Arizona Amends Electricity and Gas Exemption for Manufacturing and Smelting Businesses

Arizona has modified the exemption criteria for the “qualified manufacturing or smelting business” exemption as it applies to the state’s transaction privilege and use tax deduction of electricity and natural gas sales. A “qualified manufacturing or smelting business” means a business that does one of the following:

• manufactures or smelts tangible products in this state, of which at least 51% 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;
• derives at least 51% of its gross income from the sale of manufactured or smelted products manufactured or smelted by the business;
• uses at least 51% of its square footage in Arizona for manufacturing or smelting and business activities directly related to manufacturing or smelting;
• employs at least 51% of its workforce in Arizona in manufacturing or smelting and business activities directly related to manufacturing or smelting; or
• uses at least 51% of the value of its capitalized assets in Arizona, as reflected on the business’s books and records, for manufacturing or smelting and business activities directly related to manufacturing or smelting.

The definition of manufacturing has also been modified to include processing or fabricating but it now excludes publishing and packaging.

Effective August 6, 2016, a vendor must accept a certificate establishing a deduction in good faith. If the purchaser cannot establish the accuracy and completeness of the information provided in the certificate, then the purchaser is liable for the transaction privilege tax that the vendor would have been required to pay if the vendor had not accepted the certificate.If however, the vendor has reason to believe that a certificate is not accurate or complete, the vendor will not be relieved of the burden of proving the exemption applies. (H.B. 2676, Laws 2016, effective January 1, 2017 unless otherwise specified)