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Contracting FAQs

Contracting Home MRRA Modification MRRA v Modification Chart Bond for Contractors
Speculative Builder Contracting Examples Forms FAQ Evaluating Construction Contracts

 

Overview

  • General
  • Prime Contracting/Modification
  • MRRA

Licensing

  • General
  • Prime Contracting/Modification
  • MRRA

Forms

Exemption Certificates to Purchase Materials Tax Free

Materials Purchased Out-of-State

Reporting the Transaction Privilege Tax (TPT)

Rental of Equipment

Sale and Installation of Tangible Personal Property

Annual Bond Exemption

 

Overview

General

What is a transaction privilege tax (TPT) license?

Although commonly referred to as a sales tax, the Arizona transaction privilege tax is actually a tax on the business owner for the privilege of conducting certain business activities in the state.

If a business is engaging in business activity a TPT license issued by the Arizona Department of Revenue (ADOR) is needed.  ADOR collects the tax for the counties and cities; however, tax rates vary depending on the type of business activity, the city and the county.

 

What is the difference between a Maintenance, Repair, Replacement or Alteration (MRRA) and a prime contracting /modification project?

MRRA projects typically entail maintenance, repair, replacement or alteration of existing structures.  See 1(c) for additional information on MRRA projects.

Prime contracting/modification projects typically include the construction of structures from the ground up.

 

Please contact [email protected] if you need more assistance with understanding the differences between a MRRA and a modification project.

 

Prime Contracting/Modification

How does the transaction privilege tax (TPT) apply to prime contracting?

The TPT is imposed on the business activity of performing contracting work as a prime contractor.  The tax base is sixty-five percent of the gross receipts derived from the business.

 

What is an alteration and its thresholds?

Alteration is an activity or action that causes a direct physical change (e.g., adding or expanding square footage) to existing property that cannot be classified as maintenance, repair or replacement and where the alteration amount is below that is under the following thresholds:

  • 25% of the property’s tax value (residential property); or
  • $750,000 (commercial property).

 

For prime contracting/modification projects, do I need to have a separate line item for the transaction privilege tax (TPT) in our bid/invoice?

The gross receipts of a prime contracting/modification project is subject to the TPT.  A licensed contractor may, but need not, show tax as a separate line item on their invoice as contractors are permitted to factor taxes.

Please go to https://azdor.gov/transaction-privilege-tax/tax-factoring for more information.

 

Do I need to remit the transaction privilege tax (TPT) for out-of-state prime contracting/modification projects?

No. You do not remit the TPT on an out-of-state project if, in fact, the entire project is outside of Arizona’s borders.  You may use deduction code 681 to deduction this project from your gross receipts.

 

Do I need to remit the transaction privilege tax (TPT) for a prime contracting/modification project that takes place both in and outside Arizona?

If you do a modification project that takes place both in and out of Arizona, you will have to report all your gross receipts derived from the project and then deduct the portion related to the work conducted out-of-state using deduction code 681.

 

Please contact [email protected] if you have more questions.

 

Maintenance, Repair, Replacement or Alteration (MRRA)

 

Is Maintenance, Repair, Replacement or Alteration (MRRA) subject to transaction privilege tax (TPT)?

Generally, the gross receipts of a MRRA project are not subject to the TPT for prime contracting TPT purposes. However, the materials used in an MRRA project are subject to retail TPT unless a statutory deduction or exclusion applies.

 

When should I pay the retail transaction privilege tax (TPT) on a Maintenance, Repair, Replacement or Alteration (MRRA) project?

If the TPT was not paid at the time materials were purchased, the retail equivalent TPT on the price of the materials is due when the materials are used based on the location of the project.  Please See 4(c) for example.

 

For Maintenance, Repair, Replacement or Alteration (MRRA) projects, do I need to have a separate line item for the transaction privilege tax (TPT) in our bid or invoice?

No, the contractor should not include tax as a separate line item on the invoice to the customer for MRRA projects.  Rather, the tax paid on the materials should be treated as an indirect cost of doing business.

 

For Maintenance, Repair, Replacement or Alteration (MRRA) projects, is labor taxable?

No, labor is not taxable and a contractor's invoice for MRRA projects should not include a line item for tax as neither the labor or the materials are taxable (although a contractor will pay tax on the materials when they are purchased).

 

Warranties

 

Is a warranty automatically provided by a contractor on a modification project (i.e., manufacturer's warranty or warranty provision) taxable?

Yes, as part of the gross receipts of the modification project. A non-optional warranty that is automatically included with a modification project by the contractor for no extra charge (i.e., it is not an extended warranty or third-party warranty) which is intended to make the property whole in the case of defective workmanship, is treated as if it were part of the original modification project.

 

In performing warranty work pursuant to an automatic warranty provided by a contractor on a modification project (i.e., manufacturer’s warranty or warranty provision), is TPT imposed on materials incorporated into the work?

Because the warranty is treated as if it were part of the original modification project, materials incorporated into projects in the performance of the warranty may be purchased tax exempt in this situation. Further, the contractor would not be required to pay the retail equivalent TPT under business code 315.

 

Is a warranty automatically provided by a contractor on a MRRA project (i.e., manufacturer's warranty or warranty provision) taxable?

No. A non-optional warranty that is automatically included with a MRRA project by the contractor for no extra charge (i.e., it is not an extended warranty or third-party warranty) which is intended to make the MRRA project whole in the case of defective workmanship, is treated as if it were part of the original MRRA project.

 

In performing warranty work pursuant to a warranty automatically provided by a contractor on a MRRA project (i.e., manufacturer's warranty or warranty provision), is TPT imposed on materials incorporated into the work?

In this situation, because the manufacturer’s warranty is treated as part of the original MRRA project, materials incorporated into projects in the performance of the warranty are taxable at the point-of-purchase, or if purchased tax exempt, the retail equivalent should be remitted under business code 315.

 

Is a separately sold, optional warranty (i.e., an extended warranty or a third-party warranty) taxable?

No, extended warranties sold by a contractor or by third-party home warranty companies are not taxable pursuant to A.R.S. § 42-5061(A)(3), whether the warranty covered a modification project, MRRA project, or is purchased at any time.

 

In performing warranty work pursuant to a separately sold, optional warranty (i.e., an extended warranty or a third-party warranty), is TPT imposed on materials incorporated into the work?

Materials incorporated into projects in the performance of extended warranties are always considered to be incorporated into a MRRA project, and thus are taxable at the point-of-purchase, or if purchased tax exempt, the retail equivalent should be remitted under business code 315.

 

Please contact [email protected] if you have more questions.

 

Licensing

General

Is a transaction privilege tax (TPT) license the same as a business license?

No.  A business license may be required by a city to do business in that city.  This requirement varies depending on the city in which you are conducting business.  The state does not require or issue business licenses. A TPT license is required if a person is engaging in a taxable activity and is used to report the taxes due.

 

How can I verify whether a contractor has a transaction privilege tax license?

Ask the contractor for their transaction privilege tax license number or a copy of their license.

You can then check whether the license is active on the Department’s website at http://AZTaxes.gov/home/licenseverification.

NOTE: When most contractors claim they are a licensed contractor they are speaking of being licensed by the Registrar of Contractors.

Please contact [email protected] if you have more questions.

 

Prime Contracting/Modification

Do I need a business license?

Business licenses are administered by the cities requiring them, therefore please direct your questions to the specific city in question.

 

I am a prime contractor doing modification work, do I need a transaction privilege tax (TPT) license?

Yes, a prime contractor must register for a TPT license with the Department.  You may apply for a license using Form JT-1.  You cannot register for a license online because you may need to post a bond.  For taxpayer bond information, call (602) 716-6056 or write to:

Arizona Department of Revenue
Taxpayer Information & Assistance
1600 W Monroe Phoenix, AZ 85007

 

I am a subcontractor working on only modification projects, do I need a transaction privilege tax license?

Yes, a subcontractor working on prime contracting/modification projects should be licensed.   You may apply for a license using Form JT-1.  You cannot register for a license online because you may need to post a bond.  For taxpayer bond information, call (602) 716-6056 or write to:

Arizona Department of Revenue
Taxpayer Information & Assistance
1600 W Monroe Phoenix, AZ 85007

 

I am a subcontractor, and I normally only complete maintenance, repair, replacement or alteration (MRRA) projects.  However, I am working on a one-time only modification project, do I need a transaction privilege tax (TPT) license?

If you are only working on a modification project under the control of a Prime Contractor, and all other projects are related to MRRA, then you are not required to obtain a TPT license. 

As an unlicensed subcontractor the prime contractor has the option of applying to the Department for approval of Form 5009L or you may use a Form 5000M together with a Form 5005 issued by the prime contractor  to purchase materials tax free for the modification project.

 

I am a subcontractor, and I normally only complete maintenance, repair, replacement or alteration (MRRA) projects.  However, I will be doing more than a one-time modification project, do I need a transaction privilege tax (TPT) license?

Yes. The ability to remain unlicensed and participate in a modification project only applies where a MRRA only contractor completes a one-time modification project. If you will be doing more than a single one-off modification project, then you will need a TPT license.

 

I am an out-of-state contractor, do I need a transaction privilege tax (TPT) license?

Assuming you are responsible for the completion of the project, an out-of-state contractor must obtain a TPT license.  You may apply for a license using Form JT-1.  You cannot register for a TPT license online because you may need to post a bond. For taxpayer bond information, call (602) 716-6056 or write to:

Arizona Department of Revenue
Taxpayer Information & Assistance
1600 W Monroe Phoenix, AZ 85007

 

If I have a TPT license but have zero receipts, do I still have to report?

Yes.  You must report for every filing period when you have a TPT license, including the filing periods where you do not receive any income. You may mark the box “no gross receipts” and submit the reporting form.

 

Please contact [email protected] if you have more questions.

 

Maintenance, Replacement, Repair or Alteration (MRRA)

Do I need a transaction privilege tax (TPT) license if my business only does maintenance, repair, replacement or alteration (MRRA) projects?

Generally speaking, you will not need a TPT license if you only perform MRRA work and you are required to pay tax when you purchase your materials.

 

I am an out-of-state maintenance, repair, replacement or alteration (MRRA) contractor, do I need a transaction privilege tax (TPT) license?

If you are completing only MRRA projects and will not complete any modification projects, then you do not need a TPT license.  However, you are required to pay tax when you purchase your materials in Arizona.

 

I purchased my materials for a maintenance, repair, replacement or alteration (MRRA) project out of state and paid sales tax, does Arizona provide any credits for this purchase?

No. There is no credit for materials purchased out of state for taxes paid to another state. You are encouraged to either purchase the materials tax free out of state and remit the Arizona retail equivalent TPT when the material are used in the project or purchase the materials in Arizona and pay TPT at the time of purchase. If the first option is taken, you will require a TPT license to report the retail equivalent TPT. If the second option is taken you will not be required to obtain a TPT license.

 

Please contact [email protected] if you have more questions.

 

Forms

Is there a document that provides definitions and examples for certificates used in contracting?

See the Forms page.

 

Contractor’s Certificate

I am a licensed prime contractor working on a modification project and will hire subcontractors for the project.  What form do I give them to indicate I am responsible for the transaction privilege tax (TPT)?

You should provide every subcontractor on the job with a properly completed Form 5005 and mark the box on the form indicating the type of project covered.  This form provides documentation that you will be responsible for any TPT on the project and that you will be reporting and remitting the TPT to the Department. It is also an indicator to the subcontractor that they should not charge you tax on their portion of the project.

 

I am a licensed prime contractor working on a Maintenance, Repair, Replacement or Alteration (MRRA) project and will hire subcontractors for the project.  What form do I give them to indicate I am responsible for the transaction privilege tax (TPT)?

You should provide every subcontractor on the project with a properly completed Form 5005 and mark the box indicating the type of project covered.  This form provides documentation of liability for the retail equivalent TPT by the contractor that issued the form for the MRRA project.  You should request that the subcontractor provide you with all receipts for materials purchased that were incorporated into the project so that you can accurately calculate the retail TPT due on the materials, if no tax was paid at the time of purchase.

 

I am a licensed subcontractor working on a modification project and was provided a Form 5005, why did I receive this form?

The Form 5005 is for documentation of liability for transaction privilege tax (TPT) by the contractor that issued the form. It is also an indication that you should not charge the prime contractor tax on your portion of the project.  This form should be kept by you to show that you do not owe TPT on your gross receipts from the project. However, you must report and deduct your subcontracting income using deduction code 550.

 

I am a subcontractor that hired another subcontractor for a project for which I received a Form 5005 from the prime contractor.  Do I need to provide them with my own Form 5005 or should I provide them with a copy of the Form 5005 that I received from the prime contractor?

You should issue a completed Form 5005 to your subcontractors and also attach a copy of the Form 5005 that you received from the prime.  If the single project details are included this will provide documentation that the prime that issued the Form 5005 to you is ultimately responsible for the project.

 

I am a subcontractor that was hired by another subcontractor for a project.   The subcontractor that hired me received a Form 5005 from the prime contractor.  Should I be provided a Form 5005 from the subcontractor that hired me or should I get a copy of the prime contractor’s Form 5005?

You should be given a completed Form 5005 by the subcontractor that hired you with a copy of the Form 5005 from the prime contractor attached.  If the single project details are included this will provide documentation that the prime that issued the Form 5005 to the subcontractor that hired you is ultimately responsible for the project.

 

I am an unlicensed subcontractor working on a modification project and was provided a Form 5005, why did I receive this form?

The Form 5005 is for documentation of liability for transaction privilege tax (TPT) by the contractor that issued the form.  This form should be kept by you to show that you do not owe TPT on the gross receipts of the project.  As an unlicensed contractor, you do not have to report TPT.  However, to purchase materials tax free for the project, the prime contractor must obtain an approved Form 5009L from the Department and provide this to you. This form will allow you, the unlicensed subcontractor, to purchase materials tax free for use in the modification project.

 

I am a licensed subcontractor working on a Maintenance, Repair, Replacement or Alteration (MRRA) project and was provided a Form 5005, why did I receive this form?

The Form 5005 is for documentation of liability for transaction privilege tax (TPT) by the contractor that issued the form.  This form should be kept by you to show that you do not owe TPT on the gross receipts of the project.  In addition, a subcontractor should provide receipts to the prime contractor to ensure the retail equivalent TPT is accurately calculated and paid on any materials purchased tax exempt and incorporated into the project. It is also an indicator that the subcontractor should not charge tax to the prime contractor on their portion of the project.

 

I am an unlicensed subcontractor working on a Maintenance, Repair, Replacement or Alteration (MRRA) project and was provided a Form 5005, why did I receive this form?

The Form 5005 is for documentation of liability for transaction privilege tax (TPT) by the contractor that issued the form.  This form should be kept by you to show that you do not owe retail equivalent TPT on the materials used in the project.  However,  to purchase materials tax free for the project, the prime contractor must obtain a Form 5009L from the Department and provide this to you or you may use a Form 5000M together with the Form 5005 and present it to the vendor. This will allow you to purchase materials tax free.  In addition, you should provide receipts to the prime contractor to ensure the retail equivalent TPT is calculated accurately and paid on the materials purchased tax exempt and incorporated into the project.

 

I am a retailer and was provided a Form 5005, why did I receive this form?

A retailer should not accept a Form 5005 as an exemption certificate unless it is presented together with a Form 5000M by an unlicensed contractor.  The Form 5005 by itself is used to provide documentation to a contractor that the issuing contractor is responsible for the transaction privilege tax (TPT) on a contracting project. However, a Form 5000M together with a Form 5005 allows an unlicensed contractor to purchase materials tax exempt and at the same time demonstrates to the vendor that a prime contractor will be responsible for the TPT.

 

Please contact [email protected] if you have more questions.

 

Exemption Certificates to Purchase Materials Tax Free

Licensed Contractors

I am a licensed contractor working on a modification/prime contracting project. Can I purchase materials tax free?

Yes. When you purchase materials for a modification/prime contracting project, you should provide the vendor with a properly completed Form 5000 at the time of purchase.

 

I am a licensed contractor on a Maintenance, Repair, Replacement, or Alteration project.  Can I purchase materials tax free?

Yes. If you are a licensed contractor you may purchase materials tax free by providing the vendor a properly completed Form 5000 at the time of purchase.

 

I am a licensed contractor working on a Maintenance, Repair, Replacement, or Alteration (MRRA) project.  I purchased materials tax free, do I still owe tax?

Yes.  When the materials are purchased tax exempt and used in an MRRA project, the retail equivalent TPT on materials must be remitted to the Department based on the location of the project unless a statutory deduction applies. The retail equivalent TPT is reported using business code 315.

 

I am a licensed contractor that needs to purchase materials to incorporate into my projects. May I purchase these materials tax exempt? And if so, which exemption certificate do I use?

Yes, materials may be purchased tax exempt. You may use the Form 5000 and under section D entitled Reason for Exemption, you would check off box number two stating “Tangible personal property to be incorporated into a taxable contracting project, or a maintenance, repair, replacement or alteration project.”

 

I am a licensed contractor who is working on a project for a manufacturer. May I purchase manufacturing equipment tax exempt on behalf of the manufacturer? If so, which exemption certificate do I use?

Yes, you may purchase the manufacturing equipment for incorporation into a project you are working on tax exempt. You would use a Form 5000 (see completion instructions above). When your report your gross receipts the amount paid for the machinery and equipment that qualifies for the manufacturing deduction is deducted from the gross receipts using deduction code 522.

 

Please contact [email protected] if you have more questions.

 

Unlicensed Contractors

I am a prime contractor that hired an unlicensed contractor for a modification project, can they purchase materials tax free?

Yes. You must submit a completed Form 5009L along with other documentation to the Department for approval.  When submitting this form to the Department, please include the contract between you and the unlicensed contractor.  After it has been reviewed, approved and sent back to you, you may provide copies to the unlicensed contractor(s).

 

How do I submit a Form 5009L?

The prime contractor can download the Form 5009L.  Then either mail or email it to the Department.  Please make sure you provide a copy of the contract between you and the unlicensed contractor.

Email to: [email protected]

Send paper form to:

ATTN: Form 5009L Request
Arizona Department of Revenue
Collections Administrative Support
1600 W. Monroe Street – Division Code 23
Phoenix, AZ 85007-2650

 

I am an unlicensed subcontractor working under a prime contractor completing a one off modification project, can I purchase materials tax free?

Yes.  If the prime contractor provided you with an approved Form 5009L, you may purchase materials tax free.  You must provide a Form 5009L because you do not have a transaction privilege tax license and a vendor would not be able to accept an incomplete Form 5000 (exemption certificate) in good faith.  Please provide a copy of the approved Form 5009L to the vendor as it is documentation for the exemption of the materials purchased.

 

I am an unlicensed contractor working on a Maintenance, Repair, Replacement, Alteration (MRRA) project.  Can I purchase materials tax free?

Generally, no.  An unlicensed contractor who only completes MRRA projects cannot purchase materials tax exempt unless there is a specific statutory deduction allowing exempt purchases or if working under the control of a prime who provided you with a Form 5009L.  Alternatively, you could present a completed Form 5000M together with a Form 5005 to the vendor.  You must provide a Form 5009L or a Form 5000M with a Form 5005 because you do not have a transaction privilege tax license and a vendor would not be able to accept an incomplete Form 5000 (exemption certificate) in good faith.

 

I am an unlicensed contractor working on an MRRA project for a qualified hospital that provided me with an annual exemption letter issued by the Department, along with a Form 5000HC.  How do I purchase my materials tax free?

A statutory deduction is available for a qualified hospital purchasing materials, so the unlicensed MRRA contractor may complete and submit a Form 5000M to the vendor to make the exempt purchase.  You must provide a Form 5000M because you do not have a transaction privilege tax license and a vendor would not be able to accept an incomplete Form 5000 (exemption certificate) in good faith.

 

Please contact [email protected] if you have more questions.

 

Retailers

I am a retailer that received a Form 5000 from a licensed contractor, why did I receive this form?

A Form 5000 is an exemption certificate that a retailer should keep to document a statutorily exempt retail purchase.  Once the form is properly completed you may accept the Form 5000 in good faith.

NOTE: An unlicensed contractor cannot complete this form properly as they would need a transaction privilege tax license. Other forms may be available for an unlicensed contractor, see below.

 

I am a retailer that received a Form 5009L, why did I receive this form?

A Form 5009L is an exemption certificate for unlicensed contractors who are hired by a licensed contractor to purchase materials for the project tax free.  As the unlicensed contractor does not have a transaction privilege tax (TPT) license, they cannot otherwise purchase tax exempt materials.  This form should be kept by you to show why the sale was exempt from TPT.

 

I am a retailer that has received a Form 5000M, why did I receive this form?

This form allows an unlicensed contractor to purchase materials that are statutorily exempt from the transaction privilege tax (TPT).  You should keep this form to document why the sale was exempt from TPT.

 

I am a retailer that has received Forms 5000M and 5005, why did I receive these forms?

A Form 5000M together with a Form 5005 allows an unlicensed contractor working under the control of a prime contractor on an MRRA project to purchase materials exempt.  It also demonstrates to the vendor that the prime contractor will be responsible for any retail equivalent transaction privilege tax due on the project.

 

Please contact [email protected] if you have more questions.

 

Materials Purchased Out-of-State

I am a licensed contractor located in Arizona that purchased materials out-of-state for a modification project should I pay the Arizona transaction privilege tax (TPT) to the out of state vendor if that vendor collects for Arizona?

Licensed contractors are permitted to purchase materials from an out-of-state vendor tax exempt, so you may present the Form 5000 and purchase materials tax exempt.  However, the gross receipts from the modification project is subject to the prime contracting TPT just like any other modification project.

 

I am a licensed Arizona contractor located outside of Arizona that purchased materials out of state for a modification project.  Should I pay the Arizona transaction privilege tax (TPT) to the out-of-state vendor if that vendor collects for Arizona?

Licensed contractors are permitted to purchase materials from an out-of-state vendor tax exempt, so you may present the Form 5000 and purchase materials tax exempt.  However, the gross receipts from any modification project located is subject to the prime contracting TPT just like any other modification project.

 

I am a licensed Arizona contractor located outside of Arizona that purchased materials out of state for a modification project and I paid tax to an out-of-state vendor that does not collect for Arizona.  Do I get a credit?  Do I need to pay transaction privilege tax (TPT) in Arizona?

You do not get a credit or deduction for taxes paid on material purchase out of state.  You strongly advised to purchase the materials tax exempt because there is no statutory allowance for it.

 

I am a licensed contractor that purchased materials out of state for a maintenance, repair, replacement or alteration (MRRA) project and paid sales tax in that state, do I owe the transaction privilege tax (TPT) in Arizona?

Licensed contractors are permitted to purchase materials from an out-of-state vendor tax exempt.  However, the cost of materials used in the MRRA project is subject to the retail equivalent TPT just like any other MRRA project.

 

I am an unlicensed contractor that purchased materials out of state for a maintenance, repair, replacement or alteration (MRRA) project and paid sales tax to the vendor that is licensed to collect for Arizona, do I owe the transaction privilege tax (TPT) in Arizona?

No, you do not owe the TPT and you are not required to report anything.

 

Please contact [email protected] if you have more questions.

 

Reporting the Transaction Privilege Tax (TPT)

If a prime contractor hires subcontractors to work on a modification project, can the prime contractor deduct amounts paid to subcontractors from its gross receipts?

No, the prime contractor must include all gross receipts received from a project in its tax base and only deduct those amounts permitted by statute.

 

I am a licensed subcontractor working for a prime contractor on a modification project, do I need to report gross receipts?

Yes, a licensed subcontractor should report gross receipts under business code 015 and deduct the amount from the prime contractor out using deduction code 550 (subcontracting income).  Note that the prime contractor should not deduct amounts paid to subcontractors from their gross receipts.

 

I am a licensed subcontractor working on a modification and received a Form 5005 from a contractor, do I need to report gross receipts?

Yes, if you are a licensed contractor, report your gross receipts under business code 015 and deduct them out using deduction code 550.

 

I am a licensed subcontractor working a maintenance, repair, replacement or alteration (MRRA) project and received a Form 5005 from a contractor, do I need to report gross receipts?

As a licensed subcontractor all gross receipts must be reported and if some of the gross receipts was attributable to an MRRA contract that will be reported by the prime contractor, then you can deduct it from your gross receipts using deduction code 550.

 

I am an unlicensed subcontractor working on a modification project and received a Form 5005 from a contractor, do I need to report gross receipts?

No, as an unlicensed contractor you would not be required to report gross receipts when you are provided a Form 5005 from the prime contractor.  The contractor will report any relevant transaction privilege tax on the project.

 

I am an unlicensed subcontractor working a maintenance, repair, replacement or alteration (MRRA) project and received a Form 5005 from a contractor, do I need to report gross receipts?

No, as an unlicensed contractor you would not be required to report gross receipts when you are provided with a Form 5005 from the prime contractor for a MRRA project.  However, you should provide the prime contractor with receipts from all purchases you made so they may accurately report the retail equivalent transaction privilege tax.

 

Please contact [email protected] if you have more questions.

 

Rental of Equipment

I am a licensed contractor and I rented equipment/tools for a modification/prime contracting or maintenance, repair, replacement or alteration project, is the rental subject to the transaction privilege tax (TPT)?

Yes, the rental of equipment by a contractor for use in their own business is taxable, unless a statutory deduction applies.  As TPT is a tax on specific business activities, the lessor of the equipment is responsible for the tax, but they may pass the economic expense of the tax to the contractor.

 

Please contact [email protected] if you have more questions.

 

Sale and Installation of Tangible Personal Property

I am a retailer who sells flooring. I will sell the flooring directly to the contractor who will install the flooring or my customer may have me arrange to have the flooring installed. Therefore, the customer will pay me for both the flooring and the installation and I pay the contractors directly. Someone told me I am the contractor, is that true?

If you provide the flooring and arrange to have it installed, you are no longer a retailer but you will be considered a contractor. Your business activity is now classified under the construction contracting business classification and new rules apply. The amount paid for the flooring and the installation would be subject to tax in the business classification construction contracting. Certain activity in this business classification may fall under the maintenance, repair, replacement or alteration rules, please review those rules.

When you sell the flooring without arranging for the install, meaning you do not receive payment for the installation of the flooring, you are considered a retailer.

 

I am a contractor with samples of materials in my showroom. Customers come in to choose the material that they have me install.  Is the installation subject to the transaction privilege tax?

Although you might think that you are a retailer because you have samples of materials in your showroom, you are a contractor when you sell and install the materials into real property.

 

I am a contractor that sells cabinets and installs it on something other than real property, like a RV. Is the installation subject to the transaction privilege tax (TPT)?

A person that sells tangible personal property and installs into property such as a car or an RV (tangible personal property as opposed to real property), is subject to TPT under the retail classification. The installation if kept separate from the retail sale on the invoice through the books and records would be considered a service rendered in addition to the retail sale, which is exempt under the retail classification.

Please note if you were installing on real property, (e.g. land and/or building), the installation may be subject to TPT under the prime contracting classification.

 

Please contact [email protected] if you have more questions.

 

Annual Bond Exemption

Q: What is an Annual Bond Exemption?

A: An Annual Bond Exemption serves as documentation to city building authorities that contractors have met the bonding requirements under A.R.S. 42-5007 for projects valued at $50,000 or more.

 

Q: Who may qualify for an Annual Bond Exemption?

A: To qualify for an annual exemption you must meet all of the following criteria:

  1. Start date of transaction privilege license must be at least one year prior to the current date.
  2. Cannot have more than two delinquencies in the past 12 consecutive months.
  3. No more than $500 in tax liabilities currently due.
  4. Mailing or physical address must be an Arizona address.
  5. A minimum of $10.00 paid in tax liability for the past 12 consecutive months.

 

Q: How do I know if I qualified for Annual Bond Exemption?

A: You can email [email protected] or contact the city building authorities as they have access to the list of qualified contractors.

 

Q: Will I receive an Annual Bond Exemption Certificate?

A: No. Annual Bond Exemption Certificates are no longer mailed out. 

 

Q: Will I be notified if I did not make it on the Annual Bond Exemption list?

A: You can email [email protected] to determine if you did not qualify for the Annual Bond Exemption list and the reason(s) why.

 

Q: How will the building authorities know if I qualified?

A: All building authorities will have access to a list of qualified Annual Bond Exemption recipients.

 

Q: What if a city informs me that I am not on the list?

A: Contractors that did not qualify for the Annual Bond Exemption would need to submit a one-time bond exemption request to [email protected].

This request must include:

  1. Company Name
  2. Company TPT License Number
  3. Project Address
  4. Value of Contract
  5. Estimated completion date of the project
  6. Business contact name and phone number

 

Q: If I am not on the list, can I be added?

A: No. The Annual Bond Exemption list is only run once a year.

 

Q: When does the Annual Bond Exemption expire?

A: The Annual Bond Exemption expires on July 31 of each calendar year.

 

Q: What is the effective date of the Annual Bond Exemption?

A: The effective date of the Annual Bond Exemption is August 1 of each calendar year.

 

Q: If I didn’t qualify for the Annual Bond Exemption list this year, can I qualify for the list next year?

A: Yes. On August 1 when the list is run, if the contractor meets all the qualifying criteria, the contractor will be placed on the list.

 

Please contact [email protected] if you have more questions.

 

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