISCAL YEAR 2010-11 CITIES APACHE Eagar Springerville St. Johns COCHISE Benson Bisbee Douglas Huachuca City Sierra Vista Tombstone Willcox COCONINO Flagstaff Fredonia Page Tusayan 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 $342,268 157,288 293,130 $365,038 496,027 1,316,667 140,151 3,343,690 121,645 296,363 $4,711,821 86,269 544,838 56,491 239,791 $573,629 66,716 148,780 1,179,574 155,477 33,294 $792,686 $6,079,581 $5,639,210 $2,157,470 $168,286 717,425 350,172 $1,235,882 $203,336 61,351 $264,688 $249,622 275,918 $525,540 $5,351,475 2,112,351 279,707 366,259 17,695,102 2,450,986 1,860,421 151,090 13,787,266 18,438,079 3,661,678 424,757 352,682 34,220,312 1,053,639 10,673,717 112,704,366 1,321,604 City Distributions are based on relative population. 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 TOTAL AMOUNT COUNTY TOTAL $17,843,974 6,946,254 12,656,738 497,422 466,798 471,436 $265,788,114 $2,931,958 317,038 1,992,973 4,081,876 $9,323,845 $412,560 319,406 761,358 381,877 313,738 751,206 $2,940,146 $2,099,083 3,024,857 1,144,921 430,853 40,464,579 $47,164,293 $2,618,154 2,590,692 649,935 887,563 1,603,753 170,072 132,571 1,401,489 246,175 $10,300,406 $1,663,463 70,336 $1,733,799 $821,815 932,899 284,290 833,496 307,403 26,001 3,112,851 2,603,320 830,562 $9,752,637 $1,771,253 775,953 156,751 6,856,996 $9,560,954 $373,259,250 $373,259,250 ARIZONA DEPARTMENT OF REVENUE 2011 ANNUAL REPORT Page 57 TABLE 26 MUNICIPAL PRIVILEGE TAX COLLECTION PROGRAM COLLECTIONS BY CITY FISCAL YEAR 2010-11 CITY Apache Junction (1) Benson Bisbee Buckeye Bullhead City (2) Camp Verde Carefree Casa Grande Cave Creek Chino Valley Clarkdale Clifton Colorado City Coolidge Cottonwood Dewey-Humboldt Douglas (3) 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 Maricopa RATE (PERCENT) COLLECTIONS 2.5 2.5 3.0 2.0 3.0 1.8 3.0 3.0 3.0 3.0 2.0 3.0 3.0 2.0 2.0 3.0 3.0 3.0 2.0 2.6 4.0 3.0 1.5 2.0 2.5 3.0 3.0 3.0 1.5 3.5 3.0 2.0 2.0 2.8 2.0 2.0 2.0 $18,890 2,929,455 1,886,240 12,272,078 30,052 1,763,488 2,685,710 19,149,877 3,958,241 3,379,524 720,550 493,894 275,148 6,024,881 10,330,388 381,225 2,094,447 91,327 970,225 5,254,422 5,075,388 3,091,482 7,824,394 294,632 1,995,257 48,442,729 3,497,246 32,241,273 1,151,021 1,888,871 2,607,108 144,649 611,734 405,896 11,264,735 14,055,662 3,285,878 58,744 22,687,715 $7,409,558 CITY Miami Oro Valley Page Paradise Valley Parker Patagonia Payson Pima Pinetop-Lakeside Prescott Valley Quartzsite Queen Creek Safford Sahuarita Saint Johns San Luis Sedona (4) Show Low Sierra Vista Snowflake Somerton (5) South Tucson Springerville Star Valley Superior Surprise Taylor Thatcher Tolleson Tombstone Tusayan Wellton Wickenburg Willcox (6) Williams Winkelman Winslow Youngtown Yuma RATE (PERCENT) 2.5 2.0 3.0 1.65 2.0 3.0 2.1 2.0 2.5 2.3 2.5 2.3 2.5 2.0 2.0 4.0 2.0 1.8 2.0 2.5 3.0 2.0 2.0 2.2 2.0 2.0 2.5 2.5 2.0 2.5 2.2 3.0 3.5 3.0 3.0 1.7 TOTAL Rates may have changed throughout the year. Current rates, are located here: http://www.azdor.gov/Business/TransactionPrivilegeTax/TPTRates.aspx (1) Effective July 1, 2007, Apache Junction no longer participates in the municipal privilege tax collection program. (2) Effective March 1, 2009, Bullhead City no longer participates in the municipal privilege tax collection program. (3) Effective October 1, 2010, Douglas no longer participates in the municipal privilege tax collection program. (4) Effective January 1, 2011, Sedona no longer participates in the municipal privilege tax collection program. (5) Effective February 1, 2011, Somerton no longer participates in the municipal privilege tax collection program. (6) Effective March 1, 2011, Willcox no longer participates in the municipal privilege tax collection program. For those cities who have left the program, collections shown include periods prior to and up to the effective date. COLLECTIONS 310,717 11,476,740 6,902,409 7,706,533 1,158,961 158,776 5,915,905 177,967 3,335,049 10,208,968 1,185,566 11,528,626 5,442,836 6,634,462 602,444 5,659,566 7,346,267 8,383,267 17,086,526 1,079,366 840,415 1,664,576 1,474,401 265,111 472,275 29,003,705 584,701 1,934,732 11,716,215 668,428 1,939,682 907,705 2,577,393 1,833,960 3,709,394 104,256 4,420,674 1,008,980 29,976,974 $450,148,563 Figures may not add to total due to rounding. ARIZONA DEPARTMENT OF REVENUE 2011 ANNUAL REPORT Page 58 TABLE 27 MUNICIPAL PRIVILEGE TAX COLLECTION PROGRAM FISCAL YEAR 2006-07 THROUGH FISCAL YEAR 2010-11 FISCAL YEAR TOTAL COLLECTIONS NUMBER OF CITIES IN PROGRAM 2006-07 $619,189,088 78 2007-08 $581,066,050 77 2008-09 $506,884,596 76 2009-10 $443,808,887 76 2010-11 $450,148,563 73 NON PROGRAM CITY MUNICIPAL PRIVILEGE TAX COLLECTIONS (1) APACHE JUNCTION AVONDALE BULLHEAD CITY CHANDLER DOUGLAS (2) FLAGSTAFF GLENDALE MESA NOGALES PEORIA PHOENIX PRESCOTT SCOTTSDALE SEDONA (2) SOMERTON (2) TEMPE TUCSON WILLCOX (2) FY 2009-10 $9,623,100 $29,211,279 $10,070,859 $80,107,904 N/A $22,892,321 $92,770,357 $122,748,163 $5,318,300 $56,276,937 $593,755,547 $22,459,454 (3) $133,432,384 N/A N/A $106,846,000 $166,572,972 N/A FY 2010-11 $9,956,281 $29,634,273 $10,873,867 (4) $83,971,941 $4,245,832 $23,362,125 $93,259,414 $121,531,121 $9,745,548 $58,082,216 $646,849,227 $22,501,740 $142,666,455 $12,899,694 $538,923 $120,542,000 $182,441,010 $565,122 (1) Pursuant to HB 2513, Chapter 154, Second Regular Session, 2010. This is for informational purposes only as reported by the cities. The department does not collect for these cities. (2) These cities became non-program cities in FY 2010-11. (3) Corrected figures. (4) Unaudited figure. ARIZONA DEPARTMENT OF REVENUE 2011 ANNUAL REPORT Page 59 ARIZONA DEPARTMENT OF REVENUE 2011 ANNUAL REPORT Page 60 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 $560 million during fiscal year 2011 (Refer to Table 28). INDIVIDUAL INCOME TAX MAJOR FEATURES DISTRIBUTION State income tax collections are shared with Arizona municipalities in an Urban Revenue Sharing Program. (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, I Did Not Pay Enough 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 28). For tax year 2008 filed in 2009, approximately 2.6 million individual filers reported Arizona gross income (defined as federal adjusted gross income) totaling more than $118.9 billion. Individuals with Arizona gross income of more than $75,000, in the preceding or current year, are required to file Arizona estimated tax payments. An individual can apply any portion of an income tax refund toward the following year's income tax as an estimated payment. The graduated rate structure for the 2008 tax year ranged from 2.59 percent to a maximum of 4.54 percent on an individual's income over $150,000 (or joint income over $300,000). ARIZONA DEPARTMENT OF REVENUE 2011 ANNUAL REPORT Page 61 CORPORATE AND INDIVIDUAL INCOME TAX CREDITS CREDIT Agricultural Pollution Control Equipment AVAILABLE TO Taxpayers that incur expenses during the taxable year to purchase agricultural pollution control equipment. Agricultural Water Conservation System Taxpayers that incur expenses to purchase and install an agricultural water conservation system in Arizona. 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 credit is $200 or $400, depending upon filing status. Corporate Contributions To School Tuition Organizations Corporate credit that allows taxpayers to 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. Corporate Contributions To School Tuition Organizations for Displaced Students or Students with Disabilities Corporate credit that allows taxpayers to make cash contributions to school tuition organizations that provides scholarships or grants to displaced students or students with disabilities. 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. 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. 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. ARIZONA DEPARTMENT OF REVENUE 2011 ANNUAL REPORT Page 62 CREDIT Increased Excise Taxes AVAILABLE TO A refundable credit 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 to mitigate the increase in transaction privilege tax rate for education. Investment in Qualified Small Businesses Allows a credit for investments in qualified small businesses to individuals. Military Family Relief Fund Individual taxpayers that make contributions to the fund which helps service members and their families faced with unforeseen expenses when a loved one becomes a casualty of war. The credit is $200 or $400, depending upon filing status. 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. 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. Renewable Energy Industry This credit provides refundable individual and corporate income tax credits for expanding or locating qualified renewable energy operations in this state. 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. ARIZONA DEPARTMENT OF REVENUE 2011 ANNUAL REPORT Page 63 CREDIT Solar Hot Water Heater Plumbing Stub Outs and Electric Vehicle Recharge Outlets AVAILABLE TO Taxpayers for the installation of solar hot water heater plumbing stub outs and electric vehicle recharge outlets in houses or dwelling units constructed by the taxpayer. The houses or dwelling units must be located in Arizona. Taxes Paid for Coal Consumed in Generating Electrical Power Corporate taxpayers that allows 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 2011 ANNUAL REPORT Page 64 TABLE 28 INCOME TAX COLLECTIONS FISCAL YEAR 2006-07 THROUGH FISCAL YEAR 2010-11 SOURCE Withheld from Wages Gross Revenue Refunds and Charge-offs NET Individuals & Fiduciaries Gross Revenue Regular Refunds and Charge-offs Attorney Fees - Ladewig refunds (1) NET Corporations Gross Revenue (2) Refunds and Charge-offs NET Subtotal Net Collections Less distributions for: Urban Revenue Sharing Child Abuse Prevention Veteran's Donation Fund Aid to Education Domestic Violence Shelter Special Olympics Wildlife Contributions Neighbors Helping Neighbors Clean Elections (2) National Guard Relief Fund I Did Not Pay Enough Fund Democratic Party Libertarian Party Republican Party Green Party Subtotal Distributions NET REVENUE TO STATE GENERAL FUND WQARF Distribution Sports and Tourism Authority FY2006-07 FY2007-08 FY2008-09 FY2009-10 $3,294,287,540 (19,969,915) $3,344,770,438 (22,167,786) $3,092,546,185 (13,229,118) $3,017,256,893 (10,152,178) PERCENT OF NET COLLECTIONS FY2010-11 IN FY2010-11 $3,234,666,688 (7,044,562) $3,274,317,624 $3,322,602,653 $3,079,317,068 $3,007,104,715 $3,227,622,125 $1,677,949,795 (1,285,344,591) (4,853,277) $1,461,050,780 (1,369,350,067) (2,575) $967,788,513 (1,471,652,247) ----- $768,011,214 (1,351,901,223) ----- $867,110,332 (1,224,167,109) ----- 94.1% $387,751,926 $91,698,139 ($503,863,734) ($583,890,008) ($357,056,777) $1,070,723,965 (84,540,518) $985,305,494 (200,615,179) $749,362,551 (157,110,835) $650,925,393 (237,644,455) $659,266,690 (98,958,514) $986,183,448 $784,690,315 $592,251,716 $413,280,938 $560,308,176 16.3% $4,648,252,998 $4,198,991,106 $3,167,705,050 $2,836,495,645 $3,430,873,524 100.0% $551,230,661 250,683 ----38,309 195,840 106,425 255,738 53,507 6,159,217 --------31,304 3,315 21,444 0 $684,538,927 260,062 65,085 107,173 196,622 105,085 235,199 55,421 6,685,252 264,523 ----31,539 2,310 18,081 557 $727,677,400 (3) 232,949 300,509 79,933 183,973 103,287 226,343 59,433 6,355,933 87,491 ----18,554 1,918 10,573 684 $628,644,630 220,098 69,746 84,117 161,673 98,752 202,627 52,383 6,019,188 71,775 ----14,595 1,162 9,335 578 $474,006,520 159,694 88,604 65,775 118,629 72,928 156,130 33,099 6,199,220 48,845 17,121 10,691 1,094 7,744 319 $558,346,443 $692,565,835 $735,338,981 $635,650,660 $480,986,414 $4,089,906,556 $3,506,425,271 $2,432,366,069 $2,200,844,986 $2,949,887,110 $15,000,000 $15,000,000 $13,000,000 $7,000,000 $7,000,000 $5,148,528 $4,121,337 $4,200,254 $6,419,515 $5,810,440 (1) Attorney fees relating to the Ladewig class action lawsuit were paid from individual income tax refunds. (2) Corrected figures. (3) Pursuant to HB 2871, Chapter 351, 2nd Regular Session, 2006, the sum of $727,677,400 was appropriated from the general fund, of which $10,549,800 was appropriated as repayment to incorporated cities and towns as distributed in FY04. Figures may not add to total due to rounding. ARIZONA DEPARTMENT OF REVENUE 2011 ANNUAL REPORT Page 65 -10.4% TABLE 29 EXEMPTIONS, DEDUCTIONS AND CREDITS TAX YEAR 2007 THROUGH TAX YEAR 2010 TAX YEAR 2007 2008 2009 2010 PERSONAL EXEMPTION (2) $2,100 2,100 2,100 2,100 AGE 65 AND OVER EXEMPTION BLIND EXEMPTION $1,500 1,500 1,500 1,500 DEPENDENT EXEMPTION $2,100 2,100 2,100 2,100 $2,300 2,300 2,300 2,300 STANDARD DEDUCTION LIMIT (1) $4,373/$8,745 4,521/9,042 4,677/9,354 4,677/9,354 MAXIMUM PROPERTY TAX CREDIT $502 502 502 502 MAXIMUM FAMILY TAX CREDIT $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 2007 THROUGH TAX YEAR 2009 CREDIT Agricultural Pollution Control Agricultural Water Conservation Clean Elections Commercial & Industrial Solar Energy Contributions to Charities that Provide Assistance to the Working Poor Defense Contracting Donations to Military Family Relief Fund 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 Investment in Qualified Small Buiness 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 Water Conservation Systems Total TAX YEAR 2007 CLAIMANTS CREDITS TAX YEAR 2008 CLAIMANTS CREDITS TAX YEAR 2009 CLAIMANTS CREDITS (1) 134 34,358 15 (1) $1,851,865 $815,625 $54,558 4 105 33,966 54 $13,524 $1,322,254 $773,000 $277,914 (2) (2) 26,088 31 (2) (2) $633,415 $122,232 18,280 0 --(1) 5 149 (1) 518,820 0 27,706 579,464 73 0 4 10 76,065 16,810 214,356 0 260 68 2,509 $5,860,953 $0 --(1) $12,666 $1,006,150 (1) $6,784,150 $0 $105,315,257 $30,444,007 $276,742 $0 $128,165 $7,962 $54,303,282 $5,979,296 $44,069,896 $0 $3,377,197 $2,749,005 $1,209,393 36,568 0 2,361 (1) 0 119 (1) 501,013 0 31,103 605,599 111 0 9 4 78,407 15,675 233,450 0 308 54 4,982 $11,059,408 $0 $778,300 (1) $0 $716,157 (1) $5,811,534 $0 $78,837,292 $32,308,185 $395,014 $0 $267,771 $2,399 $55,261,284 $5,722,697 $45,164,366 $0 $4,714,103 $312,899 $2,499,721 51,799 (2) 3,185 (1) (2) (2) (2) 515,867 (2) 30,125 664,675 174 (2) 5 (2) 73,430 17,366 239,031 (2) 306 (2) 2,281 $13,602,655 (2) $998,331 (1) (2) (2) (2) $5,270,319 (2) $75,216,168 $35,928,030 $502,538 (2) $77,267 (2) $50,880,647 $6,606,391 $42,716,767 (2) $4,388,344 (2) $922,376 0 61 1,489,150 $0 $36,227 $264,284,077 6 209 1,544,109 $630 $106,860 $246,345,913 (2) 206 1,624,569 (2) $102,180 $237,907,980 (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. ARIZONA DEPARTMENT OF REVENUE 2011 ANNUAL REPORT Page 66 TABLE 30 RESIDENT INDIVIDUAL INCOME TAX LIABILITY BY FEDERAL ADJUSTED GROSS INCOME TAX YEAR 2008 (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 44,265 42,815 125,239 148,616 154,830 237,947 182,771 161,948 271,961 199,794 333,945 202,770 226,199 48,655 7,547 3,359 329 1.85% 1.79% 5.23% 6.21% 6.47% 9.94% 7.64% 6.77% 11.36% 8.35% 13.96% 8.47% 9.45% 2.03% 0.32% 0.14% 0.01% $223,294 17,647 48,941 2,921,115 9,352,108 28,005,788 39,126,890 51,927,500 130,751,434 136,478,515 333,311,195 316,091,909 645,245,243 395,705,171 176,758,653 230,297,911 192,397,757 0.01% 0.00% 0.00% 0.11% 0.35% 1.04% 1.46% 1.93% 4.86% 5.08% 12.40% 11.76% 24.00% 14.72% 6.57% 8.57% 7.16% 2,392,990 100.00% TOTAL $2,688,661,071 100.00% (1) This summary combines all liability reported on the Arizona Form 140 and 140A Individual Income tax returns for tax year 2008, filed from January 2009 forward. ARIZONA DEPARTMENT OF REVENUE 2011 ANNUAL REPORT Page 67 TABLE 31 NONRESIDENT/ PART YEAR RESIDENT INDIVIDUAL INCOME TAX LIABILITY BY FEDERAL ADJUSTED GROSS INCOME TAX YEAR 2008 (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 39,557 23,788 35,823 26,467 19,960 22,172 13,274 9,861 13,841 9,075 12,834 5,915 6,768 2,633 641 449 70 16.27% 9.78% 14.73% 10.89% 8.21% 9.12% 5.46% 4.06% 5.69% 3.73% 5.28% 2.43% 2.78% 1.08% 0.26% 0.18% 0.03% 2,547,039 21,727 106,075 851,919 1,857,178 4,130,448 4,067,239 4,037,180 7,927,988 7,369,416 15,526,542 11,200,651 22,958,701 24,226,950 15,467,611 31,624,163 28,251,365 1.40% 0.01% 0.06% 0.47% 1.02% 2.27% 2.23% 2.22% 4.35% 4.05% 8.52% 6.15% 12.60% 13.30% 8.49% 17.36% 15.51% 243,128 100.00% $182,172,192 100.00% (1) This summary combines all liability reported on the Arizona Form 140NR and 140PY Individual Income tax returns for tax year 2008, filed from January 2009 forward. ARIZONA DEPARTMENT OF REVENUE 2011 ANNUAL REPORT Page 68 TABLE 32 CORPORATE INCOME TAX CORPORATE TAXPAYER BY SIZE OF TAX LIABILITY TAX YEAR 2008 (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 35,628 1,140 4,933 3,546 1,020 1,470 339 488 96 109 48,769 % OF TOTAL 73.1% 2.3% 10.1% 7.3% 2.1% 3.0% 0.7% 1.0% 0.2% 0.2% 100.0% LIABILITY $1,682,249 81,061 1,944,541 8,469,079 7,093,280 31,908,102 22,737,986 97,848,966 62,806,664 301,692,091 $536,264,019 % OF TOTAL 0.3% 0.0% 0.4% 1.6% 1.3% 6.0% 4.2% 18.2% 11.7% 56.3% 100.0% CORPORATE INCOME TAX CREDITS TAX YEAR 2008 CREDIT TYPE Agricultural Pollution Control Equipment Clean Elections Commercial & Industrial Solar Energy Contributions to School Tuition Organizations Defense Contracting Employing National Guard Members Employment of TANF Recipients Enterprise Zone Environmental Technology Healthy Forest Enterprises Military Reuse Zone Motion Picture Production/Infrastructure Pollution Control Equipment Research & Development School Site Donation Solar Hot Water Heater Plumbing Stub-Outs Taxes Paid on Coal Used in Electric Generation Water Conservation TOTAL (2) # OF FILERS 0 329 7 71 * 5 8 105 * * * 11 17 229 * 0 * 0 795 CREDIT USED $0 $22,558 $74,899 $5,392,745 * $3,100 $29,006 $7,089,948 * * * $7,377,180 $1,418,256 $49,175,176 * $0 * $0 $82,349,128 CARRYFORWARD AVAILABLE $0 $0 $10,651 $1,432,469 * $5,900 $11,364 $4,666,379 * * * $174,388 $3,570,094 $790,758,088 * $0 * $0 $833,437,722 (1) This summary combines all liability on the Arizona Form 120 Corporate Income Tax returns for tax year 2008 filed from January 2009 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. ARIZONA DEPARTMENT OF REVENUE 2011 ANNUAL REPORT Page 69 TABLE 33 AVERAGE FEDERAL ADJUSTED GROSS INCOME AND AVERAGE TAX LIABILITY PER RETURN BY COUNTY FOR TAX YEAR 2008 APACHE COCONINO Average FAGI $30,081 Average Liability $322 Average FAGI $50,780 Average Liability $986 MOHAVE Average FAGI $39,338 Average Liability $650 NAVAJO Average FAGI $39,104 Average Liability $574 GREENLEE YAVAPAI Average FAGI $54,375 Average Liability $1,156 Average FAGI $45,621 Average Liability $826 LA PAZ GILA Average FAGI $38,563 Average Liability $702 Average FAGI $43,816 Average Liability $760 MARICOPA Average FAGI $58,995 Average Liability $1,278 YUMA Average FAGI $38,956 Average Liability $673 STATEWIDE AVERAGES Average FAGI $53,584 Average Liability $1,124 PINAL Average FAGI $45,211 Average Liability $766 PIMA COCHISE Average FAGI $50,789 Average Liability $992 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 $44,791 Average Liability $844 Average FAGI $45,140 Average Liability $821 SANTA CRUZ Average FAGI $39,716 Average Liability $734 ARIZONA DEPARTMENT OF REVENUE 2011 ANNUAL REPORT Page 70 TABLE 34 URBAN REVENUE SHARING FISCAL YEAR 2006-07 THROUGH FISCAL YEAR 2010-11 FISCAL YEAR AMOUNT 2006-07 $551,230,661 2007-08 $684,538,927 2008-09 $727,677,400 (1) 2009-10 $628,644,630 2010-11 $474,006,520 (1) Pursuant to HB 2871, Chapter 351, 2nd Regular Session, 2006, the sum of $727,677,400 was appropriated from the state general fund, of which $10,549,800 was appropriated as repayment to incorporated cities and towns as distributed in FY04. ARIZONA DEPARTMENT OF REVENUE 2011 ANNUAL REPORT Page 71 TABLE 35 DISTRIBUTION OF INCOME TAX AS URBAN REVENUE SHARING TO MUNICIPALITIES IN FISCAL YEAR 2010-11 CITIES BY COUNTY APACHE Eagar St. Johns Springerville COCHISE Benson Bisbee Douglas Huachuca City Sierra Vista Tombstone Willcox COCONINO Flagstaff Fredonia* Page Tusayan* 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 $431,671 376,191 200,992 0.09% 0.08% 0.04% 461,357 639,476 1,673,637 178,119 4,252,469 104,476 378,138 0.10% 0.13% 0.35% 0.04% 0.90% 0.02% 0.08% 5,955,305 145,999 692,036 145,999 306,112 1.26% 0.03% 0.15% 0.03% 0.06% 729,509 145,999 190,286 1,501,845 195,250 145,999 0.15% 0.03% 0.04% 0.32% 0.04% 0.03% 193,591 911,035 442,864 0.04% 0.19% 0.09% 252,676 145,999 0.05% 0.03% 319,251 350,398 0.07% 0.07% 6,750,611 2,472,836 358,574 463,888 22,468,783 3,120,586 2,383,874 192,719 17,280,849 23,590,446 4,498,039 540,684 440,723 43,614,424 1,349,324 13,445,840 143,647,008 1.42% 0.52% 0.08% 0.10% 4.74% 0.66% 0.50% 0.04% 3.65% 4.98% 0.95% 0.11% 0.09% 9.20% 0.28% 2.84% 30.30% CITIES BY COUNTY Queen Creek Scottsdale Surprise Tempe Tolleson Wickenburg Youngtown MOHAVE Bullhead City Colorado City Kingman Lake Havasu City NAVAJO Holbrook Pinetop-Lakeside Show Low Snowflake Taylor Winslow PIMA Marana Oro Valley Sahuarita South Tucson Tucson PINAL Apache Junction Casa Grande Coolidge Eloy Florence Kearny Mammoth Maricopa Superior SANTA CRUZ Nogales Patagonia* YAVAPAI Camp Verde Chino Valley Clarkdale Cottonwood Dewey-Humboldt Jerome* Prescott Prescott Valley Sedona YUMA San Luis Somerton Wellton Yuma TOTAL City distributions are based on relative population. *Population adjusted to reflect minimum requirement of 1,500 per HB 2391, Chapter 290, 2nd Regular Session, 2008. Figures may not add to total due to rounding. AMOUNT % OF TOTAL $1,597,620 22,849,062 8,591,077 16,137,384 632,468 591,491 599,862 0.34% 4.82% 1.81% 3.40% 0.13% 0.12% 0.13% 3,719,085 397,118 2,517,025 5,200,976 0.78% 0.08% 0.53% 1.10% 528,030 405,391 962,134 480,337 399,064 957,268 0.11% 0.09% 0.20% 0.10% 0.08% 0.20% 2,601,218 3,834,911 1,361,685 547,983 51,563,980 0.55% 0.81% 0.29% 0.12% 10.88% 3,316,127 3,160,395 796,182 1,082,827 1,998,242 218,901 171,500 1,550,900 316,621 0.70% 0.67% 0.17% 0.23% 0.42% 0.05% 0.04% 0.33% 0.07% 2,124,774 145,999 0.45% 0.03% 1,044,381 1,199,626 358,185 1,057,034 392,251 145,999 3,968,257 3,267,948 1,064,334 0.22% 0.25% 0.08% 0.22% 0.08% 0.03% 0.84% 0.69% 0.22% 2,231,840 948,994 191,746 8,692,400 0.47% 0.20% 0.04% 1.83% $474,006,520 100.00% ARIZONA DEPARTMENT OF REVENUE 2011 ANNUAL REPORT Page 72 PROPERTY TAX In Arizona, property taxation is an "ad valorem" tax (ad valorem, meaning "according to value"). The tax is calculated from two different bases: full cash value (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 value provide revenues 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, telecommunication companies, and other geographically-dispersed properties (Centrally Valued Properties). The values for those properties the department appraises are transmitted to the County Boards of Supervisors for entry upon the county tax rolls for levy and collection of property taxes. The county assessors, using the appraisal standards, guidelines and manuals the department adopted, are responsible for the appraisal and assessment of other classes of property, including residential, commercial, and agricultural properties (Locally Assessed Properties). Appeals of valuation or classification for locally assessed properties originate with the property owner’s petition for review filed with the county assessor. Subsequent appeals may be filed with either the local County Board of Equalization or the State Board of Equalization or the Arizona Tax Court, a division of the Maricopa County Superior Court. TAX COLLECTION AND DISTRIBUTION County treasurers collect all property taxes (except those assessed upon airline flight properties and private rail car companies) and distribute receipts to all taxing entities. The department collects taxes levied on airline flight property and private rail cars and deposits the taxes with the Arizona State Treasurer. Taxes on airline flight properties and private rail 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 market area. Sales ratios are derived by dividing full cash values by sales prices of recently sold properties. The median ratio is the middle ratio in a sorted (low to high) array of sales ratios; 50% of the ratios lie above the median and 50% fall below it. The median ratio is the most commonly used. The sales ratio studies include coefficients of dispersion which are a measure of how all taxpayers are treated. Coefficient of dispersion targets are currently 25 % for vacant land and commercial properties, 15 % for residential properties in Maricopa and Pima counties, and 20 % on residential properties in all other counties. Lower coefficients of dispersion indicate greater equity in property assessments. ARIZONA DEPARTMENT OF REVENUE 2011 ANNUAL REPORT Page 73 The assessment and appeals calendar for centrally valued properties coincides with the calendar for locally assessed properties. Centrally Valued Properties The Centrally Valued Property Unit is responsible for the annual valuation of 11 industries for ad valorem property tax purposes. Generally, these are large, complex properties which are often located in more than one county and/or in more than one state. Values determined for such properties are apportioned 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. 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 20% Rental Residential Historic Combination 1% and 10% Improvements on government property 1% 7 8 9 20% 20% 20% First $67,268 exempt; 20% on the remainder 16% First $67,268 exempt; 16% on the remainder 10% 10% 15% ARIZONA DEPARTMENT OF REVENUE 2011 ANNUAL REPORT Page 74 INDUSTRIES VALUED BY THE DEPARTMENT Industry Number of Companies 2009 2010 2011 Airlines (Flight Property) ................................................................... 29 ................ 29 ...............28 Electric & Gas* Generation ................................................................................... 35 ................ 36 ...............38 Transmission and Distribution ..................................................... 29 ................ 29 ...............29 Mines (non-producing) ........................................................................ 1 .................. 1 .................1 Mines (producing).............................................................................. 35 ................ 35 ...............35 Pipelines (Gas Transmission) .............................................................. 8 .................. 8 .................8 Private Rail Cars .............................................................................. 264 .............. 260 .............284 Producing Oil & Gas Interests ............................................................. 3 .................. 3 .................3 Railroads ............................................................................................ 11 ................ 11 ...............11 Telecommunications ......................................................................... 66 ................ 67 ...............65 Water Utilities .................................................................................. 328 .............. 326 .............327 Total ................................................................................................ 809 .............. 805 .............829 * Includes Salt River Project ARIZONA DEPARTMENT OF REVENUE 2011 ANNUAL REPORT Page 75 TABLE 36 STATE OF ARIZONA 2011 PRIMARY PROPERTY TAX LEVIES TAX AUTHORITY APACHE COCHISE COCONINO GILA GRAHAM GREENLEE LA PAZ MARICOPA MOHAVE NAVAJO PIMA PINAL SANTA CRUZ YAVAPAI YUMA TOTAL STATE NET ASSESSED VALUATION STATE COUNTY $525,209,726 $1,049,827,355 $1,808,850,474 $517,793,688 $228,474,104 $280,460,740 $226,792,253 $38,492,098,635 $1,932,681,722 $1,026,137,125 $8,310,120,212 $2,160,151,164 $382,619,719 $2,712,177,881 $1,247,085,332 $60,900,480,130 $2,236,868 $4,494,193 $9,445,305 $2,205,283 $973,071 $1,194,482 $965,908 $178,076,209 $8,231,291 $4,396,690 $35,689,873 $9,203,084 $1,632,979 $14,337,685 $5,311,336 $278,394,257 $2,239,494 $27,585,264 $7,783,484 $21,695,556 $4,239,565 $2,169,644 $4,477,786 $477,883,528 $35,167,077 $6,140,405 $284,113,374 $86,487,234 $10,795,615 $38,797,705 $23,478,870 $1,033,054,601 AVERAGE STATE PRIMARY TAX RATE PER $100 CITIES and TOWNS $0 $2,304,942 $5,981,316 $2,053,913 $236,765 $269,798 $0 $208,804,913 $4,096,455 $378,353 $14,761,306 $16,408,929 $0 $1,716,796 $10,496,746 $267,510,232 COMMUNITY COLLEGES $0 $17,486,974 $6,600,495 $3,538,084 $4,899,627 $0 $3,665,643 $389,655,514 $18,899,694 $12,710,760 $90,131,564 $34,713,629 $267,451 $38,714,700 $20,156,641 $641,440,776 SCHOOLS $10,607,086 $39,113,583 $59,836,772 $20,103,782 $3,563,870 $6,929,594 $5,211,975 $1,391,892,912 $66,607,730 $31,553,989 $350,483,227 $76,977,051 $18,595,985 $81,174,579 $50,007,592 $2,212,659,727 ALL OTHER $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 TOTAL $15,083,448 $90,984,956 $89,647,372 $49,596,618 $13,912,898 $10,563,518 $14,321,312 $2,646,313,076 $133,002,247 $55,180,197 $775,179,344 $223,789,927 $31,292,030 $174,741,465 $109,451,185 $4,433,059,593 PRIMARY RATE $3 $9 $5 $10 $6 $4 $6 $7 $7 $5 $9 $10 $8 $6 $9 7.28 7.28 2010 PRIMARY PROPERTY TAX LEVIES TAX AUTHORITY APACHE COCHISE COCONINO GILA GRAHAM GREENLEE LA PAZ MARICOPA MOHAVE NAVAJO PIMA PINAL SANTA CRUZ YAVAPAI YUMA TOTAL STATE NET ASSESSED VALUATION STATE COUNTY $503,365,682 $1,042,041,186 $1,920,050,800 $568,461,573 $217,455,207 $269,441,653 $225,558,163 $46,842,818,990 $2,321,464,632 $1,059,004,850 $8,939,647,260 $2,562,246,078 $411,470,857 $3,187,559,879 $1,301,330,388 $71,371,917,198 $1,793,995 $3,771,832 $7,449,835 $2,025,997 $775,010 $960,290 $803,889 $186,918,565 $8,359,312 $3,794,811 $32,093,371 $9,134,973 $1,469,566 $11,390,998 $4,637,942 $275,380,386 $2,210,782 $27,380,674 $7,589,961 $23,818,540 $3,942,898 $2,072,715 $4,198,991 $492,544,015 $34,330,879 $5,900,775 $296,197,333 $102,574,088 $11,609,650 $43,108,560 $22,681,316 $1,080,161,177 AVERAGE STATE PRIMARY TAX RATE PER $100 CITIES and TOWNS $0 $2,278,564 $5,851,734 $2,067,505 $212,293 $211,989 $0 $218,149,391 $4,096,228 $371,761 $12,113,357 $16,060,653 $0 $1,715,672 $10,299,712 $273,428,859 COMMUNITY COLLEGES $0 $16,655,986 $6,436,010 $3,398,263 $4,647,670 $0 $3,383,372 $371,276,183 $18,260,641 $11,975,227 $87,206,259 $37,665,018 $287,618 $38,397,561 $19,519,956 $619,109,764 SCHOOLS $12,377,734 $40,153,802 $59,529,288 $17,905,097 $5,171,569 $5,643,556 $4,435,485 $1,445,595,488 $67,066,315 $30,865,755 $353,430,949 $80,086,963 $19,864,506 $80,989,674 $38,858,431 $2,261,974,612 ALL OTHER $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 TOTAL $16,382,511 $90,240,858 $86,856,828 $49,215,402 $14,749,440 $8,888,550 $12,821,737 $2,714,483,642 $132,113,375 $52,908,329 $781,041,269 $245,521,695 $33,231,340 $175,602,465 $95,997,357 $4,510,054,798 PRIMARY RATE 3.25 8.66 4.52 8.66 6.78 3.30 5.68 5.79 5.69 5.00 8.74 9.58 8.08 5.51 7.38 6.32 6.32 NOTE: Some increase/decrease due to reporting tax levies in different authorities than in previous years. Page 76 ARIZONA DEPARTMENT OF REVENUE 2011 ANNUAL REPORT TABLE 37 STATE OF ARIZONA 2011 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 $550,508,747 $1,092,081,033 $1,840,142,610 $526,039,289 $238,954,912 $280,746,565 $241,409,065 $38,760,296,714 $1,997,158,478 $1,040,412,117 $8,448,281,586 $2,218,641,620 $399,635,559 $2,753,690,772 $1,312,293,848 $61,700,292,915 STATE $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 COUNTY CITIES and TOWNS $7,829,871 $4,870,685 $13,945,574 $1,578,373 $336,296 $578,296 $241,409 $84,722,990 $19,861,822 $6,024,536 $118,789,320 $6,672,552 $2,489,025 $12,658,691 $13,724,004 $294,323,444 $0 $172,132 $6,620,618 $61,921 $0 $0 $0 $260,146,003 $0 $0 $26,146,666 $3,772,628 $0 $1,589,986 $0 $298,509,954 AVERAGE STATE SECONDARY TAX RATE PER $100 COMMUNITY COLLEGES $1,921,276 $0 $1,996,555 $0 $0 $0 $795,926 $75,935,239 $0 $0 $2,093,725 $5,455,640 $0 $5,234,100 $4,326,208 $97,758,669 SCHOOLS $2,308,541 $4,213,781 $20,440,975 $5,883,293 $1,704,528 $1,733,843 $1,514,274 $873,526,511 $16,063,286 $12,692,116 $134,920,546 $43,759,239 $3,874,675 $18,367,241 $17,301,832 $1,158,304,681 ALL OTHER $5,237,775 $9,697,104 $16,731,306 $7,195,453 $602,886 $38,521 $4,534,093 $179,923,390 $22,864,708 $14,814,242 $77,768,870 $27,551,391 $7,015,750 $37,771,365 $1,003,825 $412,750,679 TOTAL $17,297,463 $18,953,702 $59,735,028 $14,719,040 $2,643,710 $2,350,660 $7,085,702 $1,474,254,133 $58,789,816 $33,530,894 $359,719,127 $87,211,450 $13,379,450 $75,621,383 $36,355,869 $2,261,647,427 SECONDARY RATE 3.14 1.74 3.25 2.80 1.11 0.84 2.94 3.80 2.94 3.22 4.26 3.93 3.35 2.75 2.77 3.67 3.67 2010 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 $541,020,129 $1,111,756,015 $2,053,368,455 $600,837,768 $242,900,116 $269,703,589 $245,133,007 $49,707,952,123 $2,526,548,121 $1,116,355,302 $9,342,561,193 $2,673,415,335 $442,659,975 $3,350,111,921 $1,418,967,607 $75,643,290,656 STATE $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 COUNTY CITIES and TOWNS $7,875,078 $4,949,764 $14,082,008 $1,802,806 $343,133 $470,655 $245,133 $91,764,578 $25,199,705 $6,510,252 $125,524,063 $7,973,982 $2,759,623 $12,745,719 $13,973,903 $316,220,402 $0 $178,528 $7,228,554 $145,000 $0 $0 $0 $338,512,479 $0 $0 $24,506,213 $3,993,230 $0 $1,579,609 $0 $376,143,613 AVERAGE STATE SECONDARY TAX RATE PER $100 COMMUNITY COLLEGES $1,183,211 $0 $1,962,851 $0 $0 $0 $745,940 $89,482,591 $0 $0 $10,215,925 $3,085,121 $0 $5,235,677 $4,369,550 $116,280,866 SCHOOLS $3,140,033 $5,383,270 $20,284,344 $5,011,316 $1,769,745 $1,547,276 $1,451,976 $970,433,144 $19,947,569 $13,837,832 $144,172,697 $50,135,458 $4,046,851 $20,814,092 $15,477,612 $1,277,453,215 ALL OTHER $5,438,098 $9,747,494 $18,320,873 $7,307,825 $558,243 $38,921 $4,469,020 $196,383,282 $27,649,280 $15,484,828 $81,064,985 $29,121,468 $7,507,210 $42,345,699 $1,093,095 $446,530,321 TOTAL $17,636,420 $20,259,056 $61,878,630 $14,266,947 $2,671,121 $2,056,852 $6,912,069 $1,686,576,074 $72,796,554 $35,832,912 $385,483,883 $94,309,259 $14,313,684 $82,720,796 $34,914,160 $2,532,628,417 SECONDARY RATE 3.26 1.82 3.01 2.37 1.10 0.76 2.82 3.39 2.88 3.21 4.13 3.53 3.23 2.47 2.46 3.35 3.35 NOTE: Some increase/decrease due to reporting tax levies in different authorities than in previous years. Page 77 ARIZONA DEPARTMENT OF REVENUE 2011 ANNUAL REPORT TABLE 38 AVERAGE PROPERTY TAX RATES PER $100 OF ASSESSED VALUATION 2008 THROUGH 2011 2008 School Districts Counties State Cities and Towns Community Colleges Special Districts PRIMARY $3.53 1.48 0.03 0.35 0.85 0.00 2009 SECONDARY $1.44 0.37 0.00 0.50 0.15 0.53 $6.24 TOTAL $2.99 PRIMARY $3.19 1.42 0.36 0.35 0.80 0.00 $6.13 $9.23 School Districts Counties State Cities and Towns Community Colleges Special Districts TOTAL $3.07 $9.20 2010 PRIMARY SECONDARY $1.51 0.37 0.00 0.51 0.14 0.53 2011 SECONDARY PRIMARY SECONDARY $3.17 1.51 0.39 0.38 0.87 0.00 $1.69 0.42 0.00 0.50 0.15 0.59 $3.63 1.70 0.46 0.44 1.05 0.00 $1.88 0.48 0.00 0.48 0.16 0.67 $6.32 $3.35 $7.28 $3.67 $9.67 $10.94 School district rate includes Unorganized School Districts. Figures may not add to total due to rounding. ARIZONA DEPARTMENT OF REVENUE 2011 ANNUAL REPORT Page 78 ALL OTHER SOURCES OF REVENUE Bingo Estate Tax Luxury Tax Unclaimed Property & Escheated Estates Waste Tire Fees ARIZONA DEPARTMENT OF REVENUE 2011 ANNUAL REPORT Page 79 ARIZONA DEPARTMENT OF REVENUE 2011 ANNUAL REPORT Page 80 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 (Refer to Table 39). TABLE 39 BINGO COLLECTIONS FISCAL YEAR 2006-07 THROUGH FISCAL YEAR 2010-11 Fiscal Year Amount 2006-07 $619,387 2007-08 $558,330 2008-09 $531,588 2009-10 $520,655 2010-11 $504,905 BINGO COLLECTIONS FY2006-07 FY2007-08 FY2008-09 FY2009-10 FY2010-11 Licenses Proceeds Penalty, Interest and Miscellaneous $18,092 596,773 $18,393 539,576 $19,735 510,177 $19,718 499,206 $27,576 476,482 4,522 361 1,676 1,731 847 TOTAL $619,387 $558,330 $531,588 $520,655 $504,905 ARIZONA DEPARTMENT OF REVENUE 2011 ANNUAL REPORT Page 81 ESTATE TAX Arizona’s Estate Tax was effectively repealed January 1, 2005, following the elimination of the Federal State Death Tax Credit by Congress. 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 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. 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. 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. TABLE 40 ESTATE TAX COLLECTIONS FISCAL YEAR 2006-07 THROUGH FISCAL YEAR 2010-11 Fiscal Year Collections Refunds Net 2006-07 $860,033 $1,410,797 ($550,763) 2007-08 $414,711 $94,508 $320,203 2008-09 $234,065 $23,693 $210,372 2009-10 $363,755 $0 $363,755 2010-11 $437,372 $0 $437,372 Figures may not add to total due to rounding. ARIZONA DEPARTMENT OF REVENUE 2011 ANNUAL REPORT Page 82 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 2011 fiscal year, over $391 million was received in luxury tax collections. Of the monies collected per the Tobacco Products Referendum (Prop 303), $41.8 million was distributed to the Prop 204 Protection Account, $26.9 million to the Medically Needy Account, $19.9 million for Emergency Health Services, $5.0 million for Health Research, and $2.0 million for Health Education. Due to the passage of the Tobacco Tax and Health Care Initiative in November 1994, $49.1 million was distributed to the Medically Needy Fund, $16.1 million to the Health Education Fund and $3.5 million to the Health Research Fund. The Corrections Fund, established by the Legislature in 1984 to pay for prison construction, received $27.1 million. The Drug Treatment and Education Fund received $8.3 million, and the Corrections Revolving Fund received $3.3 million due to the passage of Proposition 200 in 1994. The Smoke Free AZ fund received $3.1 million due to the passage of Proposition 201 in 2006. The Early Childhood Development and Health Fund received $130.1 million due to the passage of Proposition 203 in 2006. The remaining $53.6 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 2011 ANNUAL REPORT Page 83 TABLE 41 LUXURY TAX COLLECTIONS FISCAL YEAR 2006-07 THROUGH FISCAL YEAR 2010-11 SOURCE: FY2006-07 FY2007-08 FY2008-09 FY2009-10 FY2010-11 PERCENT OF COLLECTIONS IN FY2010-11 $27,674,933 $27,613,939 $28,341,033 $29,304,713 $28,202,704 7.2% Vinous Liquor 10,755,478 13,006,487 13,006,125 13,881,407 13,596,155 3.5% Malt Liquor 24,758,494 23,936,126 22,831,547 22,232,715 21,566,369 5.5% Spirituous Liquor Liquor Collections $63,188,905 $64,556,551 $64,178,705 $65,418,835 $63,365,229 $363,934,467 $412,769,855 $380,593,991 $340,839,935 $340,754,224 (5,317,826) (4,761,258) (6,251,626) (6,635,450) (12,281,284) Tobacco - All Types Gross Revenue Refunds Licenses 8,100 Administrative Expenses Net Tobacco Collections TOTAL COLLECTIONS (502,860) 7,100 (587,463) 7,075 (646,800) 7,900 (662,742) 7,710 (673,071) $358,121,881 $407,428,234 $373,702,640 $333,549,643 $327,807,579 83.8% $421,310,786 $471,984,785 $437,881,344 $398,968,478 $391,172,807 100.0% DISTRIBUTIONS: State General Fund Wine Promotional Fund (4) Tobacco Tax & Health Care Fund (1) Tobacco Products Tax Fund (1) $65,808,829 $61,037,231 $57,878,187 $55,352,260 35,965 29,003 ----- ----- $53,599,408 ----- 94,770,504 79,033,025 73,785,519 (5) 65,051,516 64,799,725 108,934,079 (5) 137,624,177 116,127,254 96,335,427 95,586,289 Drug Treatment & Education Fund 8,323,287 8,576,309 8,434,654 8,551,873 8,303,445 DOC Revolving Fund 3,313,709 3,411,936 3,358,868 3,407,130 3,307,459 28,697,521 28,703,383 26,861,628 28,587,983 27,130,247 Department of Corrections Fund DOC Transfer from Prop 200 Funds 783,145 1,479,783 1,855,867 637,075 1,322,335 Prop 200 Transfer from Prop 303 Funds (1) 5,729,557 4,835,440 2,539,738 4,037,828 3,982,185 Smoke Free AZ (2) 1,778,847 3,946,308 2,868,990 3,888,483 3,058,479 Early Childhood Development and Health Fund (3) TOTAL DISTRIBUTIONS 74,445,246 164,805,113 151,363,815 133,118,902 130,083,235 $421,310,786 $471,984,785 $437,881,344 $398,968,478 $391,172,807 (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. (4) The Wine Promotional Fund ended in FY05. Distributions were completed in FY08. (5) The Tobacco Tax & Health Care Fund and the Tobacco Products Fund holding accounts had undistributed balances of $706,653.52 and $1,943,037.88 respectively at the end of fiscal year 2009. These amounts will be distributed in fiscal year 2010. Figures may not add to total due to rounding. ARIZONA DEPARTMENT OF REVENUE 2011 ANNUAL REPORT Page 84 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, fiduciaries, state courts, and governmental agencies. 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 two 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 three years. Cashier and other official checks not cashed in three years. Checks written to vendors or customers not cashed after three years. Money orders not cashed in three 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 State School Fund. (Refer to Table 42.) ARIZONA DEPARTMENT OF REVENUE 2011 ANNUAL REPORT Page 85 TABLE 42 UNCLAIMED PROPERTY COLLECTIONS AND DISTRIBUTIONS FISCAL YEAR 2006-07 THROUGH FISCAL YEAR 2010-11 SOURCE: UNCLAIMED PROPERTY Refunds Expenses NET FY2006-07 FY2007-08 FY2008-09 $97,125,191 (22,541,073) (3,112,161) $71,471,956 $136,446,760 (27,859,528) (5,555,692) $103,031,540 $74,337,392 (22,267,197) (2,099,913) $49,970,281 552,507 (7,679) $544,828 647,669 (281,484) $366,184 643,679 (466,307) $177,373 ESCHEATED ESTATES Refunds NET TOTAL NET REVENUE $72,016,784 $103,397,724 $50,147,654 FY2009-10 $161,637,025 (24,207,862) ----- (6) $137,429,163 320,538 (94,959) $225,579 $137,654,742 PERCENT OF COLLECTIONS FY2010-11 IN FY2010-11 $121,263,602 (34,677,629) ----$86,585,973 99.8% 370,786 (230,340) $140,446 0.2% $86,726,419 DISTRIBUTIONS: General Fund Housing Fund Kerr Utility Assistance Fund Racing Fund Victim Restitution Fund HB 2786 Sec Sale Operating transfers (5) Admin Fund (6) 11,703,745 40,972,902 83,340 (2) 2,550,675 14,899,237 1,250,347 ------------- Net to Permanent State School Fund: Escheated Estates Unclaimed Shares/dividends Storage Facility TOTAL DISTRIBUTION (1) (2) (3) (4) (5) (6) (7) 9,755,359 33,684,313 ----26,336 (4) 12,248,841 173,068 47,132,471 (3) --------- 544,828 9,482 2,227 366,184 7,208 3,944 $72,016,784 $103,397,724 9,526,605 28,554,062 --------10,383,295 144,618 ----1,352,600 ----177,373 (7) 6,719 2,383 $50,147,654 100,034,835 10,500,000 (6) ------------- (6) 739,422 ----1,634,300 24,500,000 225,579 19,914 692 $137,654,742 49,120,855 10,500,000 ------------1,143,835 ----1,262,200 24,500,000 140,446 (1) 58,381 701 $86,726,419 FY 11 Escheated Estates will be transferred in FY 12. Kerr Unclaimed Property for FY07 is to be deposited to the State General Fund, per HB2867 Proceeds from the sale of securities in FY08 were deposited in the General Fund per HB 2786, Chapter 260, 1st Regular Session, 2007 FY08 was the final year for the Utility Assistance Fund transfer. Pursuant to SB 1001, Chapter 1, 1st Special Seesion, 2009. Pursuant to SB 1003, Chapter 3, 4th Special Session, 2009. Pursuant to HB 2051, Chapter 1, 1st Regular Session, 2009, $189,600 transferred to the State General Fund, remaining cash balance of $798.53 moved to PSF in FY 10 Figures may not add to total due to rounding ARIZONA DEPARTMENT OF REVENUE 2011 ANNUAL REPORT Page 86 100.0% 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 2011, the department collected $8,155,363 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 2006-07 THROUGH FISCAL YEAR 2010-11 Apache Cochise Coconino Gila Graham Greenlee La Paz Maricopa Mohave Navajo Pima Pinal Santa Cruz Yavapai Yuma Arizona Department of Environmental Quality Total FY2006-07 FY2007-08 FY2008-09 FY2009-10 FY2010-11 $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 $95,378 199,557 187,696 103,035 46,443 15,263 44,034 4,319,137 366,003 157,354 1,047,700 354,234 72,277 369,189 236,624 $97,963 204,708 191,303 105,054 47,450 15,395 45,573 4,296,301 370,916 160,731 1,057,356 365,864 73,531 372,547 243,142 $103,880 215,256 200,347 110,165 48,835 15,231 49,117 4,357,598 390,315 168,210 1,092,320 393,137 77,565 387,234 260,715 313,865 304,664 276,153 277,383 285,438 $8,967,577 $8,704,684 $7,890,076 $7,925,216 $8,155,363 Figures may not add to total due to rounding. ARIZONA DEPARTMENT OF REVENUE 2011 ANNUAL REPORT Page 87 ARIZONA DEPARTMENT OF REVENUE 2011 ANNUAL REPORT Page 88 LEGISLATIVE SUMMARY ARIZONA DEPARTMENT OF REVENUE 2011 ANNUAL REPORT Page 89 LEGISLATIVE SUMMARY The following is intended to give a brief summary of the 2011 tax-related legislation im pacting the Department of Revenue (DOR) and not intended to discu ss the details of any specific enactment. Detailed summaries of these bills can also be found at www.azleg.gov. Please refer to the particular legislation for more definitive information. The general effective date for legislation enacted dur ing the First Regular Sess ion is July 20, 2011. 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 2008 (Chapter 4) Internal revenue code conformity Incorporates the federal changes made in 2010 into Arizona’s definition of “internal revenue code.” House Bill 2236 (Chapter 329) Tax set-off; political subdivisions Allows the Department of Revenue's liability setoff program to be used to offset taxpayer debts to counties, cities and other political subdivisions. House Bill 2556 (Chapter 287) Health savings accounts; tax incentives Establishes, for tax years 2012 through 2014, an individual and corporate income tax credit of $360 per employee for employers that provides a qualified health insurance plan for its employees. To be eligible, the employer must have paid a minimum of $360 per employee in health insurance, offered the plan to every employee; and, in the first year that this credit is claimed, the employer must have not provided health insurance coverage for 90 days preceding the offer of coverage. Employers must add any amount of deduction on the taxpayer's federal tax return for health insurance premiums or contributions to health savings accounts for which the credit is claimed to Arizona adjusted gross income. House Bill 2332 (Chapter 128) IRS; conformity policy; penalties Penalties and interest cannot be assessed on a taxpayer if the taxpayer filed a timely return and paid taxes due, the state definition of the internal revenue code was subsequently amended to subject additional income to taxation, and with the next year's timely return, the taxpayer reports those items and pays the additional tax. Requires taxpayers to disclose on the individual income tax form the amount of use tax due if the person purchased tangible personal property for a nonbusiness purpose and a seller/retailer did not collect the tax. House Bill 2384 (Chapter 55) Abortion; public funding prohibition; taxes Excludes organizations that provide, pay for, promote, provide coverage of, or provide referrals for abortions from being listed as a Qualifying Charitable Organization that is able to accept contributions that qualify for the tax credit for donations to organizations that provide assistance to the working poor. Senate Bill 1616 (Chapter 28) Budget; brb; FY 2011-12 Establishes a state and county tax recovery program for the period of September 1 through October 1, 2011 for tax years 2004 through 2009. All taxes administered or collected by DOR are included for recovery except estate and property taxes. If the taxpayer complies with all tax requirements all or part of the civil penalties are abated or waived and an interest at a reduced rate for tax liabilities is imposed To qualify, taxpayers are required to submit a complete and correct application and pay the tax, plus any interest due before October 1, 2011. A taxpayer is ineligible to participate in the tax recovery if:  an audit determination has become final with respect to the taxable period for which recovery is sought;  the taxpayer is a party to any criminal investigation that is pending on January 1, 2011 in any court for failure to file or failure to pay, or for fraud with respect to any tax imposed; ARIZONA DEPARTMENT OF REVENUE 2011 ANNUAL REPORT Page 91 the taxpayer is has been the subject of a past taxrelated criminal investigation, indictment or prosecution if it resulted in a conviction, guilty plea or plea of non contest; • the taxpayer has been convicted of a crime relating to any period or assessment that is the basis of the penalty or interest with respect to the recovery period; or • the taxpayer is a party to a closing agreement with DOR with respect to the recovery period. The application for recovery constitutes an express and absolute waiver of all administrative and judicial rights of appeal. The State Board of Tax Appeals or any court must dismiss any action pending before that body if it receives a notification from DOR that recovery has been granted. • Second Special Session House Bill 2001 (Chapter 1) Arizona Commerce Authority; business incentives See summary under Multiple Tax Types. Transaction Privilege Tax/ Use Tax House Bill 2336 (Chapter 129) City tax code; official copy Beginning July 1, 2012, the Department of Revenue is required to maintain the official copy of the Model City Tax Code. DOR must post the MCTC on the its official website, and all changes to the code must be reflected in the official copy on file within 10 days after approval. House Bill 2341 (Chapter 300) Transaction privilege tax exemptions Expands the transaction privilege tax exemption for sales and use taxes for sales of aircraft, navigational and communication instruments and other accessories and related equipment to foreign governments to include use within the state. Senate Bill 1160 (Chapter 40) Municipal transaction privilege tax; residential rentals Retroactive to January 1, 2011, prohibits municipalities from imposing or increasing transaction privilege taxes on renting residential property unless the increase is approved by the voters at a regular, municipal election. Senate Bill 1165 (Chapter 66) Municipal taxes; auditors & collectors Prohibits municipalities from employing auditors on a contingent fee basis for auditing transaction privilege tax levies, or from entering into contracts with a third party for collection of a transaction privilege tax. Does not apply to contracts entered into on or before Jan. 1, 2011; however, contract renewals are prohibited. Senate Bill 1166 (Chapter 144) Municipal tax exemption; commercial lease Exempts commercial leases of real property between two corporations 80% of whose voting shares are owned by the same shareholders municipal transaction privilege or use tax. Senate Bill 1178 (Chapter 321) County judgment bonds Authorizes County Boards of Supervisors to issue bonds to pay legal judgments against the county (including court costs and attorney fees). Before Dec. 31, 2011, a county may by unanimous vote of the Board, levy an excise tax to provide for the bond payments. Senate Bill 1217 (Chapter 249) Shared revenues; provisional community colleges Beginning Oct. 1, 2011, includes provisional community college districts in the definition of "community college district" for purposes of the distribution of state shared sales tax revenues. Establishes the apportionment of transaction privilege tax revenue for provisional community college districts. ARIZONA DEPARTMENT OF REVENUE 2011 ANNUAL REPORT Page 92 Property Tax House Bill 2552 (Chapter 8) Agricultural property tax classification; equine Expands the eligibility for land to be classified as agricultural (Class 2) for property tax purposes to include land and improvements devoted to commercial breeding, raising, boarding or training equine or an equine rescue facility registered with the Department of Agriculture. Senate Bill 1105 (Chapter 98) Real estate transfer affidavit; transmission Eliminates the requirement that the Department of Revenue is the permanent repository for real estate transfer affidavits. County Recorders are required to scan original real estate transfer affidavits and transmit a copy to DOR and to the Arizona State Library, Archives and Public Records. The original or a digital copy must also be transmitted to the County Assessor, who is required to transmit data from the affidavit to DOR. After the original document is no longer needed by the County, Recorders are required to transmit the original to the state archives. unclaimed property determinations based on the specific fact situations of requesting holders of abandoned property. Unlike PHRs, taxpayers can request HIRs anonymously, but must still reveal their identities to DOR after issuance if they wish for the rulings to be binding for purposes of abating interest and penalties. Additionally, H.B. 2201 allows taxpayers to submit written requests that the Director of DOR consider withholding publication of their PHRs or HIRs based on their unique facts and circumstances. Based on the Director's nonappealable determination on whether to publish a ruling, the holder may withdraw its ruling request. Senate Bill 1103 (Chapter 63) Unclaimed property; exempt child support Includes child support payments, collected through the support payment clearinghouse, in the list of items exempt from the definition of property for the purposes reporting abandoned property to the Department of Revenue. Multiple Tax Types/Miscellaneous Senate Bill 1226 (Chapter 342) Municipalities; levy limit override Until December 31, 2012, municipalities with a population between 25,000 and 40,000, are authorized to call an election to ask voter approval to levy a property tax that exceeds its property tax limit. Senate Bill 1293 (Chapter 232) Property tax; residential rentals Expands the eligibility for properties that rent rooms to transient lodgers to be included in the residential rental property (Class Four) classification. The maximum number of rentable rooms at the property is increased to eight and the requirement that average annual occupancy cannot exceed 50% is eliminated. Unclaimed Property House Bill 2201 (Chapter 315) Private taxpayer rulings; unclaimed property Authorizes the Department of Revenue to issue holder information rulings (HIRs) which, like private holder rulings (PHRs) currently issued, provide specific House Bill 2202 (Chapter 316) Department of Revenue closing agreements Modifies the process for determining cases of taxpayer misunderstanding or misapplication of law. The Department of Revenue is required make an initial determination regarding whether a class of affected taxpayer exists. After a determination that such a class exists, a hearing is required, at which, DOR must reach a decision on the nature of the misunderstanding or misapplication and on the proposed definition of the class of affected taxpayer within 60 days of the hearing. A taxpayer who is denied relief either because of the DOR’s definition of the affected class or determined ineligible for relief may appeal to the State Board of Tax Appeals within 60 days. The definition of "affected class" is expanded to include taxpayers who directly compete with one another or taxpayers who fall under the same North American Industrial Classification Code System code. Includes a legislative intent clause, which states the purpose is to bring entire classes of taxpayers into compliance with Arizona tax law on a prospective basis in situations where widespread noncompliance was due to a misunderstanding or misapplication of law. ARIZONA DEPARTMENT OF REVENUE 2011 ANNUAL REPORT Page 93 Second Special Session House Bill 2001 (Chapter 1) Arizona Commerce Authority; business incentives Establishes and individual and corporate income tax credit for new employment, which allows the owner of a business or an insurer to claim a $3000/employee tax credit for net increases in full-time employees hired in qualified employment positions in each of the first three years of employment. The credit is only allowed in the second and third years of employment for qualified positions for which the credit was claimed and allowed in the first year. The net increase of qualified positions is limited to a maximum of 400 employees for any taxable year and no more than 10,000 new jobs for all employers in the first year. To qualify for the credit, the owner must complete the following in the first taxable year: • Invest at least $5,000,000 of capital investment and create at least 25 new qualified employment positions within a city or town that has a population of at least 50,000 and that is located in a county that has a population of at least 800,000. • Invest at least $1,000,000 of capital investment and create at least 5 qualified employee positions in any other location. The employer must pay compensation at least equal to the county median wage and offer health insurance for the employee of which the employer pays at least 65 percent of the premium membership cost. HB 2001 provides an additional individual and corporate credit amount for payments made for university related research. The amount of the credit is equal to 10 percent of the basic research payments that constitute excess expenses over the base amount and the aggregate annual amount of the additional credit is limited to $10,000,000. The small business investment income tax credit is continued through June 30, 2016 and the cap on total allowable assets for a qualified small business is increased from $2,000,000 to $10,000,000 beginning in 2012. The definition of qualified small business is expanded to include a principal business that engages in retail, real estate, professional services health care services to patients, financial and investment services, personal services, mining, forestry and natural resource exploitation or other resource extraction businesses, agricultural operations, and operating an investment company or fund. Eliminates capital gains on income derived from investments in small businesses with assets up to $10,000,000 beginning in TY 2014. The corporate income tax rate is phased down: • 6.5 percent of net income in TY2014. • 6.0 percent of net income in TY 2015. • 5.5 percent of net income in TY 2016 • 4.9 percent of net income in TY 2017 and beyond. The optional enhanced corporate income tax apportionment (or sales factor) formula available to multistate corporations increases: • 85 percent of sales in TY 2014. • 90 percent of sales in TY 2015. • 95 percent of sales in TY 2016. • 100 percent of sales in TY 2017. ARIZONA DEPARTMENT OF REVENUE 2011 ANNUAL REPORT Page 94