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The Arizona Department of Revenue has been authorized to extend a tax amnesty program beginning May 1, 2009 and ending June 1, 2009 for Individual and Corporate Income, Transaction Privilege, Use, Withholding, Partnership, Fiduciary, and Luxury taxes. Eligible taxpayers who pay back taxes in full during this period will not be penalized or criminally prosecuted, and may qualify for a reduced interest rate. Amnesty is available for periods beginning on or after January 1, 2002 and ending before January 1, 2008 for taxes filed on an annual basis. For taxes filed on a quarterly basis, amnesty is available for periods beginning on or after January 1, 2003 and ending before January 1, 2008. To qualify, Amnesty Tax Returns must be accompanied by the Amnesty Application form and must be filed or postmarked and paid in full by June 1, 2009.

Individuals and businesses who failed to file a tax return, failed to report all income or all tax, interest and penalties due, claimed incorrect credits and deductions, or misrepresented or omitted tax due are eligible for the program, even if they are non-residents, part-year residents, or taxpayers under audit. Taxpayers who are seeking amnesty for finalized audit periods, are under criminal investigation, or are party to criminal proceedings for fraud, failure to file or failure to pay Arizona taxes are not eligible. (S.B. 1003, Laws 209, First Special Session, effective 90 days after adjournment)

(04/01/2009)

A directory assistance company, who provided telephone customers with the phone numbers for requested listings on behalf of telecommunications companies, was denied a refund on its purchases of equipment. The telecommunication exemption requires that the equipment: (1) is tangible personal property, (2) was sold to a business classified under the telecommunications classification, and (3) is among the enumerated types of equipment. A business classified under the telecommunications classification is one that transmits signs, signals, writings, images, sounds, messages, data, or other information by wire, radio waves, light waves, or other electromagnetic means. The Court found that although the information provided by the company was transmitted, the company did not do the actual transmitting. Therefore, the company did not meet the definition of a telecommunication company. (Excell Agent Services v. Arizona Department of Revenue, Arizona Court of Appeals, Div. 1, No. 1 CA-TX 07-0003, September 4, 2008)

(03/03/2009)

In a recent Private Taxpayer Ruling, the Arizona Department of Revenue classified two nearly identical leases differentially because of differing end of lease options. Lease #1’s agreement provided for the lessee to purchase the property at the end of the term for a nominal, pre-determined price of $1.00. Lease #2’s agreement provided for the lessee to purchase the property at the end of the term for a price equal to 10% of the adjusted capitalized cost of the leased property, an amount determined more than nominal. Considering this difference, the Department determined that Lease #2 was a true lease for transactions privilege tax purposes, and therefore was subject to the tax levied on the business of renting or leasing personal property. However, Lease #1 was determined not to be a true lease, and therefore subject to transactions privilege tax under the retail classification. (Private Taxpayer Ruling LR07-001, Arizona Department of Revenue, March 19, 2007)

(09/05/2008)

The Arizona Tax Court found a doughnut store owner to be liable for sales tax on drive-through sales of doughnuts and other consumable items. While the Court accepted that the drive-though sales were recorded separately from inside sales, it made no distinction for the drive-through window sales from sales within the restaurant. The statutory exemption requires the absence of facilities on the premises. As the doughnut store provided counters, dining facilities, and a drive-through window sharing a common building and a common kitchen, the store was considered to be a single premise, with dining facilities. (Rigel Corporation v. State of Arizona, Arizona Tax Court, No. TX 2006-050010)

(01/04/2008)

Under the prime contracting classification for direct costs of architectural and engineering services, a privilege tax exemption applies to direct labor costs, direct material costs and third party subcontracted costs. To qualify for the exemption, the service must be performed by a person who is registered, certified, or licensed to perform architectural or engineering services, or an employee of such a person. Additionally, the contractor must have both gross proceeds and qualified direct costs from the same contract. However, costs that are essential to the performance of a contract do not necessarily qualify for an exemption as direct costs. (Arizona TPR 06-2, December 19, 2006)

(02/09/2007)

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