Customer Notice: To schedule an appointment, please contact us at [email protected].
It is a misconception that nonprofit organizations are automatically exempt from the transaction privilege tax and use tax. Arizona does not provide an overall exemption from transaction privilege tax for nonprofit organizations. Generally, most I.R.C. § 501(c) nonprofit charitable organizations are not exempt from the Arizona transaction privilege tax (TPT) or Arizona use tax when making purchases of tangible personal property, unless the purchase is for resale in the ordinary course of business or the nonprofit organization qualifies for an exemption under the Arizona Revised Statutes.
The designation by the Internal Revenue Service as an I.R.C. § 501(c) nonprofit organization that is exempt from federal corporate income taxes, does not automatically qualify such organizations as exempt from Arizona TPT or use tax when making purchases of tangible personal property.
Arizona tax law provides that certain specifically delineated organizations are exempt from transaction privilege tax under some business classifications. Please note that these exemptions are available for sales by the tax-exempt organizations, not for sales to the tax-exempt organizations. Generally sales to a nonprofit organization are subject to the transaction privilege and use tax unless the organization is a qualified hospital or health care organization. Certain qualifying organizations may apply for exemption from the items they purchase based on the criteria listed below.
Please review transaction privilege tax procedure, TPP 00-4 for an overview of the exemptions from transaction privilege tax that are available to tax exempt organizations engaged in business under certain business classifications. Some nonprofits are exempt from the retail business classification when they sell tangible personal property to the end user.
The organizations listed below would not need to apply annually for a certification letter.
When these organizations engage in transactions with business owners and those transactions are exempt, they should submit the Form 5000, TPT Exemption Certificate – General, along with their I.R.C § 501.C.3. determination letter and provide a description of their organization to the business. Unless otherwise noted, these organizations are not entitled to other deductions or exclusions from TPT. Please review the Arizona Revised Statutes and/or the Model City Tax Code for more information.
Some organizations that qualify as nonprofit organizations under the Internal Revenue Code must apply for an annual exemption letter from the department. These exemption letters must be used in conjunction with Form 5000HC, Transaction Privilege Tax Healthcare Exemption Certificate, by the organization when engaging in exempt transactions with business owners. These organizations include:
These organizations must apply annually for the certification. Click on each section for application instructions.
See TPP 15-1 for more information.
Qualifying health care organizations
Qualifying community health care centers
The following organizations are considered “qualifying hospitals”:
See A.R.S. § 42-5001(11) for more information on the definition of qualifying hospitals.
Qualifying Hospital: How to Apply/Renew
This application procedure applies to the following three organizations.
These organizations should submit the following information for review to the department:
If an organization does not submit the required documentation, the department will request further information within thirty (30) business days of receipt of the Annual Exemption Letter request. An Annual Exemption Letter will not be issued until all required documents are received by the department. If the required documents do not substantiate the organization is eligible for an Annual Exemption Letter, a denial will be issued that may be appealed. See TPP 15-1 for Appeal of Agency Decision.
Documentation for the Vendor
Once the organization’s documentation is approved, an exemption letter will be sent by email to the requestor. To qualify for exempt transactions the qualified organization should give the vendor the annual exemption letter along with a properly completed Arizona Form 5000HC for each location(s). Please see TPP 15-1 for more detail.
Unlicensed Residential Care Institution: How to Apply/Renew
This application procedure applies to unlicensed residential care institution operated in conjunction with a licensed nursing care institution.
These institutions should submit the following information for review to the department:
Examples of acceptable documentation showing common ownership and management include:
If an organization does not submit the required documentation, the department will request further information within thirty (30) business days of receipt of the Annual Exemption Letter request. An Annual Exemption Letter will not be issued until all required documents are received by the department. If the required documents do not substantiate the organization is eligible for an Annual Exemption Letter, a denial will be issued that may be appealed. See TPP 15-1 for Appeal of Agency Decision.
Documentation for the Vendor
Once the organization’s documentation is approved, an exemption letter will be sent by email to the requestor. To qualify for exempt transactions the qualified organization should give the vendor the annual exemption letter along with a properly completed Arizona Form 5000HC for each location(s). Please see TPP 15-1 for more detail.
Hospitals, nursing care institutions or residential care institutions operated by the federal government: How to Apply/Renew
This application procedure applies hospitals, nursing care institutions or residential care institutions operated by the federal government, this state or a political subdivision of this state.
These organizations should submit the following information to the department:
If an organization does not submit the required documentation, the department will request further information within thirty (30) business days of receipt of the Annual Exemption Letter request. An Annual Exemption Letter will not be issued until all required documents are received by the department. If the required documents do not substantiate the organization is eligible for an Annual Exemption Letter, a denial will be issued that may be appealed. See TPP 15-1 for Appeal of Agency Decision.
Documentation for the Vendor
Once the organization’s documentation is approved, an exemption letter will be sent by email to the requestor. To qualify for exempt transactions the qualified organization should give the vendor the annual exemption letter along with a properly completed Arizona Form 5000HC for each location(s). Please see TPP 15-1 for more detail.
Facility Under Construction and that upon completion will be an organization that qualifies as a qualifying hospital: How to Apply/Renew
This application procedure applies to any qualifying Facility Under Construction and that upon completion will be an organization that qualifies as a qualifying hospital.
These facilities under construction should submit the following information to the department:
If an organization does not submit the required documentation, the department will request further information within thirty (30) business days of receipt of the Annual Exemption Letter request. An Annual Exemption Letter will not be issued until all required documents are received by the department. If the required documents do not substantiate the organization is eligible for an Annual Exemption Letter, a denial will be issued that may be appealed. See TPP 15-1 for Appeal of Agency Decision.
Documentation for the Vendor
Once the organization’s documentation is approved, an exemption letter will be sent by email to the requestor. To qualify for exempt transactions the qualified organization should give the vendor the annual exemption letter along with a properly completed Arizona Form 5000HC for each location(s). Please see TPP 15-1 for more detail.
Qualifying Hospitials - Applicable Deductions
“Qualifying hospital” is eligible for tax exemptions under the following classifications:
State | City |
---|---|
Retail | Retail |
Utilities | Utilities |
Publication | Publication |
Job Printing | Job Printing |
Restaurant | Restaurant |
Use Tax | Use Tax |
Personal Property Rental | Rental/Lease/License of TPP |
Pipeline | Jet Fuel |
Jet Fuel Use Tax | |
Short Term Motor Vehicle rental (PHX) | |
Commercial Rental | |
Wastewater Utility Service |
A qualifying healthcare organization includes an organization that:
See A.R.S. § 42-5001(10) for more information on the definition of qualifying healthcare organizations.
There are two types of qualifying health care organizations that are eligible for exemption from certain tax classification. Both must meet certain qualifications:
Organizations that provide educational, therapeutic, rehabilitative and family medical education training for blind and visually impaired children: How to Apply/Renew
This application procedure applies to an organization that provides educational, therapeutic, rehabilitative and family medical education training for blind and visually impaired children and children with multiple disabilities from the time of birth to age twenty-one. These organizations must submit the following information to the department:
If an organization does not submit the required documentation, the department will request further information within thirty (30) business days of receipt of the Annual Exemption Letter request. An Annual Exemption Letter will not be issued until all required documents are received by the department. If the required documents do not substantiate the organization is eligible for an Annual Exemption Letter, a denial will be issued that may be appealed. See TPP 15-1 for Appeal of Agency Decision.
Upon approval, the organization will be given an Annual Exemption Letter exempting the organization as a customer for the business classifications below and are not limited for use by the organization solely to provide health and medical related educational and charitable services.
Qualifying Healthcare Organizations that Provide Training for the Blind and Visually Impaired Children and Children with Multiple Disabilities from the Time of Birth to Age Twenty-One - Applicable Deductions
State | City |
---|---|
Retail | Retail |
Personal Property Rental | Utilities |
Use Tax | Publication |
Job Printing | |
Restaurant & Bars | |
Use Tax | |
Rental/Lease/License of TPP | |
Jet Fuel | |
Jet Fuel Use Tax | |
Short Term Motor Vehicle rental (PHX) | |
Commercial Rental | |
Wastewater Utility Service |
Organization that Provide Health and Medical Related Education and Charitable Services: How to Apply/Renew
This application procedure applies to an organization that solely provides health and medical related educational and charitable services. These organizations must submit the following information to the department:
If an organization does not submit the required documentation, the department will request further information within thirty (30) business days of receipt of the Annual Exemption Letter request. An Annual Exemption Letter will not be issued until all required documents are received by the department. If the required documents do not substantiate the organization is eligible for an Annual Exemption Letter, a denial will be issued that may be appealed. See TPP 15-1 for Appeal of Agency Decision.
Upon approval, the organization will be given an Annual Exemption Letter exempting the organization as a customer for the business classifications below and are limited for use by the organization solely to provide health and medical related educational and charitable services.
NOTE: Only those locations used by the qualifying organization to provide educational or charitable services that are health and medical related are exempt under the Utilities classification in A.R.S. § 42-5063(C)(3)(b).
Documentation for the Vendor
Once the organization’s documentation is approved, an exemption letter will be sent by email to the requestor. To qualify for exempt transactions the qualified organization should give the vendor the annual exemption letter along with a properly completed Arizona Form 5000HC for each location(s) attesting that the tangible personal property purchased or leased by that location will be used solely in providing educational or charitable services that are health and medical related. Please see TPP 15-1 for more detail.
NOTE: Only those locations used by the qualifying organization to provide educational or charitable services that are health and medical related are exempt under the Utilities classification in A.R.S. § 42-5063(C)(3)(b).
Qualifying Organizations to Provide Educational or Charitable Services that are Health and Medical Related - Applicable Deductions
State | City |
---|---|
Retail | Retail |
Utilities | Utilities |
Publication | Publication |
Job Printing | Job Printing |
Restaurant | Restaurant |
Use Tax | Use Tax |
Personal Property Rental | Rental/Lease/License of TPP |
Jet Fuel | |
Jet Fuel Use Tax | |
Short Term Motor Vehicle rental (PHX) | |
Commercial Rental | |
Wastewater Utility Service | |
Restaurants & Bars |
A.R.S. § 42-5001(9) defines a "qualifying community health center" as the following:
(a) An entity that is recognized as nonprofit under section 501(c)(3) of the United States internal revenue code, that is a community-based, primary care clinic that has a community-based board of directors and that is either:
(i) The sole provider of primary care in the community.
(ii) A nonhospital affiliated clinic that is located in a federally designated medically underserved area in this state.
(b) Includes clinics that are being constructed as qualifying community health centers.
Please see TPP 15-1 G. for detailed definitions of a Qualifying Community Health Center.
How to Apply/Renew:
A Qualifying Community Health Center must submit the following to the department:
If an organization does not submit the required documentation, the department will request further information within thirty (30) business days of receipt of the Annual Exemption Letter request. An Annual Exemption Letter will not be issued until all required documents are received by the department. If the required documents do not substantiate the organization is eligible for an Annual Exemption Letter, a denial will be issued that may be appealed. See TPP 15-1 for Appeal of Agency Decision.
Upon approval, the organization will be given an Annual Exemption Letter exempting the organization as a customer for the business classifications below and are limited for use by the organization for purchases of tangible personal property to be used by the Community Health Center.
Documentation for the Vendor
Once the organization’s documentation is approved, an exemption letter will be sent by e-mail to the requestor. To qualify for exempt transactions the qualified organization should give the vendor the annual exemption letter along with a properly completed Arizona Form 5000HC for each location(s) attesting that the tangible personal property is used by the Community Health Center. Please see TPP 15-1 for more detail.
Community Health Centers - Applicable Deductions
State | City |
---|---|
Retail | Retail |
Use Tax | Utilities |
Personal Property Rental | Publication |
Job Printing | |
Restaurant | |
Use Tax | |
Rental/Lease/License of TPP | |
Jet Fuel | |
Jet Fuel Use Tax | |
Short Term Motor Vehicle rental (PHX) | |
Commercial Rental | |
Wastewater Utility Service |
An organization that provides rehabilitation programs for mentally or physically disabled persons is one that has qualified under section 501(c)(3) of the United States Internal Revenue Code and that engages in and uses such property exclusively in programs for mentally or physically disabled persons if the programs are exclusively for training, job placement, rehabilitation or testing. See TPP 15-1 for more information.
How to Apply/Renew:
This application procedure applies to an organization that provides rehabilitation programs for mentally or physically disabled persons. These organizations must submit the following information to the department:
If an organization does not submit the required documentation, the department will request further information within thirty (30) business days of receipt of the Annual Exemption Letter request. An Annual Exemption Letter will not be issued until all required documents are received by the department. If the required documents do not substantiate the organization is eligible for an Annual Exemption Letter, a denial will be issued that may be appealed. See TPP 15-1 for Appeal of Agency Decision.
Upon approval the organization will be given an Annual Exemption Letter exempting the organization as a customer for the business classifications below and are limited for use by the organization for purchases of tangible personal property to be used exclusively for training, job placement or rehabilitation programs or testing for mentally or physically disabled persons.
Documentation for the Vendor
Once the organization’s documentation is approved, an exemption letter will be sent by email to the requestor. To qualify for exempt transactions the qualified organization should give the vendor the Annual Exemption Letter along with a properly completed Arizona Form 5000HC for each location(s) attesting that the tangible personal property is used by the organization directly and exclusively in programs for training, job placement, rehabilitation or testing for mentally or physically disabled persons. Please see TPP 15-1 for more detail.
Rehabilitation Programs for Mentally or Physically Disabled Persons - Appliable Deductions
State | City |
---|---|
Retail | Retail |
Use Tax | Use Tax |
Personal Property Rental | Rental/Lease/License of TPP |
Short Term Motor Vehicle rental (PHX) |
Many qualifying organizations question the taxation of transactions with prime contractors. A.R.S. § 42-5075(B)(8) provides a deduction under the prime contracting classification for the gross proceeds of sales or gross income attributable to the purchase of machinery, equipment, or other tangible personal property that is exempt from or deductible from transaction privilege tax under A.R.S. §§ 42-5061(A)(25) or 42-5061(A)(29), and the parallel use tax provisions. There may be other exemptions and organizations are encouraged to read A.R.S. 42-5075. If any other deduction applies they are limited to the statutory provisions as indicated in statute.
The deduction is only applicable for the amount of the gross proceeds of sales or gross income attributable to the prime contractor’s purchase price of qualified machinery, equipment or other tangible personal property purchased by the contractor.
The request can be emailed to [email protected].
Questions: Contact the TPT Healthcare Team at (602) 716-6372, option 1.
Question from vendor/qualified organizations on the use of the Annual Exemption Letter, contact Tax Policy.