SB 1738 — tax; revisions; distributions; 2022-2023.

Title 42, chapter 1, article 1, Arizona Revised Statutes, is amended by adding section 42-1009, to read:

42-1009.

Department of revenue tax system modernization project advisory committee;

membership THE DEPARTMENT OF REVENUE TAX SYSTEM MODERNIZATION PROJECT ADVISORY COMMITTEE IS ESTABLISHED AND SHALL SERVE AS THE LIAISON BETWEEN THE DEPARTMENT AND THE USERS OF THE TAX SYSTEM.

THE COMMITTEE SHALL CONSIST OF THE FOLLOWING MEMBERS:

1.

THE DIRECTOR OF THE DEPARTMENT OF REVENUE OR THE DIRECTOR'S DESIGNEE WHO SHALL SERVE AS THE CHAIRPERSON OF THE COMMITTEE.

2.

THE DIRECTOR OF THE DEPARTMENT OF ADMINISTRATION OR THE DIRECTOR'S DESIGNEE.

3.

THE AUDITOR GENERAL OR THE AUDITOR GENERAL'S DESIGNEE AS A NONVOTING MEMBER.

4.

THE DIRECTOR OF THE JOINT LEGISLATIVE BUDGET COMMITTEE OR THE DIRECTOR'S DESIGNEE AS A NONVOTING MEMBER.

5.

THE DIRECTOR OF THE GOVERNOR'S OFFICE OF STRATEGIC PLANNING AND BUDGETING OR THE DIRECTOR'S DESIGNEE.

6.

ONE MEMBER WHO REPRESENTS A CITY OR TOWN IN THIS STATE.

THE DIRECTOR OF THE DEPARTMENT OF REVENUE SHALL APPOINT THIS MEMBER.

7.

ONE MEMBER WHO REPRESENTS A COUNTY IN THIS STATE.

THE DIRECTOR OF THE DEPARTMENT OF REVENUE SHALL APPOINT THIS MEMBER.

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1738 8.

ONE MEMBER WHO REPRESENTS THE BUSINESS COMMUNITY IN THIS STATE.

THE DIRECTOR OF THE DEPARTMENT OF REVENUE SHALL APPOINT THIS MEMBER.

9.

ONE MEMBER WHO IS APPOINTED BY THE PRESIDENT OF THE SENATE.

10.

ONE MEMBER WHO IS APPOINTED BY THE SPEAKER OF THE HOUSE OF REPRESENTATIVES.

Sec.

3.

Repeal Section 42-1009, Arizona Revised Statutes, as added by this act, is repealed from and after December 31, 2029.

Sec.

4.

Section 42-5029.02, Arizona Revised Statutes, is amended to read:

42-5029.02.

Distribution of revenues for education;

definitions A.

All monies collected pursuant to section 42-5010.01 and section 42-5155, subsection E shall be distributed each fiscal year pursuant to this subsection.

The monies distributed pursuant to this subsection are in addition to any other appropriation, transfer or other allocation of public or private monies from any other source and may not supplant, replace or cause a reduction in other school district, charter school, university or community college funding sources.

The monies shall be distributed as follows:

1.

$64,100,000 is appropriated each fiscal year, to be paid in monthly installments, to the superintendent of public instruction for basic state aid.

2.

After any transfer of monies pursuant to paragraph 1 of this subsection, twelve percent of the remaining monies collected during the preceding month shall be transferred to the technology and research initiative fund established by section 15-1648 to be distributed among the universities under the jurisdiction of the Arizona board of regents for the purpose of investment in technology and research-based initiatives.

3.

After the transfer of monies pursuant to paragraph 1 of this subsection, three percent of the remaining monies collected during the preceding month shall be transferred to the workforce development account established in each community college district pursuant to section 15-1472 for the purpose of investment in workforce development programs.

4.

After the transfer of monies pursuant to paragraphs 1, 2 and 3 of this subsection, one-twelfth of the amount a community college that is owned, operated or chartered by a qualifying Indian tribe on its own Indian reservation would receive pursuant to section 15-1472, subsection D, paragraph 2 if it were a community college district shall be distributed each month to the treasurer or other designated depository of the qualifying Indian tribe.

Monies distributed pursuant to this paragraph are for the exclusive purpose of providing support to one or more community colleges that are owned, operated or chartered by a qualifying Indian tribe and shall be used in a manner consistent with section 15-1472, subsection B.

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1738 5.

After the transfer of monies pursuant to paragraphs 1, 2 and 3 of this subsection, one-twelfth of $86,280,500 shall be transferred each month to the department of education for the increased cost of basic state aid under section 15-971 due to added school days and associated teacher salary increases that were enacted in 2000.

6.

After the transfer of monies pursuant to paragraphs 1, 2 and 3 of this subsection, $7,800,000 is appropriated each fiscal year, to be paid in monthly installments, to the department of education to be used for school safety as provided in section 15-154 and $200,000 is appropriated each fiscal year, to be paid in monthly installments, to the department of education to be used for the character education matching grant program as provided in section 15-154.01.

7.

After the transfer of monies pursuant to paragraphs 1, 2 and 3 of this subsection, the legislature may not appropriate more than $7,000,000 each fiscal year to the department of education to be used for accountability purposes as described in section 15-241.02 and title 15, chapter 9, article 8.

8.

After the transfer of monies pursuant to paragraphs 1, 2 and 3 of this subsection, $1,500,000 is appropriated each fiscal year, to be paid in monthly installments, to the failing schools tutoring fund established by section 15-241.

9.

After the transfer of monies pursuant to paragraphs 1, 2 and 3 of this subsection, $25,000,000 shall be transferred each fiscal year to the state general fund to reimburse the state general fund for the cost of the income tax credit allowed by section 43-1072.02.

10.

FROM AND AFTER JUNE 30, 2022 THROUGH JUNE 30, 2028, AFTER THE TRANSFER OF MONIES PURSUANT TO PARAGRAPHS 1 THROUGH 9 OF THIS SUBSECTION, AN AMOUNT DETERMINED BY THE DIRECTOR PURSUANT TO SECTION 42-5041 TO THE DEPARTMENT OF REVENUE INTEGRATED TAX SYSTEM PROJECT FUND ESTABLISHED BY SECTION 42-5041.

10.

11.

After the transfer of monies pursuant to paragraphs 1 through 9 10 of this subsection, the remaining monies collected during the preceding month shall be transferred to the classroom site fund established by section 15-977.

The monies shall be allocated in the manner prescribed by section 15-977.

B.

For the purposes of this section:

1.

"Community college district" means a community college district that is established pursuant to sections 15-1402 and 15-1403 and that is a political subdivision of this state and, unless otherwise specified, includes a community college tuition financing district established pursuant to section 15-1409.

2.

"Qualifying Indian tribe" has the same meaning as defined in section 42-5031.01.

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1738 Sec.

5.

Section 42-5032.02, Arizona Revised Statutes, is amended to read:

42-5032.02.

Distribution of revenues for city, town or county infrastructure improvements related to manufacturing facilities;

definitions A.

Subject to subsection B of this section, from and after September 30, 2013 through September 30, 2033, each month the state treasurer shall pay a city, town or county the amount determined under subsection C of this section for the purpose of funding up to eighty percent of the cost of public infrastructure improvements for the benefit of a manufacturing facility.

B.

The state treasurer shall not make any payments under subsection C of this section until both of the following apply:

1.

Ten percent of the qualifying capital investment that is certified under subsection D of this section and that constitutes construction phase services, as defined in section 42-5075, has been made by the manufacturing facility.

2.

From and after June 30, 2014.

C.

The amount to be paid to a city, town or county under subsection A of this section is the total amount of state transaction privilege tax revenues collected under section 42-5010, subsection A from persons conducting business under section 42-5075 derived from contracts to construct buildings and associated improvements for the benefit of a manufacturing facility.

The total amount paid to all cities, towns and counties under this subsection shall not exceed a maximum of $50,000,000 $100,000,000.

D.

Within one hundred eighty days after the commencement of the construction of buildings and associated improvements for the benefit of a manufacturing facility that will require a city, town or county to make infrastructure improvements, the manufacturing facility shall file a sworn certification with the Arizona commerce authority and submit a copy of this sworn certification to the applicable city, town or county that the manufacturing facility agrees to either:

1.

Make at least $500,000,000 in capital investment if the manufacturing facility is located in a county that has a population of eight hundred thousand persons or more.

2.

Make at least $50,000,000 in capital investment if the manufacturing facility is located in a county that has a population of less than eight hundred thousand persons.

E.

The certification under subsection D of this section shall contain a sworn statement or certification, signed by an officer of the manufacturing facility under penalty of perjury, that the information contained is true and correct according to the best belief and knowledge of the person submitting the information after a reasonable investigation of the facts.

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1738 F.

Before submitting the certification to the Arizona commerce authority, the manufacturing facility and the city, town or county must enter into a written agreement that:

1.

Identifies and states the cost of the public infrastructure improvements that will be constructed.

2.

Identifies the sources of monies, including monies received pursuant to this section, that will be used to pay for the public infrastructure improvements.

G.

On receipt of the sworn certification from a manufacturing facility pursuant to subsection D of this section, the city, town or county shall enter into a written agreement with the department.

This agreement and any amendments or changes to the agreement shall:

1.

State the cost of the public infrastructure improvements and separately identify the particular improvements that will be made.

2.

State that the monies received under this section will be used exclusively to pay for public infrastructure improvements that are necessary to support the activities of the manufacturing facility.

3.

State that the city, town or county will commit all of its portion of the revenue received pursuant to section 42-5029, subsection D derived from contracts subject to section 42-5075 to construct buildings and associated improvements for the benefit of the manufacturing facility for public infrastructure improvements that benefit the manufacturing facility.

4.

State that the city, town or county will immediately notify the department when monies received under this section exceed eighty percent of the cost of the infrastructure improvements and will return the amount of the excess to the state treasurer for deposit in the state general fund.

5.

Stipulate the actual amount of the construction funding that will be derived from sources other than this state.

6.

Identify the persons who will be prime contractors on the construction of buildings and associated improvements for the benefit of a manufacturing facility and state that each prime contractor has been notified as to which portion of the contractor's income shall be separately identified to the department pursuant to section 42-5075, subsection H.

7.

State that the city, town or county agrees that any amounts paid by the department to a prime contractor as identified under paragraph 6 of this subsection resulting from an audit adjustment or claim for credit or refund of taxes described in subsection C of this section shall be recovered by the department from the city, town or county by reducing the amount paid to the city, town or county under section 42-5029 from monies designated as distribution base in the month next succeeding the month in which the adjustment or claim is paid.

- 5 - S.B.

1738 8.

State that the city, town or county agrees that the department will use the amounts subject to any distribution required under subsection A of this section in calculating the maximum amount set by subsection C of this section.

9.

State that the city, town or county agrees that if, on notification by the department, the state treasurer ceases payments because of the condition described in subsection H of this section, the city, town or county has no claim to additional payments if the department subsequently pays amounts to a prime contractor identified in an agreement with any city, town or county, as described in paragraph 6 of this subsection, due to an audit adjustment or claim for credit or refund of taxes described in subsection C of this section.

10.

Provide any other information deemed necessary by the department.

H.

On notification by the department, the state treasurer shall cease payments under subsection A of this section if either of the following occurs:

1.

The city, town or county has received monies that meet or exceed eighty percent of the cost of the public infrastructure improvements that are necessary to support the activities related to the manufacturing facility as described in the written agreement pursuant to subsection G of this section.

2.

The total amount subject to any distribution required under subsection A of this section has met the maximum amount set by subsection C of this section.

I.

For the purposes of this section:

1.

"Associated improvement" includes any public infrastructure improvement that is made for the benefit of the manufacturing facility outside of the parcel or parcels of real property where the manufacturing facility is located.

2.

"Capital investment" means an expenditure to acquire, lease or improve property that is used for the benefit of a manufacturing facility, including land, buildings, machinery and fixtures.

3.

"Manufacturing facility":

(a) Means an establishment that is engaged in the mechanical, physical or chemical transformation or fabrication of materials, substances or components into new products in this state, that is classified within sections 31 through 33 inclusive of the 2007 edition of the North American industry classification system as published by the national technical information service of the United States department of commerce and that agrees to either:

(i) Make at least $500,000,000 in capital investment if the manufacturing facility is located in a county that has a population of eight hundred thousand persons or more.

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1738 (ii) Make at least $50,000,000 in capital investment if the manufacturing facility is located in a county that has a population of less than eight hundred thousand persons.

(b) Does not include mining, milling or smelting mineral ore or generating electricity.

4.

"Population" means the population determined in the most recent United States decennial census or the most recent special census as provided in section 28-6532.

5.

"Public infrastructure" means water production, delivery and disposal facilities, wastewater production, delivery and disposal facilities and roads that are necessary to support the activities of the manufacturing facility.

Sec.

6.

Title 42, chapter 5, article 1, Arizona Revised Statutes, is amended by adding section 42-5041, to read:

42-5041.

Assessment of fees;

integrated tax system modernization project;

fund A.

FROM AND AFTER JUNE 30, 2022 THROUGH JUNE 30, 2028, THE DEPARTMENT SHALL ASSESS AND COLLECT FEES FROM COUNTIES, CITIES, TOWNS, COUNCILS OF GOVERNMENTS AND REGIONAL TRANSPORTATION AUTHORITIES AS DETERMINED BY THE DIRECTOR AND AS PROVIDED BY THIS SECTION TO IMPLEMENT AN INTEGRATED TAX SYSTEM MODERNIZATION PROJECT AT THE DEPARTMENT.

B.

FROM AND AFTER JUNE 30, 2022 THROUGH JUNE 30, 2028, A FEE IS ASSESSED TO EACH COUNTY, CITY AND TOWN THAT RECEIVES STATE SHARED REVENUES PURSUANT TO SECTION 42-5029 OR 43-206, TO EACH COUNCIL OF GOVERNMENTS THAT RECEIVES REVENUES PURSUANT TO SECTION 42-6105 AND TO EACH REGIONAL TRANSPORTATION AUTHORITY LOCATED IN A COUNTY WITH A POPULATION OF MORE THAN EIGHT HUNDRED THOUSAND PERSONS THAT RECEIVES REVENUES PURSUANT TO SECTION 42-6106.

C.

THE DEPARTMENT SHALL ASSESS THE FEES UNDER SUBSECTION A AND B OF THIS SECTION NOT LATER THAN OCTOBER 31 EACH YEAR, AND THE FEES ARE PAYABLE IMMEDIATELY ON ASSESSMENT.

IF A COUNTY, CITY, TOWN, COUNCIL OF GOVERNMENTS OR REGIONAL TRANSPORTATION AUTHORITY FAILS TO PAY THE FEES IN FULL ON OR BEFORE DECEMBER 31, THE DEPARTMENT SHALL NOTIFY THE STATE TREASURER WHO SHALL WITHHOLD THE DELINQUENT AMOUNT FROM THE DISTRIBUTION OF MONIES TO THE AFFECTED COUNTY, CITY OR TOWN PURSUANT TO SECTIONS 42-5029 AND 43-206, FROM THE DISTRIBUTION OF MONIES TO THE AFFECTED COUNCIL OF GOVERNMENTS PURSUANT TO SECTION 42-6105 AND FROM THE DISTRIBUTION OF MONIES TO THE AFFECTED REGIONAL TRANSPORTATION AUTHORITY PURSUANT TO SECTION 42-6106, AND WHO SHALL CONTINUE TO WITHHOLD MONIES UNTIL THE ENTIRE AMOUNT OF THE ASSESSMENT HAS BEEN SATISFIED.

D.

COUNTIES, CITIES AND TOWNS MAY MEET THEIR COST SHARING OBLIGATION FROM ANY SOURCE OF COUNTY, CITY OR TOWN REVENUE DESIGNATED BY THE APPROPRIATE COUNTY, CITY OR TOWN.

THE COUNTY SOURCES MAY INCLUDE MONIES OF ANY COUNTYWIDE SPECIAL TAXING JURISDICTION IN WHICH THE BOARD OF SUPERVISORS SERVES AS THE BOARD OF DIRECTORS.

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1738 E.

FROM AND AFTER JUNE 30, 2022 THROUGH JUNE 30, 2028, PURSUANT TO SECTION 42-5029.02, THE DEPARTMENT SHALL TRANSFER AN AMOUNT FROM MONIES COLLECTED PURSUANT TO SECTION 42-5010.01 AND SECTION 42-5155, SUBSECTION E AS DETERMINED BY THE DIRECTOR TO IMPLEMENT THE INTEGRATED TAX SYSTEM MODERNIZATION PROJECT AT THE DEPARTMENT.

THE AMOUNT TRANSFERRED PURSUANT TO THIS SUBSECTION SHALL BE THE ACTUAL REASONABLE COSTS INCURRED BY THE DEPARTMENT FOR INTEGRATED TAX SYSTEM MODERNIZATION UPGRADES RELATED TO THE TAXES AUTHORIZED AND LEVIED PURSUANT TO SECTION 42-5010.01 AND SECTION 42-5155, SUBSECTION E.

F.

FROM AND AFTER JUNE 30, 2022 THROUGH JUNE 30, 2028, PURSUANT TO SECTION 36-2856, SUBSECTION B, PARAGRAPH 2, THE STATE TREASURER SHALL TRANSFER AN AMOUNT FROM MONIES COLLECTED PURSUANT TO SECTION 42-5452 AS DETERMINED BY THE DIRECTOR TO IMPLEMENT THE INTEGRATED TAX SYSTEM MODERNIZATION PROJECT AT THE DEPARTMENT.

THE AMOUNT TRANSFERRED PURSUANT TO THIS SUBSECTION SHALL BE THE ACTUAL REASONABLE COSTS INCURRED BY THE DEPARTMENT FOR INTEGRATED TAX SYSTEM MODERNIZATION UPGRADES RELATED TO THE TAX AUTHORIZED AND LEVIED BY SECTION 42-5452.

G.

ALL MONIES PAID TO THE DEPARTMENT OR WITHHELD BY THE STATE TREASURER FOR THE FEES ASSESSED PURSUANT TO SUBSECTION B OF THIS SECTION OR TRANSFERRED PURSUANT TO SUBSECTIONS E AND F OF THIS SECTION SHALL BE CREDITED TO THE DEPARTMENT OF REVENUE INTEGRATED TAX SYSTEM PROJECT FUND ESTABLISHED BY SUBSECTION H OF THIS SECTION.

H.

THE DEPARTMENT OF REVENUE INTEGRATED TAX SYSTEM PROJECT FUND IS ESTABLISHED CONSISTING OF MONIES DEPOSITED OR TRANSFERRED TO THE FUND PURSUANT TO THIS SECTION.

THE DIRECTOR SHALL ADMINISTER THE FUND.

MONIES IN THE FUND ARE SUBJECT TO LEGISLATIVE APPROPRIATION.

THE DIRECTOR SHALL USE MONIES IN THE FUND SOLELY FOR THE ADMINISTRATIVE, DEVELOPMENT AND OTHER OPERATING COSTS INCURRED IN IMPLEMENTING THE INTEGRATED TAX SYSTEM MODERNIZATION PROJECT AT THE DEPARTMENT.

Sec.

7.

Section 42-5061, Arizona Revised Statutes, as amended by Laws 2021, chapter 266, section 3, chapter 412, section 7, chapter 417, section 4 and chapter 443, section 2, is amended to read:

42-5061.

Retail classification;

definitions A.

The retail classification is comprised of the business of selling tangible personal property at retail.

The tax base for the retail classification is the gross proceeds of sales or gross income derived from the business.

The tax imposed on the retail classification does not apply to the gross proceeds of sales or gross income from:

1.

Professional or personal service occupations or businesses that involve sales or transfers of tangible personal property only as inconsequential elements.

2.

Services rendered in addition to selling tangible personal property at retail.

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1738 3.

Sales of warranty or service contracts.

The storage, use or consumption of tangible personal property provided under the conditions of such contracts is subject to tax under section 42-5156.

4.

Sales of tangible personal property by any nonprofit organization organized and operated exclusively for charitable purposes and recognized by the United States internal revenue service under section 501(c)(3) of the internal revenue code.

5.

Sales to persons engaged in business classified under the restaurant classification of articles used by human beings for food, drink or condiment, whether simple, mixed or compounded.

6.

Business activity that is properly included in any other business classification that is taxable under this article.

7.

The sale of stocks and bonds.

8.

Drugs and medical oxygen, including delivery hose, mask or tent, regulator and tank, if prescribed by a member of the medical, dental or veterinarian profession who is licensed by law to administer such substances.

9.

Prosthetic appliances as defined in section 23-501 and as prescribed or recommended by a health professional who is licensed pursuant to title 32, chapter 7, 8, 11, 13, 14, 15, 16, 17 or 29.

10.

Insulin, insulin syringes and glucose test strips.

11.

Prescription eyeglasses or contact lenses.

12.

Hearing aids as defined in section 36-1901.

13.

Durable medical equipment that has a centers for medicare and medicaid services common procedure code, is designated reimbursable by medicare, is prescribed by a person who is licensed under title 32, chapter 7, 8, 13, 14, 15, 17 or 29, can withstand repeated use, is primarily and customarily used to serve a medical purpose, is generally not useful to a person in the absence of illness or injury and is appropriate for use in the home.

14.

Sales of motor vehicles to nonresidents of this state for use outside this state if the motor vehicle dealer ships or delivers the motor vehicle to a destination out of this state.

15.

Food, as provided in and subject to the conditions of article 3 of this chapter and sections 42-5074 and 42-6017.

16.

Items purchased with United States department of agriculture coupons issued under the supplemental nutrition assistance program pursuant to the food and nutrition act of 2008 (P.L.

88-525;

78 Stat.

703;

7 United States Code sections 2011 through 2036b) by the United States department of agriculture food and nutrition service or food instruments issued under section 17 of the child nutrition act (P.L.

95-627;

92 Stat.

3603;

P.L.

99-661, section 4302;

P.L.

111-296;

42 United States Code section 1786).

17.

Textbooks by any bookstore that are required by any state university or community college.

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1738 18.

Food and drink to a person that is engaged in a business that is classified under the restaurant classification and that provides such food and drink without monetary charge to its employees for their own consumption on the premises during the employees' hours of employment.

19.

Articles of food, drink or condiment and accessory tangible personal property to a school district or charter school if such articles and accessory tangible personal property are to be prepared and served to persons for consumption on the premises of a public school within the district or on the premises of the charter school during school hours.

20.

Lottery tickets or shares pursuant to title 5, chapter 5.1, article 1.

21.

The sale of cash equivalents and the sale of precious metal bullion and monetized bullion to the ultimate consumer, but the sale of coins or other forms of money for manufacture into jewelry or works of art is subject to the tax and the gross proceeds of sales or gross income derived from the redemption of any cash equivalent by the holder as a means of payment for goods or services that are taxable under this article is subject to the tax.

For the purposes of this paragraph:

(a) "Cash equivalents" means items or intangibles, whether or not negotiable, that are sold to one or more persons, through which a value denominated in money is purchased in advance and may be redeemed in full or in part for tangible personal property, intangibles or services.

Cash equivalents include gift cards, stored value cards, gift certificates, vouchers, traveler's checks, money orders or other instruments, orders or electronic mechanisms, such as an electronic code, personal identification number or digital payment mechanism, or any other prepaid intangible right to acquire tangible personal property, intangibles or services in the future, whether from the seller of the cash equivalent or from another person.

Cash equivalents do not include either of the following:

(i) Items or intangibles that are sold to one or more persons, through which a value is not denominated in money.

(ii) Prepaid calling cards or prepaid authorization numbers for telecommunications services made taxable by subsection P of this section.

(b) "Monetized bullion" means coins and other forms of money that are manufactured from gold, silver or other metals and that have been or are used as a medium of exchange in this or another state, the United States or a foreign nation.

(c) "Precious metal bullion" means precious metal, including gold, silver, platinum, rhodium and palladium, that has been smelted or refined so that its value depends on its contents and not on its form.

22.

Motor vehicle fuel and use fuel that are subject to a tax imposed under title 28, chapter 16, article 1, sales of use fuel to a holder of a valid single trip use fuel tax permit issued under section 28-5739, sales of aviation fuel that are subject to the tax imposed under - 10 - S.B.

1738 section 28-8344 and sales of jet fuel that are subject to the tax imposed under article 8 of this chapter.

23.

Tangible personal property sold to a person engaged in the business of leasing or renting such property under the personal property rental classification if such property is to be leased or rented by such person.

24.

Tangible personal property sold in interstate or foreign commerce if prohibited from being so taxed by the constitution of the United States or the constitution of this state.

25.

Tangible personal property sold to:

(a) A qualifying hospital as defined in section 42-5001.

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

(c) A qualifying health care organization as defined in section 42-5001 if the organization is dedicated to providing educational, therapeutic, rehabilitative and family medical education training for blind and visually impaired children and children with multiple disabilities from the time of birth to age twenty-one.

(d) A qualifying community health center as defined in section 42-5001.

(e) A nonprofit charitable organization that has qualified under section 501(c)(3) of the internal revenue code and that regularly serves meals to the needy and indigent on a continuing basis at no cost.

(f) For taxable periods beginning from and after June 30, 2001, a nonprofit charitable organization that has qualified under section 501(c)(3) of the internal revenue code and that provides residential apartment housing for low-income persons over sixty-two years of age in a facility that qualifies for a federal housing subsidy, if the tangible personal property is used by the organization solely to provide residential apartment housing for low-income persons over sixty-two years of age in a facility that qualifies for a federal housing subsidy.

(g) A qualifying health sciences educational institution as defined in section 42-5001.

(h) Any person representing or working on behalf of another person described in subdivisions (a) through (g) of this paragraph if the tangible personal property is incorporated or fabricated into a project described in section 42-5075, subsection 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 - 11 - S.B.

1738 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 nonresident of this state if the purchaser's state of residence does not allow a corresponding use tax exemption to the tax imposed by article 1 of this chapter and if the nonresident has secured a special ninety day nonresident registration permit for the vehicle as prescribed by sections 28-2154 and 28-2154.01.

29.

Tangible personal property purchased in this state by a nonprofit charitable organization that has qualified under section 501(c)(3) of the United States internal revenue code and that engages in and uses such property exclusively in programs for persons with mental or physical disabilities if the programs are exclusively for training, job placement, rehabilitation or testing.

30.

Sales of tangible personal property by a nonprofit organization that is exempt from taxation under section 501(c)(3), 501(c)(4) or 501(c)(6) of the internal revenue code if the organization is associated with a major league baseball team or a national touring professional golfing association and no part of the organization's net earnings inures to the benefit of any private shareholder or individual.

This paragraph does not apply to an organization that is owned, managed or controlled, in whole or in part, by a major league baseball team, or its owners, officers, employees or agents, or by a major league baseball association or professional golfing association, or its owners, officers, employees or agents, unless the organization conducted or operated exhibition events in this state before January 1, 2018 that were exempt from taxation under section 42-5073.

31.

Sales of commodities, as defined by title 7 United States Code section 2, that are consigned for resale in a warehouse in this state in or from which the commodity is deliverable on a contract for future delivery subject to the rules of a commodity market regulated by the United States commodity futures trading commission.

32.

Sales of tangible personal property by a nonprofit organization that is exempt from taxation under section 501(c)(3), 501(c)(4), - 12 - S.B.

1738 501(c)(6), 501(c)(7) or 501(c)(8) of the internal revenue code if the organization sponsors or operates a rodeo featuring primarily farm and ranch animals and no part of the organization's net earnings inures to the benefit of any private shareholder or individual.

33.

Sales of propagative materials to persons who use those items to commercially produce agricultural, horticultural, viticultural or floricultural crops in this state.

For the purposes of this paragraph, "propagative materials":

(a) Includes seeds, seedlings, roots, bulbs, liners, transplants, cuttings, soil and plant additives, agricultural minerals, auxiliary soil and plant substances, micronutrients, fertilizers, insecticides, herbicides, fungicides, soil fumigants, desiccants, rodenticides, adjuvants, plant nutrients and plant growth regulators.

(b) Except for use in commercially producing industrial hemp as defined in section 3-311, does not include any propagative materials used in producing any part, including seeds, of any plant of the genus cannabis.

34.

Machinery, equipment, technology or related supplies that are only useful to assist a person with a physical disability as defined in section 46-191 or a person who has a developmental disability as defined in section 36-551 or has a head injury as defined in section 41-3201 to be more independent and functional.

35.

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

36.

Paper machine clothing, such as forming fabrics and dryer felts, sold to a paper manufacturer and directly used or consumed in paper manufacturing.

37.

Coal, petroleum, coke, natural gas, virgin fuel oil and electricity sold to a qualified environmental technology manufacturer, producer or processor as defined in section 41-1514.02 and directly used or consumed in generating or providing on-site power or energy solely for environmental technology manufacturing, producing or processing or environmental protection.

This paragraph applies for twenty full consecutive calendar or fiscal years from the date the first paper manufacturing machine is placed in service.

In the case of an environmental technology manufacturer, producer or processor that does not manufacture paper, the time period begins with the date the first manufacturing, processing or production equipment is placed in service.

38.

Sales of liquid, solid or gaseous chemicals used in manufacturing, processing, fabricating, mining, refining, metallurgical operations, research and development and, beginning on January 1, 1999, printing, if using or consuming the chemicals, alone or as part of an integrated system of chemicals, involves direct contact with the materials from which the product is produced for the purpose of causing or allowing a chemical or physical change to occur in the materials as part of the - 13 - S.B.

1738 production process.

This paragraph does not include chemicals that are used or consumed in activities such as packaging, storage or transportation but does not affect any deduction for such chemicals that is otherwise provided by this section.

For the purposes of this paragraph, "printing" means a commercial printing operation and includes job printing, engraving, embossing, copying and bookbinding.

39.

Through December 31, 1994, personal property liquidation transactions, conducted by a personal property liquidator.

From and after December 31, 1994, personal property liquidation transactions shall be taxable under this section provided that nothing in this subsection shall be construed to authorize the taxation of casual activities or transactions under this chapter.

For the purposes of this paragraph:

(a) "Personal property liquidation transaction" means a sale of personal property made by a personal property liquidator acting solely on behalf of the owner of the personal property sold at the dwelling of the owner or on the death of any owner, on behalf of the surviving spouse, if any, any devisee or heir or the personal representative of the estate of the deceased, if one has been appointed.

(b) "Personal property liquidator" means a person who is retained to conduct a sale in a personal property liquidation transaction.

40.

Sales of food, drink and condiment for consumption within the premises of any prison, jail or other institution under the jurisdiction of the state department of corrections, the department of public safety, the department of juvenile corrections or a county sheriff.

41.

A motor vehicle and any repair and replacement parts and tangible personal property becoming a part of such motor vehicle sold to a motor carrier that is subject to a fee prescribed in title 28, chapter 16, article 4 and that is engaged in the business of leasing or renting such property.

42.

Sales of:

(a) Livestock and poultry to persons engaging in the businesses of farming, ranching or producing livestock or poultry.

(b) Livestock and poultry feed, salts, vitamins and other additives for livestock or poultry consumption that are sold to persons for use or consumption by their own livestock or poultry, for use or consumption in the businesses of farming, ranching and producing or feeding livestock, poultry, or livestock or poultry products or for use or consumption in noncommercial boarding of livestock.

For the purposes of this paragraph, "poultry" includes ratites.

43.

Sales of implants used as growth promotants and injectable medicines, not already exempt under paragraph 8 of this subsection, for livestock or poultry owned by or in possession of persons that are engaged in producing livestock, poultry, or livestock or poultry products or that are engaged in feeding livestock or poultry commercially.

For the purposes of this paragraph, "poultry" includes ratites.

- 14 - S.B.

1738 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 - 15 - S.B.

1738 by or for any school district, charter school, community college or state university.

For the purposes of this paragraph:

(a) "Application services" means software applications provided remotely using hypertext transfer protocol or another network protocol.

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

54.

Sales of motor vehicle fuel and use fuel to a qualified business under section 41-1516 for off-road use in harvesting, processing or transporting qualifying forest products removed from qualifying projects as defined in section 41-1516.

55.

Sales of repair parts installed in equipment used directly by a qualified business under section 41-1516 in harvesting, processing or transporting qualifying forest products removed from qualifying projects as defined in section 41-1516.

56.

Sales or other transfers of renewable energy credits or any other unit created to track energy derived from renewable energy resources.

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

57.

Orthodontic devices dispensed by a dental professional who is licensed under title 32, chapter 11 to a patient as part of the practice of dentistry.

58.

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

59.

Sales of works of fine art, as defined in section 44-1771, at an art auction or gallery in this state to nonresidents of this state for - 16 - S.B.

1738 use outside this state if the vendor ships or delivers the work of fine art to a destination outside this state.

60.

Sales of tangible personal property by a marketplace seller that are facilitated by a marketplace facilitator in which the marketplace facilitator has remitted or will remit the applicable tax to the department pursuant to section 42-5014.

B.

In addition to the deductions from the tax base prescribed by subsection A of this section, the gross proceeds of sales or gross income derived from sales of the following categories of tangible personal property shall be deducted from the tax base:

1.

Machinery, or equipment, used directly in manufacturing, processing, fabricating, job printing, refining or metallurgical operations.

The terms "manufacturing", "processing", "fabricating", "job printing", "refining" and "metallurgical" as used in this paragraph refer to and include those operations commonly understood within their ordinary meaning.

"Metallurgical operations" includes leaching, milling, precipitating, smelting and refining.

2.

Mining machinery, or equipment, used directly in the process of extracting ores or minerals from the earth for commercial purposes, including equipment required to prepare the materials for extraction and handling, loading or transporting such extracted material to the surface.

"Mining" includes underground, surface and open pit operations for extracting ores and minerals.

3.

Tangible personal property sold to persons engaged in business classified under the telecommunications classification, including a person representing or working on behalf of such a person in a manner described in section 42-5075, subsection 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.

Machinery and equipment used directly for energy storage for later electrical use.

For the purposes of this paragraph:

(a) "Electric utility scale" means a person that is engaged in a business activity described in section 42-5063, subsection A or such person's equipment or wholesale electricity suppliers.

(b) "Energy storage" means commercially available technology for electric utility scale that is capable of absorbing energy, storing energy for a period of time and thereafter dispatching the energy and that uses mechanical, chemical or thermal processes to store energy.

- 17 - S.B.

1738 (c) "Machinery and equipment used directly" means all machinery and equipment that are used for electric energy storage from the point of receipt of such energy in order to facilitate storage of the electric energy to the point where the electric energy is released.

6.

Neat animals, horses, asses, sheep, ratites, swine or goats used or to be used as breeding or production stock, including sales of breedings or ownership shares in such animals used for breeding or production.

7.

Pipes or valves four inches in diameter or larger used to transport oil, natural gas, artificial gas, water or coal slurry, including compressor units, regulators, machinery and equipment, fittings, seals and any other part that is used in operating the pipes or valves.

8.

Aircraft, navigational and communication instruments and other accessories and related equipment sold to:

(a) A person:

(i) Holding, or exempted by federal law from obtaining, a federal certificate of public convenience and necessity for use as, in conjunction with or becoming part of an aircraft to be used to transport persons for hire in intrastate, interstate or foreign commerce.

(ii) That is certificated or licensed under federal aviation administration regulations (14 Code of Federal Regulations part 121 or 135) as a scheduled or unscheduled carrier of persons for hire for use as or in conjunction with or becoming part of an aircraft to be used to transport persons for hire in intrastate, interstate or foreign commerce.

(iii) Holding a foreign air carrier permit for air transportation for use as or in conjunction with or becoming a part of aircraft to be used to transport persons, property or United States mail in intrastate, interstate or foreign commerce.

(iv) Operating an aircraft to transport persons in any manner for compensation or hire, or for use in a fractional ownership program that meets the requirements of federal aviation administration regulations (14 Code of Federal Regulations part 91, subpart K), including as an air carrier, a foreign air carrier or a commercial operator or under a restricted category, within the meaning of 14 Code of Federal Regulations, regardless of whether the operation or aircraft is regulated or certified under part 91, 119, 121, 133, 135, 136 or 137, or another part of 14 Code of Federal Regulations.

(v) That will lease or otherwise transfer operational control, within the meaning of federal aviation administration operations specification A008, or its successor, of the aircraft, instruments or accessories to one or more persons described in item (i), (ii), (iii) or (iv) of this subdivision, subject to section 42-5009, subsection Q.

(b) Any foreign government.

(c) Persons who are not residents of this state and who will not use such property in this state other than in removing such property from - 18 - S.B.

1738 this state.

This subdivision also applies to corporations that are not incorporated in this state, regardless of maintaining a place of business in this state, if the principal corporate office is located outside this state and the property will not be used in this state other than in removing the property from this state.

9.

Machinery, tools, equipment and related supplies used or consumed directly in repairing, remodeling or maintaining aircraft, aircraft engines or aircraft component parts by or on behalf of a certificated or licensed carrier of persons or property.

10.

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

11.

Machinery or equipment used directly to drill for oil or gas or used directly in the process of extracting oil or gas from the earth for commercial purposes.

12.

Buses or other urban mass transit vehicles that are used directly to transport persons or property for hire or pursuant to a governmentally adopted and controlled urban mass transportation program and that are sold to bus companies holding a federal certificate of convenience and necessity or operated by any city, town or other governmental entity or by any person contracting with such governmental entity as part of a governmentally adopted and controlled program to provide urban mass transportation.

13.

Groundwater measuring devices required under section 45-604.

14.

New Machinery and equipment consisting of agricultural aircraft, tractors, OFF-HIGHWAY VEHICLES, tractor-drawn implements, self-powered implements, machinery and equipment necessary for extracting milk, and machinery and equipment necessary for cooling milk and livestock, and drip irrigation lines not already exempt under paragraph 7 of this subsection and that are used for commercial production of agricultural, horticultural, viticultural and floricultural crops and products in this state.

For the purposes of this paragraph:

(a) "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.

(a) "OFF-HIGHWAY VEHICLES" MEANS OFF-HIGHWAY VEHICLES AS DEFINED IN SECTION 28-1171 THAT ARE MODIFIED AT THE TIME OF SALE TO FUNCTION AS A TRACTOR OR TO TOW TRACTOR-DRAWN IMPLEMENTS AND THAT ARE NOT EQUIPPED WITH A MODIFIED EXHAUST SYSTEM TO INCREASE HORSEPOWER OR SPEED OR AN ENGINE THAT IS MORE THAN ONE THOUSAND CUBIC CENTIMETERS OR THAT HAVE A MAXIMUM SPEED OF FIFTY MILES PER HOUR OR LESS.

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

15.

Machinery or equipment used in research and development.

For the purposes of this paragraph, "research and development" means basic and applied research in the sciences and engineering, and designing, - 19 - S.B.

1738 developing or testing prototypes, processes or new products, including research and development of computer software that is embedded in or an integral part of the prototype or new product or that is required for machinery or equipment otherwise exempt under this section to function effectively.

Research and development do not include manufacturing quality control, routine consumer product testing, market research, sales promotion, sales service, research in social sciences or psychology, computer software research that is not included in the definition of research and development, or other nontechnological activities or technical services.

16.

Tangible personal property that is used by either of the following to receive, store, convert, produce, generate, decode, encode, control or transmit telecommunications information:

(a) Any direct broadcast satellite television or data transmission service that operates pursuant to 47 Code of Federal Regulations part 25.

(b) Any satellite television or data transmission facility, if both of the following conditions are met:

(i) Over two-thirds of the transmissions, measured in megabytes, transmitted by the facility during the test period were transmitted to or on behalf of one or more direct broadcast satellite television or data transmission services that operate pursuant to 47 Code of Federal Regulations part 25.

(ii) Over two-thirds of the transmissions, measured in megabytes, transmitted by or on behalf of those direct broadcast television or data transmission services during the test period were transmitted by the facility to or on behalf of those services.

For the purposes of subdivision (b) of this paragraph, "test period" means the three hundred sixty-five day period beginning on the later of the date on which the tangible personal property is purchased or the date on which the direct broadcast satellite television or data transmission service first transmits information to its customers.

17.

Clean rooms that are used for manufacturing, processing, fabrication or research and development, as defined in paragraph 15 of this subsection, of semiconductor products.

For the purposes of this paragraph, "clean room" means all property that comprises or creates an environment where humidity, temperature, particulate matter and contamination are precisely controlled within specified parameters, without regard to whether the property is actually contained within that environment or whether any of the property is affixed to or incorporated into real property.

Clean room:

(a) Includes the integrated systems, fixtures, piping, movable partitions, lighting and all property that is necessary or adapted to reduce contamination or to control airflow, temperature, humidity, chemical purity or other environmental conditions or manufacturing - 20 - S.B.

1738 tolerances, as well as the production machinery and equipment operating in conjunction with the clean room environment.

(b) Does not include the building or other permanent, nonremovable component of the building that houses the clean room environment.

18.

Machinery and equipment used directly in feeding poultry, environmentally controlling housing for poultry, moving eggs within a production and packaging facility or sorting or cooling eggs.

This exemption does not apply to vehicles used for transporting eggs.

19.

Machinery or equipment, including related structural components and containment structures, that is employed in connection with manufacturing, processing, fabricating, job printing, refining, mining, natural gas pipelines, metallurgical operations, telecommunications, producing or transmitting electricity or research and development and that is used directly to meet or exceed rules or regulations adopted by the federal energy regulatory commission, the United States environmental protection agency, the United States nuclear regulatory commission, the Arizona department of environmental quality or a political subdivision of this state to prevent, monitor, control or reduce land, water or air pollution.

FOR THE PURPOSES OF THIS PARAGRAPH, "CONTAINMENT STRUCTURE" MEANS A STRUCTURE THAT PREVENTS, MONITORS, CONTROLS OR REDUCES NOXIOUS OR HARMFUL DISCHARGE INTO THE ENVIRONMENT.

20.