HB 4116

REFERENCE TITLE: TPT; use tax; exemption; batteries
State of Arizona
House of Representatives
Fifty-seventh Legislature
Second Regular Session
2026
HB 4116
Introduced by
Representative
  Cavero
AN
ACT
amending section 42-5061, Arizona
Revised Statutes; amending section 42-5159, Arizona Revised Statutes, as
amended by Laws 2025, chapter 135, section 2 and chapter 247, section 2;
repealing section 42-5159, Arizona Revised Statutes, as amended by laws
2025, chapter 251, section 13; relating to transaction privilege and use tax.
(TEXT OF BILL BEGINS ON NEXT PAGE)
Be it enacted by the Legislature of the State of Arizona:
Section 1. Section 42-5061, Arizona Revised
Statutes, is amended to read:
START_STATUTE42-5061. Retail classification; definitions
A. The retail classification is comprised of the
business of selling tangible personal property at retail. The tax
base for the retail classification is the gross proceeds of sales or gross
income derived from the business. The tax imposed on the retail
classification does not apply to the gross proceeds of sales or gross income
from:
1. Professional or personal service occupations or
businesses that involve sales or transfers of tangible personal property only
as inconsequential elements.
2. Services rendered in addition to selling tangible
personal property at retail.
3. Sales of warranty or service
contracts. The storage, use or consumption of tangible personal
property provided under the conditions of such contracts is subject to tax
under section 42-5156.
4. Sales of tangible personal property by any
nonprofit organization organized and operated exclusively for charitable
purposes and recognized by the United States internal revenue service under
section 501(c)(3) of the internal revenue code.
5. Sales to persons engaged in business classified
under the restaurant classification of articles used by human beings for food,
drink or condiment, whether simple, mixed or compounded.
6. Business activity that is properly included in
any other business classification that is taxable under this article.
7. The sale of stocks and bonds.
8. Drugs and medical oxygen, including delivery
hose, mask or tent, regulator and tank, if prescribed by a member of the
medical, dental or veterinarian profession who is licensed by law to administer
such substances.
9. Prosthetic appliances as defined in section 23-501
and as prescribed or recommended by a health professional who is licensed
pursuant to title 32, chapter 7, 8, 11, 13, 14, 15, 16, 17 or 29.
10. Insulin, insulin syringes and glucose test
strips.
11. Prescription eyeglasses or contact lenses.
12. Hearing aids as defined in section 36-1901.
13. Durable medical equipment that has a centers for
medicare and medicaid services common procedure code, is designated
reimbursable by medicare, is prescribed by a person who is licensed under title
32, chapter 7, 8, 13, 14, 15, 17 or 29, can withstand repeated use, is
primarily and customarily used to serve a medical purpose, is generally not
useful to a person in the absence of illness or injury and is appropriate for
use in the home.
14. Sales of motor vehicles to nonresidents of this
state for use outside this state if either of the following applies:
(a) The motor vehicle dealer ships or delivers the
motor vehicle to a destination out of this state.
(b) The vehicle, trailer or semitrailer has a gross
vehicle weight rating of more than ten thousand pounds, is used or maintained
to transport property in the furtherance of interstate commerce and otherwise
meets the definition of commercial motor vehicle as defined in section 28-5201.
15. Food, as provided in and subject to the
conditions of article 3 of this chapter and sections 42-5074 and 42-6017.
16. Items purchased with United States department of
agriculture coupons issued under the supplemental nutrition assistance program
pursuant to the food and nutrition act of 2008 (P.L. 88-525; 78 Stat. 703; 7
United States Code sections 2011 through 2036b) by the United States department
of agriculture food and nutrition service or food instruments issued under
section 17 of the child nutrition act (P.L. 95-627;
92 Stat. 3603; P.L. 99-661, section 4302; P.L. 111-296; 42
United States Code section 1786).
17. Textbooks by any bookstore that are required by
any state university or community college.
18. Food and drink to a person that is engaged in a
business that is classified under the restaurant classification and that
provides such food and drink without monetary charge to its employees for their
own consumption on the premises during the employees' hours of employment.
19. Articles of food, drink or condiment and
accessory tangible personal property to a school district or charter school if
such articles and accessory tangible personal property are to be prepared and
served to persons for consumption on the premises of a public school within the
district or on the premises of the charter school during school hours.
20. Lottery tickets or shares pursuant to title 5,
chapter 5.1, article 2.
21. The sale of cash equivalents and the sale of
precious metal bullion and monetized bullion to the ultimate consumer, but the
sale of coins or other forms of money for manufacture into jewelry or works of
art is subject to the tax and the gross proceeds of sales or gross income
derived from the redemption of any cash equivalent by the holder as a means of
payment for goods or services that are taxable under this article is subject to
the tax. For the purposes of this paragraph:
(a) "Cash equivalents" means items or
intangibles, whether or not negotiable, that are sold to one or more persons,
through which a value denominated in money is purchased in advance and may be
redeemed in full or in part for tangible personal property, intangibles or
services. Cash equivalents include gift cards, stored value cards,
gift certificates, vouchers, traveler's checks, money orders or other
instruments, orders or electronic mechanisms, such as an electronic code,
personal identification number or digital payment mechanism, or any other
prepaid intangible right to acquire tangible personal property, intangibles or
services in the future, whether from the seller of the cash equivalent or from
another person. Cash equivalents do not include either of the
following:
(i) Items or intangibles that are sold to one or
more persons, through which a value is not denominated in money.
(ii) Prepaid calling cards or prepaid authorization
numbers for telecommunications services made taxable by subsection P of this
section.
(b) "Monetized bullion" means coins and
other forms of money that are manufactured from gold, silver or other metals
and that have been or are used as a medium of exchange in this or another
state, the United States or a foreign nation.
(c) "Precious metal bullion" means
precious metal, including gold, silver, platinum, rhodium and palladium, that
has been smelted or refined so that its value depends on its contents and not
on its form.
22. Motor vehicle fuel and use fuel that are subject
to a tax imposed under title 28, chapter 16, article 1, sales of use fuel to a
holder of a valid single trip use fuel tax permit issued under section 28-5739,
sales of aviation fuel that are subject to the tax imposed under section 28-8344
and sales of jet fuel that are subject to the tax imposed under article 8 of
this chapter.
23. Tangible personal property sold to a person
engaged in the business of leasing or renting such property under the personal
property rental classification if such property is to be leased or rented by
such person.
24. Tangible personal property sold in interstate or
foreign commerce if prohibited from being so taxed by the constitution of the
United States or the constitution of this state.
25. Tangible personal property sold to:
(a) A qualifying hospital 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) A qualifying health care organization as defined
in section 42-5001 if the organization is dedicated to providing
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.
(d) A qualifying community health center as defined
in section 42-5001.
(e) A nonprofit charitable organization that has
qualified under section 501(c)(3) of the internal revenue code and that
regularly serves meals to the needy and indigent on a continuing basis at no
cost.
(f) For taxable periods beginning from and after
June 30, 2001, a nonprofit charitable organization that has qualified under
section 501(c)(3) of the internal revenue code and that provides residential
apartment housing for low-income persons over sixty-two years of
age in a facility that qualifies for a federal housing subsidy, if the tangible
personal property is used by the organization solely to provide residential
apartment housing for low-income persons over sixty-two years of
age in a facility that qualifies for a federal housing subsidy.
(g) A qualifying health sciences educational
institution as defined in section 42-5001.
(h) Any person representing or working on behalf of
another person described in subdivisions (a) through (g) of this paragraph if
the tangible personal property is incorporated or fabricated into a project
described in section 42-5075, subsection P.
26. Magazines or other periodicals or other
publications by this state to encourage tourist travel.
27. Tangible personal property sold to:
(a) A person that is subject to tax under this
article by reason of being engaged in business classified under section 42-5075
or to a subcontractor working under the control of a person engaged in business
classified under section 42-5075, if the property so sold is any of the
following:
(i) Incorporated or fabricated by the person into
any real property, structure, project, development or improvement as part of
the business.
(ii) Incorporated or fabricated by the person into
any project described in section 42-5075, subsection P.
(iii) Used in environmental response or remediation
activities under section 42-5075, subsection B, paragraph 6.
(b) A person that is not subject to tax under
section 42-5075 and that has been provided a copy of a certificate under
section 42-5009, subsection L, if the property so sold is incorporated or
fabricated by the person into the real property, structure, project,
development or improvement described in the certificate.
28. The sale of a motor vehicle to a nonresident of
this state if the purchaser's state of residence does not allow a corresponding
use tax exemption to the tax imposed by article 1 of this chapter and if the
nonresident has secured a special ninety day nonresident registration permit
for the vehicle as prescribed by sections 28-2154 and 28-2154.01.
29. Tangible personal property purchased in this
state by a nonprofit charitable organization 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 persons with mental or physical
disabilities if the programs are exclusively for training, job placement,
rehabilitation or testing.
30. Sales of tangible personal property by a
nonprofit organization that is exempt from taxation under section 501(c)(3),
501(c)(4) or 501(c)(6) of the internal revenue code if the organization is
associated with a major league baseball team or a national touring professional
golfing association and no part of the organization's net earnings inures to
the benefit of any private shareholder or individual. This paragraph
does not apply to an organization that is owned, managed or controlled, in
whole or in part, by a major league baseball team, or its owners, officers,
employees or agents, or by a major league baseball association or professional
golfing association, or its owners, officers, employees or agents, unless the
organization conducted or operated exhibition events in this state before
January 1, 2018 that were exempt from taxation under section 42-5073.
31. Sales of commodities, as defined by title 7
United States Code section 2, that are consigned for resale in a warehouse in
this state in or from which the commodity is deliverable on a contract for
future delivery subject to the rules of a commodity market regulated by the
United States commodity futures trading commission.
32. Sales of tangible personal property by a
nonprofit organization that is exempt from taxation under section 501(c)(3),
501(c)(4), 501(c)(6), 501(c)(7) or 501(c)(8) of the internal revenue code if
the organization sponsors or operates a rodeo featuring primarily farm and
ranch animals and no part of the organization's net earnings inures to the
benefit of any private shareholder or individual.
33. Sales of propagative materials to persons who
use those items to commercially produce agricultural, horticultural,
viticultural or floricultural crops in this state. For the purposes of this
paragraph, "propagative materials":
(a) Includes seeds, seedlings, roots, bulbs, liners,
transplants, cuttings, soil and plant additives, agricultural minerals,
auxiliary soil and plant substances, micronutrients, fertilizers, insecticides,
herbicides, fungicides, soil fumigants, desiccants, rodenticides, adjuvants,
plant nutrients and plant growth regulators.
(b) Except for use in commercially producing
industrial hemp as defined in section 3-311, does not include any
propagative materials used in producing any part, including seeds, of any plant
of the genus cannabis.
34. Machinery, equipment, technology or related
supplies that are only useful to assist a person with a physical disability as
defined in section 46-191 or a person who has a developmental disability
as defined in section 36-551 or has a head injury as defined in section
41-3201 to be more independent and functional.
35. Sales of natural gas or liquefied petroleum gas
used to propel a motor vehicle.
36. Paper machine clothing, such as forming fabrics
and dryer felts, sold to a paper manufacturer and directly used or consumed in
paper manufacturing.
37. Coal, petroleum, coke, natural gas, virgin fuel
oil and electricity sold to a qualified environmental technology manufacturer,
producer or processor as defined in section 41-1514.02 and directly used
or consumed in generating or providing on-site power or energy solely for
environmental technology manufacturing, producing or processing or
environmental protection. This paragraph applies for twenty full
consecutive calendar or fiscal years from the date the first paper
manufacturing machine is placed in service. In the case of an
environmental technology manufacturer, producer or processor that does not
manufacture paper, the time period begins with the date the first
manufacturing, processing or production equipment is placed in service.
38. Sales of liquid, solid or gaseous chemicals used
in manufacturing, processing, fabricating, mining, refining, metallurgical
operations, research and development and, beginning on January 1, 1999,
printing, if using or consuming the chemicals, alone or as part of an
integrated system of chemicals, involves direct contact with the materials from
which the product is produced for the purpose of causing or allowing a chemical
or physical change to occur in the materials as part of the production
process. This paragraph does not include chemicals that are used or
consumed in activities such as packaging, storage or transportation but does
not affect any deduction for such chemicals that is otherwise provided by this
section. For the purposes of this paragraph, "printing"
means a commercial printing operation and includes job printing, engraving,
embossing, copying and bookbinding.
39. Through December 31, 1994, personal property
liquidation transactions, conducted by a personal property
liquidator. From and after December 31, 1994, personal property
liquidation transactions shall be taxable under this section provided that
nothing in this subsection shall be construed to authorize the taxation of
casual activities or transactions under this chapter. For the
purposes of this paragraph:
(a) "Personal property liquidation
transaction" means a sale of personal property made by a personal property
liquidator acting solely on behalf of the owner of the personal property sold
at the dwelling of the owner or on the death of any owner, on behalf of the
surviving spouse, if any, any devisee or heir or the personal representative of
the estate of the deceased, if one has been appointed.
(b) "Personal property liquidator" means a
person who is retained to conduct a sale in a personal property liquidation
transaction.
40. Sales of food, drink and condiment for
consumption within the premises of any prison, jail or other institution under
the jurisdiction of the state department of corrections, the department of
public safety, the department of juvenile corrections or a county sheriff.
41. A motor vehicle and any repair and replacement
parts and tangible personal property becoming a part of such motor vehicle sold
to a motor carrier that is subject to a fee prescribed in title 28, chapter 16,
article 4 and that is engaged in the business of leasing or renting such
property.
42. Sales of:
(a) Livestock and poultry to persons engaging in the
businesses of farming, ranching or producing livestock or poultry.
(b) Livestock and poultry feed, salts, vitamins and
other additives for livestock or poultry consumption that are sold to persons
for use or consumption by their own livestock or poultry, for use or
consumption in the businesses of farming, ranching and producing or feeding
livestock, poultry, or livestock or poultry products or for use or consumption
in noncommercial boarding of livestock. For the purposes of this
paragraph, "poultry" includes ratites.
43. Sales of implants used as growth promotants and
injectable medicines, not already exempt under paragraph 8 of this subsection,
for livestock or poultry owned by or in possession of persons that are engaged
in producing livestock, poultry, or livestock or poultry products or that are
engaged in feeding livestock or poultry commercially. For the
purposes of this paragraph, "poultry" includes ratites.
44. Sales of motor vehicles at auction to
nonresidents of this state for use outside this state if the vehicles are
shipped or delivered out of this state, regardless of where title to the motor
vehicles passes or its free on board point.
45. Tangible personal property sold to a person
engaged in business and subject to tax under the transient lodging
classification if the tangible personal property is a personal hygiene item or
articles used by human beings for food, drink or condiment, except alcoholic
beverages, that are furnished without additional charge to and intended to be
consumed by the transient during the transient's occupancy.
46. 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.
47. Sales of materials that are purchased by or for
publicly funded libraries, including school district libraries, charter school
libraries, community college libraries, state university libraries or federal,
state, county or municipal libraries, for use by the public as follows:
(a) Printed or photographic materials, beginning
August 7, 1985.
(b) Electronic or digital media materials, beginning
July 17, 1994.
48. Tangible personal property sold to a commercial
airline and consisting of food, beverages and condiments and accessories used
for serving the food and beverages, if those items are to be provided without
additional charge to passengers for consumption in flight. For the
purposes of this paragraph, "commercial airline" means a person
holding a federal certificate of public convenience and necessity or foreign
air carrier permit for air transportation to transport persons, property or
United States mail in intrastate, interstate or foreign commerce.
49. Sales of alternative fuel vehicles if the
vehicle was manufactured as a diesel fuel vehicle and converted to operate on
alternative fuel and equipment that is installed in a conventional diesel fuel
motor vehicle to convert the vehicle to operate on an alternative fuel, as
defined in section 1-215.
50. Sales of any spirituous, vinous or malt liquor
by a person that is licensed in this state as a wholesaler by the department of
liquor licenses and control pursuant to title 4, chapter 2, article 1.
51. Sales of tangible personal property to be
incorporated or installed as part of environmental response or remediation
activities under section 42-5075, subsection B, paragraph 6.
52. Sales of tangible personal property by a
nonprofit organization that is exempt from taxation under section 501(c)(6) of
the internal revenue code if the organization produces, organizes or promotes
cultural or civic related festivals or events and no part of the organization's
net earnings inures to the benefit of any private shareholder or individual.
53. Application services that are designed to assess
or test student learning or to promote curriculum design or enhancement
purchased by or for any school district, charter school, community college or
state university. For the purposes of this paragraph:
(a) "Application services" means software
applications provided remotely using hypertext transfer protocol or another
network protocol.
(b) "Curriculum design or enhancement"
means planning, implementing or reporting on courses of study, lessons,
assignments or other learning activities.
54. Sales of motor vehicle fuel and use fuel to a
qualified business under section 41-1516 for off-road use in harvesting,
processing or transporting qualifying forest products removed from qualifying
projects as defined in section 41-1516.
55. Sales of repair parts installed in equipment
used directly by a qualified business under section 41-1516 in
harvesting, processing or transporting qualifying forest products removed from
qualifying projects as defined in section 41-1516.
56. 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.
57. Orthodontic devices dispensed by a dental
professional who is licensed under title 32, chapter 11 to a patient as part of
the practice of dentistry.
58. Sales of tangible personal property incorporated
or fabricated into a project described in section 42-5075, subsection P,
that is located within the exterior boundaries of an Indian reservation for
which the owner, as defined in section 42-5075, of the project is an
Indian tribe or an affiliated Indian. For the purposes of this
paragraph:
(a) "Affiliated Indian" means an
individual Native American Indian who is duly registered on the tribal rolls of
the Indian tribe for whose benefit the Indian reservation was established.
(b) "Indian reservation" means all lands
that are within the limits of areas set aside by the United States for the
exclusive use and occupancy of an Indian tribe by treaty, law or executive
order and that are recognized as Indian reservations by the United States
department of the interior.
(c) "Indian tribe" means any organized
nation, tribe, band or community that is recognized as an Indian tribe by the
United States department of the interior and includes any entity formed under
the laws of the Indian tribe.
59. Sales of works of fine art, as defined in
section 44-1771, at an art auction or gallery in this state to
nonresidents of this state for use outside this state if the vendor ships or
delivers the work of fine art to a destination outside this state.
60. Sales of tangible personal property by a
marketplace seller that are facilitated by a marketplace facilitator in which
the marketplace facilitator has remitted or will remit the applicable tax to
the department pursuant to section 42-5014.
B. In addition to the deductions from the tax base
prescribed by subsection A of this section, the gross proceeds of sales or
gross income derived from sales of the following categories of tangible
personal property shall be deducted from the tax base:
1. Machinery, or equipment, used directly in
manufacturing, processing, fabricating, job printing, refining or metallurgical
operations. The terms "manufacturing", "processing",
"fabricating", "job printing", "refining" and
"metallurgical" as used in this paragraph refer to and include those
operations commonly understood within their ordinary meaning.
"Metallurgical operations" includes leaching, milling, precipitating,
smelting and refining.
2. Mining machinery, or equipment, used directly in
the process of extracting ores or minerals from the earth for commercial
purposes, including equipment required to prepare the materials for extraction
and handling, loading or transporting such extracted material to the surface.
"Mining" includes underground, surface and open pit operations for
extracting ores and minerals.
3. Tangible personal property sold to persons
engaged in business classified under the telecommunications classification,
including a person representing or working on behalf of such a person in a
manner described in section 42-5075, subsection P, and consisting of
central office switching equipment, switchboards, private branch exchange
equipment, microwave radio equipment and carrier equipment including optical
fiber, coaxial cable and other transmission media that are components of
carrier systems.
4. Machinery, equipment or transmission lines used
directly in producing or transmitting electrical power, but not including
distribution. Transformers and control equipment used at transmission
substation sites constitute equipment used in producing or transmitting
electrical power.
5. Machinery and equipment used directly for energy
storage for later electrical use. For the purposes of this paragraph:
(a) "Electric utility scale" means a
person that is engaged in a business activity described in section 42-5063,
subsection A or such person's equipment or wholesale electricity suppliers.
(b) "Energy storage" means commercially
available technology for electric utility scale that is capable of absorbing
energy, storing energy for a period of time and thereafter dispatching the
energy and that uses mechanical, chemical or thermal processes to store energy.
(c) "Machinery and equipment used
directly" means all machinery and equipment that are used for electric
energy storage from the point of receipt of such energy in order to facilitate
storage of the electric energy to the point where the electric energy is
released.
6. Neat animals, horses, asses, sheep, ratites,
swine or goats used or to be used as breeding or production stock, including
sales of breedings or ownership shares in such animals used for breeding or
production.
7. Pipes or valves four inches in diameter or larger
used to transport oil, natural gas, artificial gas, water, wastewater or coal
slurry, including compressor units, regulators, machinery and equipment,
fittings, seals and any other part that is used in operating the pipes or
valves.
8. Aircraft,
navigational and communication instruments and other accessories and related
equipment sold to:
(a) A person:
(i) Holding, or
exempted by federal law from obtaining, a federal certificate of public
convenience and necessity for use as, in conjunction with or becoming part of
an aircraft to be used to transport persons for hire in intrastate, interstate
or foreign commerce.
(ii) That is certificated or licensed under federal
aviation administration regulations (14 Code of Federal Regulations part 121 or
135) as a scheduled or unscheduled carrier of persons for hire for use as or in
conjunction with or becoming part of an aircraft to be used to transport
persons for hire in intrastate, interstate or foreign commerce.
(iii) Holding a foreign air carrier permit for air
transportation for use as or in conjunction with or becoming a part of aircraft
to be used to transport persons, property or United States mail in intrastate,
interstate or foreign commerce.
(iv) Operating an aircraft to transport persons in
any manner for compensation or hire, or for use in a fractional ownership
program that meets the requirements of federal aviation administration
regulations (14 Code of Federal Regulations part 91, subpart K), including
as an air carrier, a foreign air carrier or a commercial operator or under a
restricted category, within the meaning of 14 Code of Federal Regulations,
regardless of whether the operation or aircraft is regulated or certified under
part 91, 119, 121, 133, 135, 136 or 137, or another part of 14 Code of Federal
Regulations.
(v) That will lease or otherwise transfer
operational control, within the meaning of federal aviation administration
operations specification A008, or its successor, of the aircraft, instruments
or accessories to one or more persons described in item (i), (ii), (iii) or
(iv) of this subdivision, subject to section 42-5009, subsection Q.
(b) Any foreign government.
(c) Persons who are not residents of this state and
who will not use such property in this state other than in removing such
property from this state. This subdivision also applies to
corporations that are not incorporated in this state, regardless of maintaining
a place of business in this state, if the principal corporate office is located
outside this state and the property will not be used in this state other than
in removing the property from this state.
9. Machinery, tools, equipment and related supplies
used or consumed directly in repairing, remodeling or maintaining aircraft,
aircraft engines or aircraft component parts by or on behalf of a certificated
or licensed carrier of persons or property.
10. Railroad rolling stock, rails, ties and signal
control equipment used directly to transport persons or property.
11. Machinery or equipment used directly to drill
for oil or gas or used directly in the process of extracting oil or gas from
the earth for commercial purposes.
12. Buses or other urban mass transit vehicles that
are used directly to transport persons or property for hire or pursuant to a
governmentally adopted and controlled urban mass transportation program and
that are sold to bus companies holding a federal certificate of convenience and
necessity or operated by any city, town or other governmental entity or by any
person contracting with such governmental entity as part of a governmentally
adopted and controlled program to provide urban mass transportation.
13. Groundwater measuring devices required under
section 45-604.
14. Machinery and equipment consisting of
agricultural aircraft, tractors, off-highway vehicles, tractor-drawn
implements, self-powered implements, machinery and equipment necessary
for extracting milk, and machinery and equipment necessary for cooling milk and
livestock, and drip irrigation lines not already exempt under paragraph 7 of
this subsection and that are used for commercial production of agricultural,
horticultural, viticultural and floricultural crops and products in this
state. For the purposes of this paragraph:
(a) "Off-highway vehicles" means off-highway
vehicles as defined in section 28-1171 that are modified at the time of
sale to function as a tractor or to tow tractor-drawn implements and that
are not equipped with a modified exhaust system to increase horsepower or speed
or an engine that is more than one thousand cubic centimeters or that have a
maximum speed of fifty miles per hour or less.
(b) "Self-powered implements"
includes machinery and equipment that are electric-powered.
15. Machinery or equipment used in research and
development. For the purposes of this paragraph, "research and
development" means basic and applied research in the sciences and
engineering, and designing, developing or testing prototypes, processes or new
products, including research and development of computer software that is
embedded in or an integral part of the prototype or new product or that is
required for machinery or equipment otherwise exempt under this section to
function effectively. Research and development do not include
manufacturing quality control, routine consumer product testing, market
research, sales promotion, sales service, research in social sciences or
psychology, computer software research that is not included in the definition
of research and development, or other nontechnological activities or technical
services.
16. Tangible personal property that is used by
either of the following to receive, store, convert, produce, generate, decode,
encode, control or transmit telecommunications information:
(a) Any direct broadcast satellite television or
data transmission service that operates pursuant to 47 Code of Federal
Regulations part 25.
(b) Any satellite television or data transmission
facility, if both of the following conditions are met:
(i) Over two-thirds of the transmissions,
measured in megabytes, transmitted by the facility during the test period were
transmitted to or on behalf of one or more direct broadcast satellite
television or data transmission services that operate pursuant to 47 Code of
Federal Regulations part 25.
(ii) Over two-thirds of the transmissions,
measured in megabytes, transmitted by or on behalf of those direct broadcast
television or data transmission services during the test period were
transmitted by the facility to or on behalf of those services. For the
purposes of subdivision (b) of this paragraph, "test period" means
the three hundred sixty-five day period beginning on the later of the
date on which the tangible personal property is purchased or the date on which
the direct broadcast satellite television or data transmission service first
transmits information to its customers.
17. Clean rooms that are used for manufacturing,
processing, fabrication or research and development, as defined in paragraph 15
of this subsection, of semiconductor products. For the purposes of
this paragraph, "clean room" means all property that comprises or
creates an environment where humidity, temperature, particulate matter and
contamination are precisely controlled within specified parameters, without
regard to whether the property is actually contained within that environment or
whether any of the property is affixed to or incorporated into real property.
Clean room:
(a) Includes the integrated systems, fixtures,
piping, movable partitions, lighting and all property that is necessary or
adapted to reduce contamination or to control airflow, temperature, humidity,
chemical purity or other environmental conditions or manufacturing tolerances,
as well as the production machinery and equipment operating in conjunction with
the clean room environment.
(b) Does not include the building or other
permanent, nonremovable component of the building that houses the clean room
environment.
18. Machinery and equipment used directly in feeding
poultry, environmentally controlling housing for poultry, moving eggs within a
production and packaging facility or sorting or cooling eggs. This
exemption does not apply to vehicles used for transporting eggs.
19. Machinery or equipment, including related
structural components and containment structures, that is employed in
connection with manufacturing, processing, fabricating, job printing, refining,
mining, natural gas pipelines, metallurgical operations, telecommunications,
producing or transmitting electricity or research and development and that is
used directly to meet or exceed rules or regulations adopted by the federal
energy regulatory commission, the United States environmental protection
agency, the United States nuclear regulatory commission, the Arizona department
of environmental quality or a political subdivision of this state to prevent,
monitor, control or reduce land, water or air pollution. For the
purposes of this paragraph, "containment structure" means a structure
that prevents, monitors, controls or reduces noxious or harmful discharge into
the environment.
20. Machinery and equipment that are sold to a
person engaged in commercially producing livestock, livestock products or
agricultural, horticultural, viticultural or floricultural crops or products in
this state, including a person representing or working on behalf of such a
person in a manner described in section 42-5075, subsection P, if the
machinery and equipment are used directly and primarily to prevent, monitor,
control or reduce air, water or land pollution.
21. Machinery or equipment that enables a television
station to originate and broadcast or to receive and broadcast digital
television signals and that was purchased to facilitate compliance with the
telecommunications act of 1996 (P.L. 104-104; 110 Stat. 56; 47 United
States Code section 336) and the federal communications commission order issued
April 21, 1997 (47 Code of Federal Regulations part 73). This
paragraph does not exempt any of the following:
(a) Repair or replacement parts purchased for the
machinery or equipment described in this paragraph.
(b) Machinery or equipment purchased to replace
machinery or equipment for which an exemption was previously claimed and taken
under this paragraph.
(c) Any machinery or equipment purchased after the
television station has ceased analog broadcasting, or purchased after November
1, 2009, whichever occurs first.
22. Qualifying equipment that is purchased from and
after June 30, 2004 through December 31, 2028 by a qualified business
under section 41-1516 for harvesting or processing qualifying forest
products removed from qualifying projects as defined in section 41-1516. To
qualify for this deduction, the qualified business at the time of purchase must
present its certification approved by the department.
23. Computer data center equipment sold to the
owner, operator or qualified colocation tenant of a computer data center that
is certified by the Arizona commerce authority under section 41-1519 or
an authorized agent of the owner, operator or qualified colocation tenant
during the qualification period for use in the qualified computer data
center. For the purposes of this paragraph, "computer data
center", "computer data center equipment", "qualification
period" and "qualified colocation tenant" have the same meanings
prescribed in section 41-1519.
24. Through
December 31, 2031, machinery and equipment used directly for energy storage for
later electrical use by a residential, industrial or commercial facility.� For
the purposes of this paragraph:
(a) "Energy storage" means a system for
residential, commercial or industrial facilities that is manufactured in this
state and that uses mechanical, chemical or thermal processes or other
commercially available technology to store energy for later use.
(b) "Machinery and equipment used directly" means
all machinery and equipment that are used for electric energy storage from the
point of receipt of such energy in order to facilitate storage of the electric
energy to the point where the electric energy is released.
C. The deductions
provided by subsection B of this section do not include sales of:
1. Expendable
materials. For the purposes of this paragraph, expendable materials
do not include any of the categories of tangible personal property specified in
subsection B of this section regardless of the cost or useful life of that
property.
2. Janitorial equipment and hand tools.
3. Office equipment, furniture and supplies.
4. Tangible personal property used in selling or
distributing activities, other than the telecommunications transmissions
described in subsection B, paragraph 16 of this section.
5. Motor vehicles required to be licensed by this
state, except buses or other urban mass transit vehicles specifically exempted
pursuant to subsection B, paragraph 12 of this section, without regard to the
use of such motor vehicles.
6. Shops, buildings, docks, depots and all other
materials of whatever kind or character not specifically included as exempt.
7. Motors and pumps used in drip irrigation systems.
8. Machinery and equipment or other tangible
personal property used by a contractor in performing a contract.
D. In addition to the deductions from the tax base prescribed
by subsection A of this section, there shall be deducted from the tax base the
gross proceeds of sales or gross income derived from sales of machinery,
equipment, materials and other tangible personal property used directly and
predominantly to construct a qualified environmental technology manufacturing,
producing or processing facility as described in section 41-1514.02. This
subsection applies for ten full consecutive calendar or fiscal years after the
start of initial construction.
E. In computing the tax base, gross proceeds of
sales or gross income from retail sales of heavy trucks and trailers does not
include any amount attributable to federal excise taxes imposed by 26 United
States Code section 4051.
F. If a person is engaged in an occupation or
business to which subsection A of this section applies, the person's books
shall be kept so as to show separately the gross proceeds of sales of tangible
personal property and the gross income from sales of services, and if not so
kept the tax shall be imposed on the total of the person's gross proceeds of
sales of tangible personal property and gross income from services.
G. If a person is engaged in the business of selling
tangible personal property at both wholesale and retail, the tax under this
section applies only to the gross proceeds of the sales made other than at
wholesale if the person's books are kept so as to show separately the gross
proceeds of sales of each class, and if the books are not so kept, the tax
under this section applies to the gross proceeds of every sale so made.
H. A person who engages in manufacturing, baling,
crating, boxing, barreling, canning, bottling, sacking, preserving, processing
or otherwise preparing for sale or commercial use any livestock, agricultural
or horticultural product or any other product, article, substance or commodity
and who sells the product of such business at retail in this state is deemed,
as to such sales, to be engaged in business classified under the retail
classification. This subsection does not apply to:
1. Agricultural producers who are owners,
proprietors or tenants of agricultural lands, orchards, farms or gardens where
agricultural products are grown, raised or prepared for market and who are
marketing their own agricultural products.
2. Businesses classified under the:
(a) Transporting classification.
(b) Utilities classification.
(c) Telecommunications classification.
(d) Pipeline classification.
(e) Private car line classification.
(f) Publication classification.
(g) Job printing classification.
(h) Prime contracting classification.
(i) Restaurant classification.
I. The gross proceeds of sales or gross income
derived from the following shall be deducted from the tax base for the retail
classification:
1. Sales made directly to the United States
government or its departments or agencies by a manufacturer, modifier,
assembler or repairer.
2. Sales made directly to a manufacturer, modifier,
assembler or repairer if such sales are of any ingredient or component part of
products sold directly to the United States government or its departments or
agencies by the manufacturer, modifier, assembler or repairer.
3. Overhead materials or other tangible personal
property that is used in performing a contract between the United States
government and a manufacturer, modifier, assembler or repairer, including
property used in performing a subcontract with a government contractor who is a
manufacturer, modifier, assembler or repairer, to which title passes to the
government under the terms of the contract or subcontract.
4. Sales of overhead materials or other tangible
personal property to a manufacturer, modifier, assembler or repairer if the
gross proceeds of sales or gross income derived from the property by the
manufacturer, modifier, assembler or repairer will be exempt under paragraph 3
of this subsection.
J. There shall be deducted from the tax base fifty
percent of the gross proceeds or gross income from any sale of tangible
personal property made directly to the United States government or its
departments or agencies that is not deducted under subsection I of this
section.
K. The department shall require every person
claiming a deduction provided by subsection I or J of this section to file on
forms prescribed by the department at such times as the department directs a
sworn statement disclosing the name of the purchaser and the exact amount of
sales on which the exclusion or deduction is claimed.
L. In computing the tax base, gross proceeds of
sales or gross income does not include:
1. A manufacturer's cash rebate on the sales price
of a motor vehicle if the buyer assigns the buyer's right in the rebate to the
retailer.
2. The waste tire disposal fee imposed pursuant to
section 44-1302.
M. There shall be deducted from the tax base the
amount received from sales of solar energy devices. The retailer
shall register with the department as a solar energy retailer. By
registering, the retailer acknowledges that it will make its books and records
relating to sales of solar energy devices available to the department for
examination.
N. In computing the tax base in the case of the sale
or transfer of wireless telecommunications equipment as an inducement to a
customer to enter into or continue a contract for telecommunications services
that are taxable under section 42-5064, gross proceeds of sales or gross
income does not include any sales commissions or other compensation received by
the retailer as a result of the customer entering into or continuing a contract
for the telecommunications services.
O. For the purposes of this section, a sale of
wireless telecommunications equipment to a person who holds the equipment for
sale or transfer to a customer as an inducement to enter into or continue a
contract for telecommunications services that are taxable under section 42-5064
is considered to be a sale for resale in the regular course of business.
P. Retail sales of prepaid calling cards or prepaid
authorization numbers for telecommunications services, including sales of
reauthorization of a prepaid card or authorization number, are subject to tax
under this section.
Q. For the purposes of this section, the diversion
of gas from a pipeline by a person engaged in the business of:
1. Operating a natural or artificial gas pipeline,
for the sole purpose of fueling compressor equipment to pressurize the
pipeline, is not a sale of the gas to the operator of the pipeline.
2. Converting natural gas into liquefied natural
gas, for the sole purpose of fueling compressor equipment used in the
conversion process, is not a sale of gas to the operator of the compressor
equipment.
R. For the purposes of this section, the transfer of
title or possession of coal from an owner or operator of a power plant to a
person in the business of refining coal is not a sale of coal if both of the
following apply:
1. The transfer of title or possession of the coal
is for the purpose of refining the coal.
2. The title or possession of the coal is
transferred back to the owner or operator of the power plant after completion
of the coal refining process. For the purposes of this paragraph,
"coal refining process" means the application of a coal additive
system that aids in the reduction of power plant emissions during the
combustion of coal and the treatment of flue gas.
S. If a seller is entitled to a deduction pursuant
to subsection B, paragraph 16, subdivision (b) of this section, the
department may require the purchaser to establish that the requirements of
subsection B, paragraph 16, subdivision (b) of this section have been
satisfied. If the purchaser cannot establish that the requirements
of subsection B, paragraph 16, subdivision (b) of this section have been
satisfied, the purchaser is liable in an amount equal to any tax, penalty and
interest that the seller would have been required to pay under article 1 of
this chapter if the seller had not made a deduction pursuant to subsection B,
paragraph 16, subdivision (b) of this section. Payment of the amount
under this subsection exempts the purchaser from liability for any tax imposed
under article 4 of this chapter and related to the tangible personal property
purchased. The amount shall be treated as transaction privilege tax
to the purchaser and as tax revenues collected from the seller to designate the
distribution base pursuant to section 42-5029.
T. For the purposes of section 42-5032.01, the
department shall separately account for revenues collected under the retail
classification from businesses selling tangible personal property at retail:
1. On the premises of a multipurpose facility that
is owned, leased or operated by the tourism and sports authority pursuant to
title 5, chapter 8.
2. At professional football contests that are held
in a stadium located on the campus of an institution under the jurisdiction of
the Arizona board of regents.
U. For the purposes of section 42-5032.03 and
subject to section 48-4238, beginning October 1, 2025 and each month
thereafter through December 31, 2055, the department shall separately account
for revenues collected under the retail classification from each business
selling tangible personal property at retail on the premises of a major league
baseball facility or an adjacent building that is owned by a county stadium
district pursuant to title 48, chapter 26 and operated by the county stadium
district or the professional baseball franchise organization that occupies the
major league baseball facility or adjacent
building. For the purposes of this subsection, "adjacent
building" and "major league baseball facility" have the same
meanings prescribed in section 48-4201.
V. In computing the tax base for the sale of a motor
vehicle to a nonresident of this state, if the purchaser's state of residence
allows a corresponding use tax exemption to the tax imposed by article 1 of
this chapter and the rate of the tax in the purchaser's state of residence is
lower than the rate prescribed in article 1 of this chapter or if the
purchaser's state of residence does not impose an excise tax, and the
nonresident has secured a special ninety day nonresident registration permit
for the vehicle as prescribed by sections 28-2154 and 28-2154.01,
there shall be deducted from the tax base a portion of the gross proceeds or
gross income from the sale so that the amount of transaction privilege tax that
is paid in this state is equal to the excise tax that is imposed by the
purchaser's state of residence on the nonexempt sale or use of the motor
vehicle.
W. For the purposes of this section:
1. "Agricultural aircraft" means an
aircraft that is built for agricultural use for the aerial application of
pesticides or fertilizer or for aerial seeding.
2. "Aircraft" includes:
(a) An airplane flight simulator that is approved by
the federal aviation administration for use as a phase II or higher flight
simulator under appendix H, 14 Code of Federal Regulations part 121.
(b) Tangible personal property that is permanently
affixed or attached as a component part of an aircraft that is owned or
operated by a certificated or licensed carrier of persons or property.
3. "Other accessories and related
equipment" includes aircraft accessories and equipment such as ground
service equipment that physically contact aircraft at some point during the
overall carrier operation.
4. "Selling at retail" means a sale for
any purpose other than for resale in the regular course of business in the form
of tangible personal property, but transfer of possession, lease and rental as
used in the definition of sale mean only such transactions as are found on
investigation to be in lieu of sales as defined without the words lease or
rental.
X. For the purposes of subsection I of this section:
1. "Assembler" means a person who unites
or combines products, wares or articles of manufacture so as to produce a
change in form or substance without changing or altering the component parts.
2. "Manufacturer" means a person who is
principally engaged in fabricating, producing or manufacturing products, wares
or articles for use from raw or prepared materials, imparting to those
materials new forms, qualities, properties and combinations.
3. "Modifier" means a person who reworks,
changes or adds to products, wares or articles of manufacture.
4. "Overhead materials" means tangible
personal property, the gross proceeds of sales or gross income derived from
that would otherwise be included in the retail classification, and that are
used or consumed in performing a contract, the cost of which is charged to an
overhead expense account and allocated to various contracts based on generally
accepted accounting principles and consistent with government contract
accounting standards.
5. "Repairer" means a person who restores
or renews products, wares or articles of manufacture.
6. "Subcontract" means an agreement
between a contractor and any person who is not an employee of the contractor
for furnishing supplies or services that, in whole or in part, are necessary to
perform one or more government contracts, or under which any portion of the
contractor's obligation under one or more government contracts is performed,
undertaken or assumed and that includes provisions causing title to overhead
materials or other tangible personal property used in performing the
subcontract to pass to the government or that includes provisions incorporating
such title passing clauses in a government contract into the subcontract. END_STATUTE
Sec. 2. Section 42-5159, Arizona Revised
Statutes, as amended by Laws 2025, chapter 135, section 2 and chapter 247,
section 2, is amended to read:
START_STATUTE42-5159. Exemptions
A. The
tax levied by this article does not apply to the storage, use or consumption in
this state of the following described tangible personal property:
1. Tangible
personal property, sold in this state, the gross receipts from the sale of
which are included in the measure of the tax imposed by articles 1 and 2 of
this chapter.
2. Tangible personal
property, the sale or use of which has already been subjected to an excise tax
at a rate equal to or exceeding the tax imposed by this article under the laws
of another state of the United States. If the excise tax imposed by
the other state is at a rate less than the tax imposed by this article, the tax
imposed by this article is reduced by the amount of the tax already imposed by
the other state.
3. Tangible
personal property, the storage, use or consumption of which the constitution or
laws of the United States prohibit this state from taxing or to the extent that
the rate or imposition of tax is unconstitutional under the laws of the United
States.
4. Tangible personal property that directly enters
into and becomes an ingredient or component part of any manufactured,
fabricated or processed article, substance or commodity for sale in the regular
course of business.
5. Motor
vehicle fuel and use fuel, the sales, distribution or use of which in this
state is subject to the tax imposed under title 28, chapter 16, article 1, use
fuel that is sold to or used by a person holding a valid single trip use fuel
tax permit issued under section 28-5739, aviation fuel, the sales,
distribution or use of which in this state is subject to the tax imposed under
section 28-8344, and jet fuel, the sales, distribution or use of which in
this state is subject to the tax imposed under article 8 of this chapter.
6. Tangible
personal property brought into this state by an individual who was a
nonresident at the time the property was purchased for storage, use or
consumption by the individual if the first actual use or consumption of the
property was outside this state, unless the property is used in conducting a
business in this state.
7. Purchases
of implants used as growth promotants and injectable medicines, not already
exempt under paragraph 16 of this subsection, for livestock and poultry owned
by, or in possession of, persons who are engaged in producing livestock, poultry,
or livestock or poultry products, or who are engaged in feeding livestock or
poultry commercially. For the purposes of this paragraph,
"poultry" includes ratites.
8. Purchases of:
(a) Livestock and poultry to persons engaging in the
businesses of farming, ranching or producing livestock or poultry.
(b) Livestock
and poultry feed, salts, vitamins and other additives sold to persons for use
or consumption in the businesses of farming, ranching and producing or feeding
livestock or poultry or for use or consumption in noncommercial boarding of
livestock. For the purposes of this paragraph, "poultry"
includes ratites.
9. Propagative materials
for use in commercially producing agricultural, horticultural, viticultural or
floricultural crops in this state. For the purposes of this
paragraph, "propagative materials":
(a) Includes seeds,
seedlings, roots, bulbs, liners, transplants, cuttings, soil and plant
additives, agricultural minerals, auxiliary soil and plant substances,
micronutrients, fertilizers, insecticides, herbicides, fungicides, soil
fumigants, desiccants, rodenticides, adjuvants, plant nutrients and plant
growth regulators.
(b) Except for use in
commercially producing industrial hemp as defined in section 3-311, does
not include any propagative materials used in producing any part, including
seeds, of any plant of the genus cannabis.
10. Tangible personal property not exceeding $200 in
any one month purchased by an individual at retail outside the continental
limits of the United States for the individual's own
personal use and enjoyment.
11. Advertising
supplements that are intended for sale with newspapers published in this state
and that have already been subjected to an excise tax under the laws of another
state in the United States that equals or exceeds the tax imposed by this
article.
12. Materials that are purchased by or for
publicly funded libraries, including school
district libraries, charter school libraries, community college libraries,
state university libraries or federal, state, county or municipal libraries, for use by the public as follows:
(a) Printed
or photographic materials, beginning August 7, 1985.
(b) Electronic
or digital media materials, beginning July 17, 1994.
13. Tangible
personal property purchased by:
(a) A
hospital organized and operated exclusively for charitable purposes, no part of
the net earnings of which inures to the benefit of any private shareholder or
individual.
(b) A
hospital operated by this state or a political subdivision of this state.
(c) A
licensed nursing care institution or a licensed residential care institution or
a residential care facility operated in conjunction with a licensed nursing
care institution or a licensed kidney dialysis center, which provides medical
services, nursing services or health related services and is not used or held
for profit.
(d) 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.
(e) A
qualifying health care organization as defined in section 42-5001 if the
organization is dedicated to providing 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.
(f) A
nonprofit charitable organization 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 persons with mental or physical
disabilities if the programs are exclusively for training, job placement,
rehabilitation, or testing.
(g) A
person that is subject to tax under this chapter by reason of being engaged in
business classified under section 42-5075, or a subcontractor working
under the control of a person that is engaged in business classified under
section 42-5075, if the tangible personal property is any of the
following:
(i) Incorporated
or fabricated by the person into a structure, project, development or
improvement in fulfillment of a contract.
(ii) Incorporated
or fabricated by the person into any project described in section 42-5075,
subsection O  P.
(iii) Used
in environmental response or remediation activities under section 42-5075,
subsection B, paragraph 6.
(h) A
person that is not subject to tax under section 42-5075 and that has been
provided a copy of a certificate described in section 42-5009, subsection
L, if the property purchased is incorporated or fabricated by the person into
the real property, structure, project, development or improvement described in
the certificate.
(i) A
nonprofit charitable organization that has qualified under section 501(c)(3) of
the internal revenue code if the property is purchased from the parent or an
affiliate organization that is located outside this state.
(j) A
qualifying community health center as defined in section 42-5001.
(k) A
nonprofit charitable organization that has qualified under section 501(c)(3) of
the internal revenue code and that regularly serves meals to the needy and
indigent on a continuing basis at no cost.
(l) A
person engaged in business under the transient lodging classification if the
property is a personal hygiene item or articles used by human beings for food,
drink or condiment, except alcoholic beverages, which are furnished without
additional charge to and intended to be consumed by the transient during the
transient's occupancy.
(m) For
taxable periods beginning from and after June 30, 2001, a nonprofit charitable
organization that has qualified under section 501(c)(3) of the internal revenue
code and that provides residential apartment housing for low-income persons over sixty-two years of age in a facility
that qualifies for a federal housing subsidy, if the tangible personal property
is used by the organization solely to provide residential apartment housing for
low-income persons over sixty-two years
of age in a facility that qualifies for a federal housing subsidy.
(n) A
qualifying health sciences educational institution as defined in section 42-5001.
(o) A
person representing or working on behalf of any person described in subdivision
(a), (b), (c), (d), (e), (f), (i), (j), (k), (m) or (n) of this paragraph, if
the tangible personal property is incorporated or fabricated into a project described
in section 42-5075, subsection O  P.
14. Commodities,
as defined by title 7 United States Code section 2, that are consigned for
resale in a warehouse in this state in or from which the commodity is
deliverable on a contract for future delivery subject to the rules of a commodity
market regulated by the United States commodity futures trading commission.
15. Tangible
personal property sold by:
(a) Any nonprofit organization organized and
operated exclusively for charitable purposes and recognized by the United
States internal revenue service under section 501(c)(3) of the internal revenue
code.
(b) A
nonprofit organization that is exempt from taxation under section 501(c)(3),
501(c)(4) or 501(c)(6) of the internal revenue code if the organization is
associated with a major league baseball team or a national touring professional
golfing association and no part of the organization's net earnings inures to
the benefit of any private shareholder or individual. This
subdivision does not apply to an organization that is owned, managed or
controlled, in whole or in part, by a major league baseball team, or its
owners, officers, employees or agents, or by a major league baseball
association or professional golfing association, or its owners, officers,
employees or agents, unless the organization conducted or operated exhibition
events in this state before January 1, 2018 that were exempt from transaction
privilege tax under section 42-5073.
(c) A
nonprofit organization that is exempt from taxation under section 501(c)(3),
501(c)(4), 501(c)(6), 501(c)(7) or 501(c)(8) of the internal revenue code if
the organization sponsors or operates a rodeo featuring primarily farm and
ranch animals and no part of the organization's net earnings inures to the
benefit of any private shareholder or individual.
16. Drugs
and medical oxygen, including delivery hose, mask or tent, regulator and tank, if
prescribed by a member of the medical, dental or
veterinarian profession who is licensed by law to administer such substances.
17. Prosthetic
appliances, as defined in section 23-501, prescribed or recommended by a
person who is licensed, registered or otherwise professionally credentialed as
a physician, dentist, podiatrist, chiropractor, naturopath, homeopath, nurse or
optometrist.
18. Prescription
eyeglasses and contact lenses.
19. Insulin,
insulin syringes and glucose test strips.
20. Hearing
aids as defined in section 36-1901.
21. Durable
medical equipment that has a centers for medicare and medicaid services common
procedure code, is designated reimbursable by medicare, is prescribed by a
person who is licensed under title 32, chapter 7, 13, 17 or 29, can withstand
repeated use, is primarily and customarily used to serve a medical purpose, is
generally not useful to a person in the absence of illness or injury and is
appropriate for use in the home.
22. Food,
as provided in and subject to the conditions of article 3 of this chapter
and sections 42-5074 and 42-6017.
23. Items
purchased with United States department of agriculture coupons issued under the
supplemental nutrition assistance program pursuant to the food and nutrition
act of 2008 (P.L. 88-525; 78 Stat. 703;
7 United States Code sections 2011 through 2036b) by the United States
department of agriculture food and nutrition service or food instruments issued
under section 17 of the child nutrition act (P.L. 95-627; 92 Stat.
3603; P.L. 99-661, section 4302; P.L. 111-296; 42 United
States Code section 1786).
24. Food
and drink provided without monetary charge by a taxpayer that is subject to
section 42-5074 to its employees for their own consumption on the
premises during the employees' hours of employment.
25. Tangible
personal property that is used or consumed in a business subject to section 42-5074
for human food, drink or condiment, whether simple, mixed or compounded.
26. Food,
drink or condiment and accessory tangible personal property that are acquired
for use by or provided to a school district or charter school if they are to be
either served or prepared and served to persons for consumption on the premises
of a public school in the school district or on the premises of the charter
school during school hours.
27. Lottery
tickets or shares purchased pursuant to title 5, chapter 5.1, article 1.
28. Textbooks,
sold by a bookstore, that are required by any state university or community
college.
29. Magazines,
other periodicals or other publications produced by this state to encourage
tourist travel.
30. Paper
machine clothing, such as forming fabrics and dryer felts, purchased by a paper
manufacturer and directly used or consumed in paper manufacturing.
31. Coal,
petroleum, coke, natural gas, virgin fuel oil and electricity purchased by a
qualified environmental technology manufacturer, producer or processor as
defined in section 41-1514.02 and directly used or consumed in generating or providing on-site
power or energy solely for environmental technology manufacturing, producing or
processing or environmental protection. This paragraph applies for twenty full consecutive calendar or fiscal years from
the date the first paper manufacturing machine is placed in
service. In the case of an environmental technology manufacturer,
producer or processor that does not
manufacture paper, the time period begins with
the date the first manufacturing, processing or production equipment is placed
in service.
32. Motor
vehicles that are removed from inventory by a motor vehicle dealer as defined
in section 28-4301 and that are provided to:
(a) Charitable
or educational institutions that are exempt from taxation under section
501(c)(3) of the internal revenue code.
(b) Public
educational institutions.
(c) State
universities or affiliated organizations of a state university if no part of
the organization's net earnings inures to the benefit of any private
shareholder or individual.
33. Natural
gas or liquefied petroleum gas used to propel a motor vehicle.
34. Machinery,
equipment, technology or related supplies that are only useful to assist a
person with a physical disability as defined in section 46-191 or a
person who has a developmental disability as defined in section 36-551 or
has a head injury as defined in section 41-3201 to be more independent
and functional.
35. Liquid, solid or
gaseous chemicals used in manufacturing, processing, fabricating, mining,
refining, metallurgical operations, research and development and, beginning on
January 1, 1999, printing, if using or consuming the chemicals, alone or as
part of an integrated system of chemicals, involves direct contact with the
materials from which the product is produced for the purpose of causing or
allowing a chemical or physical change to occur in the materials as part of the
production process. This paragraph does not include chemicals that
are used or consumed in activities such as packaging, storage or transportation
but does not affect any exemption for such chemicals that is otherwise provided
by this section. For the purposes of this paragraph,
"printing" means a commercial printing operation and includes job
printing, engraving, embossing, copying and bookbinding.
36. Food, drink and condiment purchased for
consumption within the premises of any prison, jail or other institution under
the jurisdiction of the state department of corrections, the department of
public safety, the department of juvenile corrections or a county sheriff.
37. A
motor vehicle and any repair and replacement parts and tangible personal
property becoming a part of such motor vehicle sold to a motor carrier that is subject to a fee prescribed in title 28, chapter 16,
article 4 and that is engaged in the business
of leasing or renting such a property.
38. Tangible
personal property that is or directly enters into and becomes an ingredient or
component part of cards used as prescription plan identification cards.
39. Overhead
materials or other tangible personal property that is used in performing a
contract between the United States government and a manufacturer, modifier,
assembler or repairer, including property used in performing a subcontract with
a government contractor who is a manufacturer, modifier, assembler or repairer,
to which title passes to the government under the terms of the contract or
subcontract. For the purposes of this paragraph:
(a) "Overhead materials" means tangible
personal property, the gross proceeds of sales or gross income derived from
which would otherwise be included in the retail classification, that is used or
consumed in performing a contract, the cost of which is charged to an overhead
expense account and allocated to various contracts based on generally accepted
accounting principles and consistent with government contract accounting
standards.
(b) "Subcontract"
means an agreement between a contractor and any person who is not an employee
of the contractor for furnishing of supplies or services that, in whole or in
part, are necessary to perform one or more
government contracts, or under which any portion of the contractor's obligation
under one or more government contracts is performed, undertaken or assumed, and
that includes provisions causing title to overhead materials or other tangible
personal property used in performing the
subcontract to pass to the government or that includes provisions incorporating
such title passing clauses in a government contract into the subcontract.
40. Through
December 31, 1994, tangible personal property sold pursuant to a personal
property liquidation transaction, as defined in section 42-5061. From
and after December 31, 1994, tangible personal property sold pursuant to a
personal property liquidation transaction, as defined in section 42-5061,
if the gross proceeds of the sales were included in the measure of the tax
imposed by article 1 of this chapter or if the personal property liquidation
was a casual activity or transaction.
41. Wireless telecommunications equipment that is
held for sale or transfer to a customer as an inducement to enter into or
continue a contract for telecommunications services that are taxable under
section 42-5064.
42. Alternative
fuel, as defined in section 1-215, purchased by 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.
43. Tangible
personal property purchased by a commercial airline and consisting of food,
beverages and condiments and accessories used for serving the food and
beverages, if those items are to be provided without additional charge to
passengers for consumption in flight. For the purposes of this
paragraph, "commercial airline" means a person holding a federal
certificate of public convenience and necessity or foreign air carrier permit
for air transportation to transport persons, property or United States mail in
intrastate, interstate or foreign commerce.
44. Alternative
fuel vehicles if the vehicle was manufactured as a diesel fuel vehicle and
converted to operate on alternative fuel and equipment that is installed in a
conventional diesel fuel motor vehicle to convert the vehicle to operate on an
alternative fuel, as defined in section 1-215.
45. Gas
diverted from a pipeline, by a person engaged in the business of:
(a) Operating a natural or artificial gas pipeline,
and used or consumed for the sole purpose of fueling compressor equipment that
pressurizes the pipeline.
(b) Converting natural gas into liquefied natural
gas, and used or consumed for the sole purpose of fueling compressor equipment
used in the conversion process.
46. Tangible
personal property that is excluded, exempt or deductible from transaction
privilege tax pursuant to section 42-5063.
47. Tangible
personal property purchased to be incorporated or installed as part of
environmental response or remediation activities under section 42-5075,
subsection B, paragraph 6.
48. Tangible
personal property sold by a nonprofit organization that is exempt from taxation
under section 501(c)(6) of the internal revenue code if the organization
produces, organizes or promotes cultural or civic related festivals or events
and no part of the organization's net earnings inures to the benefit of any
private shareholder or individual.
49. Prepared
food, drink or condiment donated by a restaurant as classified in section 42-5074,
subsection A to a nonprofit charitable organization that has qualified under
section 501(c)(3) of the internal revenue code and that regularly serves meals
to the needy and indigent on a continuing basis at no cost.
50. Application services
that are designed to assess or test student learning or to promote curriculum
design or enhancement purchased by or for any school district, charter school,
community college or state university. For the purposes of this paragraph:
(a) "Application
services" means software applications provided remotely using hypertext
transfer protocol or another network protocol.
(b) "Curriculum
design or enhancement" means planning, implementing or reporting on
courses of study, lessons, assignments or other learning activities.
51. Motor
vehicle fuel and use fuel to a qualified business under section 41-1516
for off-road use in harvesting, processing or transporting qualifying forest
products removed from qualifying projects as defined in section 41-1516.
52. Repair
parts installed in equipment used directly by a qualified business under
section 41-1516 in harvesting, processing or transporting qualifying
forest products removed from qualifying projects as defined in section 41-1516.
53. 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 entity 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.
54. Coal
acquired from an owner or operator of a power plant by a person that is responsible for refining coal if both of the following
apply:
(a) The
transfer of title or possession of the coal is for the purpose of refining the
coal.
(b) The
title or possession of the coal is transferred back to the owner or operator of
the power plant after completion of the coal refining process. For
the purposes of this subdivision, "coal refining process" means the
application of a coal additive system that aids the reduction of power plant
emissions during the combustion of coal and the treatment of flue gas.
55. Tangible personal property incorporated or
fabricated into a project described in section 42-5075, subsection O  P that is located within the
exterior boundaries of an Indian reservation for which the owner, as defined in
section 42-5075, of the project is an Indian tribe or an affiliated
Indian. For the purposes of this paragraph:
(a) "Affiliated
Indian" means an individual Native American Indian who is duly registered
on the tribal rolls of the Indian tribe for whose benefit the Indian
reservation was established.
(b) "Indian
reservation" means all lands that are within the limits of areas set aside
by the United States for the exclusive use and occupancy of an Indian tribe by
treaty, law or executive order and that are recognized as Indian reservations
by the United States department of the interior.
(c) "Indian tribe" means any organized
nation, tribe, band or community that is recognized as an Indian tribe by the
United States department of the interior and includes any entity formed under
the laws of the Indian tribe.
56. Cash
equivalents, precious metal bullion and monetized bullion purchased by the
ultimate consumer, but coins or other forms of money for manufacture into
jewelry or works of art are subject to tax, and tangible personal property that
is purchased through the redemption of any cash equivalent by the holder as a
means of payment for goods that are subject to tax under this article is
subject to tax. For the purposes of this paragraph:
(a) "Cash
equivalents" means items, whether or not negotiable, that are sold to one
or more persons, through which a value denominated in money is purchased in
advance and that may be redeemed in full or in part for tangible personal
property, intangibles or services. Cash equivalents include gift
cards, stored value cards, gift certificates, vouchers, traveler's checks,
money orders or other tangible instruments or orders. Cash equivalents do not
include either of the following:
(i) Items
that are sold to one or more persons and through which a value is not
denominated in money.
(ii) Prepaid
calling cards for telecommunications services.
(b) "Monetized
bullion" means coins and other forms of money that are manufactured from
gold, silver or other metals and that have been or are used as a medium of
exchange in this or another state, the United States or a foreign nation.
(c) "Precious metal
bullion" means precious metal, including gold, silver, platinum, rhodium
and palladium, that has been smelted or refined so that its value depends on
its contents and not on its form.
B. In
addition to the exemptions allowed by subsection A of this section, the
following categories of tangible personal property are also exempt:
1. Machinery,
or equipment, used directly in manufacturing, processing, fabricating, job
printing, refining or metallurgical operations. The terms
"manufacturing", "processing", "fabricating",
"job printing", "refining" and "metallurgical" as
used in this paragraph refer to and include those operations commonly
understood within their ordinary meaning. "Metallurgical operations"
includes leaching, milling, precipitating, smelting and refining.
2. Machinery,
or equipment, used directly in the process of extracting ores or minerals from
the earth for commercial purposes, including equipment required to prepare the
materials for extraction and handling, loading or transporting such extracted
material to the surface.� "Mining" includes underground, surface and
open pit operations for extracting ores and minerals.
3. Tangible personal property sold to persons
engaged in business classified under the telecommunications classification
under section 42-5064, including a person representing or working on
behalf of such a person in a manner described in section 42-5075,
subsection O  P, and consisting
of central office switching equipment, switchboards, private branch exchange
equipment, microwave radio equipment and carrier equipment including optical
fiber, coaxial cable and other transmission media that are components of
carrier systems.
4. Machinery,
equipment or transmission lines used directly in producing or transmitting
electrical power, but not including distribution.� Transformers and control
equipment used at transmission substation sites constitute equipment used in producing
or transmitting electrical power.
5. Machinery and equipment used directly for energy
storage for later electrical use. For the purposes of this paragraph:
(a) "Electric utility scale" means a
person that is engaged in a business activity described in section 42-5063,
subsection A or such person's equipment or wholesale electricity suppliers.
(b) "Energy storage" means commercially
available technology for electric utility scale that is capable of absorbing
energy, storing energy for a period of time and thereafter dispatching the
energy and that uses mechanical, chemical or thermal processes to store energy.
(c) "Machinery
and equipment used directly" means all machinery and equipment that are
used for electric energy storage from the point of receipt of such energy in
order to facilitate storage of the electric energy to the point where the
electric energy is released.
6. Neat
animals, horses, asses, sheep, ratites, swine or goats used or to be used as
breeding or production stock, including sales of breedings or ownership shares
in such animals used for breeding or production.
7. Pipes
or valves four inches in diameter or larger used to transport oil, natural gas,
artificial gas, water, wastewater or coal
slurry, including compressor units, regulators, machinery and equipment,
fittings, seals and any other part that is used in operating the pipes or
valves.
8. Aircraft,
navigational and communication instruments and other accessories and related
equipment sold to:
(a) A
person:
(i) Holding,
or exempted by federal law from obtaining, a federal certificate of public
convenience and necessity for use as, in conjunction with or becoming part of
an aircraft to be used to transport persons for hire in intrastate, interstate
or foreign commerce.
(ii) That is certificated or licensed under federal
aviation administration regulations (14 Code of Federal Regulations part 121 or
135) as a scheduled or unscheduled carrier of persons for hire for use as or in
conjunction with or becoming part of an aircraft to be used to transport
persons for hire in intrastate, interstate or foreign commerce.
(iii) Holding
a foreign air carrier permit for air transportation for use as or in
conjunction with or becoming a part of aircraft to be used to transport
persons, property or United States mail in intrastate, interstate or foreign
commerce.
(iv) Operating
an aircraft to transport persons in any manner for compensation or hire, or for
use in a fractional ownership program that meets the requirements of federal
aviation administration regulations (14 Code of Federal Regulations part 91,
subpart K), including as an air carrier, a foreign air carrier or a commercial
operator or under a restricted category, within the meaning of 14 Code of
Federal Regulations, regardless of whether the operation or aircraft is
regulated or certified under part 91, 119, 121, 133, 135, 136 or 137, or
another part of 14 Code of Federal Regulations.
(v) That
will lease or otherwise transfer operational control, within the meaning of
federal aviation administration operations specification A008, or its
successor, of the aircraft, instruments or accessories to one or more persons
described in item (i), (ii), (iii) or (iv) of this subdivision, subject to
section 42-5009, subsection Q.
(b) Any foreign government.
(c) Persons who are not residents of this state
and who will not use such property in this state other than in removing such
property from this state. This subdivision also applies to
corporations that are not incorporated in this state, regardless of maintaining
a place of business in this state, if the principal corporate office is located
outside this state and the property will not be used in this state other than
in removing the property from this state.
9. Machinery,
tools, equipment and related supplies used or consumed directly in repairing,
remodeling or maintaining aircraft, aircraft engines or aircraft component
parts by or on behalf of a certificated or licensed carrier of persons or property.
10. Rolling
stock, rails, ties and signal control equipment used directly to transport
persons or property.
11. Machinery
or equipment used directly to drill for oil or gas or used directly in the
process of extracting oil or gas from the earth for commercial purposes.
12. Buses
or other urban mass transit vehicles that are used directly to transport
persons or property for hire or pursuant to a governmentally adopted and
controlled urban mass transportation program and that are sold to bus companies
holding a federal certificate of convenience and necessity or operated by any
city, town or other governmental entity or by any person contracting with such
governmental entity as part of a governmentally adopted and controlled program
to provide urban mass transportation.
13. Groundwater
measuring devices required under section 45-604.
14. Machinery
and equipment consisting of agricultural aircraft, tractors, off-highway
vehicles, tractor-drawn implements, self-powered
implements, machinery and equipment necessary for extracting milk, and
machinery and equipment necessary for cooling milk and livestock, and drip
irrigation lines not already exempt under paragraph 7 of this subsection and that are used for commercially producing agricultural,
horticultural, viticultural and floricultural crops and products in this
state. For the purposes of this paragraph:
(a) "Off-highway vehicles" means off-highway
vehicles as defined in section 28-1171 that are modified at the time of
sale to function as a tractor or to tow tractor-drawn implements and that
are not equipped with a modified exhaust system to increase horsepower or speed
or an engine that is more than one thousand cubic centimeters or that have a
maximum speed of fifty miles per hour or less.
(b) "Self-powered
implements" includes machinery and equipment that are electric-powered.
15. Machinery or equipment used in research and
development. For the purposes of this paragraph, "research and
development" means basic and applied research in the sciences and
engineering, and designing, developing or testing prototypes, processes or new
products, including research and development of computer software that is
embedded in or an integral part of the prototype or new product or that is
required for machinery or equipment otherwise exempt under this section to
function effectively. Research and development do not include
manufacturing quality control, routine consumer product testing, market
research, sales promotion, sales service, research in social sciences or
psychology, computer software research that is not included in the definition
of research and development, or other nontechnological activities or technical
services.
16. Tangible
personal property that is used by either of the following to receive, store,
convert, produce, generate, decode, encode, control or transmit
telecommunications information:
(a) Any
direct broadcast satellite television or data transmission service that
operates pursuant to 47 Code of Federal Regulations part 25.
(b) Any
satellite television or data transmission facility, if both of the following
conditions are met:
(i) Over
two-thirds of the transmissions, measured in megabytes, transmitted by
the facility during the test period were transmitted to or on behalf of one or
more direct broadcast satellite television or data transmission services that
operate pursuant to 47 Code of Federal Regulations part 25.
(ii) Over two-thirds of the transmissions,
measured in megabytes, transmitted by or on behalf of those direct broadcast
television or data transmission services during the test period were
transmitted by the facility to or on behalf of those services.
For the purposes of subdivision
(b) of this paragraph, "test period" means the three hundred sixty-five
day period beginning on the later of the date on which the tangible personal
property is purchased or the date on which the direct broadcast satellite
television or data transmission service first transmits information to its
customers.
17. Clean
rooms that are used for manufacturing, processing, fabrication or research and
development, as defined in paragraph 15 of
this subsection, of semiconductor products. For the purposes of this
paragraph, "clean room" means all property that comprises or creates
an environment where humidity, temperature, particulate matter and
contamination are precisely controlled within specified parameters, without
regard to whether the property is actually contained within that environment or
whether any of the property is affixed to or incorporated into real
property. Clean room:
(a) Includes
the integrated systems, fixtures, piping, movable partitions, lighting and all
property that is necessary or adapted to reduce contamination or to control
airflow, temperature, humidity, chemical purity or other environmental conditions
or manufacturing tolerances, as well as the production machinery and equipment
operating in conjunction with the clean room environment.
(b) Does
not include the building or other permanent, nonremovable component of the
building that houses the clean room environment.
18. Machinery
and equipment that are used directly in feeding poultry, environmentally
controlling housing for poultry, moving eggs within a production and packaging facility or sorting
or cooling eggs.� This exemption does not apply to vehicles used for
transporting eggs.
19. Machinery
or equipment, including related structural components and containment
structures, that is employed in connection with
manufacturing, processing, fabricating, job printing, refining, mining, natural
gas pipelines, metallurgical operations, telecommunications, producing or
transmitting electricity or research and development and that is used directly
to meet or exceed rules or regulations adopted by the federal energy regulatory
commission, the United States environmental protection agency, the United
States nuclear regulatory commission, the Arizona department of environmental
quality or a political subdivision of this state to prevent, monitor, control
or reduce land, water or air pollution. For the purposes of this
paragraph, "containment structure" means a structure that prevents,
monitors, controls or reduces noxious or harmful discharge into the
environment.
20. Machinery
and equipment that are used in commercially producing livestock, livestock products or agricultural,
horticultural, viticultural or floricultural crops or products in this state,
including production by a person representing or working on behalf of such a
person in a manner described in section 42-5075, subsection O  P, if the machinery and equipment are used directly and
primarily to prevent, monitor, control or reduce air, water or land pollution.
21. Machinery
or equipment that enables a television station to originate and broadcast or to
receive and broadcast digital television signals and that was purchased to
facilitate compliance with the telecommunications act of 1996 (P.L. 104-104;
110 Stat. 56; 47 United States Code section 336) and the federal communications
commission order issued April 21, 1997 (47 Code of Federal Regulations part
73). This paragraph does not exempt any of the following:
(a) Repair
or replacement parts purchased for the machinery or equipment described in this
paragraph.
(b) Machinery
or equipment purchased to replace machinery or equipment for which an exemption
was previously claimed and taken under this paragraph.
(c) Any
machinery or equipment purchased after the television station has ceased analog
broadcasting, or purchased after November 1, 2009, whichever occurs first.
22. Qualifying
equipment that is purchased from and after June 30, 2004 through December
31, 2028 by a qualified business under section 41-1516
for harvesting or processing qualifying forest products removed from qualifying
projects as defined in section 41-1516. To qualify for this
exemption, the qualified business must obtain and present its certification
from the Arizona commerce authority at the time of purchase.
23. Machinery,
equipment, materials and other tangible personal property used directly and
predominantly to construct a qualified environmental technology manufacturing,
producing or processing facility as described in section 41-1514.02. This
paragraph applies for ten full consecutive calendar or fiscal years after the
start of initial construction.
24. Computer data center
equipment sold to the owner, operator or qualified colocation tenant of a
computer data center that is certified by the Arizona commerce authority under
section 41-1519 or an authorized agent of the owner, operator or
qualified colocation tenant during the qualification period for use in the
qualified computer data center. For the purposes of this paragraph,
"computer data center", "computer data center equipment",
"qualification period" and "qualified colocation tenant"
have the same meanings prescribed in section 41-1519.
25. Through
December 31, 2031, machinery and equipment used directly for energy storage for
later electrical use by a residential, industrial or commercial facility. For
the purposes of this paragraph:
(a) "Energy storage" means a system for
residential, commercial or industrial facilities that is manufactured in this
state and that uses mechanical, chemical or thermal processes or other
commercially available technology to store energy for later use.
(b) "Machinery and equipment used directly" means all
machinery and equipment that are used for electric energy storage from the
point of receipt of such energy in order to facilitate storage of the electric
energy to the point where the electric energy is released.
C. The
exemptions provided by subsection B of this section do not include:
1. Expendable
materials. For the purposes of this paragraph, expendable materials
do not include any of the categories of tangible personal property specified in
subsection B of this section regardless of the cost or useful life of that
property.
2. Janitorial
equipment and hand tools.
3. Office
equipment, furniture and supplies.
4. Tangible
personal property used in selling or distributing activities, other than the
telecommunications transmissions described in subsection B, paragraph 16
of this section.
5. Motor
vehicles required to be licensed by this state, except buses or other urban
mass transit vehicles specifically exempted pursuant to subsection B, paragraph
12 of this section, without regard to the use
of such motor vehicles.
6. Shops,
buildings, docks, depots and all other materials of whatever kind or character
not specifically included as exempt.
7. Motors
and pumps used in drip irrigation systems.
8. Machinery
and equipment or tangible personal property used by a contractor in performing
a contract.
D. The
following shall be deducted in computing the purchase price of electricity by a
retail electric customer from a utility business:
1. Revenues
received from sales of ancillary services, electric distribution services,
electric generation services, electric transmission services and other services
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.
2. Revenues received from providing electricity,
including ancillary services, electric distribution services, electric
generation services, electric transmission services and other services related
to providing electricity with respect to which the transaction privilege tax
imposed under section 42-5063 has been paid.
E. The
tax levied by this article does not apply to the purchase of solar energy
devices from a retailer that is registered with the department as a solar
energy retailer or a solar energy contractor.
F. The
following shall be deducted in computing the purchase price of electricity by a
retail electric customer from a utility business:
1. Fees
charged by a municipally owned utility 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. Reimbursement
or contribution compensation to any person or persons owning a utility system
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.
G. The
tax levied by this article does not apply to the purchase price of electricity,
natural gas or liquefied petroleum gas by:
1. 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.
2. 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.
H. A city or town may exempt proceeds from sales of
paintings, sculptures or similar works of fine art if such works of fine art
are sold by the original artist. For the purposes of this
subsection, fine art does not include an art creation such as jewelry, macrame,
glasswork, pottery, woodwork, metalwork, furniture or clothing if the art
creation has a dual purpose, both aesthetic and utilitarian, whether sold by
the artist or by another person.
I. For the purposes of subsection B of this section:
1. "Agricultural
aircraft" means an aircraft that is built for agricultural use for the
aerial application of pesticides or fertilizer or for aerial seeding.
2. "Aircraft"
includes:
(a) An
airplane flight simulator that is approved by the federal aviation
administration for use as a phase II or higher flight simulator under appendix
H, 14 Code of Federal Regulations part 121.
(b) Tangible
personal property that is permanently affixed or attached as a component part
of an aircraft that is owned or operated by a certificated or licensed carrier
of persons or property.
3. "Other accessories and related
equipment" includes aircraft accessories and equipment such as ground
service equipment that physically contact aircraft at some point during the
overall carrier operation.
J. For the purposes of subsection D of this section,
"ancillary services", "electric distribution service",
"electric generation service", "electric transmission
service" and "other services" have the same meanings prescribed
in section 42-5063.END_STATUTE
Sec. 3. Repeal
Section 42-5159, Arizona Revised
Statutes, as amended by Laws 2025, chapter 251, section 13, is repealed.
Sec. 4. Applicability
This act applies to taxable periods
beginning on and after the first day of the month following the general
effective date.