Contracting Guidelines

This guidance is intended to assist the construction industry with direction on (a) application of the transaction privilege tax (TPT) to the streams of revenue earned in Arizona under prime contracting or speculative builder classifications and (b) application of TPT to purchases of materials utilized during construction if any. If the revenue is derived from construction activities, the business needs to understand whether:

1. “contracting TPT” applies or not to its activities, and
2. if not, or if it depends on a client/type of contract, how to ensure that—in “contracting TPT-exempt” transactions, the “retail TPT” is nonetheless paid or properly remitted on purchases of materials.

Construction contracting activities, in simple terms, are any contracting changes to real property. Real property consists of the land, land improvements (roads, highways, railroads, bridges), and various structures or buildings affixed to land.

Construction contracting is generally divided into three broad categories referred to as “MRRA” (modification, repair, replacement or alteration), “Modification” and Speculative Building (taxable by cities only).

• “MRRA” contracting covers a limited set of contracting activities generally related to enhancements made to existing buildings or structures.
• “Modification” contracting generally refers to all construction activities (including new construction) other than MRRA.
• Speculative builders are generally the owners of the real property who improve and sell the real property.  The speculative builder tax is imposed only at the city level.

NOTE:  If you are an out-of-state contractor performing construction contracting activities in Arizona, you are subject to TPT because you have physical nexus.  The economic nexus rules and thresholds (applicable to retail sales) do not apply to streams of revenue from such contracting activities.  Out-of-state contractors performing contracting work in Arizona will generally be taxable under one of the categories listed above.

Contractors engaging in taxable construction projects or activities are required to obtain a TPT license. New contractors and out-of-state contractors are required to be licensed with the Registrar of Contractors and, in most cases, must post a bond with the Arizona Department of Revenue (ADOR).  Because of the bonding requirements for a new contractor, the online application is not allowed. The Arizona Joint Tax Application (JT-1) used to apply for a TPT License (and other licenses) may be accessed by clicking the link below.

Download Arizona Joint Tax Application (JT-1) Form (PDF)

Download Taxpayer Bond for Contractors

For questions regarding any content provided on this page, please contact Tax Policy at [email protected].