HB 2269

REFERENCE TITLE: TPT; exemption; utilities; repeal
State of Arizona
House of Representatives
Fifty-seventh Legislature
Second Regular Session
2026
HB 2269
Introduced by
Representative
  Marshall
AN
ACT
Amending Title 42, chapter 5, article 1,
Arizona Revised Statutes, by adding section 42-5046; amending section 42-5063,
Arizona Revised Statutes; amending section 42-5063, Arizona Revised
Statutes, as amended by this act; relating to transaction privilege tax.
(TEXT OF BILL BEGINS ON NEXT PAGE)
Be it enacted by the Legislature of the State of Arizona:
Section 1. Title 42, chapter 5, article 1,
Arizona Revised Statutes, is amended by adding section 42-5046, to read:
START_STATUTE42-5046. Gas and electric utilities; reporting; deduction threshold;
notice
A. A person that is engaged in
business under section 42-5063 and that claims the deduction provided by
section 42-5063, subsection C, paragraph 3, subdivision (c) shall report the gross proceeds of sales or the gross income from
sales to natural or artificial gas and electricity retail customers for
informational purposes.
B. On or before December 31 of each
year, the department shall:
1. Based on the information reported
under subsection A of this section, determine the amount of foregone revenue to
this state as a result of the deduction provided by section 42-5063,
subsection C, paragraph 3, subdivision (c) for the prior
fiscal year.
2. Estimate the date on which the
amount of foregone revenue to this state as a result of the deduction provided
by section 42-5063, subsection C, paragraph 3, subdivision (c) will equal at least $2,300,000,000.� If the department estimates
that the threshold prescribed by this paragraph will be met within one year
after the date on which the estimate is made, the department shall notify the
speaker of the house of representatives, the president of the senate and the
governor. The notice shall include the date on which the threshold
will be met and the date on which the deduction provided by section 42-5063,
subsection C, paragraph 3, subdivision (c) will expire.
D. The department shall notify all
Persons that are engaged in business under section 42-5063 and that are
claiming the deduction provided by section 42-5063, subsection C,
paragraph 3, subdivision (c) of the date on which the
deduction will expire at least sixty days before the expiration
date. A person that receives a notice pursuant to this section shall
notify retail customers in writing of the date on which the deduction will
expire at least thirty days before the expiration date.� The notice to retail
customers must include the percentage amount of the transaction privilege tax
rate that will apply after the deduction expires. END_STATUTE
Sec. 2. Section 42-5063, Arizona Revised
Statutes, is amended to read:
START_STATUTE42-5063. Utilities classification; definitions
A. The utilities classification is comprised of the
business of:
1. Producing and furnishing or furnishing to
consumers natural or artificial gas and water.
2. Providing to retail electric customers ancillary
services, electric distribution services, electric generation services,
electric transmission services and other services related to providing
electricity.
B. The utilities
classification does not include:
1. Sales of ancillary
services, electric distribution services, electric generation services,
electric transmission services and other services related to providing
electricity, gas or water to a person who resells the services.
2. Sales of natural gas or liquefied petroleum gas
used to propel a motor vehicle.
3. Sales of alternative fuel, as defined in section
1-215, to a used oil fuel burner who has received a permit to burn used
oil or used oil fuel under section 49-426 or 49-480.
4. Sales of ancillary services, electric
distribution services, electric generation services, electric transmission
services and other services that are related to providing electricity to a
retail electric customer who is located outside this state for use outside this
state if the electricity is delivered to a point of sale outside this state.
5. Sales or other transfers of renewable energy
credits or any other unit created to track energy derived from renewable energy
resources.� For the purposes of this paragraph, "renewable energy
credit" means a unit created administratively by the corporation
commission or governing body of a public power utility to track kilowatt hours
of electricity derived from a renewable energy resource or the kilowatt hour
equivalent of conventional energy resources displaced by distributed renewable
energy resources.
6. The leasing or renting of space to make
attachments to utility poles as follows:
(a) By a person that is engaged in business under
this section.
(b) To a person that is engaged in business under
this section or section 42-5064 or that is a cable operator.
C. The tax base for the utilities classification is
the gross proceeds of sales or gross income derived from the business, but the
following shall be deducted from the tax base:
1. Revenues received by a municipally owned utility
in the form of fees charged to persons constructing residential, commercial or
industrial developments or connecting residential, commercial or industrial
developments to a municipal utility system or systems if the fees are
segregated and used only for capital expansion, system enlargement or debt
service of the utility system or systems.
2. Revenues received by any person or persons owning
a utility system in the form of reimbursement or contribution compensation for
property and equipment installed to provide utility access to, on or across the
land of an actual utility consumer if the property and equipment become the
property of the utility. This deduction shall not exceed the value
of such property and equipment.
3. Gross proceeds of sales or gross income derived
from sales to:
(a) Qualifying hospitals as defined in section 42-5001.
(b) A qualifying health care organization as defined
in section 42-5001 if the tangible personal property is used by the
organization solely to provide health and medical related educational and
charitable services.
(c) For taxable
periods through December 31, 2046 or the last day of the last month of the
fiscal quarter in which the threshold prescribed in section 42-5046 is
met, whichever is earlier, natural or artificial gas and electricity retail customers.
4. The portion of gross proceeds of sales or gross
income that is derived from sales to a qualified environmental technology
manufacturer, producer or processor as defined in section 41-1514.02 of a
utility product and that is used directly in environmental technology
manufacturing, producing or processing. This paragraph shall apply
for twenty full consecutive calendar or fiscal years from the date the first
paper manufacturing machine is placed in service. In the case of a
qualified environmental technology manufacturer, producer or processor who does
not manufacture paper, the time period shall begin with the date the first
manufacturing, processing or production equipment is placed in service.
5. The portion of gross proceeds of sales or gross
income attributable to transfers of electricity by any retail electric customer
owning a solar photovoltaic energy generating system to an electric
distribution system, if the electricity transferred is generated by the
customer's system.
6. Gross proceeds of sales or gross income derived
from sales of electricity, natural gas or liquefied petroleum gas to a
qualified manufacturing or smelting business. A utility that claims
this deduction shall report each month, on a form prescribed by the department,
the name and address of each qualified manufacturing or smelting business for
which this deduction is taken. This paragraph applies to gas
transportation services. For the purposes of this paragraph:
(a) "Gas transportation services" means
the services of transporting natural gas to a natural gas customer or to a
natural gas distribution facility if the natural gas was purchased from a
supplier other than the utility.
(b) "Manufacturing" means the performance
as a business of an integrated series of operations that places tangible
personal property in a form, composition or character different from that in
which it was acquired and transforms it into a different product with a
distinctive name, character or use. Manufacturing does not include
job printing, publishing, packaging, mining, generating electricity or operating a
restaurant.
(c) "Qualified
manufacturing or smelting business" means one of the following:
(i) A business that
manufactures or smelts tangible products in this state, of which at least
fifty-one percent of the manufactured or smelted products will be exported out
of state for incorporation into another product or sold out of state for a
final sale.
(ii) A business that derives at least fifty-one
percent of its gross income from the sale of manufactured or smelted products
manufactured or smelted by the business.
(iii) A business that uses at least fifty-one
percent of its square footage in this state for manufacturing or smelting and
business activities directly related to manufacturing or smelting.
(iv) A business that employs at least fifty-one
percent of its workforce in this state in manufacturing or smelting and
business activities directly related to manufacturing or smelting.
(v) A business that uses at least fifty-one percent
of the value of its capitalized assets in this state, as reflected on the
business's books and records, for manufacturing or smelting and business
activities directly related to manufacturing or smelting.
(d) "Smelting" means to melt or fuse a
metalliferous mineral, often with an accompanying chemical change, usually to
separate the metal.
7. Gross proceeds of sales or gross income derived
from sales of electricity or natural gas to a business that operates an
international operations center in this state and that is certified by the
Arizona commerce authority pursuant to section 41-1520.
D. For the purposes of this section:
1. "Ancillary services" means those
services so designated in federal energy regulatory commission order 888
adopted in 1996 that include the services necessary to support the transmission
of electricity from resources to loads while maintaining reliable operation of
the transmission system according to good utility practice.
2. "Cable operator" has the same meaning
prescribed in section 9-505 and includes a video service provider.
3. "Electric distribution service" means
distributing electricity to retail electric customers through the use of
electric distribution facilities.
4. "Electric generation service" means
providing electricity for sale to retail electric customers but excluding
electric distribution or transmission services.
5. "Electric transmission service" means
transmitting electricity to retail electric customers or to electric
distribution facilities so classified by the federal energy regulatory
commission or, to the extent permitted by law, so classified by the Arizona
corporation commission.
6. "Other services" includes metering,
meter reading services, billing and collecting services.
7. "Retail electric customer" means a
person who purchases electricity for that person's own use, including use in
that person's trade or business and not for resale, redistribution or
retransmission.
8. "Utility pole" means any wooden, metal
or other pole used for utility purposes and the pole's appurtenances that are
attached or authorized for attachment by the person controlling the pole. END_STATUTE
Sec. 3. Section 42-5063, Arizona Revised
Statutes, as amended by section 2 of this act, is amended to read:
START_STATUTE42-5063. Utilities classification; definitions
A. The utilities classification is comprised of the
business of:
1. Producing and furnishing or furnishing to
consumers natural or artificial gas and water.
2. Providing to retail electric customers ancillary
services, electric distribution services, electric generation services,
electric transmission services and other services related to providing
electricity.
B. The utilities classification does not include:
1. Sales of ancillary services, electric
distribution services, electric generation services, electric transmission
services and other services related to providing electricity, gas or water to a
person who resells the services.
2. Sales of natural gas or liquefied petroleum gas
used to propel a motor vehicle.
3. Sales of alternative fuel, as defined in section
1-215, to a used oil fuel burner who has received a permit to burn used
oil or used oil fuel under section 49-426 or 49-480.
4. Sales of ancillary services, electric
distribution services, electric generation services, electric transmission
services and other services that are related to providing electricity to a
retail electric customer who is located outside this state for use outside this
state if the electricity is delivered to a point of sale outside this state.
5. Sales or other transfers of renewable energy
credits or any other unit created to track energy derived from renewable energy
resources.� For the purposes of this paragraph, "renewable energy
credit" means a unit created administratively by the corporation
commission or governing body of a public power utility to track kilowatt hours
of electricity derived from a renewable energy resource or the kilowatt hour
equivalent of conventional energy resources displaced by distributed renewable
energy resources.
6. The leasing or renting of space to make
attachments to utility poles as follows:
(a) By a person that is engaged in business under
this section.
(b) To a person that is engaged in business under
this section or section 42-5064 or that is a cable operator.
C. The tax base for the utilities classification is
the gross proceeds of sales or gross income derived from the business, but the
following shall be deducted from the tax base:
1. Revenues received by a municipally owned utility
in the form of fees charged to persons constructing residential, commercial or
industrial developments or connecting residential, commercial or industrial
developments to a municipal utility system or systems if the fees are
segregated and used only for capital expansion, system enlargement or debt
service of the utility system or systems.
2. Revenues received by any person or persons owning
a utility system in the form of reimbursement or contribution compensation for
property and equipment installed to provide utility access to, on or across the
land of an actual utility consumer if the property and equipment become the
property of the utility. This deduction shall not exceed the value
of such property and equipment.
3. Gross proceeds of sales or gross income derived
from sales to:
(a) Qualifying hospitals as defined in section 42-5001.
(b) A qualifying health care organization as defined
in section 42-5001 if the tangible personal property is used by the
organization solely to provide health and medical related educational and
charitable services.
(c) For taxable periods through
December 31, 2046 or the last day of the last month of the fiscal quarter in
which the threshold prescribed in section 42-5046 is met, whichever is
earlier, natural or artificial gas and electricity retail customers.
4. The portion of gross proceeds of sales or gross
income that is derived from sales to a qualified environmental technology
manufacturer, producer or processor as defined in section 41-1514.02 of a
utility product and that is used directly in environmental technology
manufacturing, producing or processing. This paragraph shall apply
for twenty full consecutive calendar or fiscal years from the date the first
paper manufacturing machine is placed in service. In the case of a
qualified environmental technology manufacturer, producer or processor who does
not manufacture paper, the time period shall begin with the date the first
manufacturing, processing or production equipment is placed in service.
5. The portion of gross proceeds of sales or gross
income attributable to transfers of electricity by any retail electric customer
owning a solar photovoltaic energy generating system to an electric
distribution system, if the electricity transferred is generated by the
customer's system.
6. Gross proceeds of sales or gross income derived
from sales of electricity, natural gas or liquefied petroleum gas to a
qualified manufacturing or smelting business. A utility that claims
this deduction shall report each month, on a form prescribed by the department,
the name and address of each qualified manufacturing or smelting business for
which this deduction is taken. This paragraph applies to gas
transportation services. For the purposes of this paragraph:
(a) "Gas transportation services" means
the services of transporting natural gas to a natural gas customer or to a
natural gas distribution facility if the natural gas was purchased from a
supplier other than the utility.
(b) "Manufacturing" means the performance
as a business of an integrated series of operations that places tangible
personal property in a form, composition or character different from that in
which it was acquired and transforms it into a different product with a
distinctive name, character or use. Manufacturing does not include
job printing, publishing, packaging, mining, generating electricity or operating a
restaurant.
(c) "Qualified manufacturing or smelting
business" means one of the following:
(i) A business that manufactures or smelts tangible
products in this state, of which at least fifty-one percent of the manufactured
or smelted products will be exported out of state for incorporation into
another product or sold out of state for a final sale.
(ii) A business that derives at least fifty-one
percent of its gross income from the sale of manufactured or smelted products
manufactured or smelted by the business.
(iii) A business that uses at least fifty-one percent
of its square footage in this state for manufacturing or smelting and business
activities directly related to manufacturing or smelting.
(iv) A business that employs at least fifty-one
percent of its workforce in this state in manufacturing or smelting and
business activities directly related to manufacturing or smelting.
(v) A business that uses at least fifty-one percent
of the value of its capitalized assets in this state, as reflected on the
business's books and records, for manufacturing or smelting and business
activities directly related to manufacturing or smelting.
(d) "Smelting" means to melt or fuse a
metalliferous mineral, often with an accompanying chemical change, usually to
separate the metal.
7. Gross proceeds of sales or gross income derived
from sales of electricity or natural gas to a business that operates an
international operations center in this state and that is certified by the
Arizona commerce authority pursuant to section 41-1520.
D. For the purposes of this section:
1. "Ancillary services" means those
services so designated in federal energy regulatory commission order 888
adopted in 1996 that include the services necessary to support the transmission
of electricity from resources to loads while maintaining reliable operation of
the transmission system according to good utility practice.
2. "Cable operator" has the same meaning
prescribed in section 9-505 and includes a video service provider.
3. "Electric distribution service" means
distributing electricity to retail electric customers through the use of
electric distribution facilities.
4. "Electric generation service" means
providing electricity for sale to retail electric customers but excluding
electric distribution or transmission services.
5. "Electric transmission service" means
transmitting electricity to retail electric customers or to electric
distribution facilities so classified by the federal energy regulatory
commission or, to the extent permitted by law, so classified by the Arizona
corporation commission.
6. "Other services" includes metering,
meter reading services, billing and collecting services.
7. "Retail electric customer" means a
person who purchases electricity for that person's own use, including use in
that person's trade or business and not for resale, redistribution or
retransmission.
8. "Utility pole" means any wooden, metal
or other pole used for utility purposes and the pole's appurtenances that are
attached or authorized for attachment by the person controlling the pole. END_STATUTE
Sec. 4. Applicability
Section 42-5063, Arizona Revised
Statutes, as amended by section 2 of this act, applies to taxable periods
beginning on or after the first day of the month following the general
effective date.
Sec. 5. Effective date; notice
A. Section 42-5063,
Arizona Revised Statutes, as amended by section 3 of this act, is effective
from and after December 31, 2046 or from and after the last day of the last
month of the fiscal quarter in which the threshold prescribed in section 42-5046,
Arizona Revised Statutes, as added by this act, is met, whichever is earlier.
B. The director of the
department of revenue shall notify the director of the Arizona legislative
council in writing on or before the date on which the deduction will expire.