ADOR New Sales Taxes as of November 19, 2014
Prime Contracting Changes Effective January 1, 2015 Prime contractors: This definition remains intact. Prime contracting services are still taxable on 65% of their gross receipts. Subcontractors working for a Prime Contractor are exempt from sales taxes. The sales of building materials to prime contractors or subcontractors are exempt as before. No changes here.
New Exemption FROM Prime Contracting Effective January 1, 2015 Service Contractors Subject to Tax at Point of Purchase: Now exempted from prime contracting on both the state and city levels. Contractors who only enter into contracts with owners of real property OR owners of the improvements to real property to maintain, repair, replace, or alter (MRRA) their property will be subject to tax at the point of purchase on the building materials used in those projects. No License Needed: Service contractors who only enter into contracts with owners of real property OR owners of the improvements to real property, to maintain, repair, replace, or alter (MRRA) their property are not required to obtain or renew TPT licenses. Retail Tax: Service contractors will now pay retail tax at the point of sale when materials are purchased. This leads to Inventory Changes..
Inventory Changes Effective January 1, 2015 Prime contractors: The sales of building materials to prime contractors or subcontractors are exempt. Service contactors: Service contractors will now pay retail tax at the point of sale when materials are purchased.
Prime and Service Contracting Inventory Prime Inventory Must be purchased using Resale Number and then held SEPARATELY from Service Inventory Service Inventory Must be purchased and sales taxes paid at date of purchase then held SEPARATELY from Prime Inventory.
Problems: Can you separate the inventories? Can you train the employees/purchasing agents to carefully identify the type of contract first before purchasing inventory? What do you do to pay the sales taxes on the exempt materials you have on hand at December 31, 2014? These issues above deal directly with your resale license so
License Renewals Effective January 1, 2015 Taxpayers who have a state TPT license and/or a municipal excise tax license are required to annually renew the license(s). The license(s) for both the State and the cities are valid for one calendar year and must be renewed by January 1 st each year. Taxpayers will be receiving a notice to renew the State and Program City licenses. Taxpayers must complete and submit this renewal form to the Arizona Department of Revenue even if the taxpayer s business information has not been changed. There is no fee to renew the State TPT or current Program City license.
UPCOMING: An electronic license renewal process for all taxpayers, including non-program city taxpayers between October and December, 2015, to be included in your Portal. Renewal notices will be sent in the month of November. If you do not receive your notice by December 31, 2014, please call 602-542- 5027. It may take up to forty-five days to process your renewal. This annual renewal means a decision is required each year to be licensed or not depending on what type of contractor you are
CRITICAL NOTES: License Problems Effective January 1, 2015 You are responsible to renew or not renew your license each year. Calendar it and do it early if possible! If you are now only a Service contractor and choose NOT to renew your license then are you obligated to inform all suppliers that you no longer qualify for the resale exemption? We believe you are. If you are now only a Service contractor and DO renew your license then are you obligated to inform all suppliers when you don t qualify for the resale exemption on the Service purchases? We believe you are.
More License Problems If you are a Service contractor and might in the future have an opportunity to enter into a Prime contract situation that needs a resale number, should you consider keeping your license current? We believe you should. There is a way to obtain a contract specific exemption license number for the above but it is very problematic and could severely delay your ability to purchase the items for resale. Let s discuss this
Project Specific Exemption Certificates Effective January 1, 2015 In order to reign in abuse of exemption certificates, the Department is required under House Bill 2111 to issue project-specific exemption certificates that contractors can use to purchase building materials tax free. We put this here so that you could note the word abuse used by the ADOR in their own literature.
To qualify for a project-specific exemption certificate, the contractor must meet the following conditions: The contractor may not work directly for the owner of the real property, but rather must work on a job that is in the control of a taxable prime contractor; The contractor may only use the exemption certificate for material that will be incorporated into a taxable construction project; The contractor may not have a delinquent tax balance; The contractor must submit documentation to the Department showing that it meets these conditions. It appears that this new exemption certificate requirement applies only to subcontractors.
License Renewals ADOR has indicated that license renewals may take up to 45 days so plan accordingly for any project specific exemption certificates that you might need. Now how do you go about filing..
How Will You File Sales Tax Reports Effective January 1, 2015 Business Owners MUST e-file their TPT returns if they have more than 1 business location. There will no longer be the e-signature document required when registering on AZTaxes.gov ADOR expects to have a new Form TPT-1.
Filing in 2015: Program Cities: You will file only the ADOR TPT reports for all cities for which the ADOR licenses and collects TPT on behalf of. You will report all monthly activity on the Arizona TPT form and pay the TPT taxes due for the state and cities. Except for: Non-Program Cities: Apache Junction, Avondale, Chandler, Douglas, Flagstaff, Glendale, Mesa, Nogales, Peoria, Phoenix, Prescott, Scottsdale, Sedona, Tempe, and Tucson. These cities will continue to administer their own privilege taxes through the 2015 calendar year. You will need to file separate TPT reports with these cities.
Filing in 2016: All cities will be Program cities. The only TPT report to be filed each month will be electronically with the Arizona Department of Revenue. This TPT report will include the activities in all cities. Where do you go for the most current information.
New On-Line Portal Effective January 1, 2015 In 2012, the Arizona Legislature passed House Bill 2446, which required the Arizona Department of Revenue (the Department ) to establish a central online portal where taxpayers could elect to report city sales taxes for cities whose sales taxes are not administered and collected by the Department. Then
came House Bill 2111 which dramatically expanded the online portal. It requires that the portal constitute a single point of contact where taxpayers may obtain all necessary state and city tax licenses, file a single return for state, county and city taxes, and pay all state, county and city sales tax. Previously, taxpayers had to file a return with the Department for state and county taxes, and cities whose taxes were administered by the Department, but taxpayers had to file a separate return with each city that administered its own sales taxes.
Payment to? Taxpayers who do not elect to report and pay city taxes through the online portal, but instead choose to submit paper returns, are now required to file the paper returns and pay the taxes owed to the Department rather than sending the returns and payment directly to the relevant city. (This appears to have been amended to start January 1, 2016 with both State and cities instead) So you have a new Portal, what is expected to change on the new TPT-1 Form
Standardized Code Changes Effective January 1, 2015 Standardized Business Codes-Transaction Detail Column A Beginning January 1, 2015, there will be one list of business codes for the State/county and cities. For example, if you currently file under the retail classification at the state/county level (business class 017), you will file business code 017 for the city in which you conduct business in. The standardized list will be posted by ADOR once they are finalized.
Standardized Deduction Codes-Schedule A Beginning January 1, 2015, there will be one list of deduction codes for the State/county and cities. The standardized list will be posted by ADOR once they are finalized. You may no longer use deduction codes 888(Other City-Exempt Income) or 999(Other State-Exempt Income). Use of these codes will be disallowed and penalties and interest may apply. Indian land? What about Exemption changes
Tax Exemption Changes Effective January 1, 2015 Repeal of Sales Tax exemptions Current law contains an exemption for sales of tangible personal property to a non-resident of Arizona if the property is shipped or delivered to the purchaser outside Arizona for use outside the state. Ariz. Rev. Stat. 42-5061(A)(14). Under House Bill 2111, this exemption is limited to sales of motor vehicles only.
House Bill 2111, cont. House Bill 2111 also repeals the current exemption for sales of tangible personal property shipped directly to a destination outside of the United States for use in a foreign country (currently, Ariz. Rev. Stat. 42-5061(A)(35)). Such foreign sales are not taxable under the foreign commerce clause of the US Constitution and evidently the Legislature thought that a separate statutory exemption was unnecessary. We believe that ALL sales to anyone inside & outside the state of Arizona, except foreign destinations, are now subject to retail sales tax on personal property.
Other Exemptions Effective January 1, 2015 Pre-construction services exemption modified. Arizona law currently contains an exemption for the gross receipts attributable to a separate, written design phase services contract or professional services contract. Ariz. Rev. Stat. 42-5075(N). This exemption is modified so that design phase services and professional services no longer need to be contained within a separate contract. Rather, the terms, conditions, and pricing for the design phase services or professional services merely need to be separately stated from those for construction phase services in the contract. Owner-builder classification repealed. The rarely applicable owner-builder tax classification contained in Ariz. Rev. Stat. 42-5076, is repealed.
Property Management Companies & Residential Rental Property Property managers and property management companies may no longer obtain a transaction privilege tax (TPT) license on behalf of their clients. Effective January 1, 2015, each real property owner is required to have a TPT license per location. To obtain a TPT license, the property owner must apply using the Arizona Joint Tax Application (JT-1). If a property owner would like a property manager or property management company to file and pay their TPT, the property owner must file a General Disclosure/Representation Authorization Form (aka Power of Attorney, Arizona Form 285) with the Arizona Department of Revenue.
Other Things to Look for in the Upcoming Months Ability to look up taxing jurisdiction and applicable tax rate by January 1, 2015. Bulk filing by jurisdiction by January 1, 2015. New joint tax application (JT-1) with jurisdiction address functionality: July 1, 2015. Enhanced AZTaxes.gov e-file system: October 1, 2015. New TPT form for filing monthly TPT returns which will allow taxpayers to report data by business location: October 1, 2015. Bulk filing capabilities for taxpayers to file by business location: October 1, 2015. An electronic license renewal process for all taxpayers, including non-program city taxpayers between October and December, 2015 Updates at AZDOR for TPT Simplification