SB 1144 — TPT exemptions and deductions; sunset

11.  The United States treasury department or its authorized agent for use in the state income tax levy program and in the electronic federal tax payment system.

12.  The Arizona commerce authority for its use in:

(a)  Qualifying renewable energy operations for the tax incentives under sections 42‑12006, 43‑1083.01 and 43‑1164.01.

(b)  Qualifying businesses with a qualified facility for income tax credits expenditures under sections 43‑1083.03 and 43‑1164.04.

(c)  Fulfilling its annual reporting responsibility pursuant to section 41‑1511, subsections U and V and section 41‑1512, subsections U and V.

(d)  Certifying computer data centers for tax relief under section 41‑1519.

13.  A prosecutor for purposes of section 32‑1164, subsection C.

14.  The state fire marshal for use in determining compliance with and enforcing title 37, chapter 9, article 5.

15.  The department of transportation for its use in administering taxes, surcharges and penalties prescribed by title 28.

16.  The Arizona health care cost containment system administration for its use in administering nursing facility provider assessments.

C.  Confidential information may be disclosed in any state or federal judicial or administrative proceeding pertaining to tax administration pursuant to the following conditions:

1.  One or more of the following circumstances must apply:

(a)  The taxpayer is a party to the proceeding.

(b)  The proceeding arose out of, or in connection with, determining the taxpayer's civil or criminal liability, or the collection of the taxpayer's civil liability, with respect to any tax imposed under this title or title 43.

(c)  The treatment of an item reflected on the taxpayer's return is directly related to the resolution of an issue in the proceeding.

(d)  Return information directly relates to a transactional relationship between a person who is a party to the proceeding and the taxpayer and directly affects the resolution of an issue in the proceeding.

2.  Confidential information may not be disclosed under this subsection if the disclosure is prohibited by section 42‑2002, subsection C or D.

D.  Identity information may be disclosed for purposes of notifying persons entitled to tax refunds if the department is unable to locate the persons after reasonable effort.

E.  The department, on the request of any person, shall provide the names and addresses of bingo licensees as defined in section 5‑401, verify whether or not a person has a privilege license and number, a tobacco product distributor's license and number or a withholding license and number or disclose the information to be posted on the department's website or otherwise publicly accessible pursuant to section 42‑1124, subsection F and section 42‑3401.

F.  A department employee, in connection with the official duties relating to any audit, collection activity or civil or criminal investigation, may disclose return information to the extent that disclosure is necessary to obtain information that is not otherwise reasonably available.  These official duties include the correct determination of and liability for tax, the amount to be collected or the enforcement of other state tax revenue laws.

G.  If an organization is exempt from this state's income tax as provided in section 43‑1201 for any taxable year, the name and address of the organization and the application filed by the organization on which the department made its determination for exemption together with any papers submitted in support of the application and any letter or document issued by the department concerning the application are open to public inspection.

H.  Confidential information relating to transaction privilege tax, use tax, severance tax, jet fuel excise and use tax and any other tax collected by the department on behalf of any jurisdiction may be disclosed to any county, city or town tax official if the information relates to a taxpayer who is or may be taxable by a county, city or town or who may be subject to audit by the department pursuant to section 42‑6002.  Any taxpayer information released by the department to the county, city or town:

1.  May only be used for internal purposes, including audits.

2.  May not be disclosed to the public in any manner that does not comply with confidentiality standards established by the department.  The county, city or town shall agree in writing with the department that any release of confidential information that violates the confidentiality standards adopted by the department will result in the immediate suspension of any rights of the county, city or town to receive taxpayer information under this subsection.

I.  The department may disclose statistical information gathered from confidential information if it does not disclose confidential information attributable to any one taxpayer.  The department may disclose statistical information gathered from confidential information, even if it discloses confidential information attributable to a taxpayer, to:

1.  The state treasurer in order to comply with the requirements of section 42‑5029, subsection A, paragraph 3.

2.  The joint legislative income tax credit expenditure review committee, the joint legislative budget committee staff and the legislative staff in order to comply with the requirements of section 43‑221.

J.  The department may disclose the aggregate amounts of any tax credit, tax deduction or tax exemption enacted after January 1, 1994.

Information subject to disclosure under this subsection shall not be disclosed if a taxpayer demonstrates to the department that such information would give an unfair advantage to competitors.

K.  Except as provided in section 42‑2002, subsection C, confidential information, described in section 42‑2001, paragraph 1, subdivision (a), item (ii), may be disclosed to law enforcement agencies for law enforcement purposes.

L.  The department may provide transaction privilege tax license information to property tax officials in a county for the purpose of identification and verification of the tax status of commercial property.

M.  The department may provide transaction privilege tax, luxury tax, use tax, property tax and severance tax information to the ombudsman‑citizens aide pursuant to title 41, chapter 8, article 5.

N.  Except as provided in section 42‑2002, subsection D, a court may order the department to disclose confidential information pertaining to a party to an action.  An order shall be made only on a showing of good cause and that the party seeking the information has made demand on the taxpayer for the information.

O.  This section does not prohibit the disclosure by the department of any information or documents submitted to the department by a bingo licensee.

Before disclosing the information the department shall obtain the name and address of the person requesting the information.

P.  If the department is required or permitted to disclose confidential information, it may charge the person or agency requesting the information for the reasonable cost of its services.

Q.  Except as provided in section 42‑2002, subsection D, the department of revenue shall release confidential information as requested by the department of economic security pursuant to section 42‑1122 or 46‑291.

Information disclosed under this subsection is limited to the same type of information that the United States internal revenue service is authorized to disclose under section 6103(l)(6) of the internal revenue code.

R.  Except as provided in section 42‑2002, subsection D, the department of revenue shall release confidential information as requested by the courts and clerks of the court pursuant to section 42‑1122.

S.  To comply with the requirements of section 42‑5031, the department may disclose to the state treasurer, to the county stadium district board of directors and to any city or town tax official that is part of the county stadium district confidential information attributable to a taxpayer's business activity conducted in the county stadium district.

T.  The department shall release to the attorney general confidential information as requested by the attorney general for purposes of determining compliance with or enforcing any of the following:

1.  Any public health control law relating to tobacco sales as provided under title 36, chapter 6, article 14.

2.  Any law relating to reduced cigarette ignition propensity standards as provided under title 37, chapter 9, article 5.

3.  Sections 44‑7101 and 44‑7111, the master settlement agreement referred to in those sections and all agreements regarding disputes under the master settlement agreement.

U.  For proceedings before the department, the office of administrative hearings, the board of tax appeals or any state or federal court involving penalties that were assessed against a return preparer, an electronic return preparer or a payroll service company pursuant to section 42‑1103.02, 42‑1125.01 or 43‑419, confidential information may be disclosed only before the judge or administrative law judge adjudicating the proceeding, the parties to the proceeding and the parties' representatives in the proceeding prior to its introduction into evidence in the proceeding.  The confidential information may be introduced as evidence in the proceeding only if the taxpayer's name, the names of any dependents listed on the return, all social security numbers, the taxpayer's address, the taxpayer's signature and any attachments containing any of the foregoing information are redacted and if either:

1.  The treatment of an item reflected on such return is or may be related to the resolution of an issue in the proceeding.

2.  Such a return or the return information relates or may relate to a transactional relationship between a person who is a party to the proceeding and the taxpayer that directly affects the resolution of an issue in the proceeding.

3.  The method of payment of the taxpayer's withholding tax liability or the method of filing the taxpayer's withholding tax return is an issue for the period.

V.  The department and attorney general may share the information specified in subsection T of this section with any of the following:

1.  Federal, state or local agencies for the purposes of enforcement of corresponding laws of other states.

2.  A court, arbitrator, data clearinghouse or similar entity for the purpose of assessing compliance with or making calculations required by the master settlement agreement or agreements regarding disputes under the master settlement agreement, and with counsel for the parties or expert witnesses in any such proceeding, if the information otherwise remains confidential.

W.  The department may provide the name and address of qualifying hospitals and qualifying health care organizations, as defined in section 42‑5001, to a business classified and reporting transaction privilege tax under the utilities classification.

X.  The department may disclose to an official of any city, town or county in a current agreement or considering a prospective agreement with the department as described in section 42‑5032.02, subsection F any information relating to amounts subject to distribution required by section 42‑5032.02.  Information disclosed by the department under this subsection:

1.  May only be used by the city, town or county for internal purposes.

2.  May not be disclosed to the public in any manner that does not comply with confidentiality standards established by the department.  The city, town or county must agree with the department in writing that any release of confidential information that violates the confidentiality standards will result in the immediate suspension of any rights of the city, town or county to receive information under this subsection.

Y.  Notwithstanding any other provision of this section, the department may not disclose information provided by an online lodging marketplace, as defined in section 42‑5076, without the written consent of the online lodging marketplace, and the information may be disclosed only pursuant to subsection A, paragraphs 1 through 6, subsection B, paragraphs 1, 2, 7 and 8 and subsections C and D of this section.  Such information:

1.  Is not subject to disclosure pursuant to title 39, relating to public records.

2.  May not be disclosed to any agency of this state or of any county, city, town or other political subdivision of this state.

Sec. 2.  Title 42, chapter 5, article 1, Arizona Revised Statutes, is amended by adding section 42‑5042, to read:

definition A.  AnyA.  In newaddition to the responsibilities prescribed by section 43‑221, the joint legislative tax expenditure review committee shall review each transaction privilege orand use tax expenditure thatunder isthis enactedchapter according to the same standards prescribed by section 43‑221, subsection B to determine whether the legislaturetax underexpenditure thisshould chapterbe shallamended, includeretained inor repealed.  The committee shall report its enablingrecommendations legislationto athe specificpresident repealof datethe thatsenate, isthe fromspeaker of the house of representatives and afterthe governor on or before December 3115 of notthe lateryear thanthe committee reviews the eighthtax fullexpenditure calendarand yearshall followingprovide a copy of the datereport to the taxsecretary expenditureof isstate enacted.and the director of the department of revenue.

B.  InB.  For addition to the responsibilitiespurposes prescribedof bythis sectionsection, 43‑221,"tax theexpenditure" jointmeans legislativeany incomeprovision taxin credit review committee shall review each transaction privilege and use tax expenditure under this chapter accordingthat toexempts, thein samewhole standardsor prescribedin bypart, sectionany 43‑221,person, subsectionincome, Bgoods, toservices determine whether the tax expenditure should be amended, retained or allowedproperty tofrom expire as prescribed by law.  The committee shall report its recommendations to the presidentimpact of theestablished senate,taxes the speaker of the house of representatives and the governor on or before December 15 of the year the committee reviews the tax expenditureclassifications, andincluding shalldeductions, providesubtractions, aexclusions, copyexemptions, ofallowances the report to the secretary of state and thecredits. director of the department of revenue.

C.  ForEND_STATUTE theSec. 3.  Section purposes43-221, ofArizona thisRevised section,Statutes, "taxis expenditure"amended meansto anyread: provision in this chapter that exempts, in whole or in part, any person, income, goods, services or property from the impact of established taxes and tax classifications, including deductions, subtractions, exclusions, exemptions, allowances and credits.

END_STATUTESTART_STATUTE43-221.  Joint Sec. 2.  Sectionlegislative 42-5061,tax Arizonaexpenditure Revisedreview Statutes,committee; as amended by Senate Bill 1010, section 11, fifty-third legislature, first regular session, as transmitted to the governor, is amended to read:

START_STATUTE42-5061.  Retailcommittee classification;termination;

definitionsdefinition A.  The retailjoint classificationlegislative isincome comprised of the business of selling tangible personal property at retail.  The tax basecredit forexpenditure thereview retailcommittee classification is theestablished grossconsisting proceeds of sales or gross income derived from the business.  Thefollowing taxmembers: imposed on the retail classification does not apply to the gross proceeds of sales or gross income from:

1.  Professional1.  Five ormembers personalof servicethe occupationshouse orof businessesrepresentatives thatways involveand salesmeans orcommittee transferswho are appointed by the speaker of tangiblethe personalhouse propertyof onlyrepresentatives.  Not asmore inconsequentialthan elements.three appointees shall be of the same political party.

2.  Services2.  Five renderedmembers inof additionthe tosenate sellingfinance tangiblecommittee personalwho propertyare atappointed retail.by the president of the senate.  Not more than three appointees shall be of the same political party.

3.  SalesB.  The committee shall determine the original purpose of warrantyexisting ortax servicecredits contracts.  Theexpenditures storage,under usetitle or42, consumptionchapter 5 and chapters 10 and 11 of tangiblethis personaltitle propertyand providedestablish undera standard for evaluating and measuring the conditionssuccess or failure of suchthe contractstax iscredits subjectexpenditures.  The tostandard for evaluating tax undercredits sectionexpenditures 42‑5156.may include:

4.  Sales1.  The ofhistory, tangiblerationale personal property by any nonprofit organization organized and operatedestimated exclusively for charitable purposes and recognized by the United States internal revenue serviceimpact under section 501(c)(3) of the internalcredit revenuetax code.expenditure.

5.  Sales2.  Whether tothe personscredit engagedtax inexpenditure businesshas classifiedprovided undera thebenefit restaurantto classificationthis ofstate articlesincluding, usedfor bycorporate humanincome beingstax forcredits, food,measurable drinkeconomic ordevelopment, condiment,new whetherinvestments, simple,creation mixedof new jobs or compounded.retention of existing jobs in this state.

6.  Business3.  Whether activitythe thatcredit tax expenditure is properlyunnecessarily includedcomplex in anythe otherapplication, businessadministration classificationand thatapproval isprocess. taxable under this article.

7.  TheC.  The salecommittee ofshall stocksadopt and bonds.review the tax expenditures under title 42, chapter 5 according to a ten-year review schedule.

8.  DrugsC.  D.  The committee shall review the individual and medicalcorporate oxygen,income includingtax deliverycredits hose,pursuant maskto orthe tent,schedule regulatorprescribed andin tank,section on43‑222.  E.  The committee shall use the prescriptionjoint oflegislative abudget membercommittee ofstaff theand medical,may dentaluse orthe veterinarianstaff professionof whothe isdepartment licensedof byrevenue lawand tolegislative administercouncil suchfor substances.assistance.

9.  ProstheticD.  F.  After appliancescompleting asthe definedreview inprocess, sectionthe 23‑501committee andshall asdetermine prescribedwhether the credit tax expenditure should be amended, repealed or retained.  If the credit tax expenditure is recommended byto be retained or amended, the committee shall recommend a healthnew professionalreview whodate isand licensedthat pursuantthe credit tax expenditure be returned to the income tax credit review schedule prescribed in section 43‑222 or the schedule for reviewing tax expenditures under title 32,42, chapter 7,5 8,adopted 11,pursuant 13,to 14,subsection 15,C 16,of 17this orsection.   29.G.  For individual and corporate income tax credits, the next review year shall be the fifth not later than the tenth full calendar year following the date the credit was reviewed.  For all other tax expenditures, the next review year shall be not later than the tenth full calendar year following the date the tax expenditure was reviewed.

10.  Insulin,h.  The insulincommittee syringesshall report its findings and glucoserecommendations testto strips.the president of the senate, the speaker of the house of representatives and the governor by December 15 of the each review year that the committee reviews the credit.  The committee shall provide a copy of the report to the director of the Arizona state library, archives and public records secretary of state.

11.  PrescriptionE.  I.  The eyeglassescommittee orestablished contactby lenses.this section ends on July 1, 2022 pursuant to section 41‑3103.

12.  HearingJ.  For aidsthe aspurposes definedof inthis sectionsection, 36‑1901."tax expenditure" means:

13.  Durable1.  Any medicalprovision equipmentin thattitle has42, achapter centers5 foror medicarechapter and10 medicaidor services11 commonof procedurethis code,title isthat designatedexempts, reimbursablein bywhole medicare,or isin prescribedpart, byany aperson, personincome, whogoods, isservices licensedor underproperty titlefrom 32,the chapterimpact 7,of 8,established 13,taxes 14,and 15,tax 17classifications, orincluding 29,deductions, canexclusions, withstandexemptions repeatedand use,credits.  Tax isexpenditure primarilydoes andnot customarilyinclude useddeductions tounder servesection a42‑5061, medicalsubsection purpose,A, isparagraph generally50, notsection useful42-5061, tosubsection aG personor in the absenceomission of illnessany orbusiness injuryactivity andfrom isthe appropriatetransaction forprivilege usetax inclassifications theunder home.title 42, chapter 5, article 2.

14.  Sales2.  Individual ofand motorcorporate vehiclesincome totax nonresidentscredits ofestablished thisby statechapter for10, usearticle outside5 thisand statechapter if11, thearticle motor6 vehicle dealer ships or delivers the motor vehicle to a destination out of this state.title.

15.  Food,Sec. 4.  Section as43-222, providedArizona inRevised andStatutes, subjectis amended to theread: conditions of article 3 of this chapter and section 42‑5074.

16.  ItemsSTART_STATUTE43-222.  Income purchasedtax withcredit Unitedreview Statesschedule departmentThe ofjoint agriculturelegislative foodincome stamptax couponscredit issuedexpenditure underreview thecommittee foodshall stampreview actthe offollowing 1977income (P.L.tax credits:

95‑113;1.  For years ending in 0 and 5, sections 43‑1079.01, 43‑1087, 43‑1088, 43-1089.04, 43‑1167.01 and 43‑1175.

912.  For Stat.years ending in 1 and 6, sections 43‑1074.02, 43‑1083, 43‑1083.02, 43‑1085.01, 43‑1164.02, 43-1164.03 and 43‑1183.

958)3.  For oryears foodending instrumentsin issued2 underand section7, 17sections of43‑1073, the43‑1079, child43‑1080, nutrition43‑1085, act43‑1086, (P.L.43‑1089, 43‑1089.01, 43‑1089.02, 43-1089.03, 43‑1090, 43‑1164, 43‑1167, 43‑1169, 43‑1176 and 43‑1181.

95‑627;4.  For years ending in 3 and 8, sections 43‑1074.01, 43‑1081, 43‑1168, 43‑1170 and 43‑1178.

Stat.5.  For years ending in 4 and 9, sections 43‑1076, 43‑1076.01, 43‑1081.01, 43‑1083.01, 43‑1083.04, 43‑1084, 43‑1162, 43‑1162.01, 43‑1164.01, 43‑1164.05, 43‑1170.01 and 43-1184 and, beginning in 2019, sections 43‑1083.03 and 43‑1164.04.

3603;1.  For years ending in 1, sections 43-1074.02, 43-1083, 43‑1083.02, 43-1167.01 and 43-1175.

P.L.2.  For YEARS ENDING IN 2, SECTIONS 43-1083.04, 43-1084, 43-1162, 43‑1162.01 AND 43-1164.01.

99‑661,3.  For sectionYEARS 4302;ENDING IN 3, SECTIONS 43-1073, 43-1085.01, 43-1164.02, 43-1164.03 and 43-1183.

424.  FOR UnitedYEARS StatesENDING CodeIN section4, 1786).SECTIONS 43-1079, 43-1080, 43-1085, 43‑1086 AND 43-1089.

17.  Textbooks5.  FOR byYEARS anyENDING bookstoreIN that5, areSECTIONS required43-1089.01, by43-1089.02, any43‑1089.03, state43-1090 universityAND or43-1164. community college.

18.  Food6.  FOR andYEARS drinkENDING toIN a6, personSECTIONS that43-1074.01, is43-1167, engaged43-1169, in43‑1176 a business that is classified under the restaurant classification and that43-1181. 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.  Articles7.  FOR ofYEARS food,ENDING drinkIN or7, condimentSECTIONS and43‑1081, accessory43‑1168, tangible43‑1170 personal property to a school district or charter school if such articles and accessory43‑1178. 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.  Lottery8.  FOR ticketsYEARS orENDING sharesIN pursuant8, toSECTIONS title43‑1076, 5,43‑1076.01, chapter43‑1081.01 5.1,and article 1.43‑1083.01.

21.  The9.  FOR saleYEARS ofENDING cashIN equivalents9, andSECTIONS the43‑1164.05, sale43‑1170.01 of precious metal bullion and monetized43‑1184 bullionand, tobeginning thein ultimate2019, consumer,sections but43‑1083.03 the sale of coins or other forms of money for manufacture into jewelry or works of art is subject to the tax and the43‑1164.04. 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)  "Cash10.  FOR equivalents"YEARS meansENDING itemsIN or0, intangibles,SECTIONS whether43-1079.01, or43-1087, not43-1088 negotiable, that are sold to one or more persons, through which a value denominated in money is purchased in advance and may43-1089.04. 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)  ItemsEND_STATUTE orSec. 5.  Section intangibles43-223, thatArizona areRevised soldStatutes, to one or more persons, through which a value is notamended denominatedto inread: money.

(ii)  PrepaidSTART_STATUTE43-223.  Requirements callingfor cardsnew orincome prepaidtax authorizationcredits numbersestablished forby telecommunicationsthe serviceslegislature madeAny taxablenew individual or corporate income tax credit that is enacted by subsectionthe Plegislature ofshall thisinclude section.in its enabling legislation:

(b)  "Monetized1.  A bullion"specific meansreview coinsyear andfor otherthe formsjoint oflegislative moneyincome thattax arecredit manufacturedexpenditure fromreview gold,committee silverto orreview otherthe metalscredit.  The andspecific thatreview haveyear beenshall orbe arethe usedfifth asfull acalendar mediumyear offollowing exchangethe indate this or another state, the Unitedcredit Statesis orenacted. a foreign nation.

(c)  "Precious2.  A metalpurpose bullion"clause means precious metal, including gold, silver, platinum, rhodium and palladium, that hasexplains beenthe smeltedrationale or refined so that its value depends on its contents and notobjective onof itsthe form.tax credit.

22.  MotorEND_STATUTE vehicleSec. 6.  Transaction fuelprivilege andtax useexpenditure fuelreview thatschedule arePursuant subject to asection tax43-221, imposedsubsection underC, titleArizona 28,Revised chapterStatutes, 16,as articleadded 1,by salesthis ofact, usethe fueljoint tolegislative a holder of a valid single trip use fuel tax permitexpenditure issuedreview undercommittee section 28‑5739,shall salescompile ofand aviationadopt fuela thatten-year arereview subjectschedule tofor thetransaction privilege tax imposedexpenditures under sectiontitle 28‑834442, andchapter sales5, ofArizona jetRevised fuelStatutes, thaton areor subjectbefore toDecember the15, tax2017. imposed under article 8 of this chapter.

23.  TangibleEND_STATUTE 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 O.

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 O.

(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)  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.

(b)  An enrolled member of an Indian tribe who resides on the Indian reservation established for that tribe.

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.

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 seeds, seedlings, roots, bulbs, cuttings and other propagative material to persons who use those items to commercially produce agricultural, horticultural, viticultural or floricultural crops in this state.

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 the generation or provision of on-site power or energy solely for environmental technology manufacturing, producing or processing or environmental protection.  This paragraph shall apply for twenty full consecutive calendar or fiscal years from the date the first paper manufacturing machine is placed in service.  In the case of an environmental technology manufacturer, producer or processor who does not manufacture paper, the time period shall begin with the date the first manufacturing, processing or production equipment is placed in service.

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 permitting 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 who is subject to a fee prescribed in title 28, chapter 16, article 4 and who 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 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.

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.  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.

58.  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.

59.  Sales of tangible personal property incorporated or fabricated into a project described in section 42‑5075, subsection O, 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.

60.  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.

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 O, 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.  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.

6.  Pipes or valves four inches in diameter or larger used to transport oil, natural gas, artificial gas, water 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.

7.  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 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 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.

8.  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.

9.  Railroad rolling stock, rails, ties and signal control equipment used directly to transport persons or property.

10.  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.

11.  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.

12.  Groundwater measuring devices required under section 45‑604.

13.  New machinery and equipment consisting of agricultural aircraft, tractors, 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 6 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)  "New machinery and equipment" means machinery and equipment that have never been sold at retail except pursuant to leases or rentals that do not total two years or more.

(b)  "Self‑powered implements" includes machinery and equipment that are electric‑powered.

14.  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.

15.  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.

16.  Clean rooms that are used for manufacturing, processing, fabrication or research and development, as defined in paragraph 14 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.

17.  Machinery and equipment used directly in the feeding of poultry, the environmental control of housing for poultry, the movement of eggs within a production and packaging facility or the sorting or cooling of eggs.  This exemption does not apply to vehicles used for transporting eggs.

18.  Machinery or equipment, including related structural components, 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.

19.  Machinery and equipment that are sold to a person engaged in the commercial production of 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 O, if the machinery and equipment are used directly and primarily to prevent, monitor, control or reduce air, water or land pollution.

20.  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;

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.

21.  Qualifying equipment that is purchased from and after June 30, 2004 through June 30, 2024 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.

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 15 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 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 the performance of 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 15, subdivision (b) of this section, the department may require the purchaser to establish that the requirements of subsection B, paragraph 15, subdivision (b) of this section have been satisfied.  If the purchaser cannot establish that the requirements of subsection B, paragraph 15, 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 15, 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.  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.

V.  Notwithstanding subsections A and B of this section, the tangible personal property in the following categories is not exempt or deductible from the tax base for taxable periods beginning from and after December 31, 2027:

1.  Subsection A, paragraphs 3, 4, 7, 8, 9, 10, 11, 12, 13, 14, 15, 17, 18, 19, 20, 21, 25, 26, 28, 29, 30, 31, 32, 33, 34, 35, 36, 37, 38, 40, 41, 42, 43, 44, 45, 46, 47, 48, 49, 50, 51, 52, 53, 54, 55, 56, 57, 59 and 60 of this section.

2.  Subsection B, paragraphs 1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14, 15, 16, 17, 18, 19 and 20 of this section.

V.  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.

W.  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 the fabrication, production or manufacture of 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 the performance of 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 of supplies or services that, in whole or in part, are necessary to the performance of 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 the performance of 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. 3.  Section 42-5062, Arizona Revised Statutes, is amended to read:

START_STATUTE42-5062.  Transporting classification A.  The transporting classification is comprised of the business of transporting for hire persons, freight or property by motor vehicle, railroads or aircraft from one point to another point in this state.  The transporting classification does not include:

1.  Transporting for hire persons, freight or property by:

(a)  Motor carriers subject to a fee prescribed in title 28, chapter 16, article 4.

(b)  Light motor vehicles subject to a fee under title 28, chapter 15, article 4.

(c)  Transportation network companies subject to a fee prescribed pursuant to section 28‑9552.

(d)  Transportation network company drivers on transactions involving transportation network services as defined in section 28‑9551.

(e)  Vehicle for hire companies that are issued permits pursuant to section 28‑9503.

(f)  Vehicle for hire drivers operating under a company permit issued pursuant to section 28‑9503 on transactions involving vehicle for hire services.

2.  The business of transporting for hire persons traveling in air commerce by aircraft if taxation of the business is preempted by federal law.

3.  Ambulances or ambulance services provided under title 48 or certified pursuant to title 36, chapter 21.1 or provided by a city or town in a county with a population of less than one hundred fifty thousand persons as determined in the most recent United States decennial census.

4.  Public transportation program services for the dial-a-ride programs and special needs transportation services.

5.  Transporting freight or property for hire by a railroad operating exclusively in this state if the transportation comprises a portion of a single shipment of freight or property, involving more than one railroad, either from a point in this state to a point outside this state or from a point outside this state to a point in this state.  For the purposes of this paragraph, "a  single shipment" means the transportation that begins at the point at which one of the railroads first takes possession of the freight or property and continues until the point at which one of the railroads relinquishes possession of the freight or property to a party other than one of the railroads.

6.  Arranging transportation as a convenience or service to a person's customers if that person is not otherwise engaged in the business of transporting persons, freight or property for hire.  This exception does not apply to businesses that dispatch vehicles pursuant to customer orders and send the billings and receive the payments associated with that activity, including when the transportation is performed by third‑party independent contractors.  For the purposes of this paragraph, "arranging" includes billing for or collecting transportation charges from a person's customers on behalf of the persons providing the transportation.

B.  The tax base for the transporting classification is the gross proceeds of sales or gross income derived from the business, except that the following shall be deducted from the tax base:

1.  The gross proceeds of sales or gross income derived from transporting for hire persons, freight or property by a railroad pursuant to a contract with another railroad that is also considered to be engaged in the businesses of transporting persons, freight or property for hire if the other railroad is liable for the tax on gross proceeds of sales or gross income attributable to the transportation.

2.  The gross proceeds of sales or gross income derived from business activity that is properly included in any other business classification under this article and that is taxable to the person engaged in that classification, but the gross proceeds of sales or gross income to be deducted shall not exceed the consideration paid to the person conducting the activity.

3.  The gross proceeds of sales or gross income derived from a business activity that is arranged by the person who is subject to tax under this section and that is not taxable to the person conducting the activity due to an exclusion, exemption or deduction under this section or section 42‑5073, but the gross proceeds of sales or gross income to be deducted shall not exceed the consideration paid to the person conducting the activity.

4.  The gross proceeds of sales or gross income derived from business activity that is arranged by a person who is subject to tax under this section and that is taxable to another person under this section who conducts the activity, but the gross proceeds of sales or gross income to be deducted shall not exceed the consideration paid to the person conducting the activity.

5.  The gross proceeds of sales or gross income derived from transporting fertilizer by a railroad from a point in this state to another point in this state.

C.  Notwithstanding subsections A and B of this section, the activities in the following categories are not exempt or deductible from the tax base for taxable periods beginning from and after December 31, 2027:

1.  Subsection A, paragraphs 3, 4, 5 and 6 of this section.

2.  Subsection B, paragraphs 1 and 5 of this section.

END_STATUTE Sec. 4.  Section 42-5063, Arizona Revised Statutes, is amended to read:

START_STATUTE42-5063.  Utilities classification;

definitions A.  The utilities classification is comprised of the business of:

1.  Producing and furnishing or furnishing to consumers natural or artificial gas and water.

2.  Providing to retail electric customers ancillary services, electric distribution services, electric generation services, electric transmission services and other services related to providing electricity.

B.  The utilities classification does not include:

1.  Sales of ancillary services, electric distribution services, electric generation services, electric transmission services and other services related to providing electricity, gas or water to a person who resells the services.

2.  Sales of natural gas or liquefied petroleum gas used to propel a motor vehicle.

3.  Sales of alternative fuel, as defined in section 1‑215, to a used oil fuel burner who has received a permit to burn used oil or used oil fuel under section 49‑426 or 49‑480.

4.  Sales of ancillary services, electric distribution services, electric generation services, electric transmission services and other services that are related to providing electricity to a retail electric customer who is located outside this state for use outside this state if the electricity is delivered to a point of sale outside this state.

5.  Sales or other transfers of renewable energy credits or any other unit created to track energy derived from renewable energy resources.  For the purposes of this paragraph, "renewable energy credit" means a unit created administratively by the corporation commission or governing body of a public power utility to track kilowatt hours of electricity derived from a renewable energy resource or the kilowatt hour equivalent of conventional energy resources displaced by distributed renewable energy resources.

6.  The leasing or renting of space to make attachments to utility poles as follows:

(a)  By a person that is engaged in business under this section.

(b)  To a person that is engaged in business under this section or section 42‑5064 or that is a cable operator.

C.  The tax base for the utilities classification is the gross proceeds of sales or gross income derived from the business, but the following shall be deducted from the tax base:

1.  Revenues received by a municipally owned utility in the form of fees charged to persons constructing residential, commercial or industrial developments or connecting residential, commercial or industrial developments to a municipal utility system or systems if the fees are segregated and used only for capital expansion, system enlargement or debt service of the utility system or systems.

2.  Revenues received by any person or persons owning a utility system in the form of reimbursement or contribution compensation for property and equipment installed to provide utility access to, on or across the land of an actual utility consumer if the property and equipment become the property of the utility.  This deduction shall not exceed the value of such property and equipment.

3.  Gross proceeds of sales or gross income derived from sales to:

(a)  Qualifying hospitals as defined in section 42‑5001.

(b)  A qualifying health care organization as defined in section 42‑5001 if the tangible personal property is used by the organization solely to provide health and medical related educational and charitable services.

4.  The portion of gross proceeds of sales or gross income that is derived from sales to a qualified environmental technology manufacturer, producer or processor as defined in section 41‑1514.02 of a utility product and that is used directly in environmental technology manufacturing, producing or processing.  This paragraph shall apply for twenty full consecutive calendar or fiscal years from the date the first paper manufacturing machine is placed in service.  In the case of a qualified environmental technology manufacturer, producer or processor who does not manufacture paper, the time period shall begin with the date the first manufacturing, processing or production equipment is placed in service.

5.  The portion of gross proceeds of sales or gross income attributable to transfers of electricity by any retail electric customer owning a solar photovoltaic energy generating system to an electric distribution system, if the electricity transferred is generated by the customer's system.

6.  Gross proceeds of sales or gross income derived from sales of electricity, natural gas or liquefied petroleum gas to a qualified manufacturing or smelting business.  A utility that claims this deduction shall report each month, on a form prescribed by the department, the name and address of each qualified manufacturing or smelting business for which this deduction is taken.  This paragraph applies to gas transportation services.  For the purposes of this paragraph:

(a)  "Gas transportation services" means the services of transporting natural gas to a natural gas customer or to a natural gas distribution facility if the natural gas was purchased from a supplier other than the utility.

(b)  "Manufacturing" means the performance as a business of an integrated series of operations that places tangible personal property in a form, composition or character different from that in which it was acquired and transforms it into a different product with a distinctive name, character or use.  Manufacturing does not include job printing, publishing, packaging, mining, generating electricity or operating a restaurant.

(c)  "Qualified manufacturing or smelting business" means one of the following:

(i)  A business that manufactures or smelts tangible products in this state, of which at least fifty-one percent of the manufactured or smelted products will be exported out of state for incorporation into another product or sold out of state for a final sale.

(ii)  A business that derives at least fifty‑one percent of its gross income from the sale of manufactured or smelted products manufactured or smelted by the business.

(iii)  A business that uses at least fifty‑one percent of its square footage in this state for manufacturing or smelting and business activities directly related to manufacturing or smelting.

(iv)  A business that employs at least fifty-one percent of its workforce in this state in manufacturing or smelting and business activities directly related to manufacturing or smelting.

(v)  A business that uses at least fifty-one percent of the value of its capitalized assets in this state, as reflected on the business's books and records, for manufacturing or smelting and business activities directly related to manufacturing or smelting.

(d)  "Smelting" means to melt or fuse a metalliferous mineral, often with an accompanying chemical change, usually to separate the metal.

7.  Gross proceeds of sales or gross income derived from sales of electricity or natural gas to a business that operates an international operations center in this state and that is certified by the Arizona commerce authority pursuant to section 41‑1520.

D.  Notwithstanding subsections B and C of this section, the activities in the following categories are not exempt or deductible from the tax base for taxable periods beginning from and after December 31, 2027:

1.  Subsection B, paragraphs 1, 3 and 4 of this section.

2.  Subsection C, paragraphs 1, 2, 3, 4, 5 and 6 of this section.

D.  E.  For the purposes of this section:

1.  "Ancillary services" means those services so designated in federal energy regulatory commission order 888 adopted in 1996 that include the services necessary to support the transmission of electricity from resources to loads while maintaining reliable operation of the transmission system according to good utility practice.

2.  "Cable operator" has the same meaning prescribed in section 9‑505.

3.  "Electric distribution service" means distributing electricity to retail electric customers through the use of electric distribution facilities.

4.  "Electric generation service" means providing electricity for sale to retail electric customers but excluding electric distribution or transmission services.

5.  "Electric transmission service" means transmitting electricity to retail electric customers or to electric distribution facilities so classified by the federal energy regulatory commission or, to the extent permitted by law, so classified by the Arizona corporation commission.

6.  "Other services" includes metering, meter reading services, billing and collecting services.

7.  "Retail electric customer" means a person who purchases electricity for that person's own use, including use in that person's trade or business and not for resale, redistribution or retransmission.

8.  "Utility pole" means any wooden, metal or other pole used for utility purposes and the pole's appurtenances that are attached or authorized for attachment by the person controlling the pole.

END_STATUTE Sec. 5.  Section 42-5064, Arizona Revised Statutes, is amended to read:

START_STATUTE42-5064.  Telecommunications classification;

definitions A.  The telecommunications classification is comprised of the business of providing intrastate telecommunications services.  The telecommunications classification does not include:

1.  Sales of intrastate telecommunications services by a cable operator or by a microwave television transmission system that transmits television programming to multiple subscribers and that is operated pursuant to 47 Code of Federal Regulations parts 21 and 74.

2.  Sales of internet access or application services to the person's subscribers and customers.  For the purposes of this paragraph:

(a)  "Application services" means software applications provided remotely using hypertext transfer protocol or another network protocol and purchased by or for any school district, charter school, community college or state university to assess or test student learning or to promote curriculum design or enhancement.

(b)  "Curriculum design or enhancement" means planning, implementing or reporting on courses of study, lessons, assignments or other learning activities.

3.  The leasing or renting of space to make attachments to utility poles as follows:

(a)  By a person that is engaged in business under this section.

(b)  To a person that is engaged in business under section 42-5063 or this section or that is a cable operator.

B.  The tax base for the telecommunications classification is the gross proceeds of sales or gross income derived from the business, including the gross income derived from tolls, subscriptions and services on behalf of subscribers or from the publication of a directory of the names of subscribers.  However, the gross proceeds of sales or gross income derived from the following shall be deducted from the tax base:

1.  Sales of intrastate telecommunications services to:

(a)  Other persons engaged in businesses classified under the telecommunications classification for use in such business.

(b)  A direct broadcast satellite television or data transmission service that operates pursuant to 47 Code of Federal Regulations part 25 for use in its direct broadcast satellite television or data transmission operation by a facility described in section 42‑5061, subsection B, paragraph 15, subdivision (b).

2.  End user common line charges established by federal communications commission regulations (47 Code of Federal Regulations section 69.104(a)).

3.  Carrier access charges established by federal communications commission regulations (47 Code of Federal Regulations sections 69.105(a) through 69.118).

4.  Sales of direct broadcast satellite television services pursuant to 47 Code of Federal Regulations part 25 by a direct broadcast satellite television service that operates pursuant to 47 Code of Federal Regulations part 25.

5.  Telecommunications services purchased with a prepaid calling card, or a prepaid authorization number for telecommunications services, that is taxable under section 42‑5061.

C.  A person that is engaged in a transient lodging business subject to taxation under section 42‑5070 and that provides telephone, fax or internet access services to its customers at an additional charge, which is separately stated on the customer invoice, is considered to be engaged in business subject to taxation under this section for the purposes of taxing the gross proceeds of sales or gross income derived from providing those services.

D.  The gross proceeds of sales or gross income derived from a bundled transaction of services that are taxable pursuant to section 42‑5023 are subject to the following:

1.  A telecommunications service provider who can reasonably identify the portion of the sales price of the bundled transaction derived from charges for nontaxable services is subject to tax only on the gross proceeds of sales or gross income derived from the taxable services.  For the purposes of this section, the telecommunications service provider may elect to reasonably identify the portion of the sales price of the bundled transaction derived from charges for nontaxable services by using allocation percentages derived from the telecommunications service provider's entire service area, including territories outside of this state.  On request, the department may require the telecommunications service provider to provide this allocation information.  The reasonableness of the allocation is subject to audit by the department.

2.  Notwithstanding sections 42‑1118, 42‑1120 and 42‑1121, the telecommunications service provider shall waive the right to file a claim for a refund of taxes paid on the bundled transaction if the taxes paid are based on the allocation percentage the telecommunications service provider had determined to be reasonable at the beginning of the tax period at issue.

3.  The burden of proof is on the telecommunications service provider to establish that the gross proceeds of sales or gross income is derived from charges for nontaxable services.

E.  Notwithstanding subsections A and B of this section, the activities in the following categories are not exempt or deductible from the tax base for taxable periods beginning from and after December 31, 2027:

1.  Subsection A, paragraphs 1 and 2 of this section.

2.  Subsection B, paragraphs 2 and 4 of this section.

E.  F.  For the purposes of this section:

1.  "Bundled transaction" means a sale of multiple services in which both of the following apply:

(a)  The sale consists of both taxable and nontaxable services.

(b)  The telecommunications service provider charges a customer one sales price for all services that are sold instead of separately charging for each individual service.

2.  "Cable operator" has the same meaning prescribed in section 9‑505.

3.  "Internet" means the computer and telecommunications facilities that comprise the interconnected worldwide network of networks that employ the transmission control protocol or internet protocol, or any predecessor or successor protocol, to communicate information of all kinds by wire or radio.

4.  "Internet access" means a service that enables users to access content, information, electronic mail e-mail or other services over the internet.  Internet access does not include telecommunications services provided by a common carrier.

5.  "Intrastate telecommunications services" means transmitting signs, signals, writings, images, sounds, messages, data or other information of any nature by wire, radio waves, light waves or other electromagnetic means if the information transmitted originates and terminates in this state.

6.  "Utility pole" means any wooden, metal or other pole used for utility purposes and the pole's appurtenances that are attached or authorized for attachment by the person controlling the pole.

END_STATUTE Sec. 6.  Section 42-5065, Arizona Revised Statutes, is amended to read:

START_STATUTE42-5065.  Publication classification;

definition A.  The publication classification is comprised of the business of publishing newspapers, magazines or other periodicals and publications if published in this state.  The publication classification does not include:

1.  Manufacturing or publishing books.

2.  Sales of magazines or other periodicals or other publications by this state to encourage tourist travel.

B.  The tax base for the publication classification is the gross proceeds of sales or gross income derived from the business, including the gross income derived from notices and subscription income, but the following shall be deducted from the tax base:

1.  Gross income derived from advertising.

2.  Gross proceeds of sales or gross income derived from sales of personal property to:

(a)  Qualifying hospitals as defined in section 42‑5001.

(b)  A qualifying health care organization as defined in section 42‑5001 if the tangible personal property is used by the organization solely to provide health and medical related educational and charitable services.

(c)  A qualifying health sciences educational institution as defined in section 42‑5001.

C.  Notwithstanding subsections A and B of this section, the activities in the following categories are not exempt or deductible from the tax base for taxable periods beginning from and after December 31, 2027:

1.  Subsection A, paragraph 1 of this section.

2.  Subsection B, paragraph 1 of this section.

C.  D.  For purposes of this section, "subscription income" includes all circulation revenue, except amounts actually retained by or credited to carriers and other vendors as compensation for sale or delivery of publications and revenue from publications sold, directly or through wholesalers or jobbers, to retailers for resale.

END_STATUTE Sec. 7.  Section 42-5066, Arizona Revised Statutes, is amended to read:

START_STATUTE42-5066.  Job printing classification A.  The job printing classification is comprised of the business of job printing, engraving, embossing and copying.

B.  The tax base for the job printing classification is the gross proceeds of sales or gross income derived from the business, but the gross proceeds of sales or gross income derived from the following shall be deducted from the tax base:

1.  Sales to a person in this state who has a transaction privilege tax license issued in this state,  and who does either of the following:

(a)  Resells the job printing, engraving, embossing or copying.

(b)  Distributes such printing, engraving, embossing or copying without consideration in connection with the publication of a newspaper or magazine.

2.  Sales of job printing, engraving, embossing and copying for use outside this state if the materials are shipped or delivered out of this state regardless of where title to the materials passes or their free on board point.

3.  Sales of personal property to:

(a)  Qualifying hospitals as defined in section 42‑5001.

(b)  A qualifying health care organization as defined in section 42‑5001 if the tangible personal property is used by the organization solely to provide health and medical related educational and charitable services.

(c)  A qualifying health sciences educational institution as defined in section 42‑5001.

4.  Sales of postage and freight except that the amount deducted shall not exceed the actual postage and freight expense that is paid to the United States postal service or a commercial delivery service and that is separately itemized by the taxpayer on the customer's invoice and in the taxpayer's records.

C.  Notwithstanding subsection B of this section, the activities described in subsection B, paragraphs 1, 2 and 4 of this section are not deductible from the tax base for taxable periods beginning from and after December 31, 2027.

END_STATUTE Sec. 8.  Section 42-5070, Arizona Revised Statutes, is amended to read:

START_STATUTE42-5070.  Transient lodging classification;

definition A.  The transient lodging classification is comprised of the business of operating, for occupancy by transients, a hotel or motel, including an inn, tourist home or house, dude ranch, resort, campground, studio or bachelor hotel, lodging house, rooming house, apartment house, dormitory, public or private club, mobile home or house trailer at a fixed location or other similar structure, and also including a space, lot or slab that is occupied or intended or designed for occupancy by transients in a mobile home or house trailer furnished by them for such occupancy.

B.  The transient lodging classification does not include:

1.  Operating a convalescent home or facility, home for the aged, hospital, jail, military installation or fraternity or sorority house or operating any structure exclusively by an association, institution, governmental agency or corporation for religious, charitable or educational purposes, if no part of the net earnings of the association, corporation or other entity inures to the benefit of any private shareholder or individual.

2.  A lease or rental of a mobile home or house trailer at a fixed location or any other similar structure, and also including a space, lot or slab that is occupied or intended or designed for occupancy by transients in a mobile home or house trailer furnished by them for such occupancy for thirty or more consecutive days.

3.  Leasing or renting four or fewer rooms of an owner‑occupied residential home, together with furnishing no more than a breakfast meal, to transient lodgers at no more than a fifty percent average annual occupancy rate.  This exemption expires from and after December 31, 2027.

4.  The activities of any online lodging marketplace, as defined in section 42‑5076.

C.  The tax base for the transient lodging classification is the gross proceeds of sales or gross income derived from the business, except that the tax base does not include:

1.  The gross proceeds of sales or gross income derived from business activity that is properly included in another business classification under this article and that is taxable to the person engaged in that business classification, but the gross proceeds of sales or gross income to be deducted shall not exceed the consideration paid to the person conducting the activity.

2.  The gross proceeds or gross income received by an online lodging operator, as defined in section 42‑5076, from any online lodging transactions, as defined in section 42‑5076, for which the online lodging operator has received documentation from a registered online lodging marketplace, as defined in section 42‑5076, pursuant to section 42‑5009, subsection P that the online lodging marketplace has remitted or will remit the applicable tax to the department pursuant to section 42‑5014, subsection E.

D.  For the purposes of this section, the tax base for the transient lodging classification does not include gross proceeds of sales or gross income derived from:

1.  Transactions or activities that are not limited to transients and that would not be taxable if engaged in by a person not subject to tax under this article.

2.  Transactions or activities that are not limited to transients and that would not be taxable if engaged in by a person subject to taxation under section 42‑5062 or 42‑5073 due to an exclusion, exemption or deduction.

3.  Commissions paid to a person that is engaged in transient lodging business subject to taxation under this section by a person providing services or property to the customers of the person engaging in the transient lodging business.

E.  The department shall separately account for revenues collected under the transient lodging classification for the purposes of section 42‑5029, subsection D, paragraph 4, subdivision (b).

F.  For the purposes of this section, "transient" means any person who either at the person's own expense or at the expense of another obtains lodging space or the use of lodging space on a daily or weekly basis, or on any other basis for less than thirty consecutive days.

END_STATUTE Sec. 9.  Section 42-5071, Arizona Revised Statutes, is amended to read:

START_STATUTE42-5071.  Personal property rental classification;

definitions A.  The personal property rental classification is comprised of the business of leasing or renting tangible personal property for a consideration.  The tax does not apply to:

1.  Leasing or renting films, tapes or slides used by theaters or movies, which are engaged in business under the amusement classification, or used by television stations or radio stations.

2.  Activities engaged in by the Arizona exposition and state fair board or county fair commissions in connection with events sponsored by such entities.

3.  Leasing or renting tangible personal property by a parent corporation to a subsidiary corporation or by a subsidiary corporation to another subsidiary of the same parent corporation if taxes were paid under this chapter on the gross proceeds or gross income accruing from the initial sale of the tangible personal property.  For the purposes of this paragraph, "subsidiary" means a corporation of which at least eighty percent of the voting shares are owned by the parent corporation.

4.  Operating coin‑operated washing, drying and dry cleaning machines or coin‑operated car washing machines at establishments for the use of such machines.

5.  Leasing or renting tangible personal property for incorporation into or comprising any part of a qualified environmental technology facility as described in section 41‑1514.02.  This paragraph shall apply for ten full consecutive calendar or fiscal years following the initial lease or rental by each qualified environmental technology manufacturer, producer or processor.

6.  Leasing or renting aircraft, flight simulators or similar training equipment to students or staff by nonprofit, accredited educational institutions that offer associate or baccalaureate degrees in aviation or aerospace related fields.

7.  Leasing or renting photographs, transparencies or other creative works used by this state on internet websites, in magazines or in other publications that encourage tourism.

8.  Leasing or renting certified ignition interlock devices installed pursuant to the requirements prescribed by section 28‑1461.  For the purposes of this paragraph, "certified ignition interlock device" has the same meaning prescribed in section 28‑1301.

9.  The leasing or renting of space to make attachments to utility poles, as follows:

(a)  By a person that is engaged in business under section 42‑5063 or 42‑5064 or that is a cable operator.

(b)  To a person that is engaged in business under section 42‑5063 or 42‑5064 or that is a cable operator.

10.  Leasing or renting billboards that are designed, intended or used to advertise or inform and that are visible from any street, road or other highway.

B.  The tax base for the personal property rental classification is the gross proceeds of sales or gross income derived from the business, but the gross proceeds of sales or gross income derived from the following shall be deducted from the tax base:

1.  Reimbursements by the lessee to the lessor of a motor vehicle for payments by the lessor of the applicable fees and taxes imposed by sections 28‑2003, 28‑2352, 28‑2402, 28‑2481 and 28‑5801, title 28, chapter 15, article 2 and article IX, section 11, Constitution of Arizona, to the extent such amounts are separately identified as such fees and taxes and are billed to the lessee.

2.  Leases or rentals of tangible personal property that, if it had been purchased instead of leased or rented by the lessee, would have been exempt under:

(a)  Section 42‑5061, subsection A, paragraph 8, 9, 12, 13, 25, 29, 49 or 53.

(b)  Section 42‑5061, subsection B, except that a lease or rental of new machinery or equipment is not exempt pursuant to section 42‑5061, subsection B, paragraph 13 if the lease is for less than two years.

(c)  Section 42‑5061, subsection I, paragraph 1.

(d)  Section 42‑5061, subsection M.

3.  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 and sales of aviation fuel that are subject to the tax imposed under section 28‑8344.

4.  Leasing or renting a motor vehicle subject to and on which the fee has been paid under title 28, chapter 16, article 4.

5.  Amounts received by a motor vehicle dealer for the first month of a lease payment if the lease and the lease payment for the first month of the lease are transferred to a third‑party leasing company.

C.  Sales of tangible personal property to be leased or rented to a person engaged in a business classified under the personal property rental classification are deemed to be resale sales.

D.  In computing the tax base, the gross proceeds of sales or gross income from the lease or rental of a motor vehicle does not include any amount attributable to the car rental surcharge under section 5‑839, 28‑5810 or 48‑4234.

E.  Until December 31, 1988, leasing or renting animals for recreational purposes is exempt from the tax imposed by this section.

Beginning January 1, 1989, the gross proceeds or gross income from leasing or renting animals for recreational purposes is subject to taxation under this section.  Tax liabilities, penalties and interest paid for taxable periods before January 1, 1989 shall not be refunded unless the taxpayer requesting the refund provides proof satisfactory to the department that the monies paid as taxes will be returned to the customer.

F.  Notwithstanding subsections A and B of this section, the activities in the following categories are not exempt or deductible from the tax base for taxable periods beginning from and after December 31, 2027:

1.  Subsection A, paragraphs 1, 4, 5, 6, 7 and 10 of this section.

2.  Subsection B, paragraph 5 of this section.

F.  G.  For the purposes of this section:

1.  "Cable operator" has the same meaning prescribed by in section 9‑505.