Military Reuse Zone

Overview

The Military Reuse Zone (MRZ) Program was established by the Arizona state legislature in 1992 to lessen the impact of military base closures. As currently enacted, the MRZ Program includes targeted economic incentives for the development (in the form of prime contracting transaction privilege tax incentives) and ownership (in the form of property tax classification incentives) of real property devoted to aviation or aerospace-related services and manufacturing operations within an MRZ. See A.R.S. §§ 42-1301 and 42-1302.

Currently, there are two MRZs in Arizona. In 1996, Phoenix-Mesa Gateway Airport (f.k.a. Williams Gateway Airport) in Mesa became the first MRZ, which was renewed in 2001, 2006, and 2015. In 2002, the former U.S. Naval Air Facility in Goodyear, now known as the Phoenix/Goodyear Airport, was designated as an MRZ, which was renewed in 2007, and again for an additional ten years in 2017.  

The benefits and eligibility requirements of the MRZ Program and the application process are outlined below.

Application Process

Businesses wishing to claim benefits under the MRZ Program must apply to the Arizona Department of Revenue (ADOR) prior to receiving the benefits. 

ADOR is authorized to accept applications and determine eligibility of applicants located in a designated MRZ.  

ADOR will issue a letter of certification for property reclassification to approved applicants. The certification is valid for five years, unless terminated earlier for failure to provide required information pertaining to the amount of tax benefits the taxpayer received each year. 

ADOR will issue a letter of qualification for transaction privilege tax exemption to a contractor performing modification work for an aviation or aerospace business operating in an MRZ. Eligibility is valid for one qualified construction contract. A new letter of qualification must be issued to receive additional exemptions.

Benefits and Eligibility

Benefits for the MRZ Program are available for taxable years beginning on or after January 1, 1996. The MRZ program offers two types of benefits: 

  1. Transaction Privilege Tax Exemption - Exemption from transaction privilege tax on contracts for certain types of construction at an MRZ. See A.R.S. § 42-5075(B)(4).
    A prime contractor who has entered into a contract with a qualified MRZ aviation or aerospace company or airport authority for the modification of any building, highway, road, railroad, excavation or other structure, project, development or improvement located in an MRZ for providing aviation or aerospace services or for a manufacturer, assembler or fabricator of aviation or aerospace products within an active MRZ after the zone is initially established or renewed under A.R.S. § 42-1301 may qualify for an exemption from the transaction privilege tax on specific contracts.  

    Eligibility: A prime contractor working for a qualified MRZ aviation or aerospace company or airport authority claiming a transaction privilege tax exemption must: 
    • Have the construction work performed in the MRZ. 
    • Report annually to ADOR the amount of tax benefits for each year in which the prime contractor claims the incentives. See A.R.S. § 42-1302(C).
    • The prime contractor must submit an application form and receive a letter of certification from ADOR prior to starting work under the contract.
  2. Property Reclassification - Both real and personal property can be reclassified from class one (greater than or equal to 15%  assessment ratio) to class six (5% assessment ratio), which may result in property tax savings of more than 66% for a period of five years. See A.R.S. § 42-1302(D).

    Taxable property in an MRZ that is devoted to providing aviation or aerospace services or for manufacturing, assembling or fabricating aviation or aerospace products may be eligible for property tax reclassification by the county assessor. The reclassification is from class 1 (greater than or equal to 15% assessment ratio) to class 6 (5% assessment ratio). This reduction applies to both primary and secondary taxes for not more than five tax years (A.R.S. § 42-12006). However, any new addition or improvement to the property already reclassified qualifies for a separate five-year term of reclassification. As long as the business retains its MRZ eligibility, it may initiate additional five-year property reclassification(s) each year.  

    Eligibility: A qualified MRZ aviation or aerospace company claiming property reclassification must: 
    1. Be located in an MRZ,
    2. Be primarily (more than 50%) engaged in: 
      • providing aviation or aerospace services; or 
      • manufacturing, assembling, or fabricating aviation or aerospace products and, 
    3. Report annually to ADOR the amount of tax benefits for each year in which the taxpayer claims incentives. See A.R.S. § 42-1302(C). 
    4. The qualified MRZ company must submit an application and receive a letter of certification from ADOR. After the business has received its letter of certification from ADOR, it must request, in writing, reclassification from the county assessor for the county in which the company is located. Please contact your local county assessor’s office for instructions on submitting  reclassification requests.

Annual Reporting, Revocation of Benefits, Appeals

  1. Approved applicants must file an annual report for each type of benefit received. 
    • The prime contractor receiving TPT exemption must submit the annual report by January 31 to ADOR. The annual report should state the amount of transaction privilege tax exempted for the preceding calendar year.
    • The aviation or aerospace company or qualified MRZ business receiving property tax reclassification must submit the report by January 31 to ADOR. The annual report should state the amount of property tax reduction for the preceding calendar year. 
  2. If at any time the taxpayer fails to meet the statutory requirements of a qualified MRZ business, ADOR shall immediately revoke the taxpayer’s certification of eligibility. 
  3. ADOR will notify the appropriate county assessor of any revocation and any reclassified property shall revert to class 1. 
  4. If ADOR denies eligibility of a business, then the business may appeal the decision in accordance with A.R.S. Title 41, Chapter 6, Article 10.

Guidelines and Application


Questions regarding the MRZ Program can be directed to [email protected].