ARIZONA DEPARTMENT OF REVENUE 2013 ANNUAL REPORT Please click on the blue text to access the areas described. TABLE OF CONTENTS Letter to the Governor DEPARTMENT ORGANIZATION Organization & Organization Chart Strategic Plan Highlights Administrative Services Audit Collections Information Technology Process Administration Property Tax Taxpayer and External Services Tax Policy & Research ARIZONA'S TAXES Revenue Summary (Table 1) Net Revenue to State General Fund (Table 2) Gross Collections of Audit Assessments and Delinquent Tax (Table 3) Transaction Privilege, Use and Severance Tax Income Tax Property Tax OTHER SOURCES OF REVENUE Bingo Estate Tax Luxury Tax Unclaimed Property & Escheated Estates Waste Tire Fee Legislative Summary Bills STATE OF ARIZONA Department of Revenue Janice K. Brewer Governor November 15, 2013 David Raber Acting Director The Honorable Janice K. Brewer Governor of the State of Arizona 1700 West Washington Street, 9th floor Phoenix, Arizona 85007 Dear Governor Brewer and the Taxpayers of Arizona: During Fiscal Year (FY) 2013, the Department of Revenue (DOR) continued to carefully assess 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 realized many accomplishments by remaining focused on our strategic plan. Total taxes collected by DOR during FY 2013 exceeded $13.0 billion, including nearly $7.1 billion that was deposited directly into the General Fund. Included in this total is more than $503 million that was collected through the Department’s tax enforcement efforts, which exceeded the $488 million target set at the beginning of the year. In addition to these milestones in tax administration, DOR employees achieved several noteworthy accomplishments in FY 2013 including: processing over 5.6 million tax documents; processing over 41,500 new business licenses, and receiving, processing and depositing 4.1 million tax payments. Even more accomplishments are outlined by division in the “Division Highlights” section of this report. As a Department, we continue to focus on our three core goals: • • • To increase our return on investment. To increase customer and stakeholder satisfaction. To increase employee satisfaction. We continue our commitment to excellence and quality. None of our achievements would have been possible without our incredibly talented and dedicated employees. Please contact me if I can provide you with any additional information. Sincerely, David Raber Acting 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 2013 ANNUAL REPORT Page 1 ARIZONA DEPARTMENT OF REVENUE DIRECTOR DEPUTY DIRECTOR Vince Perez SRV000000003 Jorge Frank PROBLEM RESOLUTION OFFICER SRV000000627 COLLECTIONS TAXPAYER & EXTERNAL SERVICES PROPERTY TAX FRANK BOUCHÉ ASST DIRECTOR SRV000000011 Gr. E4 ANTHONY FORSCHINO ASST DIRECTOR SRV000000014 Gr. E4 FRANK BOUCEK ASST DIRECTOR SRV000000012 Gr. E4 Administrative Services Special Projects Special Operations Economic Research & Analysis Quality Executive Field Collections Debt Set-Off Administrative Support Bankruptcy Collections Information Technology Assessment Standards & Equalization Investigations Criminal & Civil Tobacco Enforcement Taxpayer Information & Assistance License & Registration Community Resources and Education August 1 - 31 Centrally Valued Property Property Systems Development Unit AUN 05145 - Gr. E-5 – 5110 INTERNAL AUDIT Loretta Bowdish RV EXEC. ASST. to the DIRECTOR SRV000000854 HUMAN RESOURCES AUN: 03651 - Gr. 20 AUN: 05516 - Gr. 23 Office Collections David Raber SRV000000002 AUN 05085 - Gr. E-6 – 5110 AUN 06442 - Gr. E-5 – 5110 CHIEF LEGISLATIVE LIAISON CHIEF DEPUTY DIRECTOR John Greene SRV000000001 TAX POLICY & RESEARCH MICHAEL KEMPNER ASST DIRECTOR SRV000000005 Gr. E3 ADMINISTRATIVE SERVICES AUDIT DIVISION INFORMATION TECHNOLOGY PROCESS ADMINISTRATION LISA CROSS ASST DIRECTOR SRV000000007 Gr. E3 TOM JOHNSON ASST DIRECTOR SRV000000004 Gr. E4 CAROLE MARTIN ASST DIRECTOR SRV000000009 Gr. C5 LYNETTE NOWLAN ASST DIRECTOR SRV000000008 Gr. E4 Tax Research & Analysis Budget Office Corporate Income Tax Appeals Accounting Individual Income Tax Appeals Purchasing Transaction Privilege Tax Appeals Payroll Disclosure & Federal Relations Facilities Hearing Office Unclaimed Property Employee Development Unit Page 2 Director’s Office Corporate Income Tax Audit Application Support Processing Services Individual Income Tax Audit Business Analysis & Testing Error Resolution Special Taxes - Luxury - Nexus - Bingo Technical Operations & Security Transaction Privilege Tax Audit Project Management & Software Development Audit Information Technology DOR Treasury Revenue Accounting Records Management Audit Processing Special Programs & Projects Section ARIZONA DEPARTMENT OF REVENUE 2013 ANNUAL REPORT J. Solis Updated: 8/23/13 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 FY12 Transaction Privilege ........... $7,330,738,929 Income & Withholding ....... $4,370,704,272 Corporate ............................. $ 758,413,453 Other ................................... $ 544,171,647 Total ................................. $ 13,004,028,301 FY13 Transaction Privilege ........... $7,660,240,313 Income & Withholding ....... $4,630,465,343 Corporate ............................. $ 755,002,081 Other ................................... $ 554,243,318 Total ................................. $ 13,599,951,055 Detailed gross revenues are reported under Table 1. ~~~~~~~~~~~~~~~~~~~~~~~~~~~ TOTAL NUMBER OF TAX RETURNS PROCESSED BY TAX TYPE All tax returns are processed through the Taxpayer Accounting System (TAS). Transaction Privilege .....................1,649,984 Individual Income ..........................3,026,867 Withholding ......................................610,633 Corporate Income..............................186,651 Total Returns Processed .................5,474,135 Total Number of Tax Returns Processed by Tax Type 610,633 186,651 TPT 1,649,984 Income W/H 3,026,867 Corporate KEY MEASURE RESULT HIGHLIGHTS The results of these key measures for fiscal year 2013 are presented as well as comparisons to prior years. ~~~~~~~~~~~~~~~~~~~~~~~~~~~ ARIZONA DEPARTMENT OF REVENUE 2013 ANNUAL REPORT Page 3 TOTAL NUMBER OF E-FILED INDIVIDUAL INCOME TAX RETURNS RECEIVED FY11 ............................................ 1,859,215 FY12 ............................................ 1,959,352 FY13 ............................................ 2,146,479 Number of E‐Filed Income Tax Returns (in Millions) 2.20 2.15 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. FY11 ............................................ 9.68 days FY12 ............................................ 9.81 days FY13 ............................................ 7.40 days 2.10 1.90 Average Time to Issue Income Tax Refunds (in Calendar Days) 1.96 2.00 1.86 12.00 1.80 10.00 1.70 8.00 FY11 FY12 FY13 9.68 9.81 7.40 6.00 4.00 2.00 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 0.00 TOTAL NUMBER OF INDIVIDUAL INCOME TAX REFUNDS The total number of income tax refunds processed includes both electronic direct deposits and paper refund warrants. FY11 ............................................ 1,932,100 FY12 ............................................ 2,031,879 FY13 ............................................ 1,998,845 Number of Individual Income Tax Refunds Processed (in Millions) 2.05 FY12 NUMBER OF NEW BUSINESS LICENSES PROCESSED New business licenses are processed at walk-in counters, through the mail and via on-line services. FY11 ...................................................35,318 FY12 ...................................................40,919 FY13 ...................................................41,604 Number of New Business Licenses Processed 2.00 44,000 40,919 42,000 1.93 FY13 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 2.03 2.00 1.95 FY11 41,604 40,000 1.90 38,000 1.85 36,000 FY11 FY12 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~ FY13 35,318 34,000 32,000 FY11 FY12 FY13 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ ARIZONA DEPARTMENT OF REVENUE 2013 ANNUAL REPORT Page 4 AVERAGE 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. FY11 ................................................ 8.0 days FY12 ................................................ 7.9 days FY13 ................................................ 5.0 days New Business License Turnaround Times (in Calendar Days) 10.0 8.0 8.0 7.9 5.0 6.0 4.0 NET ENFORCEMENT REVENUE WITH GENERAL FUND TOTALS The enforcement program generated results at 103.2% of goal, surpassing fiscal year 2013 targets. This chart also shows how much of the enforcement revenues went to the General Fund. FY13 Net Targets Collections ...................................... $229.2M Accounts Receivable ...................... $124.1M All Audit ......................................... $135.1M Total Revenue ................................ $488.4M General Fund Revenue ................... $339.2M FY13 Net Actual Collections ...................................... $225.4M Accounts Receivable ...................... $145.4M All Audit ......................................... $133.1M Total Revenue ................................ $503.9M General Fund Revenue ................... $354.7M Net Enforcement Dollars Compared to Targets (in Millions) 2.0 0.0 FY11 FY12 FY13 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~ TOTAL NET ENFORCEMENT DOLLARS Total net enforcement dollars represent all revenue collected by collectors and auditors through various enforcement programs. FY11 ......................................$ 487,948,450 FY12 ......................................$ 483,890,612 FY13 ......................................$ 503,986,414 $600.0 $500.0 $400.0 $300.0 $200.0 $100.0 $0.0 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~ Net Enforcement Dollars (in Millions) $510.0 $505.0 $500.0 $495.0 $490.0 $485.0 $480.0 $475.0 $470.0 $504.0 $487.9 FY11 $483.9 FY12 FY13 ~~~~~~~~~~~~~~~~~~~~~~~~~~~ ARIZONA DEPARTMENT OF REVENUE 2013 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 2013, $191.40 was produced for each dollar spent in the total DOR budget. FY11 .................................................$182.00 FY12 .................................................$179.80 FY13 .................................................$191.57 Return on Investment AVERAGE GROSS COLLECTIONS GENERATED BY COLLECTORS AND AUDITORS Collector ......................................$1,678,378 TPT Auditor ................................$1,415,429 Corporate Auditor .......................$1,009,808 Individual Income Auditor ..........$ 923,633 Collections averaged $1.7 million dollars collected per collector in fiscal year 2013. Auditors collected at different levels depending upon the type of audit work they performed; ranging from a little over $1.4 million per TPT auditor to $923 thousand per individual income auditor. $1,000.00 $182.00 $179.80 $191.57 Average Gross Collections Generated by Collectors and Auditors (in Millions) $100.00 Millions $10.00 $1.00 FY11 FY12 FY13 $2.00 $1.68 $1.42 $1.50 $1.01 $0.92 $1.00 $0.50 $0.00 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~ Collector 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 2013, $7.10 of enforcement revenue was collected for each dollar spent in the total DOR budget. FY11 .....................................................$7.24 FY12 .....................................................$6.69 FY13 .....................................................$7.10 TPT Corporate IIT Auditor Auditor Auditor ~~~~~~~~~~~~~~~~~~~~~~~~~~~~ Return on Investment for Enforcement Program $8.00 $7.24 $6.69 $7.10 FY11 FY12 FY13 $4.00 $2.00 $1.00 ARIZONA DEPARTMENT OF REVENUE 2013 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.) FY11 ..................................................... 4.48 FY12 ..................................................... 4.49 FY13 ..................................................... 4.44 Satisfaction Ratings for Taxpayer & External Services Division 5.00 4.48 PERCENT OF TIME THE LOCAL AND WIDE AREA NETWORK (LAN/WAN) IS AVAILABLE. Local and wide area network availability is a measure for the Information Technology Division to assess their ability as a service provider. FY11 ............................................... 100.0 % FY12 ............................................... 100.0 % FY13 ............................................... 100.0 % Computer System Availability 100.00% 100.00% 100.00% FY11 FY12 FY13 4.44 4.49 4.00 3.00 2.00 1.00 FY11 FY12 FY13 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~ ~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 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 2013 ANNUAL REPORT Page 7 ARIZONA DEPARTMENT OF REVENUE 2013 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. Education Development The Employee Development Unit (EDU) was reestablished in January 2013 after a four year hiatus. EDU plans, devises, organizes, and executes training for all employees throughout the agency. The unit staff is responsible for developing classroom and computer based training modules, as well as employee development resources for a variety of topics ranging from confidentiality standards and DOR policies to MAP self-appraisals. Trainers also participate in trainer-of-trainer sessions conducted by DOA personnel and in turn train Agency employees as required. The unit is also responsible for conducting confidentiality training for other state agency personnel who will be conducting business in collaboration with the Department. 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. 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. 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, ASRS and RASL Retirement processing. 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). Unclaimed Property This program is administered to return abandoned property such as dormant bank accounts, insurance policy proceeds, security deposits, unclaimed stocks, bonds, and mutual fund accounts, safe deposit box contents and all types of un-cashed checks to the property’s rightful owners. Through a variety of methods, the unclaimed property staff locates 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 Revised Arizona Unclaimed Property Act. ARIZONA DEPARTMENT OF REVENUE 2013 ANNUAL REPORT Page 9 HIGHLIGHTS IN FISCAL YEAR 2013 Accounting  The Accounting Unit processed 95% of all invoices within 30 days. Education Development  Conducted an agency-wide employee development needs assessment.  Revised and updated critical, mandatory training modules, including: Confidentiality, Security Access, Annual Recertification Training.  Provided MAP training to all supervisor and management personnel. Facilities  Coordinated the installation of three cooling units for the second floor server room. This work continued into fiscal year 2014.  Coordinated the activity of installing new flooring on the first floor customer lobby as well as the employee entrance.  Began the initial planning of the relocation of the Warehouse and Process Administration section to a new building. This work continues into fiscal year 2014.  Completed the installation of a new IT storage area in the B2 level of the 1600 building.  Installed new speed bumps in the parking garage.  Completed 99.4% of all work orders within 24 hours and received an average customer survey rating of 4.95 out of a possible 5 for the year. Payroll  DOR successfully moved to ETE (Employee Time Entry) during the 4th quarter of fiscal year 2013. Purchasing  All procurement such as solicitations, contracts and purchase orders are issued through the statewide ProcureAZ. For fiscal year 2013, staff began the 3-way match for invoice processing through ProcureAZ. Hearing Office  The Hearing Office workload had increased significantly starting in fiscal year 2010. For fiscal year 2013 the Hearing Office continues to handle nearly as many cases as it did in fiscal year 2000 and 2001 when the Hearing Office had twice the staff. Unclaimed Property  For the second consecutive year, unclaimed property staff returned over $40 million to current and former Arizona residents  In excess of 56,000 properties were returned to over 19,000 owners.  The average time to process and pay a claim was 43 days, reflecting a 33% increase in efficiency over the previous fiscal year.  Over $131 million in new property was added to the database, and over 23,000 claims for property were received.  Nearly 10,000 reports were processed by the Unit’s compliance staff. ARIZONA DEPARTMENT OF REVENUE 2013 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 Providing quality service is a primary goal of the Individual Income Tax Audit Section. The audit process is viewed as an educational and cooperative process that helps to improve voluntary compliance by ensuring taxpayers report and pay the correct amount of tax due. While most taxpayers are confused and overwhelmed by the audit process, the Section has placed an emphasis on treating taxpayers in a courteous and professional manner with as little disruption to the taxpayers as possible. Using all available data sources in the Audit process allows for a more complete file to be created on audit cases. This allows the auditor to work in a more efficient and expedient manner. Receiving electronic data from the Internal Revenue Service allows the department to match with all other department data and information on the taxpayers and tax years involved without requiring manual research by our administrative support staff. A majority of the audit files now contain all relevant information that an auditor would need in order to process the audit case and make all necessary adjustments. 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 three separate units: Bingo, Luxury Tax and Nexus. The Bingo Unit is responsible for administering the Bingo laws pursuant to Title 5 of the Arizona Revised Statutes. The Unit issues licenses, processes monthly financial reports (returns) and provides customer service to Bingo licensees and patrons. The Luxury Tax Unit administers the excise tax imposed on tobacco distributors and liquor wholesalers. The Unit is responsible for customer service, licensing and conducting field audits. ARIZONA DEPARTMENT OF REVENUE 2013 ANNUAL REPORT Page 11 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 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 (TAS) 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. 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 2013 Corporate Income Tax Audit Section  Audited 109 taxpayers representing 350 tax periods; assessed $30 million and collected $19 million.  Implemented a database tracking and audit selection system.  Revised the computer audit work paper package and taxpayer reports.  Enhanced training practices and content for new auditors. Individual Income Tax Audit  Completed over 66,000 audits for total assessments of $30.6 million and collected $22.1 million in additional revenue.  The computer generated assessment (CGA) program continues to be successful. The results were the issuance of 22,869 audits for total assessments of $5.5 million.  Customer surveys with an average score of 4.30, using a scale of 1 to 5 with 5 being excellent. Transaction Privilege and Use Tax Audit  Field Audit Unit audited 329 taxpayers, produced 2,279 units, assessed over $45 million and collected in excess of $19 million in tax revenue. 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 ARIZONA DEPARTMENT OF REVENUE 2013 ANNUAL REPORT Page 12  License Compliance Unit licensed 1,416 new taxpayers and collected over $55 million.  Desk Audit produced over 3,329 new billings that generated over $3.5 million in tax revenue.  Customer surveys averaged a score of 4.54, using a scale of 1 to 5 with 5 being excellent.  The Withholding Unit prevented almost $1.5 million of invalid refunds from being issued. Special Taxes  The Luxury Tax Unit collected $2.4 million and Nexus collected $37.7 million.  After receiving invoice data for 17,000 taxpayers, the Luxury Tax Unit mailed bills or assessments to collect tax that consumers failed to pay on internet cigarette purchases. The Unit mailed 300 pilot letters and collected approximately $680,000. The Division anticipates a significant amount of revenue generated from this project as the remaining letters are mailed throughout the next fiscal year.  The Nexus Unit hosted the first Multistate Tax Commission (MTC) Nexus School in Arizona. ARIZONA DEPARTMENT OF REVENUE 2013 ANNUAL REPORT Page 13 ARIZONA DEPARTMENT OF REVENUE 2013 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 2013  The division was responsible for the generation of total revenues of $225 million. This was flat compared to the $226 million generated in fiscal year 2012. ARIZONA DEPARTMENT OF REVENUE 2013 ANNUAL REPORT Page 15 ARIZONA DEPARTMENT OF REVENUE 2013 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 Application Services is responsible for providing both software development and application support services to all Divisions. The Application 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 Application Support teams work with the various divisions to resolve defects, and support technology-enabled business processes Application support provides operational, support and maintenance services for all department tax processing systems, including:  All tax processing systems, including: Taxpayer Administration System (TAS), AZ Taxes (www.aztaxes.gov), electronic filing (MeFile), Data Entry systems, Cashier, and Remittance.  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 Server and Network Engineering, Database Administration, and Information Security. Network Engineering and Server Support is responsible for operations and oversight of all of the agency’s data centers including all servers, storage systems, 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 Information security policies standards and procedures  Provide Employee Awareness of Information Security ARIZONA DEPARTMENT OF REVENUE 2013 ANNUAL REPORT Page 17 Business Solutions Group The Business Solutions Group (BSG) is responsible for information technology governance and project management. The Project Management Office is responsible for establishing, maintaining, and enforcing project management processes, procedures, and standards for IT projects. It also leads the governance of projects through a steering committee consisting of top tier business leaders. 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 2013        Upgraded existing E-File application with a new Modernized E-File (MeFile) system. Supported a new processing record of more than 2,087,000 electronic returns using the new MeFile system. 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. Upgraded core tax systems databases. Implemented more than 35 business-driven changes to the tax systems. Effectively addressed critical legislative mandate from the legislative session including: o Nursing home care facilities set up with TPT licenses as quarterly filers (HB2526) ARIZONA DEPARTMENT OF REVENUE 2013 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. revenue and taxpayer accounting services, including accounts receivable management and refund/warrant management. 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. 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. 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. HIGHLIGHTS IN FISCAL YEAR 2013   DOR Treasury Treasury is responsible for processing taxpayer payments and entering taxpayer data using several different computer systems. 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,    The volume continues to grow and the Process Administration Division continues to respond. In comparing fiscal year 2012 to fiscal year 2013, the number of returns increased by 2% and the payments by 1.7%. The division managed to process the additional volume without increased resources and very minimal impact to the time it takes to process a return or deposit the money to the bank. The Process Administration Division began working with the Governors Transformation Office on a project to review the current procedures for handling the returns and payments. The goal is to make the process more efficient while still maintaining a quality of work. A team was formed with employees from various units across the division. During this fiscal year the team began to examine the processing of the 2D Bar Code Income Tax Returns and have identified several improvements that will be implemented during fiscal year 2014. Received and processed 5.5 million tax documents for the main four tax types. Received, processed, and deposited 4.2 million payments with an average deposit time of 0.74 days. Issued 1.99 million refunds to individual income taxpayers. ARIZONA DEPARTMENT OF REVENUE 2013 ANNUAL REPORT Page 19 ARIZONA DEPARTMENT OF REVENUE 2013 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 77 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 2013 ANNUAL REPORT Page 21 HIGHLIGHTS IN FISCAL YEAR 2013   A new cloud-based education tracking software was incorporated into the Training and Certification Team’s tools that will allow for more efficient management of tracking appraisers’ education. Instruction on the use of the Marshal & Swift Cost Manual is now being offered by the training team as a continuing education class for appraisers. The Training and Certification Team provided training to 48 students participating in Provisional courses, 38 students attending Level 1 certification courses and 22 students attending Level 2 certification courses in the DOR Appraiser Training and Certification Program this year. A total of 28 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 19 students completed the Level 1 series of courses and 17 students completed the Level 2 series of courses in the Rio Salado program this fiscal year. The Centrally Valued Property Team valued approximately 840 taxpayers totaling $36.7 billion in full cash value. There were 22 taxpayers (less than 3%) who appealed their values to the department in the first level of appeal; 6 taxpayers went on to file petitions with the State Board of Equalization. Of those 6 petitions, two were withdrawn; two were settled; and two were heard before the Board. The Board decided in favor of the department in one of the two cases and reduced the value of the second property.     The Centrally Valued Property (CVP) Team completed three regional meetings with the County Assessors’ offices during the fiscal year. The agenda for each meeting included issues relating to the valuation of properties appraised by the Centrally Value Property Team, an overview of how CVP relies on and uses Assessor generated values and data, a review and discussion of how the Centrally Valued Property Team and the Assessors’ Offices work together in the valuation process and how information is exchanged. The Assessment Procedures Team conducted six appraiser continuing education Income Workshops throughout the state this fiscal year. The Workshops were attended by appraisers from the County Assessors’ offices. The Team also published the Commercial Property Market Study which compiles sales, income and expense data, and capitalization rate data for ten income producing types of property in the thirteen non-metro counties statewide. The Team worked with the county treasurers regarding reports and reporting requirements for the Government Property Lease Excise Tax (GPLET) returns and payments received by the treasurers for the preceding calendar year. The Team also worked with government lessors regarding GPLET return filing requirements by their lessees. The Forms Team updated return forms, instructions and tax rate charts for use with the GPLET program. The Forms Team also reviewed and updated eighteen property tax forms during this fiscal year. ARIZONA DEPARTMENT OF REVENUE 2013 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. Community Outreach Resources and Education (CORE) After a three year hiatus due to budget cuts, Department Leadership recognized the need for outreach/education and the Community Outreach Resources and Education unit was re-established. The unit began the task of revamping and rebuilding the department’s outreach and education programs. CORE’s primary goal is to promote voluntary compliance with tax laws through taxpayer and practitioner education. CORE staff began reconnecting with previous partners that had worked in cooperation to build programs focused on support for the small business community, and service and assistance directed toward the needs of personal income tax filers. Renewed partnerships with the Internal Revenue Service, other federal, state, and local agencies, and Small Business Development Centers, as well as the Small Business Administration and other business associations will help to strengthen the outreach efforts and audience scope. Additionally, CORE coordinates state tax training for the Volunteer Income Tax Assistance (VITA) and Tax Counseling for the Elderly (TCE) programs. VITA and TCE sites provide vital free tax preparation services for low income, elderly and non-English speaking populations. 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 ARIZONA DEPARTMENT OF REVENUE 2013 ANNUAL REPORT Page 23 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 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) The mission in Taxpayer Information and Assistance is to provide exceptional service in an effective, efficient and fair manner for all our customers. Customers include taxpayers who report their own personal income tax, tax practitioners, certified public accountants, enrolled agents, attorneys, payroll service companies, business owners and corporations. TIA is also contacted by staff from local state representatives’ offices and the governor’s office for assistance in resolving matters brought to their attention by their constituents. Means of contacting TIA are by telephone, written correspondence, email, and walk-in service. Calls are received through three published primary telephone lines as well as two tax practitioner telephone hotlines to obtain expedited service. Email is received through the department’s two websites: azdor.gov and aztaxes.gov. Walk-in service is available at two locations, Phoenix and Tucson. TIA provides a wide range of assistance to the taxpayer community, answering general questions, researching and resolving refund and billing disputes, assisting with account reconciliation, answering tax code questions, providing statutory reference, offering guidance and instruction on tax form preparation, assisting with registration and licensing of a new business and changes to existing licenses. The administrative support team processes Power of Attorney (POA) forms and delivers professional and courteous guidance to the walk-in customers at the lobby reception desks in Phoenix and Tucson. TIA takes a positive approach and makes every effort to educate our customers about their tax requirements and helps them understand what to expect when they register their business or file their tax return. Tax types include personal income tax, corporate tax, transaction privilege and use tax and withholding tax. HIGHLIGHTS IN FISCAL YEAR 2013  In order to recognize the best return on allocated budget funds, CORE staff conducted research to develop a plan for sharing information and educational materials using electronic and social media platforms. Adopting “best practices” methods and looking to other government ARIZONA DEPARTMENT OF REVENUE 2013 ANNUAL REPORT Page 24     agencies, programs and municipalities for information, the unit began laying the groundwork for both social media campaigns as well as an electronic library of tutorials and videos to be available on the department’s website. CORE also re-established the agency “Speakers Bureau” to efficiently handle the public speaking requests received by the department. CORE spearheads participation in annual statewide Tax Talk seminars, designed to provide continuing education to tax practitioners. The Criminal Investigation Unit stopped nearly $32 million in fraudulent refunds. This is an increase of over $ 21 million over last fiscal year (nearly a 300% increase). The Tobacco Enforcement Unit conducted approximately 3,700 retail and wholesale tobacco inspections. During this time period the unit also conducted 180 separate seizures of illegal tobacco products. Over 65,000 sticks of cigarettes and 43,000 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:  Sent out 835 Certificates of Eligibility for the Health Insurance Premium Tax Credit to individuals and small businesses.  Approved 167 corporate donations for the Corporate Income Tax Credit for Donations to School Tuition Organizations and the Corporate Income Tax Credit for Donations to School Tuition Organizations for Disabled/Displaced Student Scholarships. Confirmed 152 Disabled/Displaced Student Scholarship Awards. Approved 148    Disabled/Displaced Student Eligibility Applications.  Approved 52 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 3,186 information requests.  Administered the fiscal year 2013 Employee Satisfaction Survey. The License and Registration team processed 41,604 applications with an average turnaround time of 5.0 days. Nearly 46% of these licenses were completed online. The team also processed another 19,985 account update and maintenance requests. Additionally, the License and Registration Maintenance Unit (MU) answered 15,538 calls, responded to hundreds of problem resolution issues and emails, processed 4,266 taxpayers bonds totaling nearly $18 million and collect another $7,170 in delinquencies. Finally, the Customer Service (CS) team assisted more than 10,000 walk-in customers over the counter and cashiered over $410 million in payments. Taxpayer Information and Assistance accomplishments include:  Answered 208,874 calls.  Replied to 5,909 emails.  Assisted 35,985 customers at the lobby windows.  Assisted 11,684 customers at the TIA walkin offices.  Responded to 6,048 Tax Practitioner Hotline inquiries.  Responded to 13,230 written inquiries.  Processed 11,206 Power of Attorney forms.  Answered 2,395 switchboard calls. ARIZONA DEPARTMENT OF REVENUE 2013 ANNUAL REPORT Page 25 ARIZONA DEPARTMENT OF REVENUE 2013 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 2013 ANNUAL REPORT Page 27 ARIZONA DEPARTMENT OF REVENUE 2013 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 2013 ANNUAL REPORT Page 29 ARIZONA DEPARTMENT OF REVENUE 2013 ANNUAL REPORT Page 30 TABLE 1 REVENUE SUMMARY GROSS REVENUE COLLECTED FISCAL YEAR 2008-09 THROUGH FISCAL YEAR 2012-13 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 FY2008-09 FY2009-10 FY2010-11 FY2011-12 FY2012-13 $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 $1,644,471,588 2,994,447,622 257,899,313 567,824,410 965,620,521 (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 (25,356,945) 32,116,438 1,223,217,366 Subtotal $6,573,794,714 $5,982,149,321 $6,951,173,293 $7,330,738,929 $7,660,240,313 INCOME TAX Withholding Individual Corporate 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 3,459,818,705 1,170,646,638 755,002,081 Subtotal $4,809,697,249 $4,436,193,500 $4,761,043,709 $5,129,117,725 $5,385,467,424 LUXURY TAX Spirituous Liquor Vinous Liquor Malt Liquor Tobacco - All Types (1) Licensing Subtotal ESTATE TAX Estate (3) Unclaimed Property Escheated Estates Subtotal OTHER REVENUES Bingo Flight Property Tax Private Car Tax Nuclear Plan Assessment Waste Tire Subtotal TOTAL (2) 28,341,033 13,006,125 22,831,547 380,593,991 7,075 29,304,713 13,881,407 22,232,715 340,839,935 7,900 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 32,184,954 15,155,547 21,343,360 331,347,184 7,825 $444,779,771 $406,266,670 $404,127,163 $406,164,385 $400,038,871 234,065 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 0 131,397,401 327,961 $75,215,136 $162,321,318 $122,071,760 $115,547,188 $131,725,361 531,588 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 $21,832,059 $20,801,482 $21,428,838 $22,460,074 $22,479,086 $11,925,318,928 $11,007,732,292 $12,259,844,763 $13,004,028,301 $13,599,951,055 (4) 519,998 7,375,052 (6) 3,698,193 (6) 2,153,517 8,732,325 (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 increased the state transaction privilege and use tax rates on most transactions by one percentage point beginning June 1, 2010, and ending May 31, 2013. (6) In FY13, $2,473,651.23 of the money deposited into Private Car Tax should have been deposited into Flight Property Tax. A correcting transfer will be made in FY14. 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 2013 ANNUAL REPORT Page 31 TABLE 2 NET REVENUE TO STATE GENERAL FUND FISCAL YEAR 2008-09 THROUGH FISCAL YEAR 2012-13 SOURCE Transaction Privilege, Use, and Severance Tax Undistributed Estimated Transaction Privilege Tax FY2008-09 $3,791,915,770 (17,219,713) FY2009-10 FY2010-11 FY2011-12 $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 FY2012-13 $3,819,525,185 (21,908,400) Income Tax 2,432,366,069 2,200,844,986 2,949,887,110 Luxury Tax 57,878,187 55,352,260 53,599,408 210,372 363,755 437,372 200,825 0 9,526,605 100,034,835 49,120,855 45,819,445 60,899,609 531,588 520,655 504,905 508,145 519,998 1,435,069 1,335,091 1,283,026 1,065,773 3,698,193 (3) 1,569,091 1,812,420 1,782,028 2,153,517 $5,804,479,506 $6,528,187,881 $7,064,665,940 $7,435,560,183 Estate Tax (1) Unclaimed Property Bingo Private Car Tax Nuclear Plan Assessment Total 0 (2) $6,276,643,947 56,357,085 3,514,487,484 56,184,596 (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. (3) This figure includes $2,473,651.23 that should have been deposited to Flight Property Tax. Figures may not add to total due to rounding. ARIZONA DEPARTMENT OF REVENUE 2013 ANNUAL REPORT Page 32 TABLE 3 GROSS COLLECTIONS OF AUDIT ASSESSMENTS AND DELINQUENT TAX FISCAL YEAR 2011-12 AND FISCAL YEAR 2012-13 % GROSS COLLECTIONS FY2011-12 FY2012-13 CHANGE Collections Audit Accounts Receivable $225,892,565 $141,434,521 $135,449,776 $225,461,821 $158,788,915 $145,463,075 -0.2% 12.3% 7.4% TOTAL GROSS COLLECTIONS $502,776,862 $529,713,811 5.4% $18,886,250 $25,727,397 36.2% $483,890,612 $503,986,414 4.2% 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 2013 ANNUAL REPORT Page 33 ARIZONA DEPARTMENT OF REVENUE 2013 ANNUAL REPORT Page 34 TRANSACTION PRIVILEGE, USE AND SEVERANCE TAX MAJOR FEATURES Arizona’s transaction privilege, use and severance taxes are imposed on the privilege of transacting business in the state. During fiscal year 2013, 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 $7.66 billion was remitted by Transaction Privilege, Severance and Use Tax license holders during fiscal year 2013 (Refer to Table 4). 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 nonshared 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. MUNICIPAL PRIVILEGE AND USE TAX 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). COUNTY TAX AND SURCHARGE COLLECTION All 15 counties in Arizona levy some type of county tax or surcharge (Refer to Table 4). These taxes or surcharges are collected by the department. The rental car surcharge is imposed only in Maricopa and Pima Counties. A tax on hotels located in unincorporated areas of the county is levied in Pima County. Of the 14 counties with statutory authority to impose a general excise tax, only 13 do so. By statute, Maricopa County may not impose an excise tax. Although subject to voter approval, any county may levy a transportation excise tax or road tax. Only four counties, Gila, Maricopa, Pima, and Pinal, do so. The other types of county excise tax options are a hospital tax, a jail tax, capital projects, and health services district. USE TAX 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 2013 ANNUAL REPORT Page 35 TABLE 4 GROSS TRANSACTION PRIVILEGE, USE AND SEVERANCE TAX COLLECTIONS FISCAL YEAR 2008-09 THROUGH FISCAL YEAR 2012-13 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 Nursing Facility Assessment (4) Waste Tire Accounts Receivable Collections GROSS STATE COLLECTIONS FY2008-09 FY2009-10 FY2010-11 FY2011-12 FY2012-13 $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 $1,644,471,588 2,994,447,622 257,899,313 $4,806,143,210 $4,353,738,110 $4,441,416,082 $4,685,925,377 $4,896,818,522 $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 $567,824,410 965,620,521 (3,448,544) (21,908,400) 4,587,729 16,425,768 2,427,127 8,673,285 2,529 $558,899,709 --------(17,219,713) 6,274,404 17,774,128 2,375,423 ----29,883 $504,391,092 544,136 (1) ----26,197,663 6,086,692 16,453,500 2,392,765 ----22,255 $5,374,277,044 $4,909,826,212 $5,853,946,069 $6,185,435,504 $6,437,022,947 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 Yuma County Health Services District Sports & Tourism Authority $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 $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 21 590,955 178,724 323,991,403 174 117,547,456 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 $506,978,968 1,115,268 6,997,151 11,666,641 11,660,897 2,913,345 2,899,476 3,005,463 1,957,102 2,088,094 1,131,747 1,131,743 32 1,112,052 (93,903) 341,670,551 1 124,019,899 5,254,869 5,747,761 6,239,089 6,030,600 1,398,973 136,195 70,893,757 12,761,984 2,541,837 13,300,223 2,595,978 2,594,044 13,308,847 6,653,214 11,610,142 11,610,076 16,966 2,311,386 27,956,898 COUNTY AND CITY COLLECTIONS $1,199,517,669 $1,072,323,109 $1,097,227,224 $1,145,303,425 $1,223,217,366 $6,573,794,714 $5,982,149,321 $6,951,173,292 $7,330,738,929 $7,660,240,313 TOTAL DEPARTMENT OF REVENUE RECEIPTS (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 increased 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. (4) Laws of 2012, Chapter 213 established a Nursing Facilitiy Assessment to be remitted to the Department of Revenue on a quarterly basis. The FY13 figure represents a partial year's collection. ARIZONA DEPARTMENT OF REVENUE 2013 ANNUAL REPORT Page 36 TABLE 5 STATE TRANSACTION PRIVILEGE, USE AND SEVERANCE TAX RATES FISCAL YEAR 2012-13 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 increased 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 2013 ANNUAL REPORT Page 37 TABLE 6 NET TAXABLE SALES BY TRANSACTION PRIVILEGE, USE AND SEVERANCE TAX CLASSIFICATIONS (1) FISCAL YEAR 2008-09 THROUGH FISCAL YEAR 2012-13 CLASSIFICATION Transporting (4) Mining, Oil & Gas Mining Severance Utilities Communications Private Car and Pipelines Publishing Job Printing Restaurants and Bars Amusements Commercial Lease (3) Personal Property Rentals Contracting Retail Hotel/Motel Rental Occupancy Tax (5) Use Tax Use Tax-Utilities Membership Camping (5) TOTAL FY2008-09 $37,920,229 175,743,314 729,481,920 9,236,365,624 2,928,433,210 7,742,692 102,456,538 307,581,474 9,094,485,498 1,053,047,833 874 3,552,696,373 14,882,705,766 46,174,068,033 2,117,241,787 (24,871) 5,882,941,979 38,653,312 10,780 $96,321,552,366 % OF TOTAL 0.04 0.18 0.76 9.59 3.04 0.01 0.11 0.32 9.44 1.09 n/a (2) 3.69 15.45 47.94 2.20 n/a (2) 6.11 0.04 0.00 (2) 100.00 FY2009-10 % OF TOTAL $41,990,223 102,899,820 1,164,231,217 9,354,244,929 3,618,207,813 1,639,838 103,681,055 236,985,401 9,020,794,923 1,051,919,242 141,375 3,127,828,157 9,311,612,411 42,913,931,049 1,949,717,696 (62,113) 5,464,504,380 (35,593,960) 9,730 $87,428,683,185 0.05 0.12 1.33 10.70 4.14 n/a 0.12 0.27 10.32 1.20 n/a 3.58 10.65 49.08 2.23 n/a 6.25 (0.04) n/a 100.00 FY2010-11 (2) (2) (2) (2) $41,555,032 96,513,978 1,609,450,811 9,394,361,056 2,853,538,386 1,908,310 98,343,131 266,564,040 9,311,826,427 994,092,112 1,750 3,056,386,064 8,983,260,649 45,898,838,365 2,039,282,838 42,581 4,610,920,668 10,039,995 728 $89,266,926,922 % OF TOTAL FY2011-12 % OF TOTAL 0.05 0.11 1.80 10.52 3.20 n/a 0.11 0.30 10.43 1.11 n/a 3.42 10.06 51.42 2.28 n/a 5.17 0.01 n/a 100.00 $52,136,905 105,614,045 1,623,111,320 9,474,520,541 3,190,962,329 1,186,118 92,504,602 252,603,147 9,996,824,507 1,037,058,757 1,209 3,257,587,929 9,543,335,350 48,178,713,977 2,156,863,685 (2,602) 5,302,843,816 10,022,025 0 $94,275,887,660 0.06 0.11 1.72 10.05 3.38 n/a 0.10 0.27 10.60 1.10 n/a 3.46 10.12 51.10 2.29 0.00 5.62 0.01 0.00 100.00 (2) (2) (2) (2) FY2012-13 (2) (2) (2) (2) $41,324,471 115,774,867 1,193,176,084 9,900,237,768 3,061,730,365 6,250,408 84,672,718 235,348,616 10,544,419,377 1,051,580,928 1,706 3,254,821,525 10,092,875,787 51,276,107,347 2,221,059,419 0 5,186,464,365 10,283,377 0 $98,276,129,127 (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 2013 ANNUAL REPORT Page 38 % OF TOTAL 0.04 0.12 1.21 10.07 3.12 0.01 0.09 0.24 10.73 1.07 n/a (2) 3.31 10.27 52.18 2.26 0.00 (2) 5.28 0.01 0.00 (2) 100.00 TABLE 7 TRANSACTION PRIVILEGE, USE AND SEVERANCE TAX COLLECTIONS BY CLASS FISCAL YEAR 2012-13 CLASSIFICATION Transporting (1) Nonmetal Mining, Oil and Gas Mining Severance Utilities Communications Private Car and Pipelines Publishing Job Printing Restaurants and Bars Amusements Commercial Lease (2) Rentals of Personal Property Contracting Retail Hotel/Motel Use Tax Utilities Use Tax License Fees Jet Fuel Tax Jet Fuel Use Tax Non Sufficient Funds Telecommunications Service Assistance Mandatory EFT Fees TOTAL DISTRIBUTION BASE NONSHARED TOTAL COLLECTIONS $413,245 1,157,749 23,863,522 99,002,378 30,617,304 62,504 846,727 2,353,486 210,888,388 21,031,619 27 65,096,380 100,928,758 1,025,522,202 61,079,134 102,834 0 0 1,505,337 0 0 (4) 0 $1,644,471,588 $1,652,979 2,460,216 5,965,880 396,009,511 122,469,215 250,016 3,386,909 9,413,945 316,332,581 31,547,428 24 97,644,569 403,715,031 1,538,283,304 61,079,134 411,335 257,899,313 648,271 2,258,006 561,935 71,667 (18) 285,684 $3,252,346,935 $2,066,224 3,617,965 29,829,402 495,011,888 153,086,518 312,520 4,233,636 11,767,431 527,220,969 52,579,046 52 162,740,949 504,643,789 2,563,805,506 122,158,268 514,169 257,899,313 648,271 3,763,343 561,935 71,667 (22) 285,684 $4,896,818,522 (1) Transporting/Towing has been combined with Railroads/Aircraft for confidentiality purposes. (2) Commercial Lease rate dropped to 0% effective July 1, 1997. Figures may not add to total due to rounding. ARIZONA DEPARTMENT OF REVENUE 2013 ANNUAL REPORT Page 39 TABLE 8 DISTRIBUTION OF TRANSACTION PRIVILEGE, USE AND SEVERANCE TAX COLLECTIONS FISCAL YEAR 2012-13 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, Nursing Facility Assessment, Municipal Water, and Waste Tire Accounts Receivable Collections $3,819,525,185 (21,908,400) 411,117,897 666,175,440 567,824,410 965,620,521 (3,448,544) TOTAL GROSS COLLECTIONS $6,437,022,947 32,116,438 ADDITIONAL DISTRIBUTION FROM TRANSACTION PRIVILEGE, USE AND SEVERANCE TAX COLLECTIONS FISCAL YEAR 2012-13 Phoenix International Raceway - Highway Improvements Rio Nuevo Sports and Tourism Authority Tribal Community Colleges Convention Center Additional distribution of city collections $416,667 9,755,752 * 6,790,999 * 1,750,000 40,000,000 39,622 * These figures include a reconciliation of June 2012 distributions as well as an estimate of the June 2013 distribution that occurred after the close of the fiscal year. Figures may not add total due to rounding. ARIZONA DEPARTMENT OF REVENUE 2013 ANNUAL REPORT Page 40 TABLE 9 TRANSACTION PRIVILEGE, USE AND SEVERANCE TAX COLLECTIONS (1) IN APACHE COUNTY FOR THE PERIOD BEGINNING JULY 1, 2012 AND ENDING JUNE 30, 2013 TAXABLE ACTIVITIES AND BUSINESS CLASSIFICATIONS Utilities Communications Publishing Job Printing Restaurants and Bars Amusements Rentals of Personal Property Contracting (All) Retail Hotel/Motel Other Taxable Activities (2) TOTAL CALCULATED NET TAXABLE INCOME % CHANGE FROM FY 2011-12 COLLECTIONS $17,843,382 19,152,335 166,945 17,584 11,992,089 77,722 5,198,082 60,047,837 92,190,791 10,257,447 103,295,875 12.8% -1.4% -71.3% -41.9% -10.7% NA 43.4% -32.0% 16.2% -12.8% NA $892,169 957,616 8,347 879 599,604 3,886 259,904 3,002,392 4,609,540 564,160 5,089,252 $320,240,088 -9.9% $15,987,750 NUMBER OF ACCOUNTS FISCAL YEAR 2010-11 THROUGH FISCAL YEAR 2012-13 TAXABLE ACTIVITIES AND BUSINESS CLASSIFICATIONS Utilities Communications Publishing Job Printing Restaurants and Bars Amusements Rentals of Personal Property Contracting (All) Retail Hotel/Motel Other Taxable Activities (2) TOTAL FY2010-11 FY2011-12 FY2012-13 24 120 14 12 76 NA 150 438 1,370 52 955 20 102 17 12 72 NA 157 444 1,497 88 963 19 108 15 12 66 7 172 440 1,602 52 999 3,211 3,372 3,492 (1) License fees, Jet Fuel, Jet Fuel Use, Timber Severance, NSF, and Telecommunications Service Assistance are not included. (2) For FY13, different categories have been classified under the Other Taxable Activities compared to FY12. Figures may not add to total due to rounding. ARIZONA DEPARTMENT OF REVENUE 2013 ANNUAL REPORT Page 41 TABLE 10 TRANSACTION PRIVILEGE, USE AND SEVERANCE TAX COLLECTIONS (1) IN COCHISE COUNTY FOR THE PERIOD BEGINNING JULY 1, 2012 AND ENDING JUNE 30, 2013 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 2011-12 $178,919,761 56,138,758 895,040 628,784 129,528,880 5,257,448 22,588,544 167,549,189 806,464,775 32,365,689 65,464,404 4.7% -3.1% 0.6% -5.5% -2.6% 4.0% -8.4% -12.2% 8.3% -15.4% -5.9% $8,945,988 2,806,938 44,752 31,439 6,476,444 262,872 1,129,427 8,377,459 40,322,943 1,780,113 3,246,393 $1,465,801,273 2.1% $73,424,770 COLLECTIONS . NUMBER OF ACCOUNTS FISCAL YEAR 2010-11 THROUGH FISCAL YEAR 2012-13 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 FY2010-11 FY2011-12 FY2012-13 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 56 187 26 16 335 48 339 1,083 3,696 157 1,576 7,404 7,458 7,519 (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 2013 ANNUAL REPORT Page 42 TABLE 11 TRANSACTION PRIVILEGE, USE AND SEVERANCE TAX COLLECTIONS (1) IN COCONINO COUNTY FOR THE PERIOD BEGINNING JULY 1, 2012 AND ENDING JUNE 30, 2013 TAXABLE ACTIVITIES AND CALCULATED NET % CHANGE BUSINESS CLASSIFICATIONS TAXABLE INCOME FROM FY 2011-12 $178,316,648 3.4% $8,915,832 60,001,331 0.1% 3,000,067 1,441,111 -3.3% 72,056 Utilities Communications Publishing Job Printing Restaurants and Bars Amusements Rentals of Personal Property Contracting (All) Retail Hotel/Motel Other Taxable Activities TOTAL COLLECTIONS 2,397,677 11.4% 119,884 367,102,987 6.2% 18,355,149 71,188,207 7.9% 3,559,410 66,364,930 13.5% 3,318,247 248,088,438 -9.1% 12,404,422 1,022,125,422 4.3% 51,106,271 273,687,666 5.7% 15,052,822 89,222,834 -3.0% 4,411,660 $2,379,937,251 3.0% $120,315,819 NUMBER OF ACCOUNTS FISCAL YEAR 2010-11 THROUGH FISCAL YEAR 2012-13 TAXABLE ACTIVITIES AND BUSINESS CLASSIFICATIONS Utilities Communications FY2010-11 FY2011-12 FY2012-13 45 44 50 238 222 225 Publishing 33 36 40 Job Printing 42 48 39 Restaurants and Bars 465 486 490 Amusements 102 99 94 Rentals of Personal Property 473 464 459 Contracting (All) 1,695 1,671 1,609 Retail 4,491 4,614 4,737 Hotel/Motel Other Taxable Activities TOTAL 259 261 291 1,907 1,956 2,008 9,750 9,901 10,042 (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 2013 ANNUAL REPORT Page 43 TABLE 12 TRANSACTION PRIVILEGE, USE AND SEVERANCE TAX COLLECTIONS (1) IN GILA COUNTY FOR THE PERIOD BEGINNING JULY 1, 2012 AND ENDING JUNE 30, 2013 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 2011-12 COLLECTIONS $132,024,195 19,928,906 503,693 393,961 57,150,940 1,854,018 13,745,986 77,277,938 257,705,999 11,566,912 14,363,439 2.2% -6.6% -9.1% 27.7% 6.2% 13.8% 3.8% 2.9% 5.2% 7.3% NA $6,601,210 996,445 25,185 19,698 2,857,547 92,701 687,299 3,863,897 12,885,300 636,180 145,378 $586,515,988 -8.2% $28,810,840 NUMBER OF ACCOUNTS FISCAL YEAR 2010-11 THROUGH FISCAL YEAR 2012-13 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 FY2010-11 FY2011-12 FY2012-13 31 166 17 11 175 34 227 790 2,174 65 1,060 32 159 19 14 171 28 237 796 2,257 63 1,094 37 155 20 9 165 29 231 786 2,283 69 1,100 4,750 4,870 4,884 (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 2013 ANNUAL REPORT Page 44 TABLE 13 TRANSACTION PRIVILEGE, USE AND SEVERANCE TAX COLLECTIONS (1) IN GRAHAM COUNTY FOR THE PERIOD BEGINNING JULY 1, 2012 AND ENDING JUNE 30, 2013 TAXABLE ACTIVITIES AND BUSINESS CLASSIFICATIONS Communications Restaurants and Bars Rentals of Personal Property Contracting (All) Retail Other Taxable Activities TOTAL CALCULATED NET TAXABLE INCOME % CHANGE FROM FY 2011-12 COLLECTIONS $11,557,700 30,547,414 15,820,295 41,608,469 223,924,184 172,290,948 -5.3% 11.5% 36.2% 0.2% 9.8% -26.5% $577,885 1,527,371 791,015 2,080,423 11,196,209 6,346,613 $495,749,010 -6.7% $22,519,516 NUMBER OF ACCOUNTS FISCAL YEAR 2010-11 THROUGH FISCAL YEAR 2012-13 TAXABLE ACTIVITIES AND BUSINESS CLASSIFICATIONS Communications Restaurants and Bars Rentals of Personal Property Contracting (All) Retail Other Taxable Activities TOTAL FY2010-11 FY2011-12 FY2012-13 117 62 143 328 1,326 896 112 64 163 352 1,433 951 112 64 158 334 1,468 957 2,872 3,075 3,093 (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 2013 ANNUAL REPORT Page 45 TABLE 14 TRANSACTION PRIVILEGE, USE AND SEVERANCE TAX COLLECTIONS (1) IN GREENLEE COUNTY FOR THE PERIOD BEGINNING JULY 1, 2012 AND ENDING JUNE 30, 2013 TAXABLE ACTIVITIES AND BUSINESS CLASSIFICATIONS Communications Restaurants and Bars Rentals of Personal Property Contracting (All) Retail Other Taxable Activities TOTAL CALCULATED NET TAXABLE INCOME % CHANGE FROM FY 2011-12 $3,811,119 6,491,267 6,342,498 107,138,266 221,058,512 506,169,142 2.3% 40.1% 57.5% 161.3% 27.1% -17.7% $190,556 324,563 317,125 5,356,913 11,052,926 14,419,010 $851,010,803 1.0% $31,661,094 COLLECTIONS NUMBER OF ACCOUNTS FISCAL YEAR 2010-11 THROUGH FISCAL YEAR 2012-13 TAXABLE ACTIVITIES AND BUSINESS CLASSIFICATIONS Communications Restaurants and Bars Rentals of Personal Property Contracting (All) Retail Other Taxable Activities TOTAL FY2010-11 FY2011-12 FY2012-13 76 23 63 131 552 428 76 23 63 131 552 428 63 28 76 140 681 509 1,273 1,273 1,497 (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 2013 ANNUAL REPORT Page 46 TABLE 15 TRANSACTION PRIVILEGE, USE AND SEVERANCE TAX COLLECTIONS (1) IN LA PAZ COUNTY FOR THE PERIOD BEGINNING JULY 1, 2012 AND ENDING JUNE 30, 2013 TAXABLE ACTIVITIES AND BUSINESS CLASSIFICATIONS Utilities Communications Publication Job Printing Restaurants and Bars Amusements Rentals of Personal Property Contracting (All) Retail Hotel/Motel Other Taxable Activities (2) TOTAL CALCULATED NET TAXABLE INCOME % CHANGE FROM FY 2011-12 COLLECTIONS $27,573,167 7,308,455 74,249 93,874 23,685,838 466,568 2,757,715 24,393,094 131,769,924 6,634,293 26,916,702 4.7% 19.3% 69.3% NA 1.3% NA 2.4% 1.2% -1.9% 31.5% NA $1,378,658 365,423 3,712 4,694 1,184,292 23,328 137,886 1,219,655 6,588,496 364,886 1,343,678 $251,673,879 6.3% $12,614,708 NUMBER OF ACCOUNTS FISCAL YEAR 2010-11 THROUGH FISCAL YEAR 2012-13 TAXABLE ACTIVITIES AND BUSINESS CLASSIFICATIONS Utilities Communications Publication Job Printing Restaurants and Bars Amusements Rentals of Personal Property Contracting (All) Retail Hotel/Motel Other Taxable Activities (2) TOTAL FY2010-11 FY2011-12 FY2012-13 19 115 NA NA 96 NA 128 324 1,731 50 711 23 113 15 NA 106 NA 137 339 1,751 53 739 22 108 15 6 92 10 141 340 1,766 54 735 3,174 3,276 3,289 (1) License fees, Jet Fuel, Jet Fuel Use, Timber Severance, NSF, and Telecommunications Service Assistance are not included. are not included. (2) For FY13, different categories have been classified under the Other Taxable Activities compared to FY12. Figures may not add to total due to rounding. ARIZONA DEPARTMENT OF REVENUE 2013 ANNUAL REPORT Page 47 TABLE 16 TRANSACTION PRIVILEGE, USE AND SEVERANCE TAX COLLECTIONS (1) IN MARICOPA COUNTY FOR THE PERIOD BEGINNING JULY 1, 2012 AND ENDING JUNE 30, 2013 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 2011-12 COLLECTIONS $6,193,160,022 2,032,744,109 54,010,399 192,749,204 7,246,055,555 764,808,262 2,470,608,871 6,531,514,137 34,797,216,606 1,325,770,783 4,060,681,522 2.5% -0.2% -12.2% -5.5% 6.3% 0.4% -0.2% 7.1% 6.8% 3.5% -2.0% $309,658,001 101,637,205 2,700,520 9,637,460 362,302,778 38,240,413 123,530,444 326,575,707 1,739,861,119 72,917,393 202,265,706 $65,669,319,469 5.1% $3,289,326,746 NUMBER OF ACCOUNTS FISCAL YEAR 2010-11 THROUGH FISCAL YEAR 2012-13 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 FY2010-11 FY2011-12 FY2012-13 152 640 261 809 6,593 720 2,619 13,866 45,017 666 10,153 147 643 239 758 6,833 719 2,595 13,836 44,800 698 10,193 151 653 237 753 6,791 724 2,495 13,538 44,857 729 10,475 81,496 81,461 81,403 (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 2013 ANNUAL REPORT Page 48 TABLE 17 TRANSACTION PRIVILEGE, USE AND SEVERANCE TAX COLLECTIONS (1) IN MOHAVE COUNTY FOR THE PERIOD BEGINNING JULY 1, 2012 AND ENDING JUNE 30, 2013 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 2011-12 COLLECTIONS $347,647,275 90,596,107 1,253,333 2,878,744 221,701,056 13,711,642 48,259,217 182,100,087 1,308,115,311 42,515,159 138,229,255 -1.8% 4.6% 0.7% -14.4% 3.4% -6.6% -5.5% -0.1% 10.6% -1.6% 38.5% $17,382,364 4,529,805 62,667 143,937 11,085,053 685,582 2,412,961 9,105,004 65,405,868 2,338,334 5,475,488 $2,397,007,187 7.3% $118,627,063 NUMBER OF ACCOUNTS FISCAL YEAR 2010-11 THROUGH FISCAL YEAR 2012-13 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 FY2010-11 FY2011-12 FY2012-13 54 175 26 33 434 64 454 1,384 4,661 152 1,957 59 172 28 42 449 70 461 1,342 4,770 151 2,004 63 168 29 30 438 66 457 1,295 4,845 140 1,983 9,394 9,548 9,514 (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 2013 ANNUAL REPORT Page 49 TABLE 18 TRANSACTION PRIVILEGE, USE AND SEVERANCE TAX COLLECTIONS (1) IN NAVAJO COUNTY FOR THE PERIOD BEGINNING JULY 1, 2012 AND ENDING JUNE 30, 2013 TAXABLE ACTIVITIES AND BUSINESS CLASSIFICATIONS Utilities Communications Publishing Printing Restaurants and Bars Amusements Rentals of Personal Property Contracting (All) Retail Hotel/Motel Other Taxable Activities (2) TOTAL CALCULATED NET TAXABLE INCOME % CHANGE FROM FY 2011-12 COLLECTIONS $99,254,827 37,230,173 771,125 703,156 90,808,015 5,523,065 22,418,104 107,557,928 840,818,578 32,488,431 44,338,038 1.1% -15.2% -8.1% 9.1% 1.6% NA -18.2% -9.9% 2.6% -4.4% NA $4,962,741 1,861,509 38,556 35,158 4,540,401 276,153 1,120,905 5,377,896 42,040,929 1,786,864 2,191,355 $1,281,911,441 -0.7% $64,232,467 NUMBER OF ACCOUNTS FISCAL YEAR 2010-11 THROUGH FISCAL YEAR 2012-13 TAXABLE ACTIVITIES AND BUSINESS CLASSIFICATIONS Utilities Communications Publishing Printing Restaurants and Bars Amusements Rentals of Personal Property Contracting (All) Retail Hotel/Motel Other Taxable Activities (2) TOTAL FY2010-11 FY2011-12 FY2012-13 40 160 23 24 220 NA 281 912 2,676 146 1,295 41 144 20 21 237 NA 298 907 2,755 142 1,331 43 145 26 14 227 33 280 862 2,890 134 1,323 5,777 5,896 5,977 (1) License fees, Jet Fuel, Jet Fuel Use, Timber Severance, NSF, and Telecommunications Service Assistance are not included. (2) For FY13, fewer categories have been classified under the Other Taxable Activities compared to FY12. Figures may not add to total due to rounding. ARIZONA DEPARTMENT OF REVENUE 2013 ANNUAL REPORT Page 50 TABLE 19 TRANSACTION PRIVILEGE, USE AND SEVERANCE TAX COLLECTIONS (1) IN PIMA COUNTY FOR THE PERIOD BEGINNING JULY 1, 2012 AND ENDING JUNE 30, 2013 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 2011-12 $1,468,542,338 414,671,257 17,213,020 28,498,350 1,550,215,056 101,599,887 377,833,129 1,447,000,329 7,461,308,031 284,344,529 847,453,162 17.2% -20.7% 2.8% -13.3% 3.2% 5.0% -1.1% 5.6% 5.0% -0.7% -13.1% $73,427,117 20,733,563 860,651 1,424,918 77,510,753 5,079,994 18,891,656 72,350,016 373,065,441 15,638,949 33,913,867 $13,998,679,088 3.3% $692,896,925 COLLECTIONS NUMBER OF ACCOUNTS FISCAL YEAR 2010-11 THROUGH FISCAL YEAR 2012-13 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 FY2010-11 FY2011-12 FY2012-13 87 303 87 160 1,684 203 1,010 4,552 14,278 254 4,062 91 314 82 149 1,738 222 1,000 4,504 14,352 267 4,082 87 316 80 131 1,684 223 966 4,421 14,349 282 4,165 26,680 26,801 26,704 (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 2013 ANNUAL REPORT Page 51 TABLE 20 TRANSACTION PRIVILEGE, USE AND SEVERANCE TAX COLLECTIONS (1) IN PINAL COUNTY FOR THE PERIOD BEGINNING JULY 1, 2012 AND ENDING JUNE 30, 2013 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 2011-12 COLLECTIONS $506,151,807 127,504,926 3,626,765 1,435,256 250,260,730 39,624,923 71,437,168 397,490,821 1,098,026,515 20,370,698 226,457,976 5.9% -1.9% -2.0% -19.7% 6.3% 2.8% 7.2% 6.0% -0.2% -8.4% -27.6% $25,307,590 6,375,246 181,338 71,763 12,513,036 1,981,246 3,571,858 19,874,541 54,901,326 1,120,388 8,883,557 $2,742,387,585 -0.8% $134,781,891 NUMBER OF ACCOUNTS FISCAL YEAR 2010-11 THROUGH FISCAL YEAR 2012-13 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 FY2010-11 73 223 26 32 441 93 437 2,644 4,660 114 1,816 10,559 FY2011-12 79 206 28 31 465 90 451 2,721 4,782 109 1,924 FY2012-13 77 208 29 27 439 99 447 2,718 4,904 113 1,921 10,886 10,982 (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 2013 ANNUAL REPORT Page 52 TABLE 21 TRANSACTION PRIVILEGE, USE AND SEVERANCE TAX COLLECTIONS (1) IN SANTA CRUZ COUNTY FOR THE PERIOD BEGINNING JULY 1, 2012 AND ENDING JUNE 30, 2013 TAXABLE ACTIVITIES AND BUSINESS CLASSIFICATIONS Utilities Communications Publications 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 2011-12 COLLECTIONS $48,426,667 22,864,933 128,384 277,677 48,040,488 4,659,049 11,739,946 61,453,723 303,458,219 13,832,683 25,157,804 1.7% -10.5% -3.7% -37.7% 10.0% 8.9% -8.9% -26.1% 1.5% 58.6% 40.5% $2,421,333 1,143,247 6,419 13,884 2,402,024 232,952 586,997 3,072,686 15,172,911 760,798 1,257,614 $540,039,573 -0.6% $27,070,866 NUMBER OF ACCOUNTS FISCAL YEAR 2010-11 THROUGH FISCAL YEAR 2012-13 TAXABLE ACTIVITIES AND BUSINESS CLASSIFICATIONS Utilities Communications Publications Job Printing Restaurants and Bars Amusements Rentals of Personal Property Contracting (All) Retail Hotel/Motel Other Taxable Activities TOTAL FY2010-11 FY2011-12 FY2012-13 21 133 NA 13 131 19 214 546 1,998 36 959 22 129 13 19 133 22 228 583 2,119 40 1,001 17 131 14 12 132 21 224 542 2,198 44 1,030 4,070 4,309 4,365 (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 2013 ANNUAL REPORT Page 53 TABLE 22 TRANSACTION PRIVILEGE, USE AND SEVERANCE TAX COLLECTIONS (1) IN YAVAPAI COUNTY FOR THE PERIOD BEGINNING JULY 1, 2012 AND ENDING JUNE 30, 2013 TAXABLE ACTIVITIES AND BUSINESS CLASSIFICATIONS CALCULATED NET TAXABLE INCOME Utilities Communications Publishing Job Printing Restaurants and Bars Amusements Rentals of Personal Property Contracting (All) Retail Hotel/Motel Other Taxable Activities TOTAL % CHANGE FROM FY 2011-12 COLLECTIONS $322,695,044 93,109,663 2,738,603 3,443,410 285,745,619 27,038,208 49,641,099 343,275,808 1,388,138,408 107,706,695 283,834,609 1.0% -2.8% -1.7% -15.6% 4.2% 1.0% 17.5% 19.9% 7.1% 10.7% -11.8% $16,134,752 4,655,483 136,930 172,171 14,287,281 1,351,910 2,482,055 17,163,790 69,406,920 5,923,868 9,283,853 $2,907,367,166 5.1% $140,999,015 NUMBER OF ACCOUNTS FISCAL YEAR 2010-11 THROUGH FISCAL YEAR 2012-13 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 FY2010-11 FY2011-12 FY2012-13 75 222 48 57 623 92 462 2,326 6,140 206 2,025 77 210 49 55 643 87 463 2,255 6,265 209 2,064 82 214 50 53 620 95 466 2,256 6,356 210 2,134 12,276 12,377 12,536 (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 2013 ANNUAL REPORT Page 54 TABLE 23 TRANSACTION PRIVILEGE, USE AND SEVERANCE TAX COLLECTIONS (1) IN YUMA COUNTY FOR THE PERIOD BEGINNING JULY 1, 2012 AND ENDING JUNE 30, 2013 TAXABLE ACTIVITIES AND BUSINESS CLASSIFICATIONS Utilities Communications Publications Job Printing Restaurants and Bars Amusements Rentals of Personal Property Contracting (All) Retail Hotel/Motel Other Taxable Activities (2) TOTAL CALCULATED NET TAXABLE INCOME % CHANGE FROM FY 2011-12 COLLECTIONS $256,129,274 65,110,593 1,628,765 1,739,463 225,093,445 14,178,475 70,063,389 296,379,722 1,323,786,161 48,434,340 85,852,309 4.0% -4.7% -7.9% NA 2.7% NA -15.0% 0.7% 6.2% -6.5% NA $12,806,464 3,255,530 81,438 86,973 11,254,672 708,924 3,503,169 14,818,986 66,189,308 2,663,889 4,272,728 $2,388,395,937 4.1% $119,642,081 NUMBER OF ACCOUNTS FISCAL YEAR 2010-11 THROUGH FISCAL YEAR 2012-13 TAXABLE ACTIVITIES AND BUSINESS CLASSIFICATIONS Utilities Communications Publications Job Printing Restaurants and Bars Amusement Rentals of Personal Property Contracting (All) Retail Hotel/Motel Other Taxable Activities (2) TOTAL FY2010-11 FY2011-12 FY2012-13 32 191 NA NA 364 NA 411 974 3,669 102 1,726 36 194 18 NA 371 NA 426 961 3,837 109 1,812 39 191 24 21 339 54 413 963 3,905 102 1,758 7,469 7,764 7,809 (1) License fees, Jet Fuel, Jet Fuel Use, Timber Severance, NSF, and Telecommunications Service Assistance are not included. (2) For FY13, fewer categories have been classified under the Other Taxable Activities compared to FY12. Figures may not add to total due to rounding. ARIZONA DEPARTMENT OF REVENUE 2013 ANNUAL REPORT Page 55 TABLE 24 STATE TRANSACTION PRIVILEGE AND SEVERANCE TAX DISTRIBUTION TO COUNTIES FISCAL YEAR 2008-09 THROUGH FISCAL YEAR 2012-13 COUNTY Apache Coconino Cochise Gila Graham Greenlee La Paz Maricopa Mohave Navajo Pima Pinal Santa Cruz Yavapai Yuma TOTAL FY2008-09 FY2009-10 FY2010-11 FY2011-12 % CHANGE FROM FY2012-13 FY 2011-12 $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 $4,339,846 17,805,463 12,165,517 4,752,150 3,606,256 4,983,640 2,116,238 416,999,312 18,652,134 10,088,685 97,196,166 27,498,147 4,216,541 23,792,545 17,962,799 4.6% 4.5% 11.0% 3.0% -0.5% 13.9% 9.0% 4.6% 7.2% 5.0% 4.8% 3.4% 3.8% 3.6% 5.1% $627,176,822 $578,479,176 $604,829,288 $635,967,967 $666,175,440 4.7% $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 Figures may not add to totals due to rounding. ARIZONA DEPARTMENT OF REVENUE 2013 ANNUAL REPORT Page 56 TABLE 25 STATE TRANSACTION PRIVILEGE AND SEVERANCE TAX DISTRIBUTION TO MUNICIPALITIES FISCAL YEAR 2012-13 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 $399,846 160,512 284,844 $417,854 456,324 1,422,421 151,671 3,592,314 112,955 307,517 $5,391,581 107,553 593,180 45,673 247,438 $616,508 54,186 150,362 1,252,415 189,078 28,894 COUNTY $845,202 $6,461,057 $6,385,426 $2,291,442 $195,380 782,995 398,209 $1,376,584 $271,011 56,969 $327,980 $252,349 300,969 $553,318 $6,240,221 4,164,294 275,268 410,487 19,327,102 2,602,643 1,840,766 157,319 17,062,262 18,557,531 5,342,879 452,068 448,221 35,936,314 1,049,341 12,610,504 118,327,642 2,157,696 CITIES Scottsdale Surprise Tempe Tolleson Wickenburg Youngtown MOHAVE Bullhead City Colorado City Kingman Lake Havasu City NAVAJO Holbrook Pinetop-Lakeside Show Low Snowflake Taylor Winslow PIMA Marana Oro Valley Sahuarita South Tucson Tucson PINAL Apache Junction Casa Grande Coolidge Eloy Florence Kearny Mammoth Maricopa Superior SANTA CRUZ Nogales Patagonia YAVAPAI Camp Verde Chino Valley Clarkdale Cottonwood Dewey-Humboldt Jerome Prescott Prescott Valley Sedona YUMA San Luis Somerton Wellton Yuma TOTAL AMOUNT COUNTY TOTAL $17,793,363 9,618,983 13,236,998 535,720 520,823 503,880 $289,172,324 $399,846 394,608 2,297,418 4,299,431 $7,391,303 $413,597 350,490 872,541 457,552 336,575 790,280 $3,221,033 $2,861,622 3,356,826 2,067,495 462,626 42,572,452 $51,321,022 $2,933,570 3,975,626 967,898 1,361,278 2,090,169 159,611 116,721 3,559,082 232,214 $15,396,168 $1,705,547 74,731 $1,780,277 $889,975 885,391 335,347 922,061 318,731 36,342 3,261,223 3,177,652 821,056 $10,647,778 $2,104,763 1,169,417 235,897 7,600,328 $11,110,405 $408,281,322 $408,281,322 City Distributions are based on relative population. ARIZONA DEPARTMENT OF REVENUE 2013 ANNUAL REPORT Page 57 TABLE 26 MUNICIPAL PRIVILEGE TAX COLLECTION PROGRAM COLLECTIONS BY CITY FISCAL YEAR 2012-13 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 2.50 2.50 3.00 3.00 3.00 1.80 3.00 3.00 3.00 3.00 2.00 3.00 3.00 2.00 2.00 3.00 3.00 3.00 2.00 2.60 4.00 3.00 1.50 2.00 2.50 4.00 3.00 3.00 1.50 3.50 3.00 2.00 2.00 2.80 2.00 2.00 2.00 $5,259 2,974,599 1,857,405 16,349,031 21,301 2,541,404 2,778,722 19,395,850 6,046,905 3,882,227 1,089,870 691,150 259,649 4,661,055 11,187,166 372,497 (3,373) 107,030 801,128 6,053,980 4,786,595 3,613,446 7,948,271 253,136 2,491,799 61,138,257 3,816,209 39,631,700 1,408,012 1,690,428 3,959,660 161,091 708,533 698,682 12,537,987 15,587,248 4,167,733 89,114 24,514,184 8,511,770 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) 2.50 2.00 3.00 2.50 2.00 3.00 2.12 2.00 2.50 2.33 2.50 2.25 2.50 2.00 3.00 4.00 2.00 1.75 2.00 2.50 3.00 2.00 2.00 2.20 2.00 2.50 2.50 2.50 2.00 2.50 2.20 3.00 3.50 3.00 3.00 1.70 COLLECTIONS 442,131 14,178,384 7,359,792 11,686,882 1,248,755 191,231 6,047,113 254,047 3,286,485 11,535,323 1,301,138 15,394,611 6,093,108 7,576,414 721,508 6,531,779 111,202 9,206,661 16,192,020 1,021,081 41,450 1,802,340 1,420,690 244,858 303,328 37,113,796 647,477 2,900,571 14,226,275 686,212 2,595,433 652,902 2,769,471 (25,197) 3,933,282 105,372 4,437,565 1,237,299 32,719,469 TOTAL $506,978,968 * 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 2013 ANNUAL REPORT Page 58 TABLE 27 MUNICIPAL PRIVILEGE TAX COLLECTION PROGRAM FISCAL YEAR 2008-09 THROUGH FISCAL YEAR 2012-13 FISCAL YEAR TOTAL COLLECTIONS NUMBER OF CITIES IN PROGRAM 2008-09 $506,884,596 76 2009-10 $443,808,887 76 2010-11 $450,148,563 73 2011-12 $466,896,627 73 2012-13 $506,978,968 73 NON PROGRAM CITY MUNICIPAL PRIVILEGE TAX COLLECTIONS (1) APACHE JUNCTION AVONDALE BULLHEAD CITY CHANDLER DOUGLAS FLAGSTAFF GLENDALE MESA NOGALES PEORIA PHOENIX PRESCOTT SCOTTSDALE SEDONA SOMERTON TEMPE TUCSON WILLCOX FY 2010-11 $9,956,281 29,634,273 10,873,867 (2) 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 (2) 95,151,159 5,790,053 24,595,088 97,237,309 (2) 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 FY 2012-13 $10,877,057 35,577,512 10,336,537 102,200,516 5,389,897 26,328,187 124,890,480 133,506,015 9,835,973 65,950,235 699,735,964 26,932,232 144,909,078 11,389,664 1,378,727 130,087,000 196,209,066 2,376,729 (2) (2) (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) Unaudited figure. ARIZONA DEPARTMENT OF REVENUE 2013 ANNUAL REPORT Page 59 ARIZONA DEPARTMENT OF REVENUE 2013 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 $662.0 million during fiscal year 2013 (Refer to Table 28). INDIVIDUAL INCOME TAX MAJOR FEATURES For tax year 2010 filed in 2011, approximately 2.6 million individual filers reported Arizona gross income (defined as federal adjusted gross income) totaling more than $128.4 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 2010 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 2013 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 Airline Bankruptcy Payments Taxpayers that incur expenses to purchase and install an agricultural water conservation system in Arizona. This credit is a one-time individual income tax credit for tax year 2013. The FAA Modernization and Reform Act allowed individual taxpayers that received qualified airline bankruptcy-related payments between 2001 and 2011 to make contributions to a traditional IRA and treat the contributions as if they were made in the year in which the payments were received. Taxpayers who take advantage of this provision are required to file amended federal income tax returns. Instead of filing Arizona amended returns, taxpayers will be allowed a credit on their 2013 Arizona tax return based on the reduction in tax that would have occurred if they would have been allowed to amend their Arizona 2001 through 2011 tax returns. 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. Taxpayers may also contribute to a Qualifying Foster Care Charitable Organization (QFCO). If a contribution is made to a QFCO, the credit available to the taxpayer is $400 or $800, 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 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. Taxpayers certified by the Arizona Department of Commerce as a qualified defense contractor for qualified increases in employment. 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). Taxpayers whose business is located in an Arizona enterprise zone that have a net increase in qualified employment positions. 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. Contributions to Qualifying Charitable Organizations Corporate Contributions to School Tuition Organizations Corporate Contributions to School Tuition Organizations for Displaced Students with Disabilities Defense Contracting Employing Arizona National Guard Members Employment of TANF Recipients Enterprise Zone Environmental Technology Facility Family ARIZONA DEPARTMENT OF REVENUE 2013 ANNUAL REPORT Page 62 CREDIT Healthy Forest Enterprises Income Taxes Paid to Another State or Country AVAILABLE TO Businesses that operate a healthy forest enterprise may receive a nonrefundable credit against corporate and individual income tax liabilities. Taxpayers claiming this credit must be certified by the Arizona Commerce Authority (ACA). 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. Investment in Qualified Small Businesses Allows a credit for investments in qualified small businesses to individuals. The credit must be pre-approved by the ACA. 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. The credit must be pre-approved by the ACA. 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. Qualified Health Insurance Plans The nonrefundable credit is available to employers who provide qualified health insurance plans or contributions to health savings accounts for its employees who are Arizona residents. The credit amount is $360 for every employee who is enrolled in the plan. Qualified Facilities Provides a refundable credit, available in five equal installments, for those that expanded or located a qualified facility in Arizona. The credit must be approved by the ACA. There is an aggregate cap on approvals of $70 million (in conjunction with the renewable energy industry credit) and a per taxpayer cap of $30 million. The amount of the credit is 10% of the lesser of the taxpayer’s total capital investment in the qualified facility or $200,000 for each net new fulltime employment position at the qualified facility. ARIZONA DEPARTMENT OF REVENUE 2013 ANNUAL REPORT Page 63 CREDIT AVAILABLE TO 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 $517 or $1,034, depending upon filing status. An additional credit of $514 or $1,028, depending upon filing status, is available for contributions that exceed the maximum allowable credit. 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. The credit must be pre-approved by the ACA. 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. The credit must be pre-approved by the ACA. Research and Development A non-refundable individual and corporate income tax credit for an increase in qualifying research and development expenses conducted in Arizona. There is also a refundable credit for small businesses that must be pre-approved by the ACA. Research and Development – University Research This is an additional individual or corporate research and development income tax credit for research conducted through Arizona State University, Northern Arizona University or University of Arizona. This credit requires pre-approval through the Arizona Department of Revenue School Site Donation This tax credit is for the donation of real property and improvements to an Arizona school district or Arizona charter school for use as a school or as a site for the construction of a school. Solar Energy Devices Individual taxpayers who install a solar energy device in his or her residence located in Arizona. Solar Energy Devices – Commercial 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. The credit must be pre-approved by the ACA. 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. ARIZONA DEPARTMENT OF REVENUE 2013 ANNUAL REPORT Page 64 CREDIT Taxes Paid for Coal Consumed in Generating Electrical Power AVAILABLE TO 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 2013 ANNUAL REPORT Page 65 TABLE 28 INCOME TAX COLLECTIONS FISCAL YEAR 2008-09 THROUGH FISCAL YEAR 2012-13 SOURCE Withheld from Wages Gross Revenue Refunds and Charge-offs NET Individuals & Fiduciaries Gross Revenue Regular Refunds and Charge-offs FY2008-09 FY2009-10 FY2010-11 FY2011-12 $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) $3,459,818,705 (9,321,721) $3,079,317,068 $3,007,104,715 $3,227,622,125 $3,332,563,180 $3,450,496,984 $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) $1,170,646,638 (1,222,241,845) ($503,863,734) ($583,890,008) ($357,056,777) ($233,385,726) ($51,595,207) $749,362,551 (157,110,835) $650,925,393 (237,644,455) $659,266,690 (98,958,514) $758,413,453 (110,525,973) $755,002,081 (92,975,683) $592,251,716 $413,280,938 $560,308,176 $647,887,480 $662,026,398 16.3% $3,167,705,050 $2,836,495,645 $3,430,873,524 $3,747,064,934 $4,060,928,175 100.0% NET Corporations Gross Revenue Refunds and Charge-offs NET Subtotal Net Collections Less distributions for: Urban Revenue Sharing Child Abuse Prevention Veteran's Donation Fund Aid to Education Domestic Violence Shelter Special Olympics Wildlife Contributions Neighbors Helping Neighbors Clean Elections National Guard Relief Fund I Did Not Pay Enough Fund Democratic Party Libertarian Party Republican Party Green Party Americans Elect Job Creation W/H Clearing Acct (2) $727,677,400 (1) 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 $513,584,045 158,556 103,323 84,949 115,625 63,923 143,775 32,549 579,740 40,660 15,124 11,266 444 5,986 518 210 31,500,000 $735,338,981 $635,650,660 $480,986,414 $462,980,411 $546,440,691 $2,432,366,069 $2,200,844,986 $2,949,887,110 $3,284,084,523 $3,514,487,484 $7,000,000 $6,168,488 $1,705,724 $7,000,000 $5,337,915 $166,277 Subtotal Distributions NET REVENUE TO STATE GENERAL FUND PERCENT OF NET COLLECTIONS FY2012-13 IN FY2012-13 WQARF Distribution Sports and Tourism Authority Use Tax on Income Tax Return (3) $13,000,000 $4,200,254 ----- $7,000,000 $6,419,515 ----- $7,000,000 $5,810,440 ----- 85.0% -1.3% (1) 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. (2) 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. (3) 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. Pursuant to SB1214, Chapter 323 , 2nd Regular Session, 2012, the provision was repealed retroactively to tax years beginning January 1, 2012. 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 2013 ANNUAL REPORT Page 66 TABLE 29 EXEMPTIONS, DEDUCTIONS AND CREDITS TAX YEAR 2009 THROUGH TAX YEAR 2012 TAX YEAR PERSONAL EXEMPTION (2) BLIND EXEMPTION AGE 65 AND OVER EXEMPTION DEPENDENT EXEMPTION STANDARD DEDUCTION LIMIT (1) MAXIMUM PROPERTY TAX CREDIT MAXIMUM FAMILY TAX CREDIT 2009 2010 2011 2012 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 4,677/9,354 4,677/9,354 4,703/9,406 4,833/9,665 502 502 502 502 240 240 240 240 (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 2009 THROUGH TAX YEAR 2011 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 Renewable Energy Production Research and Development School Site Donation Solar Energy Solar Hot Water Heater & Plumbing Stub Outs Solar Liquid Fuel Research & Development Water Conservation Systems Total TAX YEAR 2009 CLAIMANTS CREDITS TAX YEAR 2010 CLAIMANTS CREDITS TAX YEAR 2011 CLAIMANTS CREDITS 3 141 26,088 81 $13,306 $1,011,846 $633,415 $325,054 (1) 98 24,908 46 (1) $677,937 $644,314 $257,980 (2) (2) 25,275 17 (2) (2) $596,451 $51,384 49,915 0 3,185 (1) 0 98 (1) 515,867 0 30,125 664,675 208 0 8 (1) 73,430 17,366 239,031 0 $12,889,895 $0 $998,331 (1) $0 $1,190,630 (1) $5,270,319 $0 $75,216,168 $35,928,030 $574,434 $0 $99,935 (1) $50,879,153 $6,606,391 $42,657,087 $0 --------- --------- 61,602 0 3,052 (1) 3 (2) (1) 516,513 (2) 36,535 656,524 203 (1) 7 (1) 62,940 17,526 250,004 0 0 $16,727,074 $0 $995,849 (1) $20,822 (2) (1) $5,594,106 (2) $84,093,029 $35,278,230 $791,082 (1) $182,637 (1) $43,183,534 $6,750,770 $43,718,717 $0 $0 336 23 8,449 $4,592,244 $76,226 $4,983,151 66,396 (2) 3,007 (2) (2) (2) (2) 533,345 (2) 39,174 672,009 (2) (2) 4 (2) 71,614 18,503 250,216 (2) (2) (2) 503 (2) (2) $18,012,263 (2) $996,695 (2) (2) (2) (2) $5,905,317 (2) $82,151,564 $35,659,215 (2) (2) $54,053 (2) $48,981,406 $7,183,778 $48,442,987 (2) (2) (2) $6,833,284 (2) (2) (2) (2) 140 1,680,203 (2) (2) $60,387 $254,928,784 ----- ----- 466 19 9,000 $6,521,146 $141,029 $5,980,000 16 $1,568 15 $1,662 ----- ----- ----- ----- 212 1,629,263 $104,876 $244,060,031 230 1,639,699 $104,280 $251,688,107 (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 2013 ANNUAL REPORT Page 67 TABLE 30 RESIDENT INDIVIDUAL INCOME TAX LIABILITY BY FEDERAL ADJUSTED GROSS INCOME TAX YEAR 2010 (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 45,786 41,167 115,872 155,393 178,452 252,344 185,041 156,034 259,142 188,568 320,181 196,642 222,025 48,169 6,842 2,872 279 1.93% 1.73% 4.88% 6.54% 7.51% 10.63% 7.79% 6.57% 10.91% 7.94% 13.48% 8.28% 9.35% 2.03% 0.29% 0.12% 0.01% $285,949 20,718 53,818 2,708,535 10,474,515 27,733,621 37,102,326 48,847,584 123,806,502 130,140,404 328,540,471 314,535,119 650,808,457 396,851,462 160,749,899 196,997,141 177,416,546 0.01% 0.00% 0.00% 0.10% 0.40% 1.06% 1.42% 1.87% 4.75% 4.99% 12.60% 12.06% 24.96% 15.22% 6.17% 7.56% 6.81% 2,374,809 100.00% TOTAL $2,607,073,067 100.00% (1) This summary combines all liability reported on the Arizona Form 140 and 140A Individual Income tax returns for tax year 2010, filed from January 2011 forward. ARIZONA DEPARTMENT OF REVENUE 2013 ANNUAL REPORT Page 68 TABLE 31 NONRESIDENT/ PART YEAR RESIDENT INDIVIDUAL INCOME TAX LIABILITY BY FEDERAL ADJUSTED GROSS INCOME TAX YEAR 2010 (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 49,557 25,551 34,178 24,158 18,071 19,265 11,243 8,343 11,955 7,900 11,073 5,182 6,258 2,394 567 351 46 20.99% 10.82% 14.48% 10.23% 7.65% 8.16% 4.76% 3.53% 5.06% 3.35% 4.69% 2.19% 2.65% 1.01% 0.24% 0.15% 0.02% 4,519,051 271,376 948,811 1,585,505 2,246,721 4,070,290 3,646,667 3,582,691 7,108,892 6,519,251 13,784,607 10,095,625 21,924,054 22,155,732 13,625,513 24,901,028 20,517,671 2.80% 0.17% 0.59% 0.98% 1.39% 2.52% 2.26% 2.22% 4.40% 4.04% 8.54% 6.25% 13.57% 13.72% 8.44% 15.42% 12.70% 236,092 100.00% $161,503,485 100.00% (1) This summary combines all liability reported on the Arizona Form 140NR and 140PY Individual Income tax returns for tax year 2010, filed from January 2011 forward. ARIZONA DEPARTMENT OF REVENUE 2013 ANNUAL REPORT Page 69 TABLE 32 CORPORATE INCOME TAX CORPORATE TAXPAYER BY SIZE OF TAX LIABILITY TAX YEAR 2010 (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 35,368 962 4,208 3,093 890 1,330 352 477 94 113 46,887 % OF TOTAL 75.4% 2.1% 9.0% 6.6% 1.9% 2.8% 0.8% 1.0% 0.2% 0.2% 100.0% LIABILITY $1,765,450 69,714 1,758,598 7,528,184 6,284,347 30,315,411 25,075,432 105,154,333 65,922,107 390,928,078 $634,801,654 % OF TOTAL 0.3% 0.0% 0.3% 1.2% 1.0% 4.8% 4.0% 16.6% 10.4% 61.6% 100.0% CORPORATE INCOME TAX CREDITS TAX YEAR 2010 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 Renewable Energy Industry Research & Development Research & Development - Refundable School Site Donation Solar Hot Water Heater Plumbing Stub-Outs Taxes Paid on Coal Used in Electric Generation Water Conservation TOTAL (2) # OF FILERS 0 260 13 66 CREDIT USED $0 $2,842 $129,528 $8,471,772 CARRYFORWARD AVAILABLE $0 $0 $115,251 $3,200,062 * 0 8 7 88 3 0 3 11 19 0 287 37 * 0 4 0 773 * $0 $17,900 $61,289 $6,229,916 $685,266 $0 $1,600 $8,579,472 $2,617,517 $0 $58,964,328 $4,015,985 * $0 $2,182,237 $0 $92,169,802 * $0 $0 $59,244 $5,254,273 $42,720,022 $0 $70,020 $821,303 $4,161,206 $0 $910,591,839 $0 * $0 $4,777,067 $0 $971,856,479 (1) This summary combines all liability on the Arizona Form 120 Corporate Income Tax returns for tax year 2010 filed from January 2011 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 2013 ANNUAL REPORT Page 70 TABLE 33 AVERAGE FEDERAL ADJUSTED GROSS INCOME AND AVERAGE TAX LIABILITY PER RETURN BY COUNTY FOR TAX YEAR 2010 APACHE COCONINO Average FAGI $33,098 Average Liability $317 Average FAGI $48,564 Average Liability $940 MOHAVE Average FAGI $38,370 Average Liability $656 NAVAJO Average FAGI $37,777 Average Liability $535 GREENLEE YAVAPAI Average FAGI $49,265 Average Liability $1,003 Average FAGI $43,220 Average Liability $776 LA PAZ Average FAGI $33,973 Average Liability $515 GILA Average FAGI $40,221 Average Liability $656 MARICOPA Average FAGI $56,302 Average Liability $1,247 YUMA Average FAGI $37,610 Average Liability $632 STATEWIDE AVERAGES Average FAGI $51,910 Average Liability $1,097 PINAL Average FAGI $43,277 Average Liability $763 PIMA COCHISE Average FAGI $48,778 Average Liability $949 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 $42,575 Average Liability $765 Average FAGI $45,227 Average Liability $852 SANTA CRUZ Average FAGI $39,472 Average Liability $733 ARIZONA DEPARTMENT OF REVENUE 2013 ANNUAL REPORT Page 71 TABLE 34 URBAN REVENUE SHARING FISCAL YEAR 2008-09 THROUGH FISCAL YEAR 2012-13 FISCAL YEAR AMOUNT 2008-09 $727,677,400 (1) 2009-10 $628,644,630 2010-11 $474,006,520 2011-12 $424,423,442 2012-13 $513,584,045 (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 2013 ANNUAL REPORT Page 72 TABLE 35 DISTRIBUTION OF INCOME TAX AS URBAN REVENUE SHARING TO MUNICIPALITIES IN FISCAL YEAR 2012-13 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 $498,992 355,475 200,312 0.10% 0.07% 0.04% 521,465 569,474 1,775,125 189,280 4,483,065 153,222 383,769 0.10% 0.11% 0.35% 0.04% 0.87% 0.03% 0.07% 6,728,479 153,222 740,265 153,222 308,793 1.31% 0.03% 0.14% 0.03% 0.06% 769,378 153,222 125,103 1,562,964 235,962 153,222 0.15% 0.03% 0.02% 0.30% 0.05% 0.03% 243,827 977,146 496,949 0.05% 0.19% 0.10% 338,212 153,222 0.07% 0.03% 314,922 375,598 0.06% 0.07% 7,787,548 5,196,874 343,523 512,271 24,119,457 3,247,995 2,297,203 196,328 21,293,026 23,159,063 6,667,701 564,163 559,362 44,847,095 1,309,535 15,737,409 147,668,202 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% 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 City distributions are based on relative population. TOTAL *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 $2,692,719 22,205,411 12,004,109 16,519,248 668,558 649,967 628,822 0.52% 4.32% 2.34% 3.22% 0.13% 0.13% 0.12% 4,038,926 492,455 2,867,086 5,365,520 0.79% 0.10% 0.56% 1.04% 516,153 437,397 1,088,896 571,006 420,032 986,238 0.10% 0.09% 0.21% 0.11% 0.08% 0.19% 3,571,191 4,189,186 2,580,153 577,340 53,128,732 0.70% 0.82% 0.50% 0.11% 10.34% 3,660,979 4,961,423 1,207,898 1,698,821 2,608,448 199,188 153,222 4,441,593 289,793 0.71% 0.97% 0.24% 0.33% 0.51% 0.04% 0.03% 0.86% 0.06% 2,128,455 153,222 0.41% 0.03% 1,110,654 1,104,933 418,500 1,150,696 397,764 153,222 4,069,877 3,965,584 1,024,645 0.22% 0.22% 0.08% 0.22% 0.08% 0.03% 0.79% 0.77% 0.20% 2,605,281 1,459,386 294,390 9,506,288 0.51% 0.28% 0.06% 1.85% $513,584,045 100.00% ARIZONA DEPARTMENT OF REVENUE 2013 ANNUAL REPORT Page 73 ARIZONA DEPARTMENT OF REVENUE 2013 ANNUAL REPORT Page 74 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 2013 ANNUAL REPORT Page 75 Centrally Valued Properties The Centrally Valued Property Unit is responsible for the annual valuation of 11 industries for ad valorem property tax purposes. The assessment and appeals calendar for centrally valued properties coincides with the calendar for locally assessed properties. 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 4.1 4.2 5 6 Primary Residence Non-Primary Residence Rental Residential Railroads, Airlines Historic Property; Foreign Trade Zones; Qualified Environmental Technology Facilities 5% Commercial Historic Combination 1% and 19.5% Rental Residential Historic Combination 1% and 10% Improvements on government property 1% 7 8 9 19.5% 19.5% 19.5% First $133,868 exempt; 19.5% on the remainder 16% First $133,868 exempt; 16% on the remainder 10% 10% 10% 15% ARIZONA DEPARTMENT OF REVENUE 2013 ANNUAL REPORT Page 76 INDUSTRIES VALUED BY THE DEPARTMENT Industry Number of Companies 2011 2012 2013 Airlines (Flight Property) ................................................................... 28 ................ 28 ...............29 Electric & Gas* Generation ................................................................................... 38 ................ 53 ...............71 Transmission and Distribution ..................................................... 29 ................ 32 ...............36 Mines (non-producing) ........................................................................ 1 .................. 1 .................0 Mines (producing) .............................................................................. 35 ................ 30 ...............35 Pipelines (Gas Transmission) .............................................................. 8 .................. 8 .................8 Private Rail Cars .............................................................................. 284 .............. 289 .............278 Producing Oil & Gas Interests ............................................................. 3 .................. 3 .................2 Railroads ............................................................................................ 11 ................ 11 ...............12 Telecommunications ......................................................................... 65 ................ 63 ...............62 Water Utilities .................................................................................. 327 .............. 316 .............311 Total ................................................................................................ 829 .............. 834 .............844 * Includes Salt River Project ARIZONA DEPARTMENT OF REVENUE 2013 ANNUAL REPORT Page 77 TABLE 36 STATE OF ARIZONA 2013 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 $525,723,278 $1,006,475,403 $1,519,086,333 $438,624,843 $192,240,653 $335,715,128 $216,835,366 $31,996,204,979 $1,771,371,872 $903,351,854 $7,559,129,097 $1,988,882,373 $338,356,662 $2,232,629,599 $1,112,115,440 $52,136,742,880 $2,693,280 $5,183,314 $9,443,949 $2,247,075 $984,849 $1,785,707 $1,110,848 $178,373,045 $9,074,738 $5,399,931 $39,310,735 $10,192,203 $1,737,595 $15,173,455 $5,697,367 $288,408,092 COUNTY $2,414,647 $26,446,148 $8,303,326 $18,378,381 $4,558,218 $2,467,506 $4,251,708 $410,044,984 $32,231,883 $6,318,946 $277,226,982 $75,666,420 $11,576,873 $43,107,612 $22,952,064 $945,945,698 AVERAGE STATE PRIMARY TAX RATE PER $100 CITIES and TOWNS $0 $2,360,230 $6,118,013 $1,885,803 $241,614 $273,142 $0 $228,440,179 $4,178,240 $394,572 $16,388,179 $16,689,980 $0 $2,007,428 $10,009,586 $288,986,965 COMMUNITY COLLEGES $0 $18,627,847 $7,042,484 $3,814,282 $5,267,586 $0 $4,086,696 $412,623,059 $20,413,289 $13,341,604 $96,348,659 $37,625,677 $1,421,098 $40,725,397 $20,960,040 $682,297,718 SCHOOLS $9,424,926 $43,096,250 $56,919,248 $19,377,138 $8,591,376 $7,539,842 $5,404,328 $1,387,193,981 $72,650,529 $31,978,568 $360,616,228 $88,221,308 $16,782,977 $79,444,410 $49,436,282 $2,236,677,392 ALL OTHER $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 TOTAL $14,532,853 $95,713,789 $87,827,021 $45,702,679 $19,643,643 $12,066,196 $14,853,580 $2,616,675,248 $138,548,680 $57,433,621 $789,890,784 $228,395,587 $31,518,543 $180,458,301 $109,055,339 $4,442,315,864 PRIMARY RATE $3 $10 $6 $10 $10 $4 $7 $8 $8 $6 $10 $11 $9 $8 $10 8.52 8.52 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 AVERAGE STATE PRIMARY TAX RATE PER $100 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 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 NOTE: Some increase/decrease due to reporting tax levies in different authorities than in previous years. ARIZONA DEPARTMENT OF REVENUE 2013 ANNUAL REPORT Page 78 TABLE 37 STATE OF ARIZONA 2013 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 $531,638,110 $1,011,138,917 $1,533,065,282 $440,187,536 $194,024,943 $336,148,250 $224,552,041 $32,229,006,810 $1,809,668,423 $904,776,433 $7,623,691,280 $2,005,343,534 $339,878,006 $2,279,676,521 $1,131,581,406 $52,594,377,492 STATE $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 COUNTY CITIES and TOWNS $4,247,257 $4,629,166 $11,753,574 $1,320,563 $292,424 $796,984 $224,552 $57,859,000 $17,992,149 $5,403,608 $109,387,792 $6,162,892 $2,473,562 $9,771,398 $12,211,163 $244,526,081 $0 $179,611 $5,530,453 $0 $0 $0 $0 $202,263,121 $0 $0 $29,148,173 $5,612,505 $0 $189,071 $0 $242,922,934 AVERAGE STATE SECONDARY TAX RATE PER $100 COMMUNITY COLLEGES $2,116,983 $0 $1,905,340 $0 $0 $0 $758,761 $78,767,693 $0 $0 $1,425,630 $7,197,178 $0 $5,076,840 $3,823,614 $101,072,038 SCHOOLS $2,521,195 $4,886,682 $16,631,147 $5,306,985 $2,683,080 $1,586,882 $1,515,214 $850,450,417 $16,021,211 $12,646,421 $120,541,156 $38,242,035 $3,221,295 $16,191,707 $13,290,437 $1,105,735,865 ALL OTHER $5,523,293 $9,075,046 $15,741,813 $6,932,478 $552,457 $37,324 $4,474,245 $189,163,901 $21,214,817 $14,497,153 $79,718,089 $27,811,746 $6,314,246 $37,290,488 $863,032 $419,210,129 TOTAL $14,408,728 $18,770,504 $51,562,327 $13,560,026 $3,527,960 $2,421,190 $6,972,772 $1,378,504,131 $55,228,177 $32,547,182 $340,220,841 $85,026,356 $12,009,103 $68,519,503 $30,188,246 $2,113,467,047 SECONDARY RATE $3 $2 $3 $3 $2 $1 $3 $4 $3 $4 $4 $4 $4 $3 $3 4.02 4.02 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 NOTE: Some increase/decrease due to reporting tax levies in different authorities than in previous years. ARIZONA DEPARTMENT OF REVENUE 2013 ANNUAL REPORT Page 79 TABLE 38 AVERAGE PROPERTY TAX RATES PER $100 OF ASSESSED VALUATION 2010 THROUGH 2013 2010 PRIMARY School Districts Counties State Cities and Towns Community Colleges Special Districts 2011 SECONDARY PRIMARY $3.17 1.51 0.39 0.38 0.87 0.00 $1.69 0.42 0.00 0.50 0.15 0.59 $3.63 1.70 0.46 0.44 1.05 0.00 $1.88 0.48 0.00 0.48 0.16 0.67 $6.32 $3.35 $7.28 $3.67 TOTAL $9.67 $10.94 2012 PRIMARY School Districts Counties State Cities and Towns Community Colleges Special Districts TOTAL SECONDARY 2013 SECONDARY PRIMARY SECONDARY $4.00 1.72 0.50 0.49 1.17 0.00 $2.02 0.49 0.00 0.47 0.17 0.71 $4.29 1.81 0.55 0.55 1.31 0.00 $2.10 0.46 0.00 0.46 0.19 0.80 $7.89 $3.87 $8.52 $4.02 $11.75 $12.54 School district rate includes Unorganized School Districts. Figures may not add to total due to rounding. ARIZONA DEPARTMENT OF REVENUE 2013 ANNUAL REPORT Page 80 ALL OTHER SOURCES OF REVENUE Bingo Estate Tax Luxury Tax Unclaimed Property & Escheated Estates Waste Tire Fees ARIZONA DEPARTMENT OF REVENUE 2013 ANNUAL REPORT Page 81 ARIZONA DEPARTMENT OF REVENUE 2013 ANNUAL REPORT Page 82 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 2008-09 THROUGH FISCAL YEAR 2012-13 Fiscal Year Amount 2008-09 $531,588 2009-10 $520,655 2010-11 $504,905 2011-12 $508,145 2012-13 $519,998 BINGO COLLECTIONS FY2008-09 FY2009-10 FY2010-11 FY2011-12 FY2012-13 Licenses Proceeds Penalty, Interest and Miscellaneous $19,735 510,177 $19,718 499,206 $27,576 476,482 $18,164 486,056 $18,175 497,493 1,676 1,731 847 3,926 4,331 TOTAL $531,588 $520,655 $504,905 $508,145 $519,998 ARIZONA DEPARTMENT OF REVENUE 2013 ANNUAL REPORT Page 83 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 continued 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 2008-09 THROUGH FISCAL YEAR 2012-13 Fiscal Year Collections Refunds Net 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 2012-13 $0 $0 $0 Figures may not add to total due to rounding. ARIZONA DEPARTMENT OF REVENUE 2013 ANNUAL REPORT Page 84 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 2013 fiscal year, over $383 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, $19.0 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 $125.8 million due to the passage of Proposition 203 in 2006. The remaining $56.2 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 2013 ANNUAL REPORT Page 85 TABLE 41 LUXURY TAX COLLECTIONS FISCAL YEAR 2008-09 THROUGH FISCAL YEAR 2012-13 SOURCE: Spirituous Liquor Vinous Liquor Malt Liquor Liquor Collections Tobacco - All Types Gross Revenue Refunds Licenses Administrative Expenses Net Tobacco Collections TOTAL COLLECTIONS PERCENT OF COLLECTIONS IN FY2012-13 FY2008-09 FY2009-10 FY2010-11 FY2011-12 FY2012-13 $28,341,033 13,006,125 22,831,547 $64,178,705 $29,304,713 13,881,407 22,232,715 $65,418,835 $28,202,704 13,596,155 21,566,369 $63,365,229 $31,847,105 15,430,577 21,101,489 $68,379,171 $32,184,954 15,155,547 21,343,360 $68,683,862 $380,593,991 (6,251,626) 7,075 (646,800) $373,702,640 $340,839,935 (6,635,450) 7,900 (662,742) $333,549,643 $340,754,224 (12,281,284) 7,710 (673,071) $327,807,579 $337,777,289 (17,978,338) 7,925 (677,280) $319,129,597 $331,347,184 (15,583,872) 7,825 (676,090) $315,095,046 82.1% $437,881,344 $398,968,478 $391,172,807 $387,508,768 $383,778,908 100.0% DISTRIBUTIONS: State General Fund Tobacco Tax & Health Care Fund Tobacco Products Tax Fund Drug Treatment & Education Fund DOC Revolving Fund Department of Corrections Fund DOC Transfer from Prop 200 Funds Prop 200 Transfer from Prop 303 Funds Smoke Free AZ Early Childhood Development and Health Fund TOTAL DISTRIBUTIONS $57,878,187 73,785,519 (1) 108,934,079 (1) 8,434,654 3,358,868 26,861,628 1,855,867 2,539,738 2,868,990 151,363,815 $437,881,344 $55,352,260 65,051,516 96,335,427 8,551,873 3,407,130 28,587,983 637,075 4,037,828 3,888,483 $53,599,408 64,799,725 95,586,289 8,303,445 3,307,459 27,130,247 1,322,335 3,982,185 3,058,479 $56,357,085 61,879,113 90,953,118 8,805,071 3,512,659 28,518,897 1,259,100 3,789,120 3,043,448 $56,184,596 61,958,027 91,044,441 8,822,752 3,520,473 28,468,675 1,259,414 3,792,927 2,956,134 133,118,902 $398,968,478 130,083,235 $391,172,807 129,391,158 $387,508,768 125,771,470 $383,778,908 (1) 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 were distributed in fiscal year 2010. Figures may not add to total due to rounding. ARIZONA DEPARTMENT OF REVENUE 2013 ANNUAL REPORT Page 86 8.4% 3.9% 5.6% 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 2013 ANNUAL REPORT Page 87 TABLE 42 UNCLAIMED PROPERTY COLLECTIONS AND DISTRIBUTIONS FISCAL YEAR 2008-09 THROUGH FISCAL YEAR 2012-13 SOURCE: UNCLAIMED PROPERTY Refunds Expenses NET FY2008-09 $74,337,392 (22,267,197) (2,099,913) $49,970,281 ESCHEATED ESTATES Refunds NET TOTAL NET REVENUE 643,679 (466,307) $177,373 $50,147,654 FY2009-10 $161,637,025 (24,207,862) ----- (2) $137,429,163 320,538 (94,959) $225,579 $137,654,742 FY2010-11 FY2011-12 FY2012-13 $121,263,602 (34,677,629) ----$86,585,973 $115,160,041 (40,049,513) ----$75,110,528 $131,397,401 (40,013,520) ----$91,383,881 370,786 (230,340) $140,446 186,322 (158,988) $27,334 327,961 (302,974) $24,987 $86,726,419 $75,137,862 $91,408,868 DISTRIBUTIONS: General Fund Housing Fund SMI Housing Fund (4) Racing Fund Victim Restitution Fund Operating transfers Admin Fund (2) 9,526,605 28,554,062 ----10,383,295 144,618 1,352,600 ----- Net to Permanent State School Fund: Escheated Estates Unclaimed Shares/dividends Storage Facility TOTAL DISTRIBUTION 177,373 (3) 6,719 2,383 $50,147,654 100,034,835 10,500,000 (2) --------- (2) 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 45,819,445 2,500,000 (4) 2,000,000 ----100,540 ----24,500,000 140,446 58,381 701 $86,726,419 27,334 184,618 5,925 $75,137,862 60,899,609 2,500,000 2,000,000 ----612,703 514,700 24,500,000 24,987 (1) 332,985 23,884 $91,408,868 (1) FY 13 Escheated Estates will be transferred in FY 14. (2) Pursuant to SB 1003, Chapter 3, 4th Special Session, 2009. (3) 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. (4) Pursuant to SB 1616, Chapter 28, 1st Regular Session, 2011. Figures may not add to total due to rounding. ARIZONA DEPARTMENT OF REVENUE 2013 ANNUAL REPORT Page 88 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 2013, the department collected $8,732,325 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 2008-09 THROUGH FISCAL YEAR 2012-13 Apache Cochise Coconino Gila Graham Greenlee La Paz Maricopa Mohave Navajo Pima Pinal Santa Cruz Yavapai Yuma Arizona Department of Environmental Quality Total FY2008-09 FY2009-10 FY2010-11 FY2011-12 FY2012-13 $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 $113,633 227,680 218,206 118,562 53,295 16,991 54,978 4,645,996 425,534 182,631 1,146,478 431,565 84,896 419,652 286,595 276,153 277,383 285,438 298,160 305,631 $7,890,076 $7,925,216 $8,155,363 $8,518,868 $8,732,325 Figures may not add to total due to rounding. ARIZONA DEPARTMENT OF REVENUE 2013 ANNUAL REPORT Page 89 ARIZONA DEPARTMENT OF REVENUE 2013 ANNUAL REPORT Page 90 LEGISLATIVE SUMMARY ARIZONA DEPARTMENT OF REVENUE 2013 ANNUAL REPORT Page 91 ARIZONA DEPARTMENT OF REVENUE 2013 ANNUAL REPORT Page 92 LEGISLATIVE SUMMARY The following is intended to give a brief summary of the 2013 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 Special Session is September 12, 2013 and First Regular Session is September 13, 2013. 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 st House Bill 2009, 1 Special Session, (Chapter 9) Budget; Revenue; FY 2013-2014 See Multiple Tax Types. House Bill 2531 (Chapter 256) Income tax; instant depreciation Beginning in tax year 2014, taxpayers are no longer required to include amounts greater than $25,000 for property for which an expense deduction was taken pursuant to Section 179 of the Internal Revenue Code as part of Arizona adjusted gross income. Senate Bill 1447 (Chapter 251) ADE; school finance revisions The State Board of Education is required to distribute monies in the Assistance for Education Fund to the Department of Education (ADE) to fund solutions teams for schools with a D or F label. The income tax check-off box for state aid for public schools is renamed to reflect the new distribution of Fund monies. Transaction Privilege Tax/ Use Tax House Bill 2009, Special Session, (Chapter 9) Budget; Revenue; FY 2013-2014 Senate Bill 1168 (Chapter 65) See Multiple Tax Types. Internal revenue code conformity Incorporates the federal changes made in 2012 into Arizona’s definition of “internal revenue code.” Senate Bill 1179 (Chapter 236) Tax incentives; omnibus See Multiple Tax Types. Senate Bill 1313 (Chapter 114) Tax corrections See Multiple Tax Types. House Bill 2111 (Chapter 255) Transaction privilege tax changes Prime Contracting Changes The prime contracting classification of the transaction privilege tax (TPT) is modified to exempt contracts with a property owner for maintenance, repair, or replacement of existing property. Contracts that are not subject to TPT cannot include modification activities. Each contract or project is independent from other contracts, and a contractor who has non-taxable contracts remains taxable on any contracts that include modification activities. Transactions ARIZONA DEPARTMENT OF REVENUE 2013 ANNUAL REPORT Page 93 involving tangible personal property sold to service contractors on exempt projects are taxable. The Department is required to issue project-specific exemption certificates that certain contractors can use to purchase tangible personal property without paying tax at retail. To qualify for a project-specific exemption certificate, the contractor may not work directly for the owner of the real property, may only use the exemption certificate for material that will be incorporated into a taxable construction project, may not have a delinquent tax balance and must submit documentation to the Department showing that it meets these conditions. The prime contracting exemption for preconstruction services is modified so that the terms, conditions, and pricing for the design phase services or professional services need only be separately stated from those for construction phase services in the contract rather than being contained within a separate contract. The Owner Builder Sales classification is repealed. taxpayer who does not file and pay required returns and tax liabilities through the portal must instead pay taxes to DOR, provided DOR has developed electronic and non-electronic means to capture data with sufficient specificity to meet taxing jurisdictions’ needs. By January 1, 2015, the Department is required to modify the online portal for the Non-Program Cities in order for taxpayers to pay any and all state, county, or municipality TPT and affiliated excise taxes online. The Department is responsible for administering the online portal and the NonProgram Cities are responsible for the costs. The expanded online portal must contain a single point for licensing, filing a single tax return, and paying all TPT, consolidate data in a manner compatible with DOR data systems, capture data with sufficient specificity to meet taxing jurisdictions’ needs and allow for proper identification of the correct taxing jurisdiction and tax rate. Audits Requires DOR and the cities and towns that levy TPT to enter into agreements to provide for unified or coordinated licensing, collection and auditing programs. The agreements must include denial criteria for city and town requests to audit multijurisdictional taxpayers. All TPT audits must be conducted in accordance with the DOR manual and performed by a DOR certified auditor. All state, city and third party auditors must be trained in accordance with DOR policies. In most instances, audits of multijurisdiction taxpayers must be conducted by DOR. Cities and towns may audit single-jurisdiction taxpayers and any other taxpayer authorized by DOR. All audits must include all taxing jurisdictions, regardless of who conducts the audit. Audit assessments will be issued to taxpayers by DOR in a single notice and appeals of the audit assessments must be directed to DOR. Miscellaneous The sourcing rules for transactions involving tangible personal property are clarified to specify that gross receipts from retail sales are sourced to the seller’s business location if the seller receives the order at a business location in Arizona or to the purchaser’s location in Arizona if the seller receives the order at a business location outside of Arizona. Gross receipts from leasing or renting tangible personal property are sourced to the lessor’s business location if the lessor has a business location in Arizona or to the lessee’s address if the lessor does not have a business location in Arizona. The exemption for sales of tangible personal property to a non-resident of Arizona if the property is shipped or delivered to the purchaser outside Arizona for use outside the state is modified to apply only to sales of motor vehicles. The exemption for sales of tangible personal property shipped directly to a destination outside of the United States for use in a foreign country is repealed. The Department is authorized to adopt emergency rules necessary to administer this legislation. The effective date for HB 2111 is January 1, 2015. Tax Administration The Department is required to provide a coordinated electronic method of collecting state and municipal TPT. Taxpayers who are required to pay municipal TPT to a city or town without a DOR agreement (Non-Program City) may file and pay the tax through a DOR administered online portal. A ARIZONA DEPARTMENT OF REVENUE 2013 ANNUAL REPORT Page 94 House Bill 2259 (Chapter 120) Orthodontic devices; transaction privilege tax Retroactive to taxable periods beginning October 1, 2007, exempts orthodontic devices dispensed to a patient by a licensed dental professional from the retail classification of the transaction privilege tax (TPT) and municipal transaction privilege taxes. House Bill 2267 (Chapter 40) Public consignment dealer; requirements Requires a public consignment auction dealer to submit a valid exemption certificate to the Department of Revenue (DOR) in order to establish entitlement to the TPT deduction for auction sales of motor vehicles to nonresidents for use outside Arizona. Allows DOR to additionally disclose confidential information to the Department of Transportation for its use in administering statutory-prescribed penalties. House Bill 2324 (Chapter 27) TPT exemption; leases; affiliated companies Exempts the leasing of real property between "affiliated companies, businesses or persons," from the commercial lease classification of the TPT, which is defined as the lessor owning at least 80 percent interest in the lessee, the lessee owning at least 80 percent interest in the lessor, or an affiliated entity or unrelated person owning at least 80 percent interest in both, or leasing real property by a "reciprocal insurer". Municipalities and special taxing districts may not levy a transaction privilege or use tax on gross income derived from leasing real property between affiliated companies, businesses or persons, or by a reciprocal insurer. equivalents are defined as items or intangibles through which a value denominated in money is purchased in advance, including gift cards, vouchers, traveler's checks, and money orders or other instruments. The gross proceeds of sales or gross income derived from the redemption of any cash equivalent as a means of payment for taxable goods or services is subject to TPT. Taxpayers are permitted to apply for a refund of TPT based on the retroactive application of this statutory change. The total amount of TPT that can be refunded is limited by an aggregate cap of $10,000 and claims must be submitted by December 31, 2013. House Bill 2535 (Chapter 153) Independent functional utility Retroactive to tax periods beginning July 1, 1997, the deduction for prime contracting activity under the retail classification of the TPT is modified to provide that the deduction applies to gross receipts from activities on tangible property that is deductible for retail TPT or exempt from use tax and has "independent functional utility". The previous language provided that the deduction applies to gross receipts from activities on tangible personal property that is either deductible for retail TPT or exempt from use tax and does not become a "permanent attachment" to real property. Taxpayers are permitted to apply for a refund of TPT based on the retroactive application of this statutory change. The total amount of TPT that can be refunded is limited by an aggregate cap of $10,000 and claims must be submitted by December 31, 2013. Senate Bill 1179 (Chapter 236) Tax incentives; omnibus See Multiple Tax Types House Bill 2336 (Chapter 233) Taxation; retail classification; cash equivalents Senate Bill 1313 (Chapter 114) Retroactive to tax period beginning January 1, 1999, exempts the sale of "cash equivalents," from the retail classification of the TPT. Cash Tax corrections See Multiple Tax Types ARIZONA DEPARTMENT OF REVENUE 2013 ANNUAL REPORT Page 95 Property Tax House Bill 2344 (Chapter 9) Property tax penalty waiver Retroactive to July 1, 2012, allows a county treasurer, in consultation with the board of supervisors, to waive the penalty imposed on an owner of a primary residence for failure to respond to a request for information about classification of residential property for good cause. House Bill 2346 (Chapter 226) Rural electric cooperatives; valuation Prescribes the formula to be used by the Department of Revenue to determine the valuation of distribution cooperatives, beginning with the 2014 valuation year. The valuation is the product of a property’s value multiplied by the standard market value factor, which is determined by comparing specific standard factors of the investor-owned utilities and the distribution cooperatives. Senate Bill 1179 (Chapter 236) Tax incentives; omnibus See Multiple Tax Types Senate Bill 1169 (Chapter 66) Prop 117; conformity Makes technical and conforming changes to Arizona Revised Statutes based in the passage of Proposition 117, which amended the Arizona Constitution to set a limit on the annual percentage increase in property values used to determine property taxes to no more than five percent above the previous year, and establishes a single limited property value as the basis for determining all property taxes on real property. Multiple Tax Types/Miscellaneous House Bill 2009, 1st Special Session, (Chapter 9) Budget; Revenue; FY 2013-2014 Computer Data Centers Effective September 1, 2013, owners, operators, and colocation tenants of computer data centers (CDC’s) who are certified by the Arizona Commerce Authority (ACA) are eligible for tax relief. To qualify for tax relief, the owner or operator of a CDC must submit a certification form to the ACA, which must include the anticipated investment associated with the CDC, whether it qualifies as a sustainable redevelopment project, and affirmation that the CDC meets investment requirements. The qualification period is 10 calendar years from when the certification form is filed, except that the qualification period may then be up to 20 years for a CDC that qualifies as a sustainable redevelopment project. The ACA may only certify new CDCs until December 31, 2023. To qualify for tax relief as a new CDC, an owner or operator must notify the ACA whether or not a CDC has created a minimum investment of $25 Million if located in Maricopa or Pima County or $50 Million if located in any other county. To qualify for tax relief as an existing CDC, within 5 years of certification, an owner or operator must notify the ACA whether or not a CDC created a minimum investment of $250 Million in the 72 months prior to September 1, 2013. For purposes of the tax relief, computer data center equipment purchased for use in a certified CDC is exempt from the retail and prime contracting classifications of the TPT and use tax. Navajo Technical College Prescribes a second distribution of TPT revenues received from sources located on the same Indian reservation to a technical college located on the same Indian reservation of 5%, up to $875,000 in a single Fiscal Year. Qualified Foster Care Organizations (QFCO) Retroactive to tax year 2013, the tax credit for a voluntary cash contribution to a qualifying charitable organization is modified to allow taxpayers to claim an increased credit for ARIZONA DEPARTMENT OF REVENUE 2013 ANNUAL REPORT Page 96 contributions to a qualifying foster care charitable organization. The amount of the credit is $400 per single individual or head of household and $800 for a married couple filing a joint tax return. A qualifying foster care charitable organization is a qualifying charitable organization that each operating year provides services to at least two hundred foster children in Arizona. The charity must spend at least 50% of its budget on services to foster children in this state. Senate Bill 1179 (Chapter 236) Tax incentives; omnibus Ignition Interlock Devices Retroactive, to taxable periods beginning September 1, 2004, the leasing or rental of certified ignition interlock devices (IIDs) is exempted from the personal property rental classification of the TPT and municipal excise tax. Taxpayers are permitted to apply for a refund of TPT based on the retroactive application of this statutory change. The total amount of TPT that can be refunded is limited by an aggregate cap of $10,000 and claims must be submitted by December 31, 2013. Qualified Destination Management Companies Retroactive to taxable periods beginning January 1, 2002, the gross proceeds of sale or gross income derived from a qualified contract for destination management services is exempt from TPT. A Qualified Destination Management Company (QDMC) is specified as the final consumer and user of any taxable tangible personal property, activity, or service that the QDMC arranges pursuant to a qualified contract for destination management services. A qualified destination management company is defined as a person that receives on an annual basis at least 80% of its gross proceeds of sales or gross income derived from destination management services. Destination management services is defined as the business of coordinating, designing, and implementing the delivery by a third party at least four or more of the following: transportation, entertainment, food or beverage, recreational or amusement activity, tours, event venue, theme décor. In order for a destination management contract to be eligible for the TPT exemption, the QDMC must receive payment from or on behalf of its client for the cost of the destination management services and the QDMC must pay the vendor supplying destination management services, including any applicable TPT or collection of use tax passed on by the vendor to the QDMC. QDMCs are permitted to apply for a refund of TPT based on the retroactive application of this statutory change. The total amount of TPT that can be refunded is limited by an aggregate cap of $10,000 and claims must be submitted by December 31, 2013. Tax Exemption for Sales of Food Retroactive to taxable periods beginning January 1, 2002, categorizes any ready-to-drink, non-alcoholic beverage contained in any closed or sealed bottle, can, or carton intended for human consumption which is intended for home consumption as taxexempt food. Updates Arizona’s tax-exempt food statutes by replacing obsolete statutory references to the Food Stamp Program established by the Food Stamp Act of 1977 with the Supplemental Nutrition Assistance Program established by the Food and Nutrition Act of 2008. For purposes of implementing these provisions, the Department is exempted from the statutory administrative rulemaking requirements. Motor Vehicle Biofuel Manufacturing Facilities Real and personal property that is used to manufacture motor vehicle biofuel and its byproducts is eligible to be classified as class six property. Motor vehicle biofuel is defined as a solid, liquid or gaseous material intended for use in a motor vehicle, containing fuel additives and derived non-geologically form biological material. The time period for existing class six property classification for real and personal property and improvements to property biodiesel fuel manufacturing facilities is until December 31, 2023. IRC § 529 College Savings Plans Effective January 1, 2013, the amount eligible to be deducted from gross income for contributions to college savings plans pursuant to IRC § 529 is ARIZONA DEPARTMENT OF REVENUE 2013 ANNUAL REPORT Page 97 increased from $750 to $2,000 for a single individual or head of household and from $1,500 to $4,000 for married couples filing jointly. Qualifying Charitable Organizations Taxpayers who claim the standard deduction on Arizona income tax forms are now eligible to claim a tax credit for contributions to a qualifying charitable organization. Corporate Income Tax Apportionment Effective January 1, 2014, a taxpayer who is a regionally accredited institution of higher education with at least one university campus in Arizona on which at least 2,000 students reside service may elect, for corporate income tax purposes, to 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. The election is limited to the treatment of sales for educational services, which is defined as tuition and fees required for enrollment and fees required for courses of instruction, transcripts, and graduation. Preexisting Enterprise Zone Tax Credit Retroactive to July 1, 2011, taxpayers who claimed first year tax credits for employees hired in a qualified employment position under the Enterprise Zone statutes are not required to file a certification with the Arizona Commerce Authority in order to be eligible for second and third year tax credits. This does not include machines used exclusively for the owner’s personal consumption or use and not located on a retail or other business premises and tobacco product manufacturers that have obtained a current federal manufacturer of tobacco products permit. The Department of Revenue has the authority to seize unlawful machines and all related tubes, papers, tobacco products and materials, which must be forfeited to the state. All forfeited tobacco products must be destroyed. It is a class 3 misdemeanor for a knowing violation and prescribes the following penalties: (1) Revocation or termination of a distributor’s license to sell or distribute tobacco products. (2) A civil penalty not to exceed $50,000 for each violation. (3) An injunction to restrain a threatened or actual violation. (4) Recovery by the state of the cost of any investigation related to a violation, the cost of the action related to a violation and reasonable attorney fees. Senate Bill 1313 (Chapter 114) Tax corrections Makes numerous, technical, clarifying and conforming changes in the tax-related statutes in the Arizona Revised Statutes. Senate Bill 1286 (Chapter 37) Nursing facility provider assessments An emergency measure that, retroactive to September 30, 2012, exempts the Arizona Veterans’ Homes from the nursing facility provider assessment statutes. Senate Bill 1312 (Chapter 222) Tobacco product manufacturers; cigarette machines Prohibits the possession, use or making available for commercial purposes a tobacco product rolling vending machine. Any machine located in a nonresidential premise is presumed to be possessed, used or available for use for commercial purposes unless the machine is for sale. ARIZONA DEPARTMENT OF REVENUE 2013 ANNUAL REPORT Page 98