For certain situations, businesses are not subject to TPT. In many cases, businesses have to file an exemption certificate. The purpose of the certificate is to document tax exempt sales to qualified purchasers. The purchaser must fill out the document completely and furnish it to the vendor. Please click here for Exemption Certificate forms.
For example, chemicals used to clean customer pools by a pool cleaning service are not taxable. However, if the pool cleaning service sells the product to customers (a bucket of chlorine for example), the transaction then becomes taxable as retail sales.
Exemptions for Non-Resident Merchandise Purchases
If a non-resident purchases merchandise and picks it up in Arizona, the sale is subject to TPT; however, sales are exempt if the purchaser has proof of out-of-state residency and the merchandise is shipped and used out of state. The appropriate exemption certificates must be maintained by the Arizona retailer.
Exemptions for Sales Made to Native Americans
In general, sales made to Native Americans by non-Indian vendors located off the reservation are subject to tax. However, sales to a tribe, or an enrolled member of the tribe, are subject to TPT, or related county excise taxes. If the order originates from that tribe’s reservation, delivery is made and payment received by that tribe’s reservation. Sales not subject to state tax or related county excise tax should be documented through the use of the appropriate certificate or other documentation.
Exemptions for Prime Contracting
For prime contractors, any increase in the tax rate does not apply to contracts entered into or pursuant to written bids made by prime contractors on or before May 18, 2010. The prime contractor must maintain documentation to verify the contract date or written bid. Gross income received from pre-existing prime contracts will be reported under Class 215. If a business has change orders to existing contracts after May 18, 2010, those orders are subject to the higher rate of 6.6 percent regardless of when the original contract was executed or when the change order process began.
Charges for installation labor on items not attached to real property are also exempt from tax. Businesses must clearly list charges separately for retail labor on invoices and records. If the property is permanently attached to real property, the charges are taxable under the prime contracting classification. Please see Publication 603, Contracting Activities.
Exemptions for Interstate Commerce Sales and Shipping
Sales in interstate commerce are also exempt from tax if sufficient documentation is maintained by the seller to show the order was shipped out of state. For shipping charges, actual freight charged by a retailer to deliver goods to a purchaser is not taxable under the retail classification if separately stated on the invoice. However, when included in the retail sales price, a shipping charge from the manufacturer or wholesaler to the retailer is considered a cost of doing business and is included in the taxable proceeds from a sale. If goods are shipped directly to the manufacturer or wholesaler to the purchaser, a charge for freight may be excluded from taxable gross proceeds if separately stated.
Food sold for home consumption is exempt from TPT when sold by a qualified retailer. For more information on tax exempt food, please click here.
Generally, sales of tangible property to nonprofit organizations are subject to tax. If the tangible personal property is to be resold in the ordinary course of a nonprofit’s business, the sale of the tangible personal property is not subject to tax. Also, nonprofit charitable organizations are not subject to tax on tangible property purchases if they qualify under 501(c)(3) of the U.S. Internal Revenue Code and the property is used in programs for mentally or physically handicapped persons, and the programs are exclusively for training, job placement, rehabilitation or testing. Please see Non-Profit Organization Publication 501.