ARIZONA DEPARTMENT OF REVENUE 2012 ANNUAL REPORT Please click on the blue text to access the areas described. TABLE OF CONTENTS Letter to the Governor DEPARTMENT ORGANIZATION Organization and Organization Chart Strategic Plan Highlights Administrative Services Audit Collections Information Technology Process Administration Property Tax Taxpayer and External Services Tax Policy and Research ARIZONA'S TAXES Revenue Summary (Table 1) Net Revenue to State General Fund (Table 2) Gross Collections of Audit Assessments and Delinquent Tax (Table 3) Transaction Privilege, Use and Severance Tax Income Tax Property Tax OTHER SOURCES OF REVENUE Bingo Estate Tax Luxury Tax Unclaimed Property & Escheated Estates Waste Tire Fee Legislative Summary Bills STATE OF ARIZONA Department of Revenue November 15, 2012 The Honorable Janice K. Brewer Governor of the State of Arizona 1700 West Washington Street, 9th floor Phoenix, Arizona 85007 Janice K. Brewer Governor John A. Greene Director Dear Governor Brewer: Here is your Department of Revenue’s 2012 Annual Report. In an effort to better serve you and the citizens of Arizona, we spent some time in fiscal year 2012 assessing our resources, focusing on our core business processes and planning for the future. Our recent strategic planning sessions helped us identify key issues to address in order for us to continue to be successful. We also plan to work closely with your new Government Transformation Office to make your Department of Revenue more efficient and effective. Some key information is that total taxes collected by the department during fiscal year 2012 exceeded $13.0 billion, including more than $7.1 billion that was deposited directly into the state General Fund. Included in this total is over $484 million that was collected through the department’s tax enforcement efforts. By collecting over $484 million through the audit, license compliance, and collections programs, the department nearly met its $501 million target set at the beginning of the year; performing at 97% of goal. In addition to these milestones in tax administration, Department of Revenue employees achieved several noteworthy accomplishments in fiscal year 2012 including: processing over 5.6 million tax documents; processing over 40,000 new business licenses, and receiving, processing and depositing 4.1 million payments. You can view more of these accomplishments by division in the “Division 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. Thanks to the esprit de corps and hard work of our employees, the department continues to provide superior tax administration services to Arizona. Thank you for your leadership. Please contact me if you require any additional information. Sincerely, John Greene Director 1600 West Monroe Street, Phoenix AZ 85007-2650 www.azdor.gov DEPARTMENT ORGANIZATION Organization & Organization Chart Strategic Plan Highlights Administrative Services Audit Collections Information Technology Process Administration Property Tax Taxpayer and External Services Tax Policy & Research Organization The mission statement of the Department of Revenue is to serve the people of Arizona by administering tax laws with integrity, fairness and efficiency. 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. 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. The department is organized into eight divisions, each managed by an assistant director. Divisions include: Administrative Services, Audit, Collections, Information Technology, Process Administration, Property Tax, Taxpayer and External 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 2012 ANNUAL REPORT Page 1 ARIZONA DEPARTMENT OF REVENUE DIRECTOR DEPUTY DIRECTOR CHIEF DEPUTY DIRECTOR John Greene David Raber Vince Perez 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 TAXPAYER & EXTERNAL SERVICES PROPERTY TAX FTE – 124 FTE ­ 43 Anthony Forschino Assistant Director Frank Boucek Assistant Director Administrative Services Legislative Affairs Special Operations Field Collections Debt Set­Off Administrative Support Bankruptcy Collections Information Technology Economic Research & Analysis Quality Executive Special Projects Investigations . Criminal & Civil . Tobacco Enforcement Taxpayer Information & Assistance Assessment Standards & Equalization 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 Carole Martin Assistant Director Lynette Nowlan Assistant Director Lisa Cross Assistant Director Tom Johnson 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 DOR Treasury Revenue Accounting Records Management Audit Information Technology License & Registration Facilities Audit Processing Unclaimed Property Hearing Office Special Programs & Projects Section ARIZONA DEPARTMENT OF REVENUE 2012 ANNUAL REPORT Page 2 Strategic Plan Highlights MISSION, VISION, VALUES The Mission Statement of the Department of Revenue is “to serve the people of Arizona by administering tax laws with integrity, fairness and efficiency”. This statement of purpose guides our direction, agency actions and decision making. Our Vision Statement, “to set the standard for tax services”, identifies 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: • Accountability – in actions and work activities. We take responsibility for the work we do. • Accuracy – by exercising care in doing our jobs and following established policies and procedures. • Creativity – in the way we approach our work and serve our customers. • Integrity – we have high ethical standards and make decisions based on facts. • Respect – for co-workers, customers and our Mission. • Results – by setting expectations in our actions and operations to achieve desired outcomes. • Service – to our customers. We listen and try to resolve issues fairly and consistently. 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. TOTAL GROSS REVENUES COLLECTED 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 FY12 Transaction Privilege Tax .... $7,330,738,929 Income & Withholding ....... $4,370,704,272 Corporate ............................. $ 758,413,453 Other ................................... $ 544,171,647 Total ................................. $ 13,004,028,301 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 ......................195,609 Individual Income Tax ...................2,971,152 Transaction Privilege .....................1,622,755 Withholding ......................................608,725 Total Returns Processed.................5,398,241 Total Number of Tax Returns Processed by Tax Type 608,725 195,609 Corporate Income 1,622,755 2,971,152 TPT W/H KEY MEASURE RESULT HIGHLIGHTS The results of these key measures for fiscal year 2012 are presented as well as comparisons to prior years. ~~~~~~~~~~~~~~~~~~~~~~~~~~~ ARIZONA DEPARTMENT OF REVENUE 2012 ANNUAL REPORT Page 3 TOTAL NUMBER OF E-FILED INDIVIDUAL INCOME TAX RETURNS RECEIVED FY10 ................................................. 1.67M FY11 ................................................. 1.86M FY12 ................................................. 1.96M Number of E‐Filed Income Tax Returns (in Millions) 1.96 2.00 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. FY10 .............................................. 5.2 days FY11 .............................................. 4.2 days FY12 .............................................. 4.1 days 1.86 1.90 Average Time To Issue Income Tax Refunds (in Calendar Days) 1.80 1.70 1.67 6.0 1.60 5.0 1.50 4.0 FY10 FY11 FY12 5.2 4.2 4.1 3.0 2.0 1.0 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 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. FY10 ............................................ 1,742,324 FY11 ............................................ 1,932,100 FY12 ............................................ 2,031,879 Number of Income Tax Refunds Processed (in Millions) 2.10 FY11 NUMBER OF NEW BUSINESS LICENSES PROCESSED New business licenses are processed at walk-in counters, through the mail and via on-line services. FY10 ...................................................36,577 FY11 ...................................................35,318 FY12 ...................................................40,919 Number of New Business Licenses Processed 1.93 42,000 1.90 1.74 40,919 40,000 1.70 38,000 1.60 36,577 35,318 36,000 1.50 FY10 FY12 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 2.03 2.00 1.80 FY10 FY11 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~ FY12 34,000 32,000 FY10 FY11 FY12 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ ARIZONA DEPARTMENT OF REVENUE 2012 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. FY10 ................................................ 3.8 days FY11 ................................................ 8.0 days FY12 ................................................ 7.9 days Average New Business License Turnaround Times 10.0 8.0 8.0 7.9 6.0 4.0 3.8 NET ENFORCEMENT REVENUE WITH GENERAL FUND TOTALS The enforcement program generated results at 96.7% of goal, almost reaching fiscal year 2012 targets. This chart also shows how much of the enforcement revenues went to the General Fund. FY12 Net Targets Collections ...................................... $229.4M Accounts Receivable ...................... $109.1M All Audit ......................................... $162.0M Total Revenue ................................ $500.5M General Fund Revenue ................... $338.2M FY12 Net Actual Collections ...................................... $225.9M Accounts Receivable ...................... $135.4M All Audit ......................................... $122.5M Total Revenue ................................ $483.9M General Fund Revenue ................... $341.0M 2.0 0.0 FY10 FY11 FY12 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~ TOTAL NET ENFORCEMENT DOLLARS Total net enforcement dollars represent all revenue collected by collectors and auditors through our various enforcement programs. FY10 ......................................$ 476,471,539 FY11 ......................................$ 487,948,450 FY12 ......................................$ 483,890,612 Net Enforcement Dollars Compared to Targets (in Millions) $600.0 $500.0 $400.0 $300.0 $200.0 $100.0 $0.0 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~ Net Enforcement Dollars (in Millions) $490.0 $487.9 $483.8 $485.0 $480.0 $476.4 $475.0 $470.0 FY10 FY11 FY12 ~~~~~~~~~~~~~~~~~~~~~~~~~~~ ARIZONA DEPARTMENT OF REVENUE 2012 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 2012, $179.80 was produced for each dollar spent in the total DOR budget. FY10 .................................................$181.40 FY11 .................................................$182.00 FY12 .................................................$179.80 Return on Investment $1,000.00 $181.40 $182.00 AVERAGE COLLECTOR AND AUDITOR PRODUCTIVITY Collector.......................................$1,457,372 TPT Auditor .................................$1,119,917 Corporate Auditor ........................$1,256,441 IIT Auditor ...................................$ 164,487 Collectors collected an average of $1.5 million dollars per collector in FY12. Auditors collected at different levels depending upon the type of audit work they performed; ranging from a little over $164,000 per individual income (IIT) auditor to $1.2 million per corporate auditor. $179.80 $100.00 Average Collections Generated by Collectors and Auditors $10.00 (in Millions) $2.00 $1.46 $1.00 $1.50 FY10 FY11 FY12 $1.26 $1.12 $1.00 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~ $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 2012, $6.69 of enforcement revenue was collected for each dollar spent in the total DOR budget. FY10 .....................................................$7.85 FY11 .....................................................$7.24 FY12 .....................................................$6.69 $0.00 $0.16 Collector TPT Auditor IIT Auditor Corporate Auditor ~~~~~~~~~~~~~~~~~~~~~~~~~~~~ Return on Investment for Enforcement Program $8.00 $7.85 $7.24 FY10 FY11 $6.69 $4.00 $2.00 $1.00 FY12 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~ ARIZONA DEPARTMENT OF REVENUE 2012 ANNUAL REPORT Page 6 TAXPAYER SATISFACTION RATINGS FOR THE TAXPAYER & EXTERNAL SERVICES DIVISION These scores were received from taxpayers rating the services of the employees in the Taxpayer & External 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.) FY10 ..................................................... 4.32 FY11 ..................................................... 4.48 FY12 ..................................................... 4.49 Satisfaction Ratings for Taxpayer & External Services Division 5.00 4.00 FY10 ............................................... 100.0 % FY11 ............................................... 100.0 % FY12 ............................................... 100.0 % Computer System Availability 100.0% 100.0% 100.0% FY10 FY11 FY12 4.49 4.48 4.32 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. 3.00 2.00 1.00 FY10 FY11 FY12 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~ ~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 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 2012 ANNUAL REPORT Page 7 ARIZONA DEPARTMENT OF REVENUE 2012 ANNUAL REPORT Page 8 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: Accounting The Accounting Unit processes accounts payable invoices, provides travel services including employee reimbursement, and oversees the fixed assets inventory. 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, including troubleshooting building utility issues (i.e. chillers, UPS, elevators etc.) remodeling office areas at the department’s four buildings and coordinating 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, risk management issues and interaction with the State Fire Marshall. discipline, classifications of positions, recruitment, and staffing. The Human Resources Unit is also responsible for processing all personnel actions through the State’s Personnel System (HRIS), new employee orientation, 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. 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. 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 2012  The Accounting Unit processed 99% of all invoices within 30 days.  Facilities accomplished the following notable tasks:  Painted the common areas on all floors in the 1600 building.  Retrofit the lighting at the Warehouse.  Upgraded the camera system to include additional cameras at the 1600 building, as well as the East Valley office.  Installed a new camera and recording system for the cashier’s area at the Tucson office.  Installed new assembly area capacity signs as required by NFPA throughout the 1600 building. The Hearing Office workload has increased significantly during the last three years. For FY12 the Hearing Office handled nearly as many cases as it did in FY 2000 and 2001. 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  ARIZONA DEPARTMENT OF REVENUE 2012 ANNUAL REPORT Page 9  Approximately 99% of all employees were paid by direct deposit. Warrants were issued only to new employees not yet set up for electronic payment.  All procurement such as contracts and purchase orders were issued through the new statewide ProcureAZ system. ARIZONA DEPARTMENT OF REVENUE 2012 ANNUAL REPORT Page 10 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. 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 Field Audit Unit also handles refund requests. The Compliance Unit consists of License Compliance and Desk Audit. The License Compliance Unit continues to prove to be a 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 several different audit projects across all tax types. The information processed in this unit is from various sources including governmental agencies. Special Taxes (ST) Special Taxes comprises four separate units: Bingo, Estate Tax, Luxury Tax, and Nexus. The Bingo Unit issues licenses, processes returns, and provides customer service to Bingo licensees. The Estate Tax Unit issues income tax certificates for probate to close an estate. During this fiscal year, the Estate Tax Unit was transferred to the Collection Division. The Luxury Tax staff administers the luxury tax imposed on tobacco distributors and liquor wholesalers. This includes the licensing of tobacco distributors and processing of tax returns for both tobacco and liquor. The unit also conducts audits of tobacco distributors, liquor wholesalers and collects taxes from consumers who purchase tobacco products via the Internet or through mail order. Cigarette distributors pay tobacco taxes by purchasing tax stamps from the department to affix to the cigarettes, thereby reflecting that the tax has been paid. The distributor affixes the appropriate stamp to each pack of cigarettes that is to be sold in Arizona. The department and the Office of the Attorney General play a significant role in regards ARIZONA DEPARTMENT OF REVENUE 2012 ANNUAL REPORT Page 11 to the administration of the Tobacco Master Settlement Agreement. The Nexus Unit is responsible for identifying outof-state companies and individuals who have an obligation to file tax returns with the State of Arizona. Nexus is the connection required to exist between a State and potential taxpayer such that the State has the constitutional right to impose the tax. The United States constitution limits the State’s right to impose a tax through the Due Process and the Commerce Clause. Non-resident individuals are required to pay tax on all income derived from Arizona sources provided they meet the filing threshold. The unit operates various out-of-state non-filer programs for Transaction Privilege Tax, Corporate Income Tax, and Individual Income Tax. The Nexus Unit is also responsible for maintaining the department’s Voluntary Disclosure Program. This program consists of taxpayers voluntarily coming forward to file tax returns for Transaction Privilege/Use Tax, Corporate, Partnership, Individual, and Withholding. The program facilitates the process for taxpayers who have determined a filing requirement exists, therefore, wish to come into compliance for all tax types. Furthermore, based on questionnaires the unit pursues specific industries based on Nexus issues, provides written Nexus determinations and solicits delinquent tax returns. Audit Processing Audit Processing handles the audit support for all audit operations; TPT Audit, Corporate Income Tax, Individual Income Tax, Bingo, and Special Taxes. The Section keys all of the audit assessments into the system (BRITS) and audit data bases, hand stuffs and mails all assessments, opens all mail and correspondence received, maintains all audit files and researches and corrects system issues. Audit Information Technology (AIT) The Audit IT Section 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 2012 Corporate Income Tax Audit (CIT) Section  Audited 196 taxpayers, and produced 462 units, and assessed approximately $33 million and collected approximately $52 million.  Developed and prepared a database tracking and audit selection workbench system for the Section.  Started revisions to the Corporate Audit taxpayer reports and audit package with ongoing monitoring and revisions.  Started the assessment of core training needs and practices for revision of new auditor training program. Individual Income Tax (IIT) Audit  Completed 65,234 audits for total assessments of $44.5 million and collected $25.3 million in additional revenue.  The computer generated assessment (CGA) program was further refined to increase the number of accounts eligible to be processed by this program. The results were the issuance of 21,020 audits for total assessments of $6.13 million.  IIT customer surveys averaged a score of 4.36, using a scale of 1 to 5 with 5 being excellent.  Initial audit assessment quality is constantly improving. For the fiscal year, over 92% of initial audit assessments required no changes. The goal to achieve was established at 86%. ARIZONA DEPARTMENT OF REVENUE 2012 ANNUAL REPORT Page 12 Transaction Privilege and Use Tax (TPT) Audit  Field Audit Unit audited 525 taxpayers, produced 2,800 units, assessed over $93 million and collected in excess of $12 million in tax revenue.  License Compliance Unit licensed 2,221 new taxpayers and collected over $6 million.  Desk Audit produced over 4,163 new billings that generated over $4 million in tax revenue.  Customer surveys averaged a score of 4.57, using a scale of 1 to 5 with 5 being excellent. Special Taxes (ST)  The Nexus Unit brought 382 new Corporate Income taxpayers into compliance that filed 1,098 tax returns for a total of $2.3 million collected. Compliance dollars collected were $1.7 million.  Overall, the Nexus unit brought 527 new taxpayers into compliance and collected a total of $38.7 million. Information Technology (AIT)  The Audit IT Section completed the upgrade to Microsoft Office 2007 and Internet Explorer 2008. This was significant in that it gave the Field Auditors capacities they did not have in dealing with large volume audits. The Section continues to work through issues relating to the programs in the audit select software. This has provided Audit IT the opportunity to work closely with the DOR IT Division in learning the technical aspects of the programs. A major accomplishment was the deployment of the Model City Tax Code website. This project was completed timely and without issues. The Section continues to apply changes as requested from cities, the League of Arizona Cities and Towns, and the Arizona Tax Research Association (ATRA). Finally, the Section continues to work diligently to support the applications for the programs run by the Audit Division. ARIZONA DEPARTMENT OF REVENUE 2012 ANNUAL REPORT Page 13 ARIZONA DEPARTMENT OF REVENUE 2012 ANNUAL REPORT Page 14 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. Collectors attempt to reach account resolution, on mostly income tax cases, via the telephone and with targeted mailings. Office Collections uses an Automatic Call Distribution (ACD) system to process and handle incoming calls. This system has an Interactive Voice Response (IVR) module that provides automated responses for some basic collections questions such as account balances. Office Collectors can request that liens and levies be filed and can negotiate installment payment plans. If they are not able to resolve a case, it might be referred to Field Collections, or the Attorney General’s for further action. Field Collections If an Office Collector determines that a case cannot be resolved by phone and that a field (on-site) approach is warranted, the case is referred to the Field Collections section. Field collectors are assigned a territory (by ZIP code) and are responsible for all types of tax cases (mostly large balance business cases) in the territory. Field collectors use a combination of telephone and field visits. In addition to recommending lien and levy action, Field collectors may subpoena records, investigate Offers-inCompromise, conduct seizures and recommend writing 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 debts owed to other state agencies, the courts and political subdivisions of the state. 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 2012 • • The division was responsible for the generation of total revenues of $226 million, a $5 million (2%) increase over prior fiscal year 2011. Hand-held mobile devices were introduced in Field Collections. Greater security of taxpayer information and improved collections efficiency are expected. ARIZONA DEPARTMENT OF REVENUE 2012 ANNUAL REPORT Page 15 ARIZONA DEPARTMENT OF REVENUE 2012 ANNUAL REPORT Page 16 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. The IT Division provides technology and services to all Divisions. All teams in the Division strive to continually improve processes, tools, and standards in order to provide improved service to our internal customers and the Arizona taxpayers. Applications Support Applications Support works with the various Divisions to resolve defects, and support technology-enabled business processes Application support provides operational, support and maintenance services for all Department of Revenue tax processing systems, including  All tax processing systems, including: Taxpayer Administration System (TAS), AZ Taxes (www.aztaxes.gov), electronic filing, Data Entry systems, Cashier, and Remittance.  Enterprise Reporting and Analytics.  Property and Audit mainframe applications.  System scheduling and processing services, ensuring system processes are completed successfully.  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 and External 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. Operations and Security The Operations and Security team consists of the Desktop Support, Server and Network Engineering and Support, Database Administration, Information Security. 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. Network Engineering and Server Support is responsible for operations and oversight of all of the agency’s data centers including all servers, storage systems, security infrastructure and networks. The Database Administration Team assures availability, reliability, capacity and performance management of the Department’s databases. The databases include tax process Analytic and Reporting systems. 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:  Ensure compliance to policy & regulatory mandates  Manage risks & vulnerabilities in accordance with NIST800-53 & IRS Pub1075  Participate in Vendor Oversight Committee Audits employing BS27001  Coordinate/Perform InfoSec Forensics activities  Assist & review Infosec policies standards and procedures  Provide Employee Awareness of Information Security Business Solutions Group The Business Solutions Group (BSG) is responsible for information technology governance, project management and software development. ARIZONA DEPARTMENT OF REVENUE 2012 ANNUAL REPORT Page 17 BSG is made up of two teams, the Project Management Office and Software Development. The Project Management Office is responsible for establishing, maintaining, and enforcing project management processes, procedures, and standards for IT projects. The Software Development team is responsible for building high quality, cost effective, sustainable software solutions for the taxpayers, the department and to meet legislative mandates. This team also provides on-going enhancements to improve efficiency of the department’s information systems. 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 cost, and improve services. The primary goal of the VMO is to partner with vendors, not only to negotiate the best terms possible, but to gain commitment to assist and support operations of the department. HIGHLIGHTS IN FISCAL YEAR 2012    Supported a new processing record of more than 2,000,000 electronic returns. Sustained and improved the technical environments that support core business processes and are used to process all tax filings, payments and returns for the taxpayers. Initiated upgrades to key system databases increasing reliability, availability and performance of during the primary tax season.       Implemented more than 116 business-driven changes to the tax systems. Upgraded the remittance payment processing system, providing the ability for electronic deposits and improving the timeliness of payment processing. Upgraded the field audit team with new mobile systems increasing the productivity of the team. Participated in the state-wide Telecommunication and Networking RFP. Participated in the inter-agency Professional Services RFP. Effectively addressed critical legislative mandates from the legislative session including: o 2011 Tax Recovery Program to improve voluntary compliance in the filing of tax returns o Model City Tax Code website to provide timely and accurate information to the public o Provided for reporting of individual Use Taxes to improve the voluntary compliance in filing of tax returns o Enabled the electronic filing of Withholding tax returns and electronic payments to improve Department efficiency through increase electronic taxpayer transactions ARIZONA DEPARTMENT OF REVENUE 2012 ANNUAL REPORT Page 18 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. Individual unit roles and responsibilities are defined below. 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. 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. Revenue Accounting Revenue Accounting is responsible for providing financial services for the department. This includes the reconciliation and reporting of tax dollars deposited to the State’s financial institution, revenue and taxpayer accounting services, including accounts receivable management and refund/warrant management. Records Management Records Management is responsible for the filing, maintaining, storing and disposal of all tax documents as well as providing access to tax returns and license applications within the department. Records Management is also the source of assistance when developing customized records retention and disposition schedules for the department. HIGHLIGHTS IN FISCAL YEAR 2012     The Process Administration Division implemented a new Remittance Processing system. The Remittance system is a very critical function for the State of Arizona in that it electronically deposits taxpayer checks to the bank so the State can use the funds to invest, pay bills, earn interest, and distribute revenues to other government agencies, including counties, cities, and state agencies. This upgrade mitigated the increasing risk of potential system failure due to age. Received and processed 5.6 million tax documents. Received, processed and deposited 4.1 million payments with an average deposit time of 0.69 days 2.0 million refunds were issued to individual income taxpayers. ARIZONA DEPARTMENT OF REVENUE 2012 ANNUAL REPORT Page 19 ARIZONA DEPARTMENT OF REVENUE 2012 ANNUAL REPORT Page 20 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. CAMA / Construction Cost The Computer-Assisted Mass Appraisal (CAMA) and Construction Cost Team maintains the Add-On Component Costs as well as the Residential and Commercial Depreciation schedules in order to promote the use of uniform costs throughout the State when counties value property using the cost approach. The team also provides training and assistance for county appraisers in the use of the cost and market approaches to value, including sales based valuation models. 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. 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. The team verifies County Property Tax Rates, including Additional State Aid to Education calculations. 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. 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. ARIZONA DEPARTMENT OF REVENUE 2012 ANNUAL REPORT Page 21 (GPLET) program. The return forms are designed to be filed by prime lessees of government property improvements with their 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. HIGHLIGHTS IN FISCAL YEAR 2012 • • The Centrally Valued Property Team valued approximately 800 taxpayers, totaling $36.6 billion in full cash value. There were 24 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, three were withdrawn; two were settled, and six were heard before the Board. The Board decided in favor of the department in three of the six cases. The Assessment Standards and Training Team completed on-site meetings with four 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 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 worked with the county treasurers regarding reports and reporting requirements for the Government Property Lease Excise Tax (GPLET) returns and payments received for the preceding calendar year. The Team also worked with government lessors regarding GPLET return filing requirements by their lessees. • 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 39 students attending Level 1 certification courses and 20 students attending Level 2 certification courses in the DOR Appraiser Training and Certification Program this fiscal year. A total of 34 appraisers received their Level 1, Level 2 or Level 3 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 12 students completed the Level 1 series of courses and 20 students completed the Level 2 series of courses in the Rio Salado program this fiscal year. The Manuals and Forms Team updated return forms, instructions and tax rate charts for use with the Government Property Lease Excise Tax ARIZONA DEPARTMENT OF REVENUE 2012 ANNUAL REPORT Page 22 TAXPAYER AND EXTERNAL SERVICES Mission Statement: To meet the needs of our customers in a professional manner, with the highest standards of integrity. 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. Forms This unit is responsible for design and printing 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. 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. License and Registration (L & R) The License and Registration section provides assistance to taxpayers, business owners, corporate officers, tax practitioners, companies and other representatives who wish to conduct business within the State, to obtain required licensing, make payments to the State or to purchase tobacco stamps. The L&R customer service team (CS) is responsible for assisting this group of constituents when they visit one of the three department locations. The CS team provides education and assistance with establishing and securing a Transaction Privilege Tax License, a Withholding Registration or a Use Tax Certificate. Additionally, the CS team provides education and assistance by responding to general inquiries regarding notices or taxes and they also collect and post payments made to the State. The L&R maintenance unit (MU) is responsible for assisting the same group of constituents when they call into the license and registration or bond lines. The unit is also responsible for working and resolving all mailed in correspondence regarding licenses or registration, including applications, signature cards and business updates. The maintenance unit provides education and assistance with establishing and securing a Transaction Privilege Tax License, a Withholding Registration or a Use Tax Certificate. Moreover, the maintenance unit administers the bond program, solar registration program and portions of the tobacco stamp program. The team is responsible for providing specialized education, assistance and support to companies in these unique lines of business and other department units. Additionally, the unit provides maintenance support to customers and other department units by researching and resolving the most complicated account license, registration or bond problems. 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 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 ARIZONA DEPARTMENT OF REVENUE 2012 ANNUAL REPORT Page 23 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. The Quality Office is also a part of the Office of Economic Research and Analysis. The Quality Office coordinates the strategic planning efforts of the department with programs focusing on agencywide quality initiatives. Included in these initiatives are customer satisfaction survey improvements, feedback and analysis and benchmarking studies. Public Information Officer This position is the official spokesperson for the department, facilitates the flow of information to the public, and responds to all media contacts and inquiries. 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 abatement was denied, a representative from PRU will attend the hearing to present their case substantiating their decision. Unclaimed Property This program is administered to return abandoned property such as contents of safe deposit boxes, dormant bank accounts, insurance policy proceeds, security deposits, unclaimed stocks, bonds, and mutual fund accounts, and all types of uncashed checks to rightful owners. Through a variety of methods, the unclaimed property staff attempts to locate the owners and processes claims in order to return the property. The staff facilitates the reporting and remitting of abandoned property from businesses, financial institutions, and other entities that hold the property. The unit is also responsible for promoting compliance with the Unclaimed Property Statutes through outreach and audit. HIGHLIGHTS IN FISCAL YEAR 2012    The Criminal Investigation Unit stopped nearly $11 million in fraudulent refunds from being issued. This is an increase of over $ 7.8 million over last fiscal year (nearly a 250% increase). The Tobacco Enforcement Unit conducted approximately 4,000 retail and wholesale tobacco inspections with an increase of 1,300 over last fiscal year (118% increase). During this time period the unit also conducted 180 separate seizures of illegal tobacco products (a 34% increase). Over 114,000 sticks of cigarettes and 134,420 cigars were among the untaxed other tobacco products seized. The Office of Economic Research and Analysis accomplished several things over the fiscal year. These include:  Calculated and/or authorized transfers to the Arizona Sports and Tourism Authority, Rio Nuevo, Phoenix Convention Center, WQARF and Phoenix International Raceway.  Sent out 867 Certificates of Eligibility for the Health Insurance Premium Tax Credit to individuals and small businesses.  Sent out 220 approvals for the Water Conservation Credit.  Approved 124 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. ARIZONA DEPARTMENT OF REVENUE 2012 ANNUAL REPORT Page 24  Confirmed 148 Disabled/Displaced Student Scholarship Awards. Approved 71 Disabled/Displaced Student Eligibility Applications.  Approved 43 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 2,515 information requests.  Administered the FY12 Employee Satisfaction Survey. The License & Registration team processed 40,919 applications with an average turnaround of 7.9 days. 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:  Answered 237,490 calls and replied to 6,787       emails. Walk-in office staff assisted a total of 21,849 customers. Responded to 5,921 Tax Practitioner Hotline inquiries. Responded to 15,133 written inquiries. Completed 1,932 requests for penalty abatement. Processed 11,275 Power of Attorney forms. For the second consecutive year, unclaimed property staff returned a record-breaking amount of unclaimed property. Over $40 million was returned to nearly 19,000 owners. More than 76,000 properties were returned, which was nearly double the total from the previous fiscal year.  The average time to process and pay a claim was 64 days, reflecting a 14% increase in efficiency over the previous fiscal year.  Over $115 million in new property was added to the database, and nearly 22,000 claims for property were received. ARIZONA DEPARTMENT OF REVENUE 2012 ANNUAL REPORT Page 25 ARIZONA DEPARTMENT OF REVENUE 2012 ANNUAL REPORT Page 26 TAX POLICY AND RESEARCH The Division provides administrative tax policy for the department, legal and interpretive 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 and also reviews all requests for public records. The division consists of Corporate Appeals, Individual Income Appeals, Transaction Privilege Tax Appeals, and the Tax Research & Analysis Section. Tax Research & Analysis The Tax Research & Analysis Section reviews, analyzes, develops and disseminates administrative tax policy for the department. 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 substantive policy statements (rulings and procedures), as well as private taxpayer rulings. The section also responds to technical and complex inquiries by telephone and issues taxpayer information letters. The section is responsible for maintaining consistency in interpretation of policy and interpretation within the department. 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 other Divisions within the Department. 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 department’s General Counsel and includes the TPT Protest unit. TPT Appeals assists the Transaction Privilege and Use Tax Audit Section with case refinement and resolution services at the informal hearing as well as advocating the audit section’s position in cases before the State Office of Administrative Hearings (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 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-inhand 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 Individual Income Tax Appeals Section reviews cases from the Individual Income Audit Section and provides case refinement, resolution and advocacy services for those cases, and represents 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. ARIZONA DEPARTMENT OF REVENUE 2012 ANNUAL REPORT Page 27 ARIZONA DEPARTMENT OF REVENUE 2012 ANNUAL REPORT Page 28 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 2012 ANNUAL REPORT Page 29 ARIZONA DEPARTMENT OF REVENUE 2012 ANNUAL REPORT Page 30 TABLE 1 REVENUE SUMMARY GROSS REVENUE COLLECTED FISCAL YEAR 2007-08 THROUGH FISCAL YEAR 2011-12 SOURCE TRANSACTION PRIVILEGE USE AND SEVERANCE TAX Distribution Base Nonshared Portion Use Tax Education Tax Temporary Tax (5) Undistributed Estimated Transaction Privilege Tax Other State Revenue County and City Collections FY2007-08 FY2008-09 FY2009-10 FY2010-11 FY2011-12 $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 $1,569,903,646 2,852,297,332 263,724,399 542,394,529 912,966,857 (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 20,235,301 23,913,439 1,145,303,425 Subtotal $7,597,257,813 $6,573,794,714 $5,982,149,321 $6,951,173,293 $7,330,738,929 INCOME TAX Withholding Individual Corporate 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 3,343,314,942 1,027,389,330 758,413,453 Subtotal $5,791,126,712 $4,809,697,249 $4,436,193,500 $4,761,043,709 $5,129,117,725 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 $477,333,506 $444,779,771 $406,266,670 $404,127,163 $406,164,385 414,711 136,446,760 647,669 234,065 74,337,392 643,679 363,755 161,637,025 320,538 437,372 121,263,602 370,786 200,825 115,160,041 186,322 $137,509,139 $75,215,136 $162,321,318 $122,071,760 $115,547,188 558,330 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 8,155,363 508,145 10,585,261 1,065,773 1,782,028 8,518,868 $26,140,542 $21,832,059 $20,801,482 $21,428,838 $22,460,074 $14,029,367,713 $11,925,318,928 $11,007,732,292 $12,259,844,763 $13,004,028,301 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 (4) 28,202,704 13,596,155 21,566,369 340,754,224 7,710 31,847,105 15,430,577 21,101,489 337,777,289 7,925 (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) Arizona's estate tax was effectively repealed January 1, 2005, following the elimination of the Federal State Death Tax Credit by Congress. (4) Due to an extended legislative session, the Nuclear Assessment bill was not signed in FY09. This amount will be reflected in FY10. (5) 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 2012 ANNUAL REPORT Page 31 TABLE 2 NET REVENUE TO STATE GENERAL FUND FISCAL YEAR 2007-08 THROUGH FISCAL YEAR 2011-12 FY2007-08 FY2008-09 FY2009-10 FY2010-11 FY2011-12 SOURCE Transaction Privilege, Use, and Severance Tax Undistributed Estimated Transaction Privilege Tax $4,406,139,759 (28,064,558) $3,791,915,770 (17,219,713) $3,418,261,171 $3,463,327,544 $3,657,481,499 26,197,663 8,215,241 17,366,617 3,284,084,523 Income Tax 3,506,425,271 2,432,366,069 2,200,844,986 2,949,887,110 Luxury Tax 61,037,231 57,878,187 55,352,260 53,599,408 320,203 210,372 363,755 437,372 200,825 9,755,359 9,526,605 100,034,835 49,120,855 45,819,445 558,330 531,588 520,655 504,905 508,145 Private Car Tax 1,615,246 1,435,069 1,335,091 1,283,026 1,065,773 Nuclear Plan Assessment 1,440,492 1,569,091 1,812,420 1,782,028 $5,804,479,506 $6,528,187,881 $7,064,665,940 Estate Tax (1) Unclaimed Property Bingo Total $7,959,227,334 0 (2) $6,276,643,947 56,357,085 (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 2012 ANNUAL REPORT Page 32 TABLE 3 GROSS COLLECTIONS OF AUDIT ASSESSMENTS AND DELINQUENT TAX FISCAL YEAR 2010-11 AND FISCAL YEAR 2011-12 GROSS COLLECTIONS FY2010-11 Collections FY2011-12 % CHANGE 2.2% Audit Accounts Receivable $220,933,377 $157,401,770 $131,005,775 $225,892,565 $141,434,521 $135,449,776 -10.1% 3.4% TOTAL GROSS COLLECTIONS $509,340,922 $502,776,862 -1.3% $21,392,472 $18,886,250 -11.7% $487,948,450 $483,890,612 -0.8% 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 2012 ANNUAL REPORT Page 33 ARIZONA DEPARTMENT OF REVENUE 2012 ANNUAL REPORT Page 34 TRANSACTION PRIVILEGE, USE AND SEVERANCE TAX MAJOR FEATURES MUNICIPAL PRIVILEGE AND USE TAX During fiscal year 2012, 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 $7.33 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 2012 ANNUAL REPORT Page 35 TABLE 4 GROSS TRANSACTION PRIVILEGE, USE AND SEVERANCE TAX COLLECTIONS FISCAL YEAR 2007-08 THROUGH FISCAL YEAR 2011-12 SOURCE Distribution Base Nonshared Use Tax SUBTOTAL Education Tax Temporary Tax (2) 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 (3) La Paz County Judgment Tax Maricopa County Road Tax Maricopa County Road Tax Extension Maricopa County Stadium Tax (3) 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 (4) Yuma County Health Services District Tourism/Sports Authority COUNTY AND CITY COLLECTIONS TOTAL DEPARTMENT OF REVENUE RECEIPTS FY2007-08 FY2008-09 FY2009-10 FY2010-11 FY2011-12 $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 $1,569,903,646 2,852,297,332 263,724,399 $5,577,617,505 $4,806,143,210 $4,353,738,110 $4,441,416,082 $4,685,925,377 $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 $514,345,951 835,801,251 28,700,457 8,215,241 6,452,762 16,606,135 2,377,136 31,053 $542,394,529 912,966,857 2,868,684 17,366,617 4,857,379 16,481,762 2,545,748 28,550 $6,221,924,406 $5,374,277,044 $4,909,826,212 $5,853,946,069 $6,185,435,504 $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 $1,375,333,407 $1,199,517,669 $1,072,323,109 $1,097,227,224 $1,145,303,425 $7,597,257,813 $6,573,794,714 $5,982,149,321 $6,951,173,292 $7,330,738,929 $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 $466,896,627 1,189,314 6,891,804 11,297,308 11,295,614 2,814,563 2,779,139 2,879,485 1,798,603 1,495,734 1,120,855 1,120,853 21 590,955 (1) 178,724 323,991,403 174 117,547,456 5,191,681 5,396,008 6,246,077 6,311,778 1,463,761 145,559 67,504,860 12,449,204 2,468,346 12,952,327 2,646,194 2,641,677 12,400,793 6,199,337 11,230,569 11,230,580 18,947 2,235,486 22,681,609 (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) 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. (3) This county tax has expired. Collections are from periods prior to the expiration. ARIZONA DEPARTMENT OF REVENUE 2012 ANNUAL REPORT Page 36 TABLE 5 STATE TRANSACTION PRIVILEGE, USE AND SEVERANCE TAX RATES FISCAL YEAR 2011-12 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 (1) 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. ARIZONA DEPARTMENT OF REVENUE 2012 ANNUAL REPORT Page 37 TABLE 6 NET TAXABLE SALES BY TRANSACTION PRIVILEGE, USE AND SEVERANCE TAX CLASSIFICATIONS (1) FISCAL YEAR 2007-08 THROUGH FISCAL YEAR 2011-12 CLASSIFICATION FY2007-08 % OF TOTAL FY2008-09 % OF TOTAL FY2009-10 % OF TOTAL FY2010-11 % OF TOTAL FY2011-12 % OF TOTAL Transporting (4) $48,715,871 0.04 $37,920,229 0.04 $41,990,223 0.05 $41,555,032 0.05 $52,136,905 0.06 Mining, Oil & Gas 216,674,568 0.19 175,743,314 0.18 102,899,820 0.12 96,513,978 0.11 105,614,045 0.11 Mining Severance 1,752,522,103 1.56 729,481,920 0.76 1,164,231,217 1.33 1,609,450,811 1.80 1,623,111,320 1.72 Utilities 9,237,778,527 8.23 9,236,365,624 9.59 9,354,244,929 10.70 9,394,361,056 10.52 9,474,520,541 10.05 Communications 3,669,682,556 3.27 2,928,433,210 3.04 3,618,207,813 4.14 2,853,538,386 3.20 3,190,962,329 3.38 16,021,363 0.01 7,742,692 0.01 1,639,838 122,652,124 0.11 102,456,538 0.11 103,681,055 Private Car and Pipelines Publishing Job Printing n/a 0.12 1,908,310 98,343,131 n/a (2) 0.11 1,186,118 92,504,602 n/a (2) 0.10 391,037,724 0.35 307,581,474 0.32 236,985,401 0.27 266,564,040 0.30 252,603,147 0.27 Restaurants and Bars 9,663,958,579 8.61 9,094,485,498 9.44 9,020,794,923 10.32 9,311,826,427 10.43 9,996,824,507 10.60 Amusements 1,146,344,296 1.02 1,053,047,833 1.09 1,051,919,242 1.20 994,092,112 1.11 1,037,058,757 1.10 Commercial Lease (3) Personal Property Rentals (443,473) n/a (2) 874 n/a (2) 3,995,696,708 3.56 3,552,696,373 3.69 Contracting 20,156,298,616 17.95 14,882,705,766 Retail 52,626,992,989 46.86 46,174,068,033 2,405,704,851 2.14 2,117,241,787 Hotel/Motel Rental Occupancy Tax (5) Use Tax Use Tax-Utilities (2,669,444) 6,837,880,265 12,461,292 Membership Camping (5) TOTAL 51,662 $112,297,361,177 n/a (2) (24,871) 6.09 5,882,941,979 0.01 38,653,312 0.00 (2) 100.00 10,780 $96,321,552,366 141,375 n/a (2) 1,750 15.45 9,311,612,411 10.65 8,983,260,649 10.06 9,543,335,350 10.12 47.94 42,913,931,049 49.08 45,898,838,365 51.42 48,178,713,977 51.10 2.20 1,949,717,696 2.23 2,039,282,838 2.28 2,156,863,685 2.29 6.11 5,464,504,380 0.04 (35,593,960) 0.00 (2) 100.00 9,730 $87,428,683,185 n/a (2) 6.25 (0.04) n/a (2) 100.00 42,581 n/a (2) 3,257,587,929 n/a (2) 3.58 (62,113) 3.42 1,209 3,127,828,157 n/a (2) 3,056,386,064 n/a (2) (2,602) n/a (2) 4,610,920,668 5.17 5,302,843,816 5.62 10,039,995 0.01 10,022,025 0.01 728 $89,266,926,922 n/a (2) 100.00 0 $94,275,887,660 (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. (5) Effective November 1, 2006, these rates were repealed. Figures may not add to total due to rounding. ARIZONA DEPARTMENT OF REVENUE 2012 ANNUAL REPORT Page 38 3.46 n/a (2) 100.00 TABLE 7 TRANSACTION PRIVILEGE, USE AND SEVERANCE TAX COLLECTIONS BY CLASS FISCAL YEAR 2011-12 DISTRIBUTION CLASSIFICATION BASE TOTAL NONSHARED COLLECTIONS Transporting (1) $520,804 $2,083,215 $2,604,019 Nonmetal Mining, Oil and Gas 1,056,140 2,244,298 3,300,439 32,462,226 8,115,557 40,577,783 21 5 26 Utilities 94,745,205 378,980,822 473,726,027 Communications 31,909,623 127,638,493 159,548,116 11,861 47,445 59,306 Mining Severance Timbering Severance - Ponderosa (3) Private Car and Pipelines Publishing Job Printing Restaurants and Bars Amusements 925,046 3,700,184 4,625,230 2,526,031 10,104,126 12,630,157 199,936,483 299,904,724 499,841,207 20,741,175 31,111,763 51,852,938 Commercial Lease (2) Rentals of Personal Property Contracting Retail Hotel/Motel 19 17 36 65,150,145 97,725,217 162,875,362 95,432,927 381,731,708 477,164,635 963,579,162 1,445,368,828 2,408,947,990 59,313,763 59,313,764 118,627,527 Rental Occupancy Tax (3) (52) Use Tax Utilities (26) (78) 100,220 400,881 501,101 Use Tax 0 263,724,399 263,724,399 License Fees 0 542,054 542,054 Jet Fuel Tax 1,523,951 2,285,926 3,809,877 0 731,896 731,896 Jet Fuel Use Tax Non Sufficient Funds 0 Telecommunications Service Assistance (31,107) Mandatory EFT Fees TOTAL 52,506 52,506 (124,427) (155,534) 0 338,357 338,357 $1,569,903,646 $3,116,021,731 $4,685,925,377 (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 2012 ANNUAL REPORT Page 39 TABLE 8 DISTRIBUTION OF TRANSACTION PRIVILEGE, USE AND SEVERANCE TAX COLLECTIONS FISCAL YEAR 2011-12 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 Temporary Tax Estimated Payment 911 Wireline/Excise, 911 Wireless, Telecommunications Devices, Municipal Water, and Waste Tire Accounts Receivable Collections $3,657,481,499 17,366,617 392,475,912 635,967,967 542,394,529 912,966,857 2,868,684 TOTAL GROSS COLLECTIONS $6,185,435,504 23,913,439 ADDITIONAL DISTRIBUTION FROM TRANSACTION PRIVILEGE, USE AND SEVERANCE TAX COLLECTIONS FISCAL YEAR 2011-12 Phoenix International Raceway - Highway Improvements Rio Nuevo Sports and Tourism Authority Tribal Community Colleges Convention Center Additional distribution of city collections $416,667 11,957,943 * 6,054,497 1,750,000 35,000,000 (265,318) * 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 2012 ANNUAL REPORT Page 40 TABLE 9 TRANSACTION PRIVILEGE, USE AND SEVERANCE TAX COLLECTIONS (1) IN APACHE COUNTY FOR THE PERIOD BEGINNING JULY 1, 2011 AND ENDING JUNE 30, 2012 TAXABLE ACTIVITIES AND BUSINESS CLASSIFICATIONS Utilities Communications Publishing Job Printing Restaurants and Bars Rentals of Personal Property Contracting (All) Retail Hotel/Motel Other Taxable Activities TOTAL CALCULATED NET TAXABLE INCOME % CHANGE FROM FY 2010-11 COLLECTIONS $15,813,683 19,423,294 581,042 30,280 13,434,218 3,625,442 88,245,528 79,310,928 11,763,687 123,204,444 6.5% 7.0% NA -63.9% 1.1% -36.9% 13.6% 25.1% -2.2% -0.2% $790,684 971,165 29,052 1,514 671,711 181,272 4,412,276 3,965,546 647,003 6,099,022 $355,432,548 8.1% $17,769,245 NUMBER OF ACCOUNTS FISCAL YEAR 2009-10 THROUGH FISCAL YEAR 2011-12 TAXABLE ACTIVITIES AND BUSINESS CLASSIFICATIONS Utilities Communications Publishing Job Printing Restaurants and Bars Rentals of Personal Property Contracting (All) Retail Hotel/Motel Other Taxable Activities TOTAL FY2009-10 FY2010-11 FY2011-12 26 115 14 11 75 171 452 1,277 56 953 24 120 14 12 76 150 438 1,370 52 955 20 102 17 12 72 157 444 1,497 88 963 3,150 3,211 3,372 (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 2012 ANNUAL REPORT Page 41 TABLE 10 TRANSACTION PRIVILEGE, USE AND SEVERANCE TAX COLLECTIONS (1) IN COCHISE COUNTY FOR THE PERIOD BEGINNING JULY 1, 2011 AND ENDING JUNE 30, 2012 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 2010-11 $170,897,810 57,912,990 889,446 665,334 132,955,667 5,056,096 24,662,879 190,786,571 744,405,226 38,244,579 69,588,336 -6.0% 6.8% -7.2% -70.2% 1.0% -17.3% 47.7% -9.5% 1.6% -13.3% NA $8,544,890 2,895,650 44,472 33,267 6,647,783 252,805 1,233,144 9,539,329 37,220,261 2,103,452 3,378,191 $1,436,064,934 -1.1% $71,893,243 COLLECTIONS . NUMBER OF ACCOUNTS FISCAL YEAR 2009-10 THROUGH FISCAL YEAR 2011-12 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 FY2009-10 FY2010-11 FY2011-12 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 57 188 25 27 349 55 339 1,117 3,591 152 1,558 7,239 7,404 7,458 (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 2012 ANNUAL REPORT Page 42 TABLE 11 TRANSACTION PRIVILEGE, USE AND SEVERANCE TAX COLLECTIONS (1) IN COCONINO COUNTY FOR THE PERIOD BEGINNING JULY 1, 2011 AND ENDING JUNE 30, 2012 TAXABLE ACTIVITIES AND CALCULATED NET % CHANGE BUSINESS CLASSIFICATIONS TAXABLE INCOME FROM FY 2010-11 $172,448,578 4.8% $8,622,429 2,997,076 Utilities Communications COLLECTIONS 59,941,529 1.7% Publishing 1,489,720 -28.2% 74,486 Job Printing 2,152,772 25.1% 107,639 345,680,285 5.9% 17,284,014 65,951,631 1.5% 3,297,582 Restaurants and Bars Amusements Rentals of Personal Property 58,486,702 -10.2% 2,924,335 Contracting (All) 272,797,913 -6.2% 13,639,896 Retail 979,722,407 2.1% 48,986,120 Hotel/Motel 258,865,446 7.1% 14,237,600 92,016,729 -16.9% 4,528,954 $2,309,553,712 1.0% $116,700,130 Other Taxable Activities TOTAL NUMBER OF ACCOUNTS FISCAL YEAR 2009-10 THROUGH FISCAL YEAR 2011-12 TAXABLE ACTIVITIES AND BUSINESS CLASSIFICATIONS Utilities FY2009-10 FY2010-11 FY2011-12 41 45 44 227 238 222 Publishing 33 33 36 Job Printing 44 42 48 461 465 486 97 102 99 495 473 464 Communications Restaurants and Bars Amusements Rentals of Personal Property Contracting (All) 1,719 1,695 1,671 Retail 4,243 4,491 4,614 245 259 261 1,889 1,907 1,956 9,494 9,750 9,901 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 2012 ANNUAL REPORT Page 43 TABLE 12 TRANSACTION PRIVILEGE, USE AND SEVERANCE TAX COLLECTIONS (1) IN GILA COUNTY FOR THE PERIOD BEGINNING JULY 1, 2011 AND ENDING JUNE 30, 2012 TAXABLE ACTIVITIES AND BUSINESS CLASSIFICATIONS CALCULATED NET TAXABLE INCOME % CHANGE FROM FY 2010-11 $129,172,905 11.0% $5,936,771 21,343,581 5.9% 1,067,179 Publishing 554,138 -5.4% 27,707 Job Printing 308,395 6.3% 15,420 53,789,797 0.6% 2,689,490 1,628,537 -22.4% 81,427 13,247,992 -6.4% 662,400 Utilities Communications Restaurants and Bars Amusements Rentals of Personal Property Contracting (All) Retail COLLECTIONS 75,081,815 7.6% 3,754,091 244,991,502 -0.1% 12,249,575 Hotel/Motel 10,784,009 6.5% 593,121 Other Taxable Activities 87,878,093 85.2% 2,765,654 $638,780,764 10.2% $29,842,834 TOTAL NUMBER OF ACCOUNTS FISCAL YEAR 2009-10 THROUGH FISCAL YEAR 2011-12 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 FY2009-10 FY2010-11 FY2011-12 34 31 32 158 166 159 14 17 19 14 11 14 162 175 171 32 34 28 261 227 237 794 790 796 2,039 2,174 2,257 66 65 63 978 1,060 1,094 4,552 4,750 4,870 (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 2012 ANNUAL REPORT Page 44 TABLE 13 TRANSACTION PRIVILEGE, USE AND SEVERANCE TAX COLLECTIONS (1) IN GRAHAM COUNTY FOR THE PERIOD BEGINNING JULY 1, 2011 AND ENDING JUNE 30, 2012 TAXABLE ACTIVITIES AND BUSINESS CLASSIFICATIONS Communications CALCULATED NET TAXABLE INCOME % CHANGE FROM FY 2010-11 COLLECTIONS $12,204,429 17.4% $610,221 Restaurants and Bars 27,404,741 11.0% 1,370,237 Rentals of Personal Property 11,618,108 35.7% 580,905 Contracting (All) 41,514,776 47.1% 2,075,739 Retail 203,955,008 0.8% 10,197,750 Other Taxable Activities 234,376,391 27.5% 7,792,825 $531,073,453 15.9% $22,627,678 TOTAL NUMBER OF ACCOUNTS FISCAL YEAR 2009-10 THROUGH FISCAL YEAR 2011-12 TAXABLE ACTIVITIES AND BUSINESS CLASSIFICATIONS Communications Restaurants and Bars Rentals of Personal Property Contracting (All) Retail Other Taxable Activities TOTAL FY2009-10 122 FY2010-11 117 FY2011-12 112 68 62 64 164 143 163 356 328 352 1,270 1,326 1,433 833 896 951 2,813 2,872 3,075 (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 2012 ANNUAL REPORT Page 45 TABLE 14 TRANSACTION PRIVILEGE, USE AND SEVERANCE TAX COLLECTIONS (1) IN GREENLEE COUNTY FOR THE PERIOD BEGINNING JULY 1, 2011 AND ENDING JUNE 30, 2012 TAXABLE ACTIVITIES AND CALCULATED NET % CHANGE BUSINESS CLASSIFICATIONS TAXABLE INCOME FROM FY 2010-11 Communications Restaurants and Bars Rentals of Personal Property COLLECTIONS $3,726,328 8.2% $186,316 4,632,425 10.7% 231,621 4,027,310 54.5% 201,366 40,998,432 26.4% 2,049,922 Retail 173,943,271 16.6% 8,697,164 Other Taxable Activities 615,245,403 NA 17,255,681 $842,573,169 10.0% $28,622,070 Contracting (All) TOTAL NUMBER OF ACCOUNTS FISCAL YEAR 2009-10 THROUGH FISCAL YEAR 2011-12 TAXABLE ACTIVITIES AND BUSINESS CLASSIFICATIONS FY2009-10 FY2010-11 FY2011-12 Communications 71 76 76 Restaurants and Bars 25 23 23 Rentals of Personal Property 69 63 63 Contracting (All) 117 131 131 Retail 482 552 552 Other Taxable Activities 398 428 428 1,162 1,273 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 2012 ANNUAL REPORT Page 46 TABLE 15 TRANSACTION PRIVILEGE, USE AND SEVERANCE TAX COLLECTIONS (1) IN LA PAZ COUNTY FOR THE PERIOD BEGINNING JULY 1, 2011 AND ENDING JUNE 30, 2012 TAXABLE ACTIVITIES AND CALCULATED NET % CHANGE BUSINESS CLASSIFICATIONS TAXABLE INCOME FROM FY 2010-11 $26,339,455 3.7% $1,316,973 6,126,341 9.0% 306,317 Utilities Communications Publication Restaurants and Bars Rentals of Personal Property Contracting (All) Retail Hotel/Motel Other Taxable Activities (2) TOTAL COLLECTIONS 43,858 NA 2,193 23,385,537 8.1% 1,169,277 2,693,758 -8.7% 134,688 24,102,289 31.9% 1,205,114 134,374,790 7.8% 6,718,739 5,044,944 1.3% 277,472 14,554,347 NA 695,578 $236,665,318 12.9% $11,826,351 NUMBER OF ACCOUNTS FISCAL YEAR 2009-10 THROUGH FISCAL YEAR 2011-12 TAXABLE ACTIVITIES AND BUSINESS CLASSIFICATIONS Utilities Communications Publication Restaurants and Bars Amusements Rentals of Personal Property Contracting (All) Retail Hotel/Motel Other Taxable Activities TOTAL FY2009-10 FY2010-11 FY2011-12 19 19 23 115 115 113 NA 105 NA 15 96 106 9 8 10 146 128 137 331 324 339 1,674 1,731 1,751 46 50 53 671 703 729 3,116 3,174 3,276 (1) License fees, Jet Fuel, Jet Fuel Use, Timber Severance, NSF, and Telecommunications Service Assistance are not included. (2) For FY12, different categories have been classified under the Other Taxable Activities compared to FY11. Figures may not add to total due to rounding. ARIZONA DEPARTMENT OF REVENUE 2012 ANNUAL REPORT Page 47 TABLE 16 TRANSACTION PRIVILEGE, USE AND SEVERANCE TAX COLLECTIONS (1) IN MARICOPA COUNTY FOR THE PERIOD BEGINNING JULY 1, 2011 AND ENDING JUNE 30, 2012 TAXABLE ACTIVITIES AND CALCULATED NET % CHANGE BUSINESS CLASSIFICATIONS TAXABLE INCOME FROM FY 2010-11 Utilities COLLECTIONS $6,040,664,010 2.4% $302,033,201 2,037,431,573 10.4% 101,871,579 Publishing 61,500,342 -8.3% 3,075,017 Job Printing 203,863,367 -6.5% 10,193,168 6,817,094,058 8.0% 340,854,703 761,944,532 6.0% 38,097,227 Rentals of Personal Property 2,474,524,936 6.3% 123,726,247 Contracting (All) 6,098,470,898 8.9% 304,923,545 Communications Restaurants and Bars Amusements Retail 32,567,141,079 5.1% 1,628,357,054 Hotel/Motel 1,280,694,343 6.7% 70,438,189 Other Taxable Activities 4,142,405,253 20.7% 206,371,321 $62,485,734,392 6.6% $3,129,941,250 TOTAL NUMBER OF ACCOUNTS FISCAL YEAR 2009-10 THROUGH FISCAL YEAR 2011-12 TAXABLE ACTIVITIES AND BUSINESS CLASSIFICATIONS FY2009-10 FY2010-11 FY2011-12 Utilities 132 152 147 Communications 637 640 643 Publishing 269 261 239 Job Printing 810 809 758 6,346 6,593 6,833 707 720 719 Restaurants and Bars Amusements Rentals of Personal Property 2,763 2,619 2,595 Contracting (All) 14,147 13,866 13,836 Retail 44,305 45,017 44,800 663 666 698 10,025 10,153 10,193 80,804 81,496 81,461 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 2012 ANNUAL REPORT Page 48 TABLE 17 TRANSACTION PRIVILEGE, USE AND SEVERANCE TAX COLLECTIONS (1) IN MOHAVE COUNTY FOR THE PERIOD BEGINNING JULY 1, 2011 AND ENDING JUNE 30, 2012 TAXABLE ACTIVITIES AND CALCULATED NET % CHANGE BUSINESS CLASSIFICATIONS TAXABLE INCOME FROM FY 2010-11 $353,976,465 -10.2% $17,698,823 86,632,726 6.8% 4,331,636 Utilities Communications COLLECTIONS Publishing 1,244,357 4.8% 62,218 Job Printing 3,362,852 -1.7% 168,143 214,445,878 5.7% 10,722,294 14,676,022 -0.3% 733,801 Restaurants and Bars Amusements Rentals of Personal Property Contracting (All) Retail 51,093,507 -4.9% 2,554,675 182,333,188 -11.8% 9,116,659 1,182,810,479 -6.1% 59,140,524 Hotel/Motel 43,210,623 2.8% 2,376,584 Other Taxable Activities 99,796,112 -9.9% 4,618,484 $2,233,582,209 -5.8% $111,523,842 TOTAL NUMBER OF ACCOUNTS FISCAL YEAR 2009-10 THROUGH FISCAL YEAR 2011-12 TAXABLE ACTIVITIES AND BUSINESS CLASSIFICATIONS Utilities FY2009-10 FY2010-11 FY2011-12 58 54 59 178 175 172 Publishing 19 26 28 Job Printing 33 33 42 456 434 449 75 64 70 Communications Restaurants and Bars Amusements Rentals of Personal Property 477 454 461 Contracting (All) 1,502 1,384 1,342 Retail 4,538 4,661 4,770 147 152 151 1,884 1,957 2,004 9,367 9,394 9,548 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 2012 ANNUAL REPORT Page 49 TABLE 18 TRANSACTION PRIVILEGE, USE AND SEVERANCE TAX COLLECTIONS (1) IN NAVAJO COUNTY FOR THE PERIOD BEGINNING JULY 1, 2011 AND ENDING JUNE 30, 2012 TAXABLE ACTIVITIES AND CALCULATED NET % CHANGE BUSINESS CLASSIFICATIONS TAXABLE INCOME FROM FY 2010-11 $98,189,888 11.5% $4,909,494 43,892,162 2.6% 2,194,608 Utilities Communications COLLECTIONS Publishing 838,853 12.3% 41,943 Printing 644,719 -14.0% 32,236 Restaurants and Bars 89,395,772 4.7% 4,469,789 Rentals of Personal Property 27,412,226 16.2% 1,370,611 Contracting (All) 119,364,100 -9.1% 5,968,205 Retail 819,160,650 8.0% 40,958,032 Hotel/Motel 33,971,403 9.7% 1,868,427 Other Taxable Activities 58,441,288 NA 2,898,484 $1,291,311,061 6.5% $64,711,830 TOTAL NUMBER OF ACCOUNTS FISCAL YEAR 2009-10 THROUGH FISCAL YEAR 2011-12 TAXABLE ACTIVITIES AND BUSINESS CLASSIFICATIONS Utilities Communications Publishing Printing FY2009-10 FY2010-11 FY2011-12 39 40 41 158 160 144 21 23 20 20 24 21 Restaurants and Bars 213 220 237 Rentals of Personal Property 319 281 298 Contracting (All) 979 912 907 2,526 2,676 2,755 148 146 142 1,236 1,295 1,331 5,659 5,777 5,896 Retail 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. Figures may not add to total due to rounding. ARIZONA DEPARTMENT OF REVENUE 2012 ANNUAL REPORT Page 50 TABLE 19 TRANSACTION PRIVILEGE, USE AND SEVERANCE TAX COLLECTIONS (1) IN PIMA COUNTY FOR THE PERIOD BEGINNING JULY 1, 2011 AND ENDING JUNE 30, 2012 TAXABLE ACTIVITIES AND BUSINESS CLASSIFICATIONS Utilities Communications Publishing Job Printing Restaurants and Bars Amusements Rentals of Personal Property CALCULATED NET TAXABLE INCOME % CHANGE FROM FY 2010-11 $1,253,130,468 -5.5% $62,656,523 522,645,947 28.1% 26,132,297 16,748,802 -2.0% 837,440 COLLECTIONS 32,867,827 2.6% 1,643,391 1,501,996,282 6.1% 75,099,814 96,750,272 -4.1% 4,837,514 382,046,158 6.4% 19,102,308 Contracting (All) 1,370,703,262 3.3% 68,535,163 Retail 7,107,237,429 7.3% 355,361,871 Hotel/Motel 286,307,251 5.3% 15,746,899 Other Taxable Activities 975,113,224 -7.3% 37,407,928 $13,545,546,922 4.7% $667,361,149 TOTAL NUMBER OF ACCOUNTS FISCAL YEAR 2009-10 THROUGH FISCAL YEAR 2011-12 TAXABLE ACTIVITIES AND BUSINESS CLASSIFICATIONS Utilities Communications Publishing Job Printing FY2009-10 FY2010-11 FY2011-12 77 87 91 318 303 314 85 87 82 154 160 149 1,659 1,684 1,738 204 203 222 Rentals of Personal Property 1,069 1,010 1,000 Contracting (All) 4,672 4,552 4,504 13,839 14,278 14,352 257 254 267 3,870 4,062 4,082 26,204 26,680 26,801 Restaurants and Bars Amusements 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 2012 ANNUAL REPORT Page 51 TABLE 20 TRANSACTION PRIVILEGE, USE AND SEVERANCE TAX COLLECTIONS (1) IN PINAL COUNTY FOR THE PERIOD BEGINNING JULY 1, 2011 AND ENDING JUNE 30, 2012 TAXABLE ACTIVITIES AND CALCULATED NET % CHANGE BUSINESS CLASSIFICATIONS TAXABLE INCOME FROM FY 2010-11 Utilities Communications COLLECTIONS $477,870,078 3.3% $23,893,504 130,031,490 7.4% 6,501,575 Publishing 3,700,929 9.6% 185,046 Job Printing 1,787,447 15.6% 89,372 235,392,897 11.9% 11,769,645 38,536,069 9.9% 1,926,803 Restaurants and Bars Amusements Rentals of Personal Property Contracting (All) Retail Hotel/Motel Other Taxable Activities TOTAL 66,615,135 11.7% 3,330,757 375,082,821 -5.9% 18,754,141 1,100,423,596 4.9% 55,021,180 22,234,678 1.5% 1,222,907 312,572,399 -1.7% 11,123,552 $2,764,247,539 3.1% $133,818,482 NUMBER OF ACCOUNTS FISCAL YEAR 2009-10 THROUGH FISCAL YEAR 2011-12 TAXABLE ACTIVITIES AND BUSINESS CLASSIFICATIONS FY2009-10 Utilities Communications Publishing Job Printing Restaurants and Bars Amusements FY2010-11 FY2011-12 72 228 73 223 79 206 26 26 28 40 32 31 436 441 465 89 93 90 471 437 451 Contracting (All) 2,700 2,644 2,721 Retail 4,533 4,660 4,782 Rentals of Personal Property Hotel/Motel Other Taxable Activities TOTAL 110 114 109 1,740 1,816 1,924 10,445 10,559 10,886 (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 2012 ANNUAL REPORT Page 52 TABLE 21 TRANSACTION PRIVILEGE, USE AND SEVERANCE TAX COLLECTIONS (1) IN SANTA CRUZ COUNTY FOR THE PERIOD BEGINNING JULY 1, 2011 AND ENDING JUNE 30, 2012 TAXABLE ACTIVITIES AND CALCULATED NET % CHANGE BUSINESS CLASSIFICATIONS TAXABLE INCOME FROM FY 2010-11 $47,631,933 25,539,456 -0.6% -2.1% Utilities Communications COLLECTIONS $2,381,597 1,276,973 Publications 133,267 NA 6,663 Job Printing 445,479 -5.1% 22,274 43,668,438 3.5% 2,183,422 4,280,226 -0.4% 214,011 Restaurants and Bars Amusements Rentals of Personal Property 12,886,789 7.5% 644,339 Contracting (All) 83,199,734 14.2% 4,159,987 299,091,161 -0.8% 14,954,558 8,719,179 -27.9% 479,555 17,906,660 NA 895,330 $543,502,321 1.9% $27,218,709 Retail Hotel/Motel Other Taxable Activities (2) TOTAL NUMBER OF ACCOUNTS FISCAL YEAR 2009-10 THROUGH FISCAL YEAR 2011-12 TAXABLE ACTIVITIES AND BUSINESS CLASSIFICATIONS Utilities Communications FY2009-10 21 133 FY2010-11 FY2011-12 21 133 22 129 Publications NA NA 13 Job Printing 13 13 19 133 131 133 21 19 22 Rentals of Personal Property 235 214 228 Contracting (All) 572 546 583 1,894 1,998 2,119 41 36 40 925 959 1,001 3,988 4,070 4,309 Restaurants and Bars Amusements 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. (2) For FY12, fewer categories have been classified under the Other Taxable Activities compared to FY11. Figures may not add to total due to rounding. ARIZONA DEPARTMENT OF REVENUE 2012 ANNUAL REPORT Page 53 TABLE 22 TRANSACTION PRIVILEGE, USE AND SEVERANCE TAX COLLECTIONS (1) IN YAVAPAI COUNTY FOR THE PERIOD BEGINNING JULY 1, 2011 AND ENDING JUNE 30, 2012 TAXABLE ACTIVITIES AND CALCULATED NET % CHANGE BUSINESS CLASSIFICATIONS TAXABLE INCOME FROM FY 2010-11 Utilities Communications COLLECTIONS $319,588,422 2.6% $15,979,421 95,771,609 6.4% 4,788,580 Publishing 2,784,699 2.3% 139,235 Job Printing 4,079,883 11.3% 203,994 274,272,806 5.0% 13,713,640 26,777,122 2.0% 1,338,856 Restaurants and Bars Amusements Rentals of Personal Property Contracting (All) Retail Hotel/Motel Other Taxable Activities TOTAL 42,260,002 3.4% 2,113,000 286,196,829 14.2% 14,309,841 1,295,962,777 5.7% 64,798,139 97,317,892 6.7% 5,352,484 321,767,856 -6.8% 9,913,856 $2,766,779,897 4.4% $132,651,048 NUMBER OF ACCOUNTS FISCAL YEAR 2009-10 THROUGH FISCAL YEAR 2011-12 TAXABLE ACTIVITIES AND BUSINESS CLASSIFICATIONS Utilities FY2009-10 FY2010-11 FY2011-12 74 75 77 223 222 210 Publishing 42 48 49 Job Printing 59 57 55 611 623 643 99 92 87 Communications Restaurants and Bars Amusements Rentals of Personal Property 493 462 463 Contracting (All) 2,472 2,326 2,255 Retail 5,956 6,140 6,265 199 206 209 1,907 2,025 2,064 12,135 12,276 12,377 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 2012 ANNUAL REPORT Page 54 TABLE 23 TRANSACTION PRIVILEGE, USE AND SEVERANCE TAX COLLECTIONS (1) IN YUMA COUNTY FOR THE PERIOD BEGINNING JULY 1, 2011 AND ENDING JUNE 30, 2012 TAXABLE ACTIVITIES AND BUSINESS CLASSIFICATIONS Utilities Communications Publications Restaurants and Bars Rentals of Personal Property Contracting (All) Retail Hotel/Motel Other Taxable Activities (2) TOTAL CALCULATED NET TAXABLE INCOME % CHANGE FROM FY 2010-11 COLLECTIONS $246,395,269 68,338,873 1,768,876 219,275,707 82,386,984 294,457,195 1,246,183,674 51,792,509 84,440,335 -0.5% -0.5% NA 6.2% 27.5% 10.1% 2.9% 7.3% NA $12,319,763 3,416,944 88,444 10,963,785 4,119,349 14,720,728 62,309,184 2,848,588 4,202,030 $2,295,039,422 4.6% $114,988,815 NUMBER OF ACCOUNTS FISCAL YEAR 2009-10 THROUGH FISCAL YEAR 2011-12 TAXABLE ACTIVITIES AND BUSINESS CLASSIFICATIONS Utilities Communications Publications Restaurants and Bars Rentals of Personal Property Contracting (All) Retail Hotel/Motel Other Taxable Activities (2) TOTAL FY2009-10 FY2010-11 FY2011-12 41 188 --342 430 969 3,557 104 1,657 32 191 --364 411 974 3,669 102 1,726 36 194 18 371 426 961 3,837 109 1,812 7,288 7,469 7,764 (1) License fees, Jet Fuel, Jet Fuel Use, Timber Severance, NSF, and Telecommunications Service Assistance are not included. (2) For FY12, fewer categories have been classified under the Other Taxable Activities compared to FY11. Figures may not add to total due to rounding. ARIZONA DEPARTMENT OF REVENUE 2012 ANNUAL REPORT Page 55 TABLE 24 STATE TRANSACTION PRIVILEGE AND SEVERANCE TAX DISTRIBUTION TO COUNTIES FISCAL YEAR 2007-08 THROUGH FISCAL YEAR 2011-12 COUNTY Apache Coconino Cochise Gila Graham Greenlee La Paz Maricopa Mohave Navajo Pima Pinal Santa Cruz Yavapai Yuma TOTAL FY2007-08 FY2008-09 FY2009-10 FY2010-11 FY2011-12 % CHANGE FROM FY 2010-11 $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 $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 $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 $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 $4,148,680 17,035,207 10,964,080 4,614,778 3,624,351 4,376,829 1,941,213 398,827,938 17,391,271 9,605,663 92,723,932 26,600,160 4,062,329 22,955,984 17,095,552 0.8% 9.3% 0.8% 5.3% 12.0% 10.9% 13.0% 4.1% -0.9% 3.0% 4.6% 30.9% 4.9% 5.8% 4.8% $724,417,089 $627,176,822 $578,479,176 $604,829,288 $635,967,967 5.1% Figures may not add to totals due to rounding. ARIZONA DEPARTMENT OF REVENUE 2012 ANNUAL REPORT Page 56 TABLE 25 STATE TRANSACTION PRIVILEGE AND SEVERANCE TAX DISTRIBUTION TO MUNICIPALITIES FISCAL YEAR 2011-12 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 $381,715 153,233 271,928 $398,906 435,632 1,357,922 144,794 3,429,422 107,834 293,573 $5,147,101 102,676 566,283 43,602 236,218 $588,553 51,729 143,544 1,195,625 180,504 27,584 $806,877 $6,168,083 $6,095,881 $2,187,538 $186,521 747,490 380,153 $1,314,164 $258,722 54,386 $313,108 $240,906 287,322 $528,228 $5,957,260 3,975,466 262,786 391,873 18,450,722 2,484,627 1,757,297 150,186 16,288,580 17,716,047 5,100,608 431,569 427,896 34,306,796 1,001,759 12,038,685 112,962,120 2,059,856 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 AMOUNT COUNTY TOTAL $16,986,529 9,182,814 12,636,771 511,428 497,207 481,032 $276,059,915 $3,089,667 376,714 2,193,242 4,104,475 $9,764,099 $394,843 334,597 832,976 436,804 321,313 754,445 $3,074,977 $2,731,863 3,204,612 1,973,746 441,649 40,642,020 $48,993,890 $2,800,548 3,795,352 924,009 1,299,551 1,995,391 152,374 111,428 3,397,697 221,684 $14,698,035 $1,628,209 71,342 $1,699,551 $849,619 845,244 320,141 880,250 304,278 34,694 3,113,344 3,033,563 783,825 $10,164,959 $1,992,968 1,116,391 225,200 7,272,049 $10,606,608 TOTALDEPARTMENT OF REVENUE $392,475,912 ARIZONA 2012 ANNUAL$392,475,912 REPORT Page 57 TABLE 26 MUNICIPAL PRIVILEGE TAX COLLECTION PROGRAM COLLECTIONS BY CITY FISCAL YEAR 2011-12 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 $15,698 2,941,820 1,881,913 14,540,134 35,495 1,735,428 2,886,242 19,133,133 4,788,702 3,507,894 911,024 579,608 264,175 4,688,028 10,558,187 366,748 50,335 89,322 817,803 5,462,856 5,114,261 3,733,521 7,867,766 319,157 2,104,220 53,693,725 3,437,366 35,610,202 1,468,901 1,955,691 3,370,775 148,823 657,146 536,500 11,911,486 14,772,773 3,423,070 81,998 24,231,127 $7,493,445 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 COLLECTIONS 343,862 12,682,619 6,960,801 10,268,065 1,164,714 168,486 6,047,628 213,111 3,375,932 10,883,569 1,216,971 11,656,719 5,576,922 6,221,737 767,591 6,073,810 133,433 8,864,612 16,757,320 1,033,035 2,073 1,689,509 1,294,246 235,399 278,779 32,221,036 587,223 2,416,896 13,447,224 713,960 2,400,891 672,241 2,624,450 19,013 3,838,834 118,578 4,300,160 1,041,541 31,397,140 TOTAL $466,896,627 * Jurisdictions may have levied at more than one rate during the fiscal year. Rate shown is the rate charged on most transactions. 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 up to the effective date. Figures may not add to total due to rounding. ARIZONA DEPARTMENT OF REVENUE 2012 ANNUAL REPORT Page 58 TABLE 27 MUNICIPAL PRIVILEGE TAX COLLECTION PROGRAM FISCAL YEAR 2007-08 THROUGH FISCAL YEAR 2011-12 FISCAL YEAR TOTAL COLLECTIONS NUMBER OF CITIES IN PROGRAM 2007-08 $581,066,050 77 2008-09 $506,884,596 76 2009-10 $443,808,887 76 2010-11 $450,148,563 73 2011-12 $466,896,627 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 FY 2011-12 $10,392,302 $32,789,899 $10,163,746 (4) $95,151,159 $5,790,053 $24,595,088 $97,237,309 (4) $126,777,870 $9,841,089 $60,719,649 $674,425,999 $23,721,779 $151,052,744 $10,670,880 $1,337,769 $126,124,000 $190,629,228 $2,295,667 (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 2012 ANNUAL REPORT Page 59 ARIZONA DEPARTMENT OF REVENUE 2012 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 $647.9 million during fiscal year 2012 (Refer to Table 28). INDIVIDUAL INCOME TAX MAJOR FEATURES For tax year 2009 filed in 2010, approximately 2.5 million individual filers reported Arizona gross income (defined as federal adjusted gross income) totaling more than $122.2 billion. Individuals with Arizona gross income of more than $75,000, in the preceding or current year, are required to file Arizona estimated tax payments. An individual can apply any portion of an income tax refund toward the following year's income tax as an estimated payment. DISTRIBUTION State income tax collections are shared with Arizona municipalities in an Urban Revenue Sharing Program. (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). Pursuant to HB 2001, Chapter 1, 2nd Special Session, 2011, $31.5 million of withholding tax revenues is transferred annually to the Job Creation Withholding Clearing Account. Pursuant to HB 2332, Chapter 128, 1st Regular Session, 2011, taxpayers are to declare their annual amount of use tax on their individual income tax return beginning with taxable year 2011. The use tax amount has been adjusted out of Individual Gross Revenue and is included in the Transaction Privilege, Use and Severance tables. The graduated rate structure for the 2009 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 2012 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 Clean Elections Taxpayers that incur expenses to purchase and install an agricultural water conservation system in Arizona. 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 Corporate Contributions to School Tuition Organizations 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 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 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. Taxpayers that employ recipients of Temporary Assistance for Needy Families (TANF). Employment of TANF Recipients 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 describes in ARS § 41-1514.02. A credit for taxpayers below certain income levels, with differing amounts for different household sizes. Family 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. Increased Excise Taxes 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. ARIZONA DEPARTMENT OF REVENUE 2012 ANNUAL REPORT Page 62 CREDIT Investment in Qualified Small Businesses AVAILABLE TO 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. New Employment Provides nonrefundable individual and corporate credits for net increases in qualified employment positions in Arizona at a business location 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. Taxpayers who acquire and place in service recycling equipment in Arizona. This credit was repealed for corporations not individuals. Recycling Equipment Renewable Energy Industry This credit provides refundable individual and corporate income tax credits for expanding or locating qualified renewable energy operations in this state. Renewable Energy Production This credit provides nonrefundable individual and corporate credits for production of electricity by a qualified energy generator that produces electricity using a qualified energy resource. 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. ARIZONA DEPARTMENT OF REVENUE 2012 ANNUAL REPORT Page 63 CREDIT AVAILABLE TO Solar Energy Devices – Commercial and Industrial Applications This credit is available to individuals, corporations and S corporations. The credit is 10% of the cost of the installed device, not to exceed $25,000 with respect to the same building in the same tax year, or $50,000 in total credits in any given year. Solar Liquid Fuel Provides nonrefundable individual and corporate credits for increased research activities related to solar liquid fuel. Solar Hot Water Heater Plumbing Stub Outs and Electric Vehicle Recharge Outlets Taxpayers for the installation of solar hot water heater plumbing stub outs and electric vehicle recharge outlets in houses or dwelling units constructed by the taxpayer. The houses or dwelling units must be located in Arizona. Taxes Paid for Coal Consumed in Generating Electrical Power Allows corporate taxpayers a credit equal to 30 percent of the amount paid by the seller or purchaser as transaction privilege tax or use tax for coal sold to the taxpayer that is consumed in the generation of electrical power in Arizona. Water Conservation System An individual may qualify for this credit if the taxpayer installed a qualifying water conservation system in the taxpayer’s residence located in Arizona. ARIZONA DEPARTMENT OF REVENUE 2012 ANNUAL REPORT Page 64 TABLE 28 INCOME TAX COLLECTIONS FISCAL YEAR 2007-08 THROUGH FISCAL YEAR 2011-12 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 Refunds and Charge-offs NET Subtotal Net Collections Less distr ibutions 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 National Guard Relief Fund I Did Not Pay Enough Fund Democratic Party Libertarian Party Republican Party Green Party Job Creation W/H Clearing Acct (3) Subtotal Distr ibutions NET REVENUE TO STATE GENERAL FUND WQARF Distribution Sports and Tourism Authority Use Tax on Income Tax Return (4) PERCENT OF NET COLLECTIONS FY2011-12 IN FY2011-12 FY2007-08 FY2008-09 FY2009-10 FY2010-11 $3,344,770,438 (22,167,786) $3,092,546,185 (13,229,118) $3,017,256,893 (10,152,178) $3,234,666,688 (7,044,562) $3,343,314,942 (10,751,762) $3,322,602,653 $3,079,317,068 $3,007,104,715 $3,227,622,125 $3,332,563,180 $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) ----- $1,027,389,330 (1,260,775,055) ----- $91,698,139 ($503,863,734) ($583,890,008) ($357,056,777) ($233,385,726) $985,305,494 (200,615,179) $749,362,551 (157,110,835) $650,925,393 (237,644,455) $659,266,690 (98,958,514) $758,413,453 (110,525,973) $784,690,315 $592,251,716 $413,280,938 $560,308,176 $647,887,480 17.3% $4,198,991,106 $3,167,705,050 $2,836,495,645 $3,430,873,524 $3,747,064,934 100.0% $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 (2) 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 ----- $424,423,442 156,194 97,546 67,806 122,343 74,582 154,626 31,315 6,273,004 43,577 14,523 11,597 568 8,649 638 31,500,000 $692,565,835 $735,338,981 $635,650,660 $480,986,414 $462,980,411 $3,506,425,271 $2,432,366,069 $2,200,844,986 $2,949,887,110 $3,284,084,523 $15,000,000 $4,121,337 ----- $13,000,000 $4,200,254 ----- $7,000,000 $6,419,515 ----- $7,000,000 $5,810,440 ----- 88.9% -6.2% $7,000,000 $5,810,440 $1,705,724 (1) Attorney fees relating to the Ladewig class action lawsuit were paid from individual income tax refunds. (2) 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. (3) Pursuant to HB 2001, Chapter 1, 2nd Special Session, 2011, $31.5m of withholding tax revenues is to be transferred annually to the Job Creation Withholding Clearing Account. (4) Pursuant to HB 2332, Chapter 128, 1st Regular Session, 2011, taxpayers are to declare their annual amount of use tax on their individual income tax return beginning with taxable year 2011. The use tax amount has been adjusted out of Individual Gross Revenue and is included in the Transaction Privilege, Use and Severance tables. Figures may not add to total due to rounding. ARIZONA DEPARTMENT OF REVENUE 2012 ANNUAL REPORT Page 65 TABLE 29 EXEMPTIONS, DEDUCTIONS AND CREDITS TAX YEAR 2008 THROUGH TAX YEAR 2011 TAX YEAR 2008 2009 2010 2011 PERSONAL EXEMPTION (2) BLIND EXEMPTION AGE 65 AND OVER EXEMPTION DEPENDENT EXEMPTION STANDARD DEDUCTION LIMIT (1) MAXIMUM PROPERTY TAX CREDIT MAXIMUM FAMILY TAX CREDIT 2,100 2,100 2,100 2,100 1,500 1,500 1,500 1,500 2,100 2,100 2,100 2,100 2,300 2,300 2,300 2,300 4,521/9,042 4,677/9,354 4,677/9,354 4,703/9,406 502 502 502 502 240 240 240 240 (1) Amounts shown are for individual and married-filing-jointly returns. (2) Beginning with tax year 1997, married filers claiming at least one dependent are entititled to an additional $2,100 personal exemption. INDIVIDUAL INCOME TAX CREDITS TAX YEAR 2008 THROUGH TAX YEAR 2010 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 Renewable Energy Industry Research and Development School Site Donation Solar Energy Solar Hot Water Heater & Plumbing Stub Outs Water Conservation Systems Total TAX YEAR 2008 CLAIMANTS TAX YEAR 2009 CLAIMANTS CREDITS CREDITS TAX YEAR 2010 CLAIMANTS CREDITS 5 136 33,966 53 $14,087 $1,486,292 $773,000 $279,874 3 139 26,088 81 $13,306 $1,008,226 $633,415 $325,054 (1) (2) 24,908 46 (1) (2) $644,314 $257,980 36,568 0 3,070 (1) (1) 138 (1) 501,013 0 31,103 605,599 128 0 9 5 78,434 15,675 233,450 0 $11,059,408 $0 $982,575 (1) (1) $892,784 (1) $5,811,534 $0 $78,837,292 $32,308,185 $411,156 $0 $267,771 $5,731 $55,260,728 $5,722,697 $45,164,366 $0 49,676 0 3,185 (1) 0 98 (1) 515,867 0 30,125 664,675 208 0 5 (1) 73,430 17,366 239,031 0 $12,857,493 $0 $998,331 (1) $0 $1,190,630 (1) $5,270,319 $0 $75,216,168 $35,928,030 $574,434 $0 $77,267 (1) $50,879,153 $6,606,391 $42,657,087 $0 ----- ----- ----- ----- 325 55 5,124 $4,807,765 $321,623 $2,511,451 329 23 8,449 $4,548,356 $76,226 $4,983,151 61,602 0 3,052 (1) 3 (2) (1) 516,513 (2) 36,535 656,524 203 0 (1) (1) 62,940 17,526 250,004 0 0 451 (2) (2) $16,684,046 $0 $995,849 (1) $20,822 (2) (1) $5,594,106 (2) $84,093,029 $35,278,230 $791,082 $0 (1) (1) $43,183,534 $6,750,770 $43,718,717 $0 $0 $6,461,953 (2) (2) 11 214 1,545,084 $930 $108,710 $247,028,849 16 212 1,629,012 $1,568 $104,876 $243,957,252 (2) 230 1,630,547 (2) $104,280 $244,656,224 (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 2012 ANNUAL REPORT Page 66 TABLE 30 RESIDENT INDIVIDUAL INCOME TAX LIABILITY BY FEDERAL ADJUSTED GROSS INCOME TAX YEAR 2009 (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 47,946 41,912 116,558 155,025 169,828 241,467 176,487 152,289 256,625 186,940 317,399 192,610 215,187 44,123 6,303 2,492 221 2.06% 1.80% 5.02% 6.67% 7.31% 10.39% 7.60% 6.55% 11.05% 8.05% 13.66% 8.29% 9.26% 1.90% 0.27% 0.11% 0.01% $253,965 11,920 39,928 2,577,443 9,270,760 25,891,242 35,353,152 46,998,804 121,511,954 127,514,214 319,175,935 302,605,079 618,043,812 357,960,177 147,286,057 169,297,448 134,102,405 0.01% 0.00% 0.00% 0.11% 0.38% 1.07% 1.46% 1.94% 5.03% 5.27% 13.20% 12.52% 25.56% 14.80% 6.09% 7.00% 5.55% 2,323,412 100.00% TOTAL $2,417,894,295 100.00% (1) This summary combines all liability reported on the Arizona Form 140 and 140A Individual Income tax returns for tax year 2009, filed from January 2010 forward. ARIZONA DEPARTMENT OF REVENUE 2012 ANNUAL REPORT Page 67 TABLE 31 NONRESIDENT/ PART YEAR RESIDENT INDIVIDUAL INCOME TAX LIABILITY BY FEDERAL ADJUSTED GROSS INCOME TAX YEAR 2009 (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 45,583 23,095 31,632 22,821 16,747 17,640 10,696 7,737 10,930 7,339 10,382 4,960 5,596 2,111 493 286 42 20.90% 10.59% 14.50% 10.46% 7.68% 8.09% 4.90% 3.55% 5.01% 3.37% 4.76% 2.27% 2.57% 0.97% 0.23% 0.13% 0.02% 2,748,063 16,330 61,984 664,019 1,406,247 3,080,468 3,140,410 3,087,509 6,160,478 5,906,229 12,516,563 9,355,250 19,314,234 19,527,872 11,820,703 21,756,955 18,841,187 1.97% 0.01% 0.04% 0.48% 1.01% 2.21% 2.25% 2.21% 4.42% 4.24% 8.98% 6.71% 13.85% 14.01% 8.48% 15.61% 13.52% 218,090 100.00% $139,404,501 100.00% (1) This summary combines all liability reported on the Arizona Form 140NR and 140PY Individual Income tax returns for tax year 2009, filed from January 2010 forward. ARIZONA DEPARTMENT OF REVENUE 2012 ANNUAL REPORT Page 68 TABLE 32 CORPORATE INCOME TAX CORPORATE TAXPAYER BY SIZE OF TAX LIABILITY TAX YEAR 2009 (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 35,913 1,012 4,291 3,068 854 1,235 339 430 80 106 47,328 % OF TOTAL 75.9% 2.1% 9.1% 6.5% 1.8% 2.6% 0.7% 0.9% 0.2% 0.2% 100.0% LIABILITY $1,795,650 73,571 1,745,706 7,385,721 6,033,460 28,111,375 24,123,264 93,228,497 56,981,766 319,727,176 $539,206,186 % OF TOTAL 0.3% 0.0% 0.3% 1.4% 1.1% 5.2% 4.5% 17.3% 10.6% 59.3% 100.0% CORPORATE INCOME TAX CREDITS TAX YEAR 2009 CREDIT TYPE Agricultural Pollution Control Equipment Clean Elections Commercial & Industrial Solar Energy Contributions to School Tuition Organizations Contributions to School Tuition Organizations for Disabled/Displaced Students 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 0 228 10 69 CREDIT USED $0 $1,292 $87,118 $8,873,043 CARRYFORWARD AVAILABLE $0 $0 $115,574 $1,903,714 * * 6 12 92 * * * 5 15 242 * 0 4 0 693 * * $7,000 $43,178 $6,148,657 * * * $1,343,532 $1,715,381 $33,486,510 * $0 $658,252 $0 $54,507,601 * * $7,900 $89,134 $6,278,531 * * * $467,501 $3,681,020 $624,881,277 * $0 $5,281,480 $0 $660,624,757 (1) This summary combines all liability on the Arizona Form 120 Corporate Income Tax returns for tax year 2009 filed from January 2010 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 2012 ANNUAL REPORT Page 69 TABLE 33 AVERAGE FEDERAL ADJUSTED GROSS INCOME AND AVERAGE TAX LIABILITY PER RETURN BY COUNTY FOR TAX YEAR 2009 APACHE COCONINO Average FAGI $32,038 Average Liability $298 Average FAGI $47,094 Average Liability $893 MOHAVE Average FAGI $36,418 Average Liability $596 NAVAJO Average FAGI $37,297 Average Liability $532 GREENLEE YAVAPAI Average FAGI $48,225 Average Liability $974 Average FAGI $41,404 Average Liability $721 LA PAZ GILA Average FAGI $33,207 Average Liability $501 Average FAGI $39,431 Average Liability $625 MARICOPA Average FAGI $53,675 Average Liability $1,146 YUMA Average FAGI $36,408 Average Liability $609 STATEWIDE AVERAGES Average FAGI $50,902 Average Liability $1,382 PINAL Average FAGI $42,888 Average Liability $737 PIMA COCHISE Average FAGI $47,187 Average Liability $898 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 $41,511 Average Liability $736 Average FAGI $45,094 Average Liability $819 SANTA CRUZ Average FAGI $36,164 Average Liability $627 ARIZONA DEPARTMENT OF REVENUE 2012 ANNUAL REPORT Page 70 TABLE 34 URBAN REVENUE SHARING FISCAL YEAR 2007-08 THROUGH FISCAL YEAR 2011-12 FISCAL YEAR AMOUNT 2007-08 $684,538,927 2008-09 $727,677,400 (1) 2009-10 $628,644,630 2010-11 $474,006,520 2011-12 $424,423,442 (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 2012 ANNUAL REPORT Page 71 TABLE 35 DISTRIBUTION OF INCOME TAX AS URBAN REVENUE SHARING TO MUNICIPALITIES IN FISCAL YEAR 2011-12 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 $412,298 293,715 165,510 0.10% 0.07% 0.04% 430,866 470,534 1,466,716 156,395 3,704,180 126,601 317,094 0.10% 0.11% 0.35% 0.04% 0.87% 0.03% 0.07% 5,559,477 126,601 611,652 126,601 255,143 1.31% 0.03% 0.14% 0.03% 0.06% 635,706 126,601 155,044 1,291,416 194,966 126,601 0.15% 0.03% 0.04% 0.30% 0.05% 0.03% 239,044 787,339 410,610 0.06% 0.19% 0.10% 279,451 126,601 0.07% 0.03% 260,207 310,342 0.06% 0.07% 6,434,543 4,293,972 283,840 423,270 19,928,955 2,683,690 1,898,088 162,218 17,593,587 19,135,420 5,509,258 466,145 462,178 37,055,384 1,082,017 1.52% 1.01% 0.07% 0.10% 4.70% 0.63% 0.45% 0.04% 4.15% 4.51% 1.30% 0.11% 0.11% 8.73% 0.25% 13,003,200 122,012,407 3.06% 28.75% 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 $2,224,888 18,347,454 9,918,521 13,649,203 552,403 537,042 519,571 0.52% 4.32% 2.34% 3.22% 0.13% 0.13% 0.12% 3,337,205 406,896 2,368,960 4,433,318 0.79% 0.10% 0.56% 1.04% 426,477 361,404 899,712 471,800 347,056 814,889 0.10% 0.09% 0.21% 0.11% 0.08% 0.19% 2,950,734 3,461,359 2,131,878 477,033 43,898,174 0.70% 0.82% 0.50% 0.11% 10.34% 3,024,922 4,099,428 998,039 1,403,669 2,155,257 164,581 126,601 3,669,913 239,445 0.71% 0.97% 0.24% 0.33% 0.51% 0.04% 0.03% 0.86% 0.06% 1,758,658 126,601 0.41% 0.03% 917,689 912,963 345,790 950,774 328,656 126,601 3,362,779 3,276,605 846,624 0.22% 0.22% 0.08% 0.22% 0.08% 0.03% 0.79% 0.77% 0.20% 2,152,641 0.51% 1,205,833 243,243 7,854,670 0.28% 0.06% 1.85% $424,423,442 100.00% 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 2012 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 2012 ANNUAL REPORT Page 74 INDUSTRIES VALUED BY THE DEPARTMENT Industry Number of Companies 2010 2011 2012 Airlines (Flight Property) ................................................................... 29 ................ 28 ...............28 Electric & Gas* Generation ................................................................................... 36 ................ 38 ...............53 Transmission and Distribution ..................................................... 29 ................ 29 ...............32 Mines (non-producing) ........................................................................ 1 .................. 1 .................1 Mines (producing).............................................................................. 35 ................ 35 ...............30 Pipelines (Gas Transmission) .............................................................. 8 .................. 8 .................8 Private Rail Cars .............................................................................. 260 .............. 284 .............289 Producing Oil & Gas Interests ............................................................. 3 .................. 3 .................3 Railroads ............................................................................................ 11 ................ 11 ...............11 Telecommunications ......................................................................... 67 ................ 65 ...............63 Water Utilities .................................................................................. 326 .............. 327 .............316 Total ................................................................................................ 805 .............. 829 .............834 * Includes Salt River Project ARIZONA DEPARTMENT OF REVENUE 2012 ANNUAL REPORT Page 75 TABLE 36 STATE OF ARIZONA 2012 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 $544,620,229 $1,038,327,080 $1,747,818,103 $490,120,381 $208,931,298 $378,114,177 $227,958,224 $34,263,842,274 $1,791,765,155 $974,292,390 $8,073,937,734 $2,153,783,739 $369,498,126 $2,405,473,723 $1,186,605,732 $55,855,088,365 $2,568,974 $4,919,534 $9,108,415 $2,311,898 $985,529 $1,788,193 $1,075,279 $175,940,765 $8,451,756 $4,840,141 $38,437,212 $10,162,272 $1,746,323 $11,346,620 $5,597,219 $279,280,130 COUNTY $2,256,362 $27,283,082 $7,830,225 $20,536,044 $4,361,232 $2,349,223 $4,250,702 $425,383,416 $32,602,959 $6,236,446 $276,026,652 $81,917,148 $10,425,390 $39,512,311 $22,341,759 $963,312,951 AVERAGE STATE PRIMARY TAX RATE PER $100 CITIES and TOWNS $0 $2,368,358 $6,016,566 $2,441,991 $240,677 $269,161 $0 $213,843,820 $4,134,174 $388,535 $13,724,504 $16,550,523 $0 $1,556,799 $9,990,201 $271,525,309 COMMUNITY COLLEGES $0 $17,993,170 $6,772,795 $3,654,828 $5,040,050 $0 $3,846,567 $396,192,808 $19,621,621 $13,167,562 $92,721,101 $34,714,686 $258,279 $40,231,600 $20,022,785 $654,237,852 SCHOOLS $10,998,830 $43,899,484 $58,962,599 $18,789,021 $9,088,728 $7,335,410 $5,397,480 $1,384,931,976 $64,235,800 $32,059,680 $373,941,491 $82,347,227 $18,530,350 $78,130,088 $47,442,532 $2,236,090,696 ALL OTHER $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 TOTAL $15,824,166 $96,463,628 $88,690,600 $47,733,782 $19,716,216 $11,741,987 $14,570,028 $2,596,292,785 $129,046,310 $56,692,364 $794,850,960 $225,691,856 $30,960,342 $170,777,418 $105,394,496 $4,404,446,938 PRIMARY RATE 2.91 9.29 5.07 9.74 9.44 3.11 6.39 7.58 7.20 5.82 9.84 10.48 8.38 7.10 8.88 7.89 7.89 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 2.87 8.67 4.96 9.58 6.09 3.77 6.31 6.87 6.88 5.38 9.33 10.36 8.18 6.44 8.78 7.28 7.28 NOTE: Some increase/decrease due to reporting tax levies in different authorities than in previous years. Page 76 ARIZONA DEPARTMENT OF REVENUE 2012 ANNUAL REPORT TABLE 37 STATE OF ARIZONA 2012 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 $559,493,639 $1,060,199,126 $1,759,609,915 $492,484,092 $211,389,440 $378,231,572 $235,015,726 $34,400,455,716 $1,831,583,253 $978,263,926 $8,171,211,922 $2,177,012,575 $375,669,863 $2,414,825,073 $1,226,368,745 $56,271,814,583 STATE $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 COUNTY CITIES and TOWNS $4,497,769 $4,832,682 $13,301,181 $1,477,692 $304,908 $797,234 $235,016 $75,292,003 $18,216,611 $5,520,268 $114,748,124 $6,898,746 $2,329,283 $12,518,091 $13,015,784 $273,985,392 $0 $177,287 $6,402,304 $0 $0 $0 $0 $223,914,876 $0 $0 $29,355,150 $3,701,918 $0 $1,588,549 $0 $265,140,084 AVERAGE STATE SECONDARY TAX RATE PER $100 COMMUNITY COLLEGES $2,095,863 $0 $1,851,110 $0 $0 $0 $815,505 $76,200,590 $0 $0 $2,098,625 $5,808,270 $0 $5,192,500 $4,256,028 $98,318,491 SCHOOLS $1,734,913 $4,539,190 $19,394,030 $5,391,198 $1,726,386 $1,952,459 $1,544,604 $873,802,428 $16,497,031 $12,867,868 $120,503,012 $41,201,933 $3,541,475 $17,886,655 $14,634,177 $1,137,217,359 ALL OTHER $5,446,692 $9,228,798 $16,879,321 $6,741,611 $569,880 $38,430 $4,570,142 $174,158,992 $21,529,905 $14,281,939 $76,951,679 $25,855,087 $6,757,328 $36,396,771 $971,199 $400,377,774 TOTAL $13,775,237 $18,777,957 $57,827,946 $13,610,501 $2,601,174 $2,788,123 $7,165,266 $1,423,368,889 $56,243,547 $32,670,075 $343,656,590 $83,465,954 $12,628,086 $73,582,566 $32,877,188 $2,175,039,100 SECONDARY RATE 2.46 1.77 3.29 2.76 1.23 0.74 3.05 4.14 3.07 3.34 4.21 3.83 3.36 3.05 2.68 3.87 3.87 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 NOTE: Some increase/decrease due to reporting tax levies in different authorities than in previous years. Page 77 ARIZONA DEPARTMENT OF REVENUE 2012 ANNUAL REPORT TABLE 38 AVERAGE PROPERTY TAX RATES PER $100 OF ASSESSED VALUATION 2009 THROUGH 2012 2009 School Districts Counties State Cities and Towns Community Colleges Special Districts PRIMARY $3.19 1.42 0.36 0.35 0.80 0.00 2010 SECONDARY $1.51 0.37 0.00 0.51 0.14 0.53 $6.13 TOTAL $3.07 PRIMARY $3.17 1.51 0.39 0.38 0.87 0.00 $6.32 $9.20 School Districts Counties State Cities and Towns Community Colleges Special Districts TOTAL $3.35 $9.67 2011 PRIMARY SECONDARY $1.69 0.42 0.00 0.50 0.15 0.59 2012 SECONDARY PRIMARY SECONDARY $3.63 1.70 0.46 0.44 1.05 0.00 $1.88 0.48 0.00 0.48 0.16 0.67 $4.00 1.72 0.50 0.49 1.17 0.00 $2.02 0.49 0.00 0.47 0.17 0.71 $7.28 $3.67 $7.89 $3.87 $10.94 $11.75 School district rate includes Unorganized School Districts. Figures may not add to total due to rounding. ARIZONA DEPARTMENT OF REVENUE 2012 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 2012 ANNUAL REPORT Page 79 ARIZONA DEPARTMENT OF REVENUE 2012 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 2007-08 THROUGH FISCAL YEAR 2011-12 Fiscal Year Amount 2007-08 $558,330 2008-09 $531,588 2009-10 $520,655 2010-11 $504,905 2011-12 $508,145 BINGO COLLECTIONS FY2007-08 FY2008-09 FY2009-10 FY2010-11 FY2011-12 Licenses Proceeds Penalty, Interest and Miscellaneous $18,393 539,576 $19,735 510,177 $19,718 499,206 $27,576 476,482 $18,164 486,056 361 1,676 1,731 847 3,926 TOTAL $558,330 $531,588 $520,655 $504,905 $508,145 ARIZONA DEPARTMENT OF REVENUE 2012 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 2007-08 THROUGH FISCAL YEAR 2011-12 Fiscal Year Collections Refunds Net 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 2011-12 $200,825 $0 $200,825 Figures may not add to total due to rounding. ARIZONA DEPARTMENT OF REVENUE 2012 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 2012 fiscal year, over $388 million was received in luxury tax collections. Of the monies collected per the Tobacco Products Referendum (Prop 303), $39.8 million was distributed to the Prop 204 Protection Account, $25.6 million to the Medically Needy Account, $18.9 million for Emergency Health Services, $4.7 million for Health Research, and $1.9 million for Health Education. Due to the passage of the Tobacco Tax and Health Care Initiative in November 1994, $46.9 million was distributed to the Medically Needy Fund, $15.4 million to the Health Education Fund and $3.4 million to the Health Research Fund. The Corrections Fund, established by the Legislature in 1984 to pay for prison construction, received $28.5 million. The Drug Treatment and Education Fund received $8.8 million, and the Corrections Revolving Fund received $3.5 million due to the passage of Proposition 200 in 1994. The Smoke Free AZ fund received $3.0 million due to the passage of Proposition 201 in 2006. The Early Childhood Development and Health Fund received $129.4 million due to the passage of Proposition 203 in 2006. The remaining $56.4 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 2012 ANNUAL REPORT Page 83 TABLE 41 LUXURY TAX COLLECTIONS FISCAL YEAR 2007-08 THROUGH FISCAL YEAR 2011-12 SOURCE: FY2007-08 FY2008-09 FY2009-10 FY2010-11 FY2011-12 PERCENT OF COLLECTIONS IN FY2011-12 $27,613,939 $28,341,033 $29,304,713 $28,202,704 $31,847,105 8.2% Vinous Liquor 13,006,487 13,006,125 13,881,407 13,596,155 15,430,577 4.0% Malt Liquor 23,936,126 22,831,547 22,232,715 21,566,369 21,101,489 5.4% Spirituous Liquor Liquor Collections $64,556,551 $64,178,705 $65,418,835 $63,365,229 $68,379,171 $412,769,855 $380,593,991 $340,839,935 $340,754,224 $337,777,289 (4,761,258) (6,251,626) (6,635,450) (12,281,284) (17,978,338) Tobacco - All Types Gross Revenue Refunds Licenses 7,100 Administrative Expenses Net Tobacco Collections TOTAL COLLECTIONS (587,463) 7,075 (646,800) 7,900 (662,742) 7,710 (673,071) 7,925 (677,280) $407,428,234 $373,702,640 $333,549,643 $327,807,579 $319,129,597 82.4% $471,984,785 $437,881,344 $398,968,478 $391,172,807 $387,508,768 100.0% DISTRIBUTIONS: State General Fund Wine Promotional Fund (4) Tobacco Tax & Health Care Fund (1) Tobacco Products Tax Fund (1) $61,037,231 $57,878,187 $55,352,260 $53,599,408 29,003 ----- ----- ----- $56,357,085.38 ----- 79,033,025 73,785,519 (5) 65,051,516 64,799,725 61,879,113 116,127,254 108,934,079 (5) 96,335,427 95,586,289 90,953,118 Drug Treatment & Education Fund 8,576,309 8,434,654 8,551,873 8,303,445 8,805,071 DOC Revolving Fund 3,411,936 3,358,868 3,407,130 3,307,459 3,512,659 28,703,383 26,861,628 28,587,983 27,130,247 28,518,897 DOC Transfer from Prop 200 Funds 1,479,783 1,855,867 637,075 1,322,335 1,259,100 Prop 200 Transfer from Prop 303 Funds (1) 4,835,440 2,539,738 4,037,828 3,982,185 3,789,120 Smoke Free AZ (2) 3,946,308 2,868,990 3,888,483 3,058,479 3,043,448 Department of Corrections Fund Early Childhood Development and Health Fund (3) TOTAL DISTRIBUTIONS 164,805,113 151,363,815 133,118,902 130,083,235 129,391,158 $471,984,785 $437,881,344 $398,968,478 $391,172,807 $387,508,768 (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 Fun 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 2012 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 intangible and 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 2012 ANNUAL REPORT Page 85 TABLE 42 UNCLAIMED PROPERTY COLLECTIONS AND DISTRIBUTIONS FISCAL YEAR 2007-08 THROUGH FISCAL YEAR 2011-12 SOURCE: UNCLAIMED PROPERTY Refunds Expenses NET FY2007-08 FY2008-09 $136,446,760 (27,859,528) (5,555,692) $103,031,540 $74,337,392 (22,267,197) (2,099,913) $49,970,281 647,669 (281,484) $366,184 643,679 (466,307) $177,373 ESCHEATED ESTATES Refunds NET TOTAL NET REVENUE $103,397,724 $50,147,654 FY2009-10 $161,637,025 (24,207,862) ----- (5) $137,429,163 320,538 (94,959) $225,579 $137,654,742 FY2010-11 FY2011-12 $121,263,602 (34,677,629) ----$86,585,973 $115,160,041 (40,049,513) ----$75,110,528 370,786 (230,340) $140,446 186,322 (158,988) $27,334 $86,726,419 $75,137,862 DISTRIBUTIONS: General Fund Housing Fund SMI Housing Fund (7) Utility Assistance Fund Racing Fund Victim Restitution Fund HB 2786 Sec Sale Operating transfers (4) Admin Fund (5) 9,755,359 33,684,313 ----26,336 (3) 12,248,841 173,068 47,132,471 (2) --------- Net to Per manent State School Fund: Escheated Estates Unclaimed Shares/dividends Storage Facility TOTAL DISTRIBUTION 366,184 7,208 3,944 $103,397,724 9,526,605 28,554,062 --------10,383,295 144,618 ----1,352,600 ----- 177,373 (6) 6,719 2,383 $50,147,654 100,034,835 10,500,000 (5) ------------- (5) 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 58,381 701 $86,726,419 45,819,445 2,500,000 2,000,000 --------100,540 --------24,500,000 27,334 (1) 184,618 5,925 $75,137,862 (1) (2) (3) (4) (5) (6) FY 12 Escheated Estates will be transferred in FY 13. 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 Session, 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. (7) Pursuant to SB 1616, Chapter 28, 1st Regular Session, 2011. Figures may not add to total due to rounding. ARIZONA DEPARTMENT OF REVENUE 2012 ANNUAL REPORT Page 86 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 2012, the department collected $8,518,868 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 2007-08 THROUGH FISCAL YEAR 2011-12 Apache Cochise Coconino Gila Graham Greenlee La Paz Maricopa Mohave Navajo Pima Pinal Santa Cruz Yavapai Yuma Arizona Department of Environmental Quality Total FY2007-08 FY2008-09 FY2009-10 FY2010-11 FY2011-12 $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 $110,216 225,450 211,898 115,502 51,514 16,315 52,807 4,531,883 413,996 176,949 1,133,099 414,977 82,081 407,032 276,990 304,664 276,153 277,383 285,438 298,160 $8,704,684 $7,890,076 $7,925,216 $8,155,363 $8,518,868 Figures may not add to total due to rounding. ARIZONA DEPARTMENT OF REVENUE 2012 ANNUAL REPORT Page 87 ARIZONA DEPARTMENT OF REVENUE 2012 ANNUAL REPORT Page 88 LEGISLATIVE SUMMARY ARIZONA DEPARTMENT OF REVENUE 2012 ANNUAL REPORT Page 89 ARIZONA DEPARTMENT OF REVENUE 2012 ANNUAL REPORT Page 90 LEGISLATIVE SUMMARY The following is intended to give a brief summary of the 2012 tax-related legislation impacting the Department of Revenue (DOR) and not intended to discuss 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 during the First Regular Session is August 2, 2012. 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 2727 (Chapter 77) House Bill 2120 (Chapter 38) Public school tax refund checkoff Internal revenue code conformity Incorporates the federal changes made in 2011 into Arizona’s definition of “internal revenue code.” Modifies the Assistance for Education Fund tax refund checkoff box to allow individual taxpayers to contribute any portion of their refund. House Bill 2212 (Chapter 71) House Bill 2779 (Chapter 257) Tax exempt organizations; returns; exception Clean elections; trigger reports; repeal Increases, from $25,000 to $50,000, the maximum income amount a tax exempt organization may have before being required to file an Arizona income tax return. Eliminates matching fund reporting requirements for nonparticipating candidates under the Clean Elections Act. Eliminates voluntary tax donation check off for Clean Elections from the Arizona individual income tax form and eliminates tax credits and tax reductions for contributions to Clean Elections. House Bill 2627 (Chapter 271) Tax credit; charitable organizations Modifies certification criteria required by DOR to qualify as a charitable organization by removing the requirement that organizations declare if they promote or provide referrals for abortions. House Bill 2713 (Chapter 351) Insurance premiums; long-term care; deduction (Arizona long term care trust) Establishes an individual income tax subtraction for long-term care insurance premiums paid by taxpayers not claiming itemized deductions. Also establishes an individual income tax subtraction for amounts deposited into a long-term care savings account, as long as the amounts are included in the individual’s federal adjusted gross income. House Bill 2815 (Chapter 343) Employment; incentives; regulatory tax credit Qualified Facility Credit Adds new, refundable corporate and individual income tax credits for taxpayers that open a qualified facility in Arizona. A qualified facility is a facility that devotes at least 80% of the property and payroll at the facility to one or more of the following:  Manufacturing of tangible products in this state if at least 65% of the product will be sold out-ofstate.  A global, national, or regional headquarters for a taxpayer that is involved in manufacturing and that derives at least 65% of its revenue from outof state sales. ARIZONA DEPARTMENT OF REVENUE 2012 ANNUAL REPORT Page 91  Qualified research conducted by a taxpayer that derives at least 65% of its revenue from out of state. The new qualified facility credit is tied to the same cap as the existing renewable energy industry cap of $70 million per year, with an annual limit of $30 million per taxpayer. The existing renewable energy industry credit is modified to also have the same per taxpayer cap. The credit is claimed in five equal installments and any amount in excess of tax liability is refunded. The amount of the credit is the 10% of the lesser of: 1. The total qualifying investment in the qualified facility; or 2. $200,000 for each net new full-time employment position at the qualified facility. At least 51% of the net new full-time employment positions at the qualified facility must be paid a wage of at least 125% of the median annual wage in Arizona. The positions must include health insurance for which the applicant pays at least 80% of the premium or membership costs. The credit is subject to pre and post approvals by the Arizona Commerce Authority (ACA) and the taxpayer must enter into a managed review agreement with the ACA to be conducted by an unaffiliated CPA chosen by the taxpayer at their own expense. The managed review must be completed before the applicant applies for postapproval of the credit. Quality Jobs Modifies the existing premium tax, corporate income tax, and individual income tax credits for tax years beginning from and after December 31, 2012 for new employment by allowing:  Mandatory investment and hiring to be done in a twelve month period from the start of the investment. The credit would be allowed in the year completed.  New first year credits for new employees hired to be claimed for each of three years at the location once the initial requirements are met.  Taxpayers to include employees hired after the start of the required investment even though the employees are working at a temporary work site while construction is completed at the designated location as long as the employee was hired to work at the designated location, the payroll for employees destined for the designated location is segregated and the employee is moved to the designated location within 30 days of its completion. The annual cap of 400 employees per taxpayer is eliminated. The credits are not subject to pre-approval by the ACA before a credit may be claimed. Capital Gains Provides for an individual income tax subtraction for long-term capital gains from assets acquired after December 31, 2011. The subtraction is phased in over time with a 10% subtraction for 2013, 20% for 2014 and 25% for 2015 and after. Bonus depreciation Currently, Arizona adds back all federal depreciation claimed and then allows a subtraction for the amount of depreciation a taxpayer would have been allowed if they had chosen not to claim bonus depreciation on their federal return. The amendment would allow individual income tax taxpayers to claim a subtraction for property placed in service in 2014 or after to claim the subtraction for depreciation as if the federal bonus depreciation allowed was 10% of the amount allowed federally. For assets placed in service in tax year 2013, the taxpayer would start out claiming depreciation based on opting out of the bonus depreciation but in tax year 2014 they will be able to take a subtraction to make the depreciation claimed to date the same as if the taxpayer had claimed a bonus depreciation equal to ten percent of the federal bonus depreciation in the prior year. Net operating Loss Deduction for Corporations Allows net operating losses arising in taxable periods beginning from and after December 31, 2011 to be carried forward for 20 years for corporate income tax purposes. Business Personal Property Tax Changes the methodology for annually indexing the business personal property exemption beginning in 2013 and specifies that the exemption should be re-calculated as if this had been in effect since 1997. The old index was the change in the Employment Cost Index over one year; the new index will be the change in the same index over two years (effectively doubling the rate of increase of the exemption). The net effect would be to increase the exemption from $68,079 in 2012 to approximately $133,000 in 2013. ARIZONA DEPARTMENT OF REVENUE 2012 ANNUAL REPORT Page 92  Senate Bill 1046 (Chapter 2) Corporate tax allocation; sales factor Modifies the corporate apportionment formula by allowing certain sales of services to be included in the sales factor. SB 1046 allows service providers that sell more than 85% of their services to customers that receive the benefit of the service outside of Arizona to include sales in the sales factor based on market (where the customers are) rather than cost of performance (COP). The election will be phased-in starting in taxable years beginning January 1, 2014 with a sales factor that is 85% market sales and 15% COP sales. The market sales percentage increases 5% each year and the COP sales decreasing 5% each year until the percentage of market sales included in the sales factor reaches 100% in 2017. The election is not mandatory, but if made, is binding for 5 consecutive tax years. The law is effective for tax years beginning January 1, 2014. Senate Bill 1047 (Chapter 4) School tuition organizations; administration (tax credit; school tuition organizations) Establishes an additional individual income tax credit for contributions to certified school tuition organizations. The amount of the credit is $500 for a single individual or a head of household or $1,000 for a married couple filing a joint return and is limited to taxpayers who have claimed a maximum credit pursuant to ARS § 43-1089. A taxpayer may only claim the excess amount under the new STO credit. The excess STO credit monies for educational scholarships or tuition grants may only be awarded to a student who:  attended a governmental primary or secondary school as a full-time student or attended a preschool program that offers services to students with disabilities at a governmental school for at least 90 days of the prior fiscal year and transferred from a governmental school to a qualified school;  enrolls in a qualified school in a kindergarten program or a preschool program that offers services to students with disabilities;  is the dependent of a member of the Armed Forces of the United States who is stationed in this state; received an education scholarship or tuition grant under the above paragraphs and continues to attend a qualified school in a subsequent year. A taxpayer may not claim the excess STO credit if the contribution is designated for the direct benefit of any dependent of the taxpayer, is a condition of the contribution, has the intent to benefit the taxpayer’s dependent, or coordinates with other taxpayer(s) to designate each taxpayer’s contribution to the STO organization for the direct benefit of the other taxpayer’s dependent. STOs are prohibited from knowingly colluding with any other STO to issue educational scholarships or tuition grants that exceed statutory limits. Senate Bill 1121 (Chapter 178) Tax subtraction; charitable crop contributions Expands the individual taxable income subtraction on qualifying donated crops by removing the cap of 80% of the crop value and allowing crops to be donated out-ofstate. Additionally, SB 1121 eliminated certain eligibility requirements, including:  Harvesting must be done by or on behalf of a donee;  Harvesting or processing the crop must be economically unfeasible in the taxpayer’s normal course of business;  The crop would go to waste if not donated. Senate Bill 1122 (Chapter 35) Tax refund checkoff boxes Removes the requirement that space for certain voluntary tax donations be provided on the front page of the Arizona income tax return. The checkoff boxes that affected are for the Child Abuse Prevention Fund, Special Olympics, Arizona Game and Fish Department, Neighbors Helping Neighbors and the Domestic Violence Shelter Fund. ARIZONA DEPARTMENT OF REVENUE 2012 ANNUAL REPORT Page 93 Senate Bill 1190 (Chapter 281) House Bill 2466 (Chapter 332) Extends the individual income tax credit for donations made to the Military Family Relief Fund through tax year 2018. Requires the Department of Administration to establish an online portal with a single point of filing and payment of municipal TPT and excise taxes for cities and towns that are not contracted with DOR for tax administration. Procurement of the online portal must be done via a public-private partnership as outlined by statute and authorizes a user fee for taxpayers who use the online portal. Tax credit; military family relief Senate Bill 1196 (Chapter 143) College savings; report; income subtraction Makes the individual income tax subtraction for contributions to a qualified college savings plan permanent and extends the deadline of the Arizona Commission for Postsecondary Education annual report from February 1 to March 1. Transaction Privilege Tax/ Use Tax Local sales tax; payments; DOR Senate Bill 1214 (Chapter 323) Use tax declaration; repeal Repeals the use tax declaration requirement on the Arizona individual income tax return. Senate Bill 1229 (Chapter 232) House Bill 2123 (Chapter 114) Transaction privilege tax reform committee Establishes a 13-member Transaction Privilege Tax Reform Committee to study and make recommendations regarding the collection of revenues to the state General Fund, including individual and corporate income tax and transaction privilege tax. The Committee also must make recommendations to minimize the fiscal impact to cities, towns and counties. Tax exemption; residential solar electricity Exempts sales or transfers of renewable energy credits from the retail and utilities classification (TPT) and use tax. This legislation also deducts the portion of gross proceeds of sales or gross income attributable to the transfer of solar photovoltaic electricity to an electric utility distribution system from the tax base of the utilities classification. Senate Bill 1442 (Chapter 328) House Bill 2358 (Chapter 206) Theme park districts (public private partnerships; toll facilities) Modifies the composition of Theme Park and Vehicle Support Facilities Districts, the types of revenue bonds that may be issued and the allowable locations of theme park sites. References to vehicle support facilities are removed and a Theme Park District is enabled to include theme park sites in one or both cities, in the county establishing the district or in a combination of the cities and county. The amount of required private financial commitments is decreased from 50 to 20 percent of the principal amount of bond issue and allows New Market Tax Credits to be included. The Auditor General is required to conduct a performance audit of the District and its operations. Prime contracting; manufacturing facilities; infrastructure Allows a city, town, or county, from October 1, 2013 through September 30, 2023, to enter into an agreement with DOR to receive all state prime contracting TPT collections arising from a qualifying project to pay for up to 80 percent of public infrastructure improvements for the project. A qualifying project requires self-certification from an establishment with an in-state manufacturing operation (excluding mines and utilities) with at least $500 million in capital investment in urban areas and $50 million in rural areas to the Commerce Authority and applicable locality. Contracting TPT arising from qualifying projects, which would otherwise go through the normal statutory distribution method, would be removed and set aside for public infrastructure funding. Once the $50 million cap is reached, the funding mechanism would cease, and the TPT would return to the normal distribution. ARIZONA DEPARTMENT OF REVENUE 2012 ANNUAL REPORT Page 94 Restrictions to the public infrastructure funding mechanism include:  A $50 million cap for all public infrastructure improvement funding made by the state to all localities.  Requiring a locality to fund at least 20 percent of the public infrastructure improvements.  Ending a funding agreement between the locality and DOR once either the 80 percent of the improvement costs have been paid or the $50 million cap is reached. In the latter case, a locality has no rights to additional reimbursement in the event subsequent audit adjustments or refund claims lower the funded amounts to below the $50 million cap.  Making payments on a rolling basis, and using amounts subject to distribution to calculate monies available until the $50 million cap is reached. In other words, a locality that enters into an agreement with DOR before a second locality may not receive all of the payments it anticipates, if the second locality’s qualifying project remits and is paid contracting TPT in larger amounts, such that the $50 million cap is reached.  Limiting the total amount paid to a locality with a qualifying project in FY 2014-2015 (the first year that payments under the public infrastructure funding mechanism can occur) to $5 million. If a contractor on a qualifying project subsequently makes a refund claim or an audit adjustment results in lower TPT liability than originally reported, the offset is taken from the applicable locality’s monthly distribution for the month following payment of the claim or adjustment. Authorizes DOR to disclose information relating to distributions with any official of a locality in an ongoing agreement with DOR or considering entering one. Places restrictions on the locality’s use of the disclosed information. Property Tax House Bill 2092 (Chapter 197) Property tax appeals; valuation; classification Increases the maximum limitation for small claims procedures on property classification and valuation to $2 million in real or personal property. The State Board of Equalization (SBOE) may no longer increase or decrease valuation of property or change property classification during a hearing on a taxpayer’s appeal; instead, it must grant or deny all or part of the taxpayer’s petition for change in valuation or classification. The SBOE may increase the value of individual units in a multi-parcel appeal up to the aggregate value of all units involved in the appeal. However, it may not exceed the value noticed by the county assessor nor change the property classification in its decision on a taxpayer appeal. The new owner of a property is permitted to continue an appeal process started by a previous owner or file a new appeal, if the previous owner’s appeal did not receive final judgment or a dismissal from Tax Court and the new owner files their own appeal before December 15th of the valuation year. House Bill 2178 (Chapter 200) Property taxes; refund; forgiveness (tech correction; prepaid legal insurance) Authorizes the Mohave County Treasurer to refund taxes paid, and forgive any property taxes and accrued penalties due, for qualified property owners. House Bill 2184 (Chapter 158) Fire district; alternative tax rate (tech correction; occupational safety; exemption) A fire district in which the net assessed valuation declined by a total of 25% or more beginning with the 2008 valuation year, may temporarily increase the tax per $100 of assessed valuation from $3.25 to $3.75 if:  The amount of levy proposed to be raised by a tax rate in excess of $3.25 per $100 of assessed valuation is no more than the amount of tax levy raised in the immediate preceding fiscal year.  The fire district certifies that no portion of the increased tax levy will be used to pay salary increases or to increase the number of full time employees.  The fire district certifies that no portion of the increased tax levy will be allocated to future year expenditures, retained or encumbered as reserve monies of any type, and that no more than 5% of the tax levy raised is planned for carry forward monies at the end of the fiscal year. A fire district with an increased tax levy may not call for an override election. ARIZONA DEPARTMENT OF REVENUE 2012 ANNUAL REPORT Page 95 Defines lands and improvements of at least 5 acres dedicated to algaculture operations as agricultural real property for property tax purposes. Beginning in 2013, a county assessor is required to send notices to those class three property owners who have a mailing address outside the county in which the property is located, have a mailing address different than the situs address of the property, have the same mailing address listed for more than one class three property in Arizona, or appear to be a business entity. House Bill 2438 (Chapter 176) House Bill 2608 (Chapter 124) House Bill 2226 (Chapter 220) Property tax; algaculture Gov land; private land; study Creates the Joint Legislative Study Committee on Government and Private Lands to examine the consequences of transferring real property from private parties to government entities. DOR is required to contract with each county assessor to conduct a property status study to identify the amount of total private property within each county, tax exempt private property within each county, private property in conservation status within each county, federal lands in wilderness areas, natural conservation areas, national parks, national monuments and other special conservation status areas, if available and municipal and county lands in parks, conservation areas or other special conservation status areas. House Bill 2478 (Chapter 349) Assessed valuations; audit Allows DOR to audit county assessor property valuations to ensure proper valuation of new construction and directs the governing body of each county, city, town, community college district and school district to fix and determine property tax rates based on property valuations determined on or before February 10 of the tax year. House Bill 2801 (Chapter 130) Property tax bills; payment; interest Precludes interest charges on delinquent property taxes of less than $100 if the tax is paid in full by December 31 of the tax year. Property tax; facilities (schools; budget increases; bonds; ballots) House Bill 2803 (Chapter 216) Limits the athletic, recreational, entertainment, artistic or cultural facilities that can be designated as class 9 properties to those that are used exclusively for those purposes and must become the property of the federal, state, county or municipal property on termination of the lease. Extends the deadline for filing an administrative appeal of the valuation of personal property from 20 days to 30 days after the delivery of a notice of valuation. House Bill 2486 (Chapter 350) Homeowners’ rebate affidavit Eliminates the requirement for an owner affidavit to qualify for classification as class three property. The civil penalty for failure to respond to the assessor, is decreased to the amount of additional state aid paid in the preceding tax year, rather than twice the amount of additional state aid paid. Personal property tax appeal deadline Senate Bill 1279 (Chapter 324) Personal property tax; computer software Clarifies that personal computers and general purpose computers used in a trade or business are valued as personal property. Operating system software necessary to enable the operation is valued as a part of the computer on which it is installed. All other software, whether canned or customized for a specific application, is valued as personal property. Senate Bill 1416 (Chapter 182) Property tax; agriculture classification; affidavit Modifies the criteria for property that is eligible for designation as agriculture by reducing the number of years land is required to be used for agricultural ARIZONA DEPARTMENT OF REVENUE 2012 ANNUAL REPORT Page 96 purposes, to at least 3 of the last 5 years, rather than 7 of the last 10 years. Also stipulates that the requirement of reasonable expectation of operating profit can be satisfied if the owner files an affidavit of agricultural use with the county assessor and the property is actively producing with an expectation of profit. Unclaimed Property House Bill 2023 (Chapter 217) Unclaimed property; certificates of deposit Stipulates that certificates of deposit and any interest are presumed abandoned three years after maturity if unclaimed by the apparent owner. A deposit that is automatically renewable is deemed matured on its initial date of maturity, unless the owner has consented to a renewal at the time of the account opening. The consent must either be in writing or is evidenced by the original account agreement or by any memorandum or other record on file with the holder. Multiple Tax Types/Miscellaneous House Bill 2094 (Chapter 198) employment; and no more than 200 employees can be claimed in any taxable year. Sales of motor vehicle fuel and use fuel sold to qualified HFE businesses is exempted from TPT and use taxes. The fuel must be used in off-road harvesting, processing or transporting qualifying forest products in order to qualify for the exemption. Sales of repair parts that are installed in equipment used directly by a qualified HFE business for harvesting, processing or transporting qualifying forest products is exempted from TPT and use taxes. The current TPT exemption for leased or rented equipment by an HFE is expanded to include all leases regardless of their duration. Reauthorizes the use fuel tax discount on fuel used by vehicles transporting forest products, which reduces the tax from 13 to 9 cents per gallon. The discounted use fuel tax rate is applicable on September 1, 2012. Reauthorizes the prime contracting exemption for construction contracts with an HFE, which expired December 31, 2009.  The classification for property owned by a HFE as class 6 property is reestablished for property constructed or installed prior to January 1, 2025. Prepaid wireless e911 excise tax Establishes a prepaid wireless telecommunications E911 excise tax in an amount of eight tenths of 1% of the gross proceeds of sales or gross income derived from the retail sale of prepaid wireless telecommunications services, which begins January 1, 2014. The incidence of the tax is changed from the telecommunications provider to the retail seller of the prepaid wireless telecommunications service. Retailers are authorized to keep 3% of the cost of the tax that they collect from their customers. House Bill 2332 (Chapter 331) House Bill 2526 (Chapter 213) Skilled nursing home provider assessments Pending federal approval, levies an assessment on health care items and services provided by nursing facilities to obtain federal financial participation in the prescribed services to supplement Medicaid payments to facilities. AHCCCS is required to calculate the assessment based on the net patient service revenue of all facilities. The assessment is due quarterly to the Department of Revenue. Healthy forest enterprise incentives; extension House Bill 2606 (Chapter 336) Extends the transaction privilege, use and income tax incentives for qualified healthy forest enterprises in the state through December 31, 2024 and modifies the requirements for eligibility as a healthy forest enterprise (HFE). Makes numerous changes to the Arizona Department of Liquor Licenses and Control and modifies liquor licenses registration and compliance requirements. Beginning tax year 2013, new individual and corporate income tax credits are authorized for the costs of training new workers in ecological restoration. The tax credit is equal to the net cost of the training, with a cap of $3,000 per full-time employee for the first three years of Liquor; omnibus (state liquor board members; comp) Increases, from 90 to 120 days, the time period a licensed business may be delinquent in the payment of state taxes before a license suspension or revocation. The delinquent tax liability must exceed $250 to trigger a license suspension or revocation. ARIZONA DEPARTMENT OF REVENUE 2012 ANNUAL REPORT Page 97 Senate Bill 1045 (Chapter 2012) Tax correction act; 2012 SB 1045 makes technical, clarifying and conforming changes to Aizona’s tax statutes as recommended by the Department of Revenue and Legislative Council. Provisions: Deletes obsolete language and internal references relating to rental occupancy, estate and county transportation excise tax. Clarifies that a taxpayer who fails to make payments by electronic funds transfer for which they are obligated, is required to pay a penalty of five percent of the amount not paid by electronic funds transfer rather than five percent of the entire amount of tax due on the return. Clarifies that confidential information relating to any tax collected by the on behalf of a county may be shared with that county, city or town. Repeals A.R.S. Title 42, chapter 3, article 5.1, relating to the tax associated with Delivery Sales of Tobacco Products. Deletes obsolete language and makes conforming and internal reference changes to adjust for expiring legislation associated with gross proceeds of sales or gross income received from a contract for the construction and development of lake facilities. Restores language that was inadvertently removed from statute relating to how DOR must account for revenues collected under the transient lodging, amusement and restaurant classification. Repeals obsolete language relating to county transportation excise taxes for roads (the tax levied under this statute expired in 2010). Also, specifies that outstanding tax liabilities, and any penalties and interest accrued on unpaid amounts of those liabilities pertaining to county transportation excise taxes for roads are neither affected nor impaired by the repeal of A.R.S. § 42 – 6104. Conforms current law, which expands the range of a Government Property Lease Excise Tax rate from within 90% and 110% to 90% and above the countywide average combined property tax rates to be levied and collected by a local government to use for government property improvement. This language was inadvertently left out of legislation enacted in 2010. Repeals obsolete language relating to the application of Internal Revenue Code for income tax with associated legislation expiring after TY 1993. Clarifies the language used to require that DOR determine the amount of withholding tax deducted and retained by employers from employee compensation for services performed within the state, but does not change the method of calculation. Make other conforming changes relating to withholding taxes. Specifies the appropriate terminology in the School Tuition Organization statutes by replacing “accounting” with “auditing.” Repeals obsolete session law relating to the temporary 1% TPT increase. Modifies the premium and corporate income tax credits for new employment. Conforms the depreciation schedule for manufacturers, assemblers and fabricators personal property with the accelerated schedule for business personal property other similarly situated personal property. Repeals obsolete language related to the repeal of the Enterprise Zone Program. Modifies the individual and corporate income tax credits for increased research activities. Repeals obsolete statutes relating to constructing energy efficient residences. Delays the repeal of the individual and corporate income tax credit for qualified health insurance plans. (Currently the credit is repealed before carryforwards are exhausted). Repeals obsolete income tax subtraction relating to displaced pupil grants. Repeals obsolete session law relating to the economic impact analysis section of Laws 2005, Chapter 289, HB 2139, specifically as it relates to the provision that requires DOR to "cooperate" with JLBC by providing the identity of the corporations that elected the enhanced sales factor. Repeals obsolete statutes regarding qualified defense contractors. Senate Bill 1280 (Chapter 311) Tobacco; internet; mail sales; e-cigarettes SB 1280 provides purchasing restrictions on tobacco products by prohibiting the order or purchase of tobacco products only through a licensed person or a retailer who orders or purchases from a licensed person. A person who violates the purchase restriction is subject to a maximum civil penalty of $5,000 for each violation, ARIZONA DEPARTMENT OF REVENUE 2012 ANNUAL REPORT Page 98 court and investigation costs (including attorney fees), and all state tobacco taxes and all transaction privilege or use taxes including any penalties and interest. Each order or purchase of a tobacco product seized in violation forfeits to the state and must be destroyed. DOR may not issue or renew licenses to sell tobacco products if an applicant is in violation of the purchase restriction or escrow account deposit requirements. Also precludes DOR from refunding the tax for stamps that are affixed to contraband articles or substances. ARIZONA DEPARTMENT OF REVENUE 2012 ANNUAL REPORT Page 99