ADOR Provides Additional Guidance on Prime Contracting Classification

Your Guide to State, Local, Federal, Estate + International Taxation

ADOR released Arizona Transaction Privilege Tax TPT Notice TPN 15-1 hoping to assist contractors with their numerous questions related to the taxability of services involving modification or alteration of real property under the Prime Contracting classification after January 1, 2015. TPN 15-1 can be found on the website under TPT Simplification (TPN 15-1).

TPN 15-1 includes 26 FAQ’s and describes:

  • “maintenance,” “repair,” “replacement,” and “alteration” activities and “modification” activities;
  • who can be considered to be an “owner of real property” under the prime contracting classification;
  • Ariz. Rev. Stat. Ann. § 42-5008.01 liability – when a TPT licensed contractor who purchases tangible personal property exempt from tax and uses that property in performing an MRRA project is subject to an amount equal to retail TPT on the purchase price of the tangible personal property).
  • Licensing; who is a contractor, who is and who is not required to obtain a TPT license under the prime contracting classification;
  • Materials; are materials incorporated into a modification project subject to TPT at the time of purchase;
  • Subcontractors/certificates; what does a taxable prime contractor need to do if hiring a contractor without a TPT license as a subcontractor on a taxable project;
  • Reporting; if a contractor cancels its TPT license on February 15, 2015, and has materials on hand at the time of the cancellation.

TPN 15-1 also includes an explanation of 23 different scenarios and whether the facts cause the contractor to be a prime contractor or subject to retail TPT.

Arizona contractors will welcome this additional information from ADOR.

By Melinda Nelson CPA