3-05-004

A. There are hereby levied and imposed, subject to all other provisions of this chapter, the following privilege taxes for the purpose of raising revenue to be used in defraying the necessary expenses of the City, such taxes to be collected by the Tax Collector:

1. A privilege tax upon persons on account of their business activities, to the extent provided elsewhere in this division, to be measured by the gross income of persons, whether derived from residents of the City or not, or whether derived from within the City or from without.

2. (Reserved)

3. (Reserved)

B. Taxes Imposed by This Chapter Are in Addition to Others. Except as specifically designated elsewhere in this chapter, each of the taxes imposed by this chapter shall be in addition to all other licenses, fees, and taxes levied by law, including other taxes imposed by this chapter.

C. Presumption. For the purpose of proper administration of this chapter and to prevent evasion of the taxes imposed by this chapter, it shall be presumed that all gross income is subject to the tax until the contrary is established by the taxpayer.

D. Limitation of Exemptions, Deductions, and Credits Allowed Against the Measure of Taxes Imposed by This Chapter. All exemptions, deductions, and credits set forth in this chapter shall be limited to the specific activity or transaction described and not extended to include any other activity or transaction subject to the tax. (Ord. 2025-11, Amended, 05/20/2025)

3-05-004-0405 ADVERTISING

A. The tax rate shall be at an amount equal to two and four hundred eighty-six thousandths percent (2.486%) of the gross income from the business activity upon every person engaging or continuing in the business of "local advertising" by billboards, direct mail, radio, television, or by any other means. However, commission and fees retained by an advertising agency shall not be includable in gross income from "local advertising." All delivery or disseminating of information directly to the public or any portion thereof for a consideration shall be considered "local advertising," except the following:

1. The advertising of a product or service which is sold or provided both within and without the State by more than one "commonly designated business entity" within the State, and in which the advertisement names either no "commonly designated business entity" within the State or more than one "commonly designated business entity." "Commonly designated business entity" means any person selling or providing any product or service to its customers under a common business name or style, even though there may be more than one legal entity conducting business functions using the same or substantially the same business name or style by virtue of a franchise, license, or similar agreement.

2. The advertising of a facility or of a service or activity in which neither the facility nor a business site carrying on such service or activity is located within the State.

3. The advertising of a product which may only be purchased from an out-of-State supplier.

4. Political advertising for United States presidential and vice presidential candidates only.

5. Advertising by means of product purchase coupons redeemable at any retail establishment carrying such product but not product coupons redeemable only at a single commonly designated business entity.

6. Advertising transportation services where a substantial portion of the transportation activity of the business entity advertised involves interstate or foreign carriage.

B. (Reserved). (Ord. 2000-14, Amended, 06/06/2000; Ord. 2014-34, Amended, 01/06/2015; Ord. 2019-01, Amended, 02/19/2019; Ord. 2025-11, Amended, 05/20/2025)

3-05-004-0407 RESERVED

3-05-004-0410 AMUSEMENTS, EXHIBITIONS, AND SIMILAR ACTIVITIES

A. The tax rate shall be at an amount equal to two and four hundred eighty-six thousandths percent (2.486%) of the gross income from the business activity upon every person engaging or continuing in the business of providing amusement that begins in the city or takes place entirely within the city, which includes the following type or nature of businesses:

1. Operating or conducting theaters, movies, operas, shows of any type or nature, exhibitions, concerts, carnivals, circuses, amusement parks, menageries, fairs, races, contests, games, billiard or pool parlors, bowling alleys, skating rinks, tennis courts, golf courses, video games, pinball machines, public dances, dance halls, sports events, jukeboxes, batting and driving ranges, animal rides, or any other business charging admission for exhibition, amusement, or entertainment.

2. (Reserved)

B. Deductions or Exemptions. The gross proceeds or sales or gross income derived from the following sources are exempt from the tax imposed by this section:

1. (Reserved)

2. Amounts retained by the Arizona Exposition and State Fair Board from ride ticket sales at the annual Arizona State Fair.

3. Income received from a hotel business subject to tax under Section 3-05-004-0444, if all of the following apply:

a. The hotel business receives gross income from a customer for the specific business activity otherwise subject to amusement tax.

b. The consideration received by the hotel business is equal to or greater than the amount to be deducted under this subsection.

c. The hotel business has provided an exemption certificate to the person engaging in business under this section.

4. Income that is specifically included as the gross income of a business activity upon which another section of this division imposed a tax, that is separately stated to the customer and is taxable to the person engaged in that classification not to exceed consideration paid to the person conducting the activity.

5. Income from arranging transportation connected to amusement activity that is separately stated to the customer, not to exceed consideration paid to the transportation business.

6. (Reserved)

7. (Reserved)

8. (Reserved)

9. (Reserved)

C. The tax imposed by this section shall not include arranging an amusement activity as a service to a person’s customers if that person is not otherwise engaged in the business of operating or conducting an amusement themselves or through others. This exception does not apply to businesses that operate or conduct amusements pursuant to customer orders and send the billings and receive the payments associated with that activity, including when the amusement is performed by third party independent contractors. For the purposes of this subsection, "arranging" includes billing for or collecting amusement charges from a person’s customers on behalf of the persons providing the amusement. (Ord. 1851, 01/03/1995; Ord. 2000-14, Amended, 06/06/2000; Ord. 2007-28, Amended, 05/01/2007; Ord. 2014-34, Amended, 01/06/2015; Ord. 2019-01, Amended, 02/19/2019; Ord. 2025-11, Amended, 05/20/2025)

3-05-004-0415 CONSTRUCTION CONTRACTING: CONSTRUCTION CONTRACTORS

A. The tax rate shall be at an amount equal to two and four hundred eighty-six thousandths percent (2.486%) of the gross income from the business upon every construction contractor engaging or continuing in the business activity of construction contracting within the City.

1. However, gross income from construction contracting shall not include charges related to groundwater measuring devices required by A.R.S. Section 45-604.

2. (Reserved)

3. Gross income from construction contracting shall not include gross income from the sale of manufactured buildings taxable under Section 3-05-004-0427.

4. For taxable periods beginning from and after July 1, 2008, the portion of gross proceeds of sales or gross income attributable to the actual direct costs of providing architectural or engineering services that are incorporated in a contract is not subject to tax under this section. For the purposes of this subsection, "direct costs" means the portion of the actual costs that are directly expended in providing architectural or engineering services.

5. Handyman Exclusion. This classification does not include gross income from any work or operation performed by a person that is not required to be licensed by the Registrar of Contractors pursuant to A.R.S. Section 32-1121.

B. Deductions and Exemptions.

1. Gross income derived from acting as a "subcontractor" shall be exempt from the tax imposed by this section.

2. All construction contracting gross income subject to the tax and not deductible herein shall be allowed a deduction of thirty-five percent (35%).

3. The gross proceeds of sales or gross income attributable to the purchase of machinery, equipment or other tangible personal property that is exempt from or deductible from privilege or use tax under:

a. Sections 3-05-004-0465(G) and (P);

b. Sections 3-05-006-0660(G) and (P);

shall be exempt or deductible, respectively, from the tax imposed by this section.

4. The gross proceeds of sales or gross income that is derived from a contract entered into for the installation, assembly, repair or maintenance of income-producing capital equipment, as defined in Section 3-05-001-0110, that is deducted from the retail classification pursuant to Section 3-05-004-0465(G) that does not become a permanent attachment to a building, highway, road, railroad, excavation or manufactured building or other structure, project, development or improvement shall be exempt from the tax imposed by this section. If the ownership of the realty is separate from the ownership of the income-producing capital equipment, the determination as to permanent attachment shall be made as if the ownership was the same. The deduction provided in this subsection does not include gross proceeds of sales or gross income from that portion of any contracting activity which consists of the development of, or modification to, real property in order to facilitate the installation, assembly, repair, maintenance or removal of the income-producing capital equipment. For purposes of this subsection, "permanent attachment" means at least one (1) of the following:

a. To be incorporated into real property.

b. To become so affixed to real property that it becomes part of the real property.

c. To be so attached to real property that removal would cause substantial damage to the real property from which it is removed.

5. The gross proceeds of sales or gross income received from a contract for the construction of an environmentally controlled facility for the raising of poultry for the production of eggs and the sorting, or cooling and packaging of eggs shall be exempt from the tax imposed under this section.

6. The gross proceeds of sales or gross income that is derived from the installation, assembly, repair or maintenance of clean rooms that are deducted from the tax base of the retail classification pursuant to Section 3-05-004-0465(G) shall be exempt from the tax imposed under this section.

7. The gross proceeds of sales or gross income that is derived from a contract entered into with a person who is engaged in the commercial production of livestock, livestock products or agricultural, horticultural, viticultural or floricultural crops or products in this State for the construction, alteration, repair, improvement, movement, wrecking or demolition or addition to or subtraction from any building, highway, road, excavation, manufactured building or other structure, project, development or improvement used directly and primarily to prevent, monitor, control or reduce air, water, or land pollution shall be exempt from the tax imposed under this section.

8. The gross proceeds of sales or gross income received from a post-construction contract to perform post-construction treatment of real property for termite and general pest control, including wood destroying organisms, shall be exempt from tax imposed under this section.

9. Through December 31, 2009, the gross proceeds of sales or gross income received from a contract for constructing any lake facility development in a commercial enhancement reuse district that is designated pursuant to A.R.S. Section 9-499.08 if the contractor maintains the following records in a form satisfactory to the Arizona Department of Revenue and to the City:

a. The certificate of qualification of the lake facility development issued by the City pursuant to A.R.S. Section 9-499.08(D).

b. All state and local transaction privilege tax returns for the period of time during which the contractor received gross proceeds of sales or gross income from a contract to construct a lake facility development in a designated commercial enhancement reuse district, showing the amount exempted from state and local taxation.

c. Any other information considered to be necessary.

10. Any amount attributable to development fees that are incurred in relation to the construction, development or improvement of real property and paid by the taxpayer as defined in the model city tax code or by a contractor providing services to the taxpayer. For the purposes of this subsection:

a. The attributable amount shall not exceed the value of the development fees actually imposed.

b. The attributable amount is equal to the total amount of development fees paid by the taxpayer or by a contractor providing services to the taxpayer and the total development fees credited in exchange for the construction of, contribution to or dedication of real property for providing public infrastructure, public safety or other public services necessary to the development. The real property must be the subject of the development fees.

c. "Development fees" means fees imposed to offset capital costs of providing public infrastructure, public safety or other public services to a development and authorized pursuant to A.R.S. Section 9-463.05, A.R.S. Section 11-1102, or A.R.S. Title 48 regardless of the jurisdiction to which the fees are paid.

11. For taxable periods beginning from and after July 1, 2008, and ending before January 1, 2017, the gross proceeds of sales or gross income derived from a contract to provide and install a solar energy device. The contractor shall register with the Department of Revenue as a solar energy contractor. By registering, the contractor acknowledges that it will make its books and records relating to sales of solar energy devices available to the Department of Revenue and the City, as applicable, for examination.

12. The gross proceeds of sales or gross income derived from a contract with the owner of real property or improvements to real property for the maintenance, repair, replacement, or alteration of existing property is not subject to tax under this section if the contract does not include modification activities, except as specified in this subsection. The gross proceeds of sales or gross income derived from a de minimis amount of modification activity does not subject the contract or any part of the contract to tax under this section. For purposes of this subsection:

a. Any term not defined in this subsection that is defined in A.R.S. Section 42-5075 has the same meaning prescribed in A.R.S. Section 42-5075.

b. Tangible personal property that is incorporated or fabricated into a project described in this subsection may be subject to the amount prescribed in Section 3-05-004-0415.1.

c. Each contract is independent of any other contract, except that any change order that directly relates to the scope of work of the original contract shall be treated the same as the original contract under this chapter, regardless of the amount of modification activities included in the change order. If a change order does not directly relate to the scope of work of the original contract, the change order shall be treated as a new contract, with the tax treatment of any subsequent change order to follow the tax treatment of the contract to which the scope of work of the subsequent change order directly relates.

d. This subsection does not apply to a contract that primarily involves surface or subsurface improvements to land and that is subject to A.R.S. Title 28, Chapter 19, 20, or 22, or A.R.S. Title 34, Chapter 2 or 6, even if the contract also includes vertical improvements. If a city or town imposes a tax on contracts that are subject to procurement processes under those provisions, the city or town shall include in the request for proposals a notice to bidders when those projects are subject to the tax. This subdivision does not apply to contracts with:

(1) Community facilities districts, fire districts, county television improvement districts, community park maintenance districts, cotton pest control districts, hospital districts, pest abatement districts, health service districts, agricultural improvement districts, county free library districts, county jail districts, county stadium districts, regional attraction districts, or revitalization districts.

(2) Any special taxing district not specified in subsection (B)(12)(d)(1) of this section if the district does not substantially engage in the modification, maintenance, repair, replacement, or alteration of surface or subsurface improvements to land.

13. The gross proceeds of sales or gross income derived from a contract entered into for the construction of a mixed waste processing facility that is located on a municipal solid waste landfill and that is constructed for the purpose of recycling solid waste or producing renewable energy from landfill waste. For the purposes of this subsection:

a. "Mixed waste processing facility" means a solid waste facility that is owned, operated, or used for the treatment, processing, or disposal of solid waste, recyclable solid waste, conditionally exempt small quantity generator waste, or household hazardous waste. For the purposes of this subsection, "conditionally exempt small quantity generator waste," "household hazardous waste," and "solid waste facility" have the same meaning prescribed in A.R.S. Section 49-701, except that "solid waste facility" does include a site that stores, treats, or processes paper, glass, wood, cardboard, household textiles, scrap metal, plastic, vegetative waste, aluminum, steel, or other recyclable material.

b. "Municipal solid waste landfill" has the same meaning prescribed in A.R.S. Section 49-701.

c. "Recycling" means collecting, separating, cleansing, treating, and reconstituting recyclable solid waste that would otherwise become solid waste, but does not include incineration or other similar processes.

d. "Renewable energy" has the same meaning prescribed in A.R.S. Section 41-1511.

C. "Subcontractor" means a construction contractor performing work for either:

1. A construction contractor who has provided the subcontractor with a written declaration that he is liable for the tax for the project and has provided the subcontractor his City privilege license number.

2. An owner-builder who has provided the subcontractor with a written declaration that:

a. The owner-builder is improving the property for sale; and

b. The owner-builder is liable for the tax for such construction contracting activity; and

c. The owner-builder has provided the contractor his City privilege license number.

3. A person selling new manufactured buildings who has provided the subcontractor with a written declaration that he is liable for the tax for the site preparation and setup; and provided the subcontractor his City privilege license number.

"Subcontractor" also includes a construction contractor performing work for another subcontractor as defined above. (Ord. 2008, Amended, 11/02/1999; Ord. 2000-14, Amended, 06/06/2000; Ord. 2004-25, Amended, 01/10/2005; Ord. 2007-28, Amended, 05/01/2007; Ord. 2009-16, Amended, 06/19/2009; Ord. 2011-21, Amended, 10/18/2011; Ord. 2014-16, Amended, 07/15/2014; Ord. 2014-34, Amended, 01/06/2015; Ord. 2019-01, Amended, 02/19/2019; Ord. 2025-11, Amended, 05/20/2025)

3-05-004-0415.1 LIABILITY FOR MRRA AMOUNTS EQUAL TO RETAIL TRANSACTION PRIVILEGE TAX DUE

A. A person that is either a prime contractor subject to tax under Section 3-05-004-0415 or a subcontractor working under the control of such a prime contractor, that purchases tangible personal property, the purchase price of which was excluded from the tax base under the retail classification under Section 3-05-004-0465(K) or was excluded from the use tax under Section 3-05-006-0660(K) at the time of purchase, and that incorporates or fabricates the tangible personal property into a project described in Section 3-05-004-0415(B)(12) and A.R.S. Section 42-5075, Subsection O, is liable for an amount equal to any tax that a seller would have been required to pay under Section 3-05-004-0460 and A.R.S. Title 42, Chapter 5, as follows:

1. The amount of liability shall be calculated and reported based on the location of the project and the taxes imposed under Section 3-05-004-0460 and A.R.S. Title 42, Chapter 5.

2. All deductions, exemptions, and exclusions for the cost of tangible personal property provided in Section 3-05-004-0415 apply to the tangible personal property incorporated or fabricated into the project.

3. This subsection does not apply to tangible personal property that is incorporated or fabricated into any project under a contract that would otherwise be excluded from the tax base under Section 3-05-004-0415, without regard to Section 3-05-004-0415(B)(12).

4. The amount of liability shall be reported within the reporting period that includes the month in which the person incorporates or fabricates the tangible personal property into the project.

5. The person is not liable for the amount if the contractor who hired the person executes and provides to the person a certificate stating that the contractor providing the certificate is liable for any amount due under this subsection. The Department of Revenue shall prescribe the form of the certificate. If the person has reason to believe that the information contained on the certificate is erroneous or incomplete, the City may disregard the certificate. The contractor providing the certificate is liable for the amount that otherwise would be due from the person under this subsection.

B. A person that purchased tangible personal property, the purchase price of which was excluded from the tax base under Section 3-05-004-0465(K) or was excluded from the use tax under Section 3-05-006-0660(K) at the time of purchase, whose transaction privilege tax license has been canceled and that subsequently uses, consumes, sells, or discards the tangible personal property is liable for an amount of tax determined under this subsection. For the purposes of this subsection:

1. If the tangible personal property is incorporated or fabricated into a project described in Section 3-05-004-0415(B)(12) and A.R.S. Section 42-5075, Subsection O, or otherwise used or consumed by the person, the amount of liability shall be calculated and reported based on the person’s purchase price of the tangible personal property, the location of the project, use, or consumption and the taxes imposed under Section 3-05-004-0460 and A.R.S. Title 42, Chapter 5.

2. If the tangible personal property is sold in a manner that is not subject to tax under this chapter or is discarded, the amount shall be calculated and reported based on the payment received by the person, the location of the person’s principal place of business in this State, and the taxes imposed under Section 3-05-004-0460 and A.R.S. Title 42, Chapter 5.

3. The person is not liable under this subsection for any amount if the person discards the tangible personal property and does not receive payment of any kind.

4. The amount of liability shall be reported on or before the business day preceding the last business day of the month following the month in which the person uses the tangible personal property in a manner described in subsection (B)(1) or (B)(2) of this section. No amount is due under this subsection at any time that the person stores the tangible personal property without using it in a manner described in subsection (B)(1) or (B)(2) of this section.

5. All deductions, exemptions, and exclusions for the cost of tangible personal property provided in Section 3-05-004-0415 apply to the tangible personal property incorporated or fabricated into a project described in Section 3-05-004-0415(B)(12) and A.R.S. Section 42-5075, Subsection O.

6. This subsection does not apply to tangible personal property that is incorporated or fabricated into any project under a contract that would otherwise be excluded from the tax base under Section 3-05-004-0415 and A.R.S. Section 42-5075, without regard to Section 3-05-004-0415(B)(12) and A.R.S. Section 42-5075, Subsection O.

7. The person is not liable for the amount if the contractor who hired the person executes and provides to the person a certificate stating that the contractor providing the certificate is liable for any amount due under this subsection for tangible personal property incorporated or fabricated into a project described in A.R.S. Section 42-5075, Subsection O. The Department shall prescribe the form of the certificate. If the person has reason to believe that the information contained on the certificate is erroneous or incomplete, the Department may disregard the certificate. The contractor providing the certificate is liable for the amount that otherwise would be due from the person under this subsection.

C. A person that fails to report or pay any amount due under subsection (A) or (B) of this section is liable for interest in a manner consistent with A.R.S. Section 42-1123 and penalties in a manner consistent with A.R.S. Section 42-1125.

D. If a person has paid an amount described in this section on tangible personal property that the person reasonably believed to be described under Section 3-05-004-0415(B)(12) and A.R.S. Section 42-5075, Subsection O, and a final determination is made that Section 3-05-004-0415(B)(12) and A.R.S. Section 42-5075, Subsection O, does not apply, the person is entitled to an offset for the amount paid under this section against the amount of tax liability assessed under this chapter. (Ord. 2025-11, Enacted, 05/20/2025)

3-05-004-0416 CONSTRUCTION CONTRACTING: SPECULATIVE BUILDERS

A. The tax shall be equal to two and four hundred eighty-six thousandths percent (2.486%) of the gross income from the business activity upon every person engaging or continuing in business as a speculative builder within the City.

1. The gross income of a speculative builder considered taxable shall include the total selling price from the sale of improved real property at the time of closing of escrow or transfer of title.

2. "Improved real property" means any real property:

a. Upon which a structure has been substantially completed; or

b. Where improvements have been made to land containing no structure (such as paving or landscaping); or

c. Which has been reconstructed as provided by Section 3-05-004-0416.2; or

d. Where water, power, and streets have been constructed to the property line.

3. "Sale of improved real property" includes any form of transaction, whether characterized as a lease or otherwise, which in substance is a transfer of title of, or equitable ownership in, improved real property and includes any lease of the property for a term of thirty (30) years or more (with all options for renewal being included as a part of the term). In the case of multiple unit projects, "sale" refers to the sale of the entire project or to the sale of any individual parcel or unit.

4. "Partially improved residential real property," as used in this section, means any improved real property, as defined in subsection (A)(2) of this section, being developed for sale, where the improvement to such property is not substantially complete at the time of the sale.

B. Exclusions.

1. In cases involving reconstruction contracting, the speculative builder may exclude from gross income the prior value allowed for reconstruction contracting in determining his taxable gross income, as provided by Section 3-05-004-0416.2.

2. Neither the cost nor the fair market value of the land which constitutes part of the improved real property sold may be excluded or deducted from gross income subject to the tax imposed by this section.

3. (Reserved)

4. A speculative builder may exclude gross income from the sale of partially improved residential real property as defined in subsection (A)(4) of this section to another speculative builder only if all of the following conditions are satisfied:

a. The speculative builder purchasing the partially improved residential real property has a valid municipal privilege tax license for construction contracting as a speculative builder; and

b. At the time of the transaction, the purchaser provides the seller with a properly completed written declaration that the purchaser assumes liability for and will pay all privilege taxes which would otherwise be due the City at the time of sale of the partially improved residential real property; and

c. The seller also:

(1) Maintains proper records of such transactions in a manner similar to the requirements provided in this chapter relating to sales for resale; and

(2) Retains a copy of the written declaration provided by the buyer for the transaction; and

(3) Is properly licensed with the City as a speculative builder.

5. For taxable periods beginning from and after July 1, 2008, the portion of gross proceeds of sales or gross income attributable to the actual direct costs of providing architectural or engineering services that are incorporated in a contract is not subject to tax under this section. For the purposes of this subsection, "direct costs" means the portion of the actual costs that are directly expended in providing architectural or engineering services.

C. Tax liability for speculative builders occurs at close of escrow or transfer of title, whichever occurs earlier, and is subject to the following provisions, relating to exemptions, deductions and tax credits:

1. Exemptions.

a. The gross proceeds of sales or gross income attributable to the purchase of machinery, equipment or other tangible personal property that is exempt from or deductible from privilege or use tax under:

(1) Sections 3-05-004-0465(G) and (P);

(2) Sections 3-05-006-0660(G) and (P);

shall be exempt or deductible, respectively, from the tax imposed by this section.

b. The gross proceeds of sales or gross income received from a contract for the construction of an environmentally controlled facility for the raising of poultry for the production of eggs and the sorting, or cooling and packaging of eggs shall be exempt from the tax imposed under this section.

c. The gross proceeds of sales or gross income that is derived from the installation, assembly, repair or maintenance of clean rooms that are deducted from the tax base of the retail classification pursuant to Section 3-05-004-0465(G) shall be exempt from the tax imposed under this section.

d. The gross proceeds of sales or gross income that is derived from a contract entered into with a person who is engaged in the commercial production of livestock, livestock products or agricultural, horticultural, viticultural or floricultural crops or products in this state for the construction, alteration, repair, improvement, movement, wrecking or demolition or addition to or subtraction from any building, highway, road, excavation, manufactured building or other structure, project, development or improvement used directly and primarily to prevent, monitor, control or reduce air, water, or land pollution shall be exempt from the tax imposed under this section.

e. Any amount attributable to development fees that are incurred in relation to the construction, development or improvement of real property and paid by the taxpayer as defined in the model city tax code or by a contractor providing services to the taxpayer. For the purposes of this subsection:

(1) The attributable amount shall not exceed the value of the development fees actually imposed.

(2) The attributable amount is equal to the total amount of development fees paid by the taxpayer or by a contractor providing services to the taxpayer and the total development fees credited in exchange for the construction of, contribution to or dedication of real property for providing public infrastructure, public safety or other public services necessary to the development. The real property must be the subject of the development fees.

(3) "Development fees" means fees imposed to offset capital costs of providing public infrastructure, public safety or other public services to a development and authorized pursuant to A.R.S. Section 9-463.05, A.R.S. Section 11-1102, or A.R.S. Title 48 regardless of the jurisdiction to which the fees are paid.

f. The gross proceeds of sales or gross income that is derived from the value of existing tenant leases in place at the time of the sale shall be exempt from tax imposed under this section. The value of the in-place leases shall be determined as of the close of escrow or transfer of title as follows:

(1) For a residential lease, the value of the in-place lease is the total value of all expected lease receipts through the end of the current lease term multiplied by a factor of 1.5. Expected lease receipts includes nonrefundable deposits and excludes all refundable deposits regardless of whether the refundable deposit may be forfeited.

(2) For a commercial lease, the value of the in-place lease is the present value of the expected lease receipts through the end of the current lease term or first option of either party to terminate the lease, whichever is less. The discount rate used to calculate the present value shall be the one hundred percent (100%) mid-term applicable Federal rate published by the Internal Revenue Service associated with the payment terms of the lease related to the months preceding the close of escrow plus three (3) percentage points.

(3) A transaction, whether characterized as a lease or otherwise, which in substance is a transfer of title of or equitable ownership in improved real property, including any lease of the property for a term of thirty (30) years or more (with all options for renewal being included as a part of the term) is deemed to be a sale of improved real property pursuant to subsection (A)(3) of this section and is not considered an in-place lease.

2. Deductions.

a. All State and County taxes associated with the project and reported and paid to the Department of Revenue by a contractor constructing the improvements on the property shall be deducted from the selling price.

b. All amounts subject to the tax shall be allowed a deduction in the amount of thirty-five percent (35%).

c. The gross proceeds of sales or gross income that is derived from a contract entered into for the installation, assembly, repair, or maintenance of income-producing capital equipment, as defined in Section 3-05-001-0110, that is deducted from the retail classification pursuant to Section 3-05-004-0465(G), that does not become a permanent attachment to a building, highway, road, railroad, excavation or manufactured building or other structure, project, development or improvement shall be exempt from the tax imposed by this section. If the ownership of the realty is separate from the ownership of the income-producing capital equipment, the determination as to permanent attachment shall be made as if the ownership was the same. The deduction provided in this subsection does not include gross proceeds of sales or gross income from that portion of any contracting activity which consists of the development of, or modification to, real property in order to facilitate the installation, assembly, repair, maintenance or removal of the income-producing capital equipment. For purposes of this subsection, "permanent attachment" means at least one (1) of the following:

(1) To be incorporated into real property.

(2) To become so affixed to real property that it becomes part of the real property.

(3) To be so attached to real property that removal would cause substantial damage to the real property from which it is removed.

d. For taxable periods beginning from and after July 1, 2008, and ending before January 1, 2017, the gross proceeds of sales or gross income derived from a contract to provide and install a solar energy device. The contractor shall register with the Department of Revenue as a solar energy contractor. By registering, the contractor acknowledges that it will make its books and records relating to sales of solar energy devices available to the Department of Revenue and the City, as applicable, for examination.

3. Tax Credits. The following tax credits are available to owner-builders or speculative builders, not to exceed the tax liability against which such credits apply, provided such credits are documented to the satisfaction of the Tax Collector:

a. A tax credit equal to the amount of City privilege or use tax, or the equivalent excise tax, paid directly to a taxing jurisdiction or as a separately itemized charge paid directly to the vendor with respect to the tangible personal property incorporated into the said structure or improvement to real property undertaken by the owner-builder or speculative builder.

b. A tax credit equal to the amount of privilege taxes paid to this City, or charged separately to the speculative builder, by a construction contractor, on the gross income derived by said person from the construction of any improvement to the real property.

c. A tax credit equal to the amount of privilege taxes paid to this City by any speculative builder on the gross income derived by said person from the sale of improved real property pursuant to subsection (A)(2)(b) or (A)(2)(d) of this section against the gross income of any speculative builder from the sale of improved real property pursuant to subsection (A)(2)(a) of this section.

d. No credits provided herein may be claimed until such time that the gross income against which said credits apply is reported. (Ord. 1669, 07/17/1990; Ord. 2000-14, Amended, 06/06/2000; Ord. 2008, Amended, 11/02/1999; Ord. 2004-25, Amended, 01/10/2005; Ord. 2006-16, Amended 06/06/2006; Ord. 2007-28, Amended, 05/01/2007; Ord. No. 2009-16, Amended, 06/19/2009; Ord. 2011-21, Amended, 10/18/2011; Ord. 2014-16, Amended, 07/15/2014; Ord. 2014-34, Amended, 01/06/2015; Ord. 2019-01, Amended, 02/19/2019; Ord. 2025-11, Amended, 05/20/2025)

3-05-004-0416.1 SPECULATIVE BUILDERS: HOMEOWNER’S BONA FIDE NONBUSINESS SALE OF A FAMILY RESIDENCE

A. A sale of a home, regardless of the stage of completion of such home, shall be considered a "homeowner’s bona fide nonbusiness sale" and not subject to the tax on speculative builders if:

1. The property was actually used as the principal place of family residence or vacation residence by the immediate family of the seller for the six (6) months next prior to the offer for sale; and

2. The seller has not sold more than two (2) such residences (or, if the residence is a vacation residence, two (2) such vacation residences) within the thirty-six (36) months immediately prior to the offer for sale; and

3. The seller has not licensed, leased, or rented the sold premises for any period within twenty-four (24) months prior to the offer for sale.

B. In the event that a homeowner of a family residence contracts with a licensed construction contractor for improvements to a residence, the construction contracting on a family residence shall be presumed to be for an owner’s bona fide nonbusiness purpose and all construction contractors shall be required to report and pay the tax imposed on all such improvements.

C. Purchases by a homeowner of tangible personal property for inclusion in any construction, alteration, or repair of his residence shall be subject to tax as retail sales to the ultimate consumer.

D. "Owner," "homeowner," and "seller" as used in this section shall only mean an individual or qualified trust, and no other entity, association, or representative shall qualify; except that an administrator, executor, personal representative, or guardian in guardianship or probate proceedings, for the estate of a deceased or incompetent person or a minor, may claim "homeowner" status for such person if such person would have otherwise qualified with respect to the specific property involved.

E. "Qualified trust" as used in this section means any legal trust where a beneficiary of the trust is an individual that has been the resident of the property and that individual meets the criteria listed in subsection (A) of this section. (Ord. 2025-11, Enacted, 05/20/2025)

3-05-004-0416.2 RECONSTRUCTION CONTRACTING

A. "Reconstruction (of real property)" shall mean the subdividing of real property and, in addition, all construction contracting activities performed upon said real property; provided, however, that each of the following conditions are met:

1. A structure existed on said real property prior to the reconstruction activity; and

2. The "prior value" of said structure exceeds fifteen percent (15%) of the "prior value" of the integrated property (land, improvements, and structure); and

3. The total cost of all construction contracting activities performed on said real property in the twenty-four (24) month period prior to the sale of any part of the real property exceeds fifteen percent (15%) of the "prior value" of the real property; and

4. The structure which existed on the real property prior to the reconstruction activity still exists in some form upon the property, and is included, in whole or in part, in the property sold.

B. Except as provided in subsection (C) of this section, "prior value" means the value of the total integrated property, with improvements, as existing immediately prior to any reconstruction activity. Where, according to A.R.S. Title 42, a property’s full cash value for secondary tax purposes is intended to represent the property’s fair market value, "prior value" shall be the property’s full cash value for secondary property tax purposes as determined by the County Assessor in the year immediately preceding the year in which the reconstruction improvement(s) are or could have been included in the County Assessor’s valuation. If the County Assessor’s valuation is contested or appealed, the final determination at either the administrative or judicial level shall apply. Where, according to A.R.S. Title 42, a property’s full cash value for secondary property tax purposes is not intended to represent the property’s fair market value, "prior value" shall be the property’s fair market value prior to the reconstruction improvement(s).

C. "Alternative prior value" shall mean that as an alternative to the "prior value" defined above, the taxpayer may use his actual cost of the reconstructed property prior to reconstruction; provided, that evidence of such cost is presented to the Tax Collector and is determined by the Tax Collector, in his sole discretion, to be satisfactory. Such evidence shall consist, at a minimum, of proof of the actual, arms-length acquisition price, accompanied by a full appraisal of all property involved which appraisal shall have been performed by a real estate broker or MAI appraiser specifically for the purpose of assisting in the acquisition and further shall have been performed on behalf of the seller or a lending institution which has lent at least sixty-five percent (65%) of the acquisition price. (Only long-term lending, not interim or construction financing, will be considered.) This alternative value shall be used only if the property was acquired by the reconstruction taxpayer not more than thirty-six (36) months prior to a "sale" as defined below.

D. A "sale" for the purpose of determining "alternative prior value" or "reconstruction" only shall be deemed to have occurred as of the date of the execution of a contract of sale or a deed (joint tenancy or warranty) whichever is earlier, to a purchaser or grantee of any single residential or other occupancy unit. In addition to the foregoing, a lease with option to purchase a single residential unit shall be considered a "sale" at the date of execution of such lease if said option is exercisable by the lessee in not later than nine (9) months. Further, in the case of cooperative apartments, the sale date shall be the date of execution of the contract selling (subject or not to encumbrances, liens, or security interests) of a share, or a sufficient number of shares which entitle the purchaser to the occupancy of a residential unit. In all cases a person shall include a husband and wife as a community, or any co-occupants of a single unit as joint tenants. (Ord. 2025-11, Enacted, 05/20/2025)

3-05-004-0417 CONSTRUCTION CONTRACTING: OWNER-BUILDERS WHO ARE NOT SPECULATIVE BUILDERS

A. At the expiration of twenty-four (24) months after improvement to the property is substantially complete, the tax liability for an owner-builder who is not a speculative builder shall be at an amount equal to two and four hundred eighty-six thousandths percent (2.486%) of:

1. The gross income from the activity of construction contracting upon the real property in question which was realized by those construction contractors to whom the owner-builder provided written declaration that they were not responsible for the taxes as prescribed in Section 3-05-004-0415(C)(2); and

2. The purchase of tangible personal property for incorporation into any improvement to real property, computed on the sales price.

B. For taxable periods beginning from and after July 1, 2008, the portion of gross proceeds of sales or gross income attributable to the actual direct costs of providing architectural or engineering services that are incorporated in a contract is not subject to tax under this section. For the purposes of this subsection, "direct costs" means the portion of the actual costs that are directly expended in providing architectural or engineering services.

C. The tax liability of this section is subject to the following provisions, relating to exemptions, deductions and tax credits:

1. Exemptions.

(1) Sections 3-05-004-0465(G) and (P);

(2) Sections 3-05-006-0660(G) and (P);

shall be exempt or deductible, respectively, from the tax imposed by this section.

d. The gross proceeds of sales or gross income that is derived from a contract entered into with a person who is engaged in the commercial production of livestock, livestock products or agricultural, horticultural, viticultural or floricultural crops or products in this State for the construction, alteration, repair, improvement, movement, wrecking or demolition or addition to or subtraction from any building, highway, road, excavation, manufactured building or other structure, project, development or improvement used directly and primarily to prevent, monitor, control or reduce air, water, or land pollution shall be exempt from the tax imposed under this section.

e. Any amount attributable to development fees that are incurred in relation to the construction, development or improvement of real property and paid by the taxpayer as defined in the Model City Tax Code or by a contractor providing services to the taxpayer shall be exempt from the tax imposed under this section. For the purposes of this subsection:

(1) The attributable amount shall not exceed the value of the development fees actually imposed.

2. Deductions.

a. All amounts subject to the tax shall be allowed a deduction in the amount of thirty-five percent (35%).

b. The gross proceeds of sales or gross income that is derived from a contract entered into for the installation, assembly, repair, or maintenance of income-producing capital equipment, as defined in Section 3-05-001-0110, that is deducted from the retail classification pursuant to Section 3-05-004-0465(G), that does not become a permanent attachment to a building, highway, road, railroad, excavation or manufactured building or other structure, project, development or improvement shall be exempt from the tax imposed by this section. If the ownership of the realty is separate from the ownership of the income-producing capital equipment, the determination as to permanent attachment shall be made as if the ownership was the same. The deduction provided in this subsection does not include gross proceeds of sales or gross income from that portion of any contracting activity which consists of the development of, or modification to, real property in order to facilitate the installation, assembly, repair, maintenance or removal of the income-producing capital equipment. For purposes of this subsection, "permanent attachment" means at least one (1) of the following:

(1) To be incorporated into real property.

(2) To become so affixed to real property that it becomes part of the real property.

(3) To be so attached to real property that removal would cause substantial damage to the real property from which it is removed.

c. For taxable periods beginning from and after July 1, 2008, and ending before January 1, 2017, the gross proceeds of sales or gross income derived from a contract to provide and install a solar energy device. The contractor shall register with the Department of Revenue as a solar energy contractor. By registering, the contractor acknowledges that it will make its books and records relating to sales of solar energy devices available to the Department of Revenue and the City, as applicable, for examination.

c. No credits provided herein may be claimed until such time that the gross income against which said credits apply is reported.

D. The limitation period for the assessment of taxes imposed by this section is measured based upon when such liability is reportable, that is, in the reporting period that encompasses the twenty-fifth (25th) month after said unit or project was substantially complete. Interest and penalties, as provided in Section 3-05-005-0540, will be based on reportable date.

E. (Reserved). (Ord. 2000-14, Amended, 06/06/2000; Ord. 2008, Amended, 11/02/1999; Ord. 2004-25, Amended, 01/10/2005; Ord. 2007-28, Amended, 05/01/2007; Ord. 2009-16, Amended, 06/19/2009; Ord. 2011-21, Amended, 10/18/2011; Ord. 2014-16, Amended, 07/15/2014; Ord. 2014-34, Amended, 01/06/2015; Ord. 2019-01, Amended, 02/19/2019; Ord. 2025-11, Amended, 05/20/2025)

3-05-004-0418 (RESERVED)

3-05-004-0420 FEED AT WHOLESALE

A. The tax rate shall be at an amount equal to two and four hundred eighty-six thousandths percent (2.486%) of the gross income from the business activity upon every person engaging or continuing in the business of the sale of feed, salt, vitamins, and other additives to feed, to persons engaged in the raising or feeding of livestock or poultry purchased or raised for slaughter, with no deduction for the income derived from the "resale" of such feed.

B. The tax imposed by this section shall not apply to:

1. Out-of-City sales.

2. Out-of-State sales. (Ord. 2014-34, Amended, 01/06/2015; Ord. 2019-01, Amended, 02/19/2019; Ord. 2025-11, Amended, 05/20/2025)

3-05-004-0422 RESERVED

3-05-004-0425 JOB PRINTING (REG. 425.1)

3-05-004-0427 MANUFACTURED BUILDINGS

A. The tax rate shall be at an amount equal to two and four hundred eighty-six thousandths percent (2.486%) of the gross income, including site preparation, moving to the site, and/or setup, upon every person engaging or continuing in the business activity of selling manufactured buildings within the City. Such business activity is deemed to occur at the business location of the seller where the purchaser first entered into the contract to purchase the manufactured building.

B. The sale of used manufactured buildings is not taxable.

C. The sales price of furniture, furnishings, fixtures, appliances, and attachments that are not incorporated as component parts of or attached to a manufactured building is exempt from the tax imposed by this section. Sales of such items are subject to the tax under Section 3-05-004-0460.

D. Under this section, a trade-in will not be allowed for the purpose of reducing the tax liability. (Ord. 1851, 01/03/95; Ord. 2000-14, Amended, 06/06/2000; Ord. 2014-34, Amended, 01/06/2015; Ord. 2019-01, Amended, 02/19/2019; Ord. 2025-11, Amended, 05/20/2025)

3-05-004-0430 TIMBERING AND OTHER EXTRACTION

A. The tax rate shall be an amount equal to two and four hundred eighty-six thousandths percent (2.486%) of the gross income from the business activity upon every person engaging or continuing in the following businesses:

1. Felling, producing, or preparing timber or any product of the forest for sale, profit, or commercial use.

2. Extracting, refining, or producing any oil or natural gas for sale, profit, or commercial use.

B. The rate specified in subsection (A) of this section shall be applied to the value of the entire product extracted, refined, produced, or prepared for sale, profit, or commercial use, when such activity occurs within the City, regardless of the place of sale of the product or the fact that delivery may be made to a point without the City or without the State.

C. If any person engaging in any business classified in this section ships or transports product, or any part thereof, out of the State without making sale of such products, or ships his products outside of the State in an unfinished condition, the value of the products or articles in the condition or form in which they existed when transported out of State and before they enter interstate commerce shall be the basis for assessment of the tax imposed by this section.

D. (Reserved) (Ord. 1851, 01/03/1995; Ord. 2000-14, Amended, 06/06/2000; Ord. 2013-02, Amended, 04/02/2013; Ord. 2014-34, Amended, 01/06/2015; Ord. 2019-01, Amended, 02/19/2019; Ord. 2025-11, Amended, 05/20/2025)

3-05-004-0432 MINING

A. The tax rate shall be at an amount equal to one tenth of one percent (0.1%), not to exceed one tenth of one percent (0.1%), of the gross income from the business activity upon every person engaging or continuing in the business of mining, smelting, or producing for sale, profit or commercial use any copper, gold, silver, or other mineral product, compound, or combination of mineral products; but not including the extraction, removal, or production of sand, gravel, or rock from the ground for sale, profit, or commercial use.

B. The rate specified in subsection (A) of this section shall be applied to the value of the entire product mined, smelted or produced for sale, profit, or commercial use, when such activity occurs within the City, regardless of the place of sale of the product or the fact that delivery may be made to a point without the City or without the State.

C. If any person engaging in any business classified in this section ships or transports products, or any part thereof, out of the State without making sale of such products, or ships his products outside of the State in an unfinished condition, the value of the products or articles in the condition or form in which they existed when transported out-of-State and before they enter interstate commerce shall be the basis for assessment of the tax imposed by this section. (Ord. 1851, 01/03/1995; Ord. 2025-11, Amended, 05/20/2025)

3-05-004-0435 PUBLISHING AND PERIODICALS DISTRIBUTION

1. Publication of newspapers, magazines, or other periodicals when published within the City, measured by the gross income derived from notices, subscriptions, and local advertising as defined in Section 3-05-004-0405. In cases where the location of publication is both within and without this State, gross income subject to the tax shall refer only to gross income derived from residents of this State or generated by permanent business locations within this State.

2. Distribution or delivery within the City of newspapers, magazines, or other periodicals not published within the City, measured by the gross income derived from subscriptions.

B. "Location of publication" is determined by:

1. Location of the editorial offices of the publisher, when the physical printing is not performed by the publisher; or

2. Location of either the editorial offices or the printing facilities, if the publisher performs his own physical printing.

C. "Subscription income" shall include all circulation revenue of the publisher except amounts retained by or credited to carriers or other vendors as compensation for delivery within the State by such carriers or vendors, and further except sales of published items, directly or through distributors, for the purpose of resale, to retailers subject to the privilege tax on such resale.

D. "Circulation," for the purpose of measurement of gross income subject to the tax, shall be considered to occur at the place of delivery of the published items to the subscriber or intended reader irrespective of the location of the physical facilities or personnel of the publisher. However, delivery by the United States mails shall be considered to have occurred at the location of publication.

E. Allocation of Taxes Between Cities and Towns. In cases where publication or distribution occurs in more than one city or town, the measurement of gross income subject to tax by the City shall include:

1. That portion of the gross income from publication which reflects the ratio of circulation within this City to circulation in all incorporated cities and towns in this State having substantially similar provisions; plus

2. Only when publication occurs within the City, that portion of the remaining gross income from publication which reflects the ratio of circulation within this City to the total circulation of all incorporated cities or towns in this State within which cities the taxpayer maintains a location of publication.

F. The tax imposed by this section shall not apply to sales of newspapers, magazines or other periodicals to a qualifying hospital, qualifying community health center or a qualifying health care organization, except when the property sold is for use in activities resulting in gross income from unrelated business income as that term is defined in 26 U.S.C. Section 512. (Ord. 1593, 12/06/1988; Ord. 1979, 10/06/1998; Ord. 2000-14, Amended, 06/06/2000; Ord. 2014-34, Amended, 01/06/2015; Ord. 2019-01, Amended, 02/19/2019; Ord. 2025-11, Amended, 05/20/2025)

3-05-004-0440 RESERVED

3-05-004-0444 HOTELS

The tax rate shall be at an amount equal to four and four hundred eighty-six thousandths percent (4.486%) of the gross income from the business activity upon every person engaging or continuing in the business of operating a hotel charging for lodging and/or space furnished to any:

A. Transient.

B. Exclusions. The tax imposed by this section shall not include:

1. Income derived from incarcerating or detaining prisoners who are under the jurisdiction of the United States, this State or any other state or a political subdivision of this State or any other state in a privately operated prison, jail or detention facility.

2. Gross proceeds of sales or gross income that is properly included in another business activity under this division and that is taxable to the person engaged in that business activity, but the gross proceeds of sales or gross income to be deducted shall not exceed the consideration paid to the person conducting the activity.

3. Gross proceeds of sales or gross income from transactions or activities that are not limited to transients and that would not be taxable if engaged in by a person not subject to tax under this division.

4. Gross proceeds of sales or gross income from transactions or activities that are not limited to transients and that would not be taxable if engaged in by a person subject to taxation under Section 3-05-004-0410 or 3-05-004-0475 due to an exclusion, exemption or deduction.

5. Gross proceeds of sales or gross income from commissions received from a person providing services or property to the customers of the hotel. However, such commissions may be subject to tax under Section 3-05-004-0445 or 3-05-004-0450 as rental, leasing or licensing for use of real or tangible personal property.

6. Income from providing telephone, fax or internet services to customers at an additional charge, that is separately stated to the customer and is separately maintained in the hotel’s books and records. However, such gross proceeds of sales or gross income may be subject to tax under Section 3-05-004-0470 as telecommunication services. (Ord. 1669, 07/17/1990; Ord. 1979, Amended, 10/06/1998; Ord. 2008, Amended, 11/02/1999; Ord. 2000-14, Amended, 06/06/2000; Ord. 2007-28, Amended, 05/01/2007; Ord. 2014-15, Amended, 07/15/2014; Ord. 2014-34, Amended, 01/06/2015; Ord. 2019-01, Amended, 02/19/2019; Ord. 2025-11, Amended, 05/20/2025)

3-05-004-0445 RENTAL, LEASING, AND LICENSING FOR USE OF REAL PROPERTY(REG. 445.1, REG. 445.3)

See also Regulations 3-5-445.1 and 3-5-445.3.

A. The tax rate shall be at an amount equal to two and four hundred eighty-six thousandths percent (2.486%) of the gross income from the business activity upon every person engaging or continuing in the business of leasing or renting real property located within the City for a consideration, to the tenant in actual possession, or the licensing for use of real property to the final licensee located within the City for a consideration including any improvements, rights, or interest in such property; provided further, that:

1. Payments made by the lessee to, or on behalf of, the lessor for property taxes, repairs, or improvements are considered to be part of the taxable gross income.

2. Charges for such items as telecommunications, utilities, pet fees, or maintenance are considered to be part of the taxable gross income.

3. However, if the lessor engages in telecommunication activity, as evidenced by installing individual metering equipment and by billing each tenant based upon actual usage, such activity is taxable under Section 3-05-004-0470.

B. If individual utility meters have been installed for each tenant and the lessor separately charges each single tenant for the exact billing from the utility company, such charges are exempt.

C. Charges by a qualifying hospital, qualifying community health center or a qualifying health care organization to patients of such facilities for use of rooms or other real property during the course of their treatment by such facilities are exempt.

D. Charges for joint pole usage by a person engaged in the business of providing or furnishing utility or telecommunication services or that is a cable operator, or charges for joint pole usage to a person engaged in the business of providing or furnishing utility or telecommunication services or that is a cable operator are exempt from the tax imposed by this section. "Cable operator" has the same meaning as prescribed by A.R.S. Section 9-505.

E. Exempt from the tax imposed by this section is gross income derived from the rental, leasing, or licensing for use of real property to a qualifying hospital, qualifying community health center or a qualifying health care organization, except when the property so rented, leased, or licensed is for use in activities resulting in gross income from unrelated business income as that term is defined in 26 U.S.C. Section 512.

F. (Reserved)

G. (Reserved)

H. The tax prescribed by this section shall not include gross income from the rental, leasing, or licensing of lodging or lodging space to an individual who resides therein.

I. (Reserved)

J. Exempt from the tax imposed by this section is gross income derived from the activities taxable under Section 3-05-004-0444.

K. (Reserved)

L. (Reserved)

M. (Reserved)

N. Notwithstanding the provisions of Section 3-05-002-0200(B), the fair market value of one (1) apartment, in an apartment complex provided rent free to an employee of the apartment complex is not subject to the tax imposed by this section. For an apartment complex with more than fifty (50) units, an additional apartment provided rent free to an employee for every additional fifty (50) units is not subject to the tax imposed by this section.

O. Income derived from incarcerating or detaining prisoners who are under the jurisdiction of the United States, this State or any other state or a political subdivision of this State or any other state in a privately operated prison, jail or detention facility is exempt from the tax imposed by this section.

P. Charges by a hospital, any licensed nursing care institution, or any kidney dialysis facility to patients of such facilities for the use of rooms or any other real property during the course of their treatment by such facilities are exempt.

Q. Charges to patients receiving "personal care" or "directed care" by any licensed assisted living facility, licensed assisted living center or licensed assisted living home as defined and licensed pursuant to A.R.S. Chapter 4, Title 36 and A.A.C. Title 9 are exempt.

R. Income received from the rental of any "low-income unit" as established under Section 42 of the Internal Revenue Code, including the low-income housing credit provided by IRC Section 42, to the extent that the collection of tax on rental income causes the "gross rent" defined by IRC Section 42 to exceed the income limitation for the low-income unit is exempt. This exemption also applies to income received from the rental of individual rental units subject to statutory or regulatory "low-income unit" rent restrictions similar to IRC Section 42 to the extent that the collection of tax from the tenant causes the rental receipts to exceed a rent restriction for the low-income unit. This subsection also applies to rent received by a person other than the owner or lessor of the low-income unit, including a broker. This subsection does not apply unless a taxpayer maintains the documentation to support the qualification of a unit as a low-income unit, the "gross rent" limitation for the unit, and the rent received from that unit.

S. The gross proceeds of a commercial lease of real property between affiliated companies, businesses, persons or reciprocal insurers are exempt. For the purposes of this subsection:

1. "Affiliated companies, businesses, persons or reciprocal insurers" means the lessor holds a controlling interest in the lessee, the lessee holds a controlling interest in the lessor, an affiliated entity holds a controlling interest in both the lessor and the lessee or an unrelated person holds a controlling interest in both the lessor and lessee.

2. "Controlling interest" means direct or indirect ownership of at least eighty percent (80%) of the voting shares of a corporation or of the interests in a company, business or person other than a corporation.

3. "Reciprocal insurer" has the same meaning as prescribed in A.R.S. Section 20-762. (Ord. 1851, 01/03/1995; Ord. 1979, 10/06/1998; Ord. 1989, Amended, 10/06/1998; Ord. 2008, Amended, 11/02/1999; Ord. 2000-14, Amended, 06/06/2000; Ord. 2004-25, Amended, 01/10/2005; Ord. 2006-16, Amended, 06/06/2006; Ord. 2011-21, Amended, 10/18/2011; Ord. 2013-26, Amended, 01/07/2014; Ord. 2014-34, Amended, 01/06/2015; Ord. 2019-01, Amended, 02/19/2019; Ord. 2025-11, Amended, 05/20/2025)

3-05-004-0446 RESERVED

3-05-004-0447 RESERVED

3-05-004-0450 RENTAL, LEASING, AND LICENSING FOR USE OF TANGIBLE PERSONAL PROPERTY (REG. 450.1, REG. 450.2, REG 450.3)

See also Regulations 3-5-450.1, 3-5-450.2, and 3-5-450.3.

A. The tax rate shall be at an amount equal to two and four hundred eighty-six thousandths percent (2.486%) of the gross income from the business activity upon every person engaging or continuing in the business of leasing, licensing for use, or renting tangible personal property for a consideration, including that which is semi-permanently or permanently installed within the City as provided by regulation.

B. Special Provisions Relating to Long-Term Motor Vehicle Leases. A lease transaction involving a motor vehicle for a minimum period of twenty-four (24) months shall be considered to have occurred at the location of the motor vehicle dealership, rather than the location of the place of business of the lessor, even if the lessor’s interest in the lease and its proceeds are sold, transferred, or otherwise assigned to a lease financing institution; provided further, that the city or town where such motor vehicle dealership is located levies a privilege tax or an equivalent excise tax upon the transaction.

C. Gross income derived from the following transactions shall be exempt from privilege taxes imposed by this section:

1. Rental, leasing, or licensing for use of tangible personal property to persons engaged or continuing in the business of leasing, licensing for use, or rental of such property.

2. Rental, leasing, or licensing for use of tangible personal property that is semi-permanently or permanently installed within another city or town that levies an equivalent excise tax on the transaction.

3. Rental, leasing, or licensing for use of film, tape, or slides to a theater or other person taxed under Section 3-05-004-0410, or to a radio station, television station, or subscription television system.

4. Rental, leasing, or licensing for use of the following:

a. Prosthetics.

b. Income-producing capital equipment.

c. Mining and metallurgical supplies.

These exemptions include the rental, leasing, or licensing for use of tangible personal property which, if it had been purchased instead of leased, rented, or licensed by the lessee or licensee, would qualify as income-producing capital equipment or mining and metallurgical supplies.

5. Rental, leasing, or licensing for use of tangible personal property to a qualifying hospital, qualifying community health center or a qualifying health care organization, except when the property so rented, leased, or licensed is for use in activities resulting in gross income from unrelated business income as that term is defined in 26 U.S.C. Section 512 or rental, leasing, or licensing for use of tangible personal property 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 for training, job placement or rehabilitation programs or testing for mentally or physically handicapped persons.

6. Separately billed charges for delivery, installation, repair, and/or maintenance as provided by regulation.

7. Charges for joint pole usage by a person engaged in the business of providing or furnishing utility or telecommunication services or that is a cable operator, or charges for joint pole usage to a person engaged in the business of providing or furnishing utility or telecommunication services or that is a cable operator. "Cable operator" has the same meaning as prescribed by A.R.S. Section 9-505.

8. The gross income from coin-operated washing, drying, and dry cleaning machines, or from coin-operated car washing machines. This exemption shall not apply to suppliers or distributors renting, leasing, or licensing for use of such equipment to persons engaged in the operation of coin-operated washing, drying, dry cleaning, or car washing establishments.

9. Rental, leasing, or licensing of aircraft that would qualify as aircraft acquired for use outside the State, as prescribed by regulation, if such rental, leasing, or licensing had been a sale.

10. Rental, leasing and licensing for use of an alternative fuel vehicle if such 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 A.R.S. Section 1-215.

11. Rental, leasing, and licensing for use of solar energy devices, for taxable periods beginning from and after July 1, 2008. The lessor shall register with the Department of Revenue as a solar energy retailer. By registering, the lessor acknowledges that it will make its books and records relating to leases of solar energy devices available to the Department of Revenue and City, as applicable, for examination.

12. Leasing or renting certified ignition interlock devices installed pursuant to the requirements prescribed by A.R.S. Section 28-1461. For the purposes of this subsection, "certified ignition interlock device" has the same meaning prescribed in A.R.S. Section 28-1301. (Ord. 1851, 01/03/1995; Ord. 1979, Amended, 10/06/1998; Ord. 2008, Amended, 11/02/1999; Ord. 2000-14, Amended, 06/06/2000; Ord. 2004-25, Amended, 01/10/2005; Ord. 2007-28, Amended, 05/01/2007; Ord. 2009-16, Amended 06/16/2009; Ord. 2013-26, Amended, 01/07/2014; Ord. 2014-34, Amended, 01/06/2015; Ord. 2019-01, Amended, 02/19/2019; Ord. 2025-11, Amended, 05/20/2025)

3-05-004-0452 RESERVED:

3-05-004-0455 RESTAURANTS AND BARS

A. The tax rate shall be at an amount equal to four and four hundred eighty-six thousandths percent (4.486%) of the gross income from the business activity upon every person engaging or continuing in the business of preparing or serving food or beverages in a bar, cocktail lounge, restaurant, or similar establishment where articles of food or drink are prepared or served for consumption on or off the premises, including also the activity of catering. Cover charges and minimum charges must be included in the gross income of this business activity.

B. Caterers and other taxpayers subject to the tax who deliver food and/or serve such food off premises shall also be allowed to exclude separately charged delivery, setup, and cleanup charges; provided, that the charges are also maintained separately in the books and records. When a taxpayer delivers food and/or serves such food off premises, his regular business location shall still be deemed the location of the transaction for the purposes of the tax imposed by this section.

C. The tax imposed by this section shall not apply to sales to a qualifying hospital, qualifying community health center or a qualifying health care organization, except when sold for use in activities resulting in gross income from unrelated business income as that term is defined in 26 U.S.C. Section 512.

D. The tax imposed by this section shall not apply to sales of food, beverages, condiments and accessories used for serving food and beverages to a commercial airline, as defined in A.R.S. Section 42-5061, that serves the food and beverages to its passengers, without additional charge, for consumption in flight.

E. The tax imposed by this section shall not apply to sales of prepared food, beverages, condiments or accessories to a public educational entity, pursuant to any of the provisions of A.R.S. Title 15 to the extent such items are to be prepared or served to individuals for consumption on the premises of a public educational entity during school hours.

F. The tax imposed by this section shall not apply to sales of low or reduced cost articles of food or drink to eligible elderly or homeless persons or persons with a disability by a business subject to tax under A.R.S. Section 42-5074 that contracts with the Department of Economic Security and that is approved by the Food and Nutrition Service of the United States Department of Agriculture pursuant to the Supplemental Nutrition Assistance Program established by the Food and Nutrition Act of 2008 (P.L. 110-246; 122 Stat. 1651; 7 United States Code Sections 2011 through 2036a), if the purchases are made with the benefits issued pursuant to the Supplemental Nutrition Assistance Program.

G. The tax imposed by this section shall not apply to sales 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 subsection 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 A.R.S. Section 42-5073.

H. If a city, town, or other taxing jurisdiction imposes a transaction privilege, sales, use, franchise, or other similar tax or fee, however denominated, on the sale of food items intended for human consumption as defined by rule adopted pursuant to A.R.S. Section 42-5106 or items prescribed by A.R.S. Section 42-5106(D), for consumption on the premises, the tax must be applied uniformly with respect to all food items, and an additional tax or fee differential may not be assessed or applied with respect to any specific food item.

I. For the purposes of this section, "accessories" means paper plates, plastic eating utensils, napkins, paper cups, drinking straws, paper sacks or other disposable containers, or other items which facilitate the consumption of the food. (Ord. 1593, Amended, 11/15/1988; Ord. 1979, Amended, 10/06/1998; Ord. 2000-14, Amended, 06/06/2000; Ord. 2007-28, Amended, 05/01/2007; Ord. 2014-15, Amended, 07/15/2014; Ord. 2014-34, Amended, 01/06/2015; Ord. 2019-01, Amended, 02/19/2019; Ord. 2025-11, Amended, 05/20/2025)

3-05-004-0460 RETAIL SALES: MEASURE OF TAX; BURDEN OF PROOF; EXCLUSIONS

B. The burden of proving that a sale of tangible personal property is not a taxable retail sale shall be upon the person who made the sale.

C. Exclusions. For the purposes of this chapter, sales of tangible personal property shall not include:

1. Sales of stocks, bonds, options, or other similar materials.

2. Sales of lottery tickets or shares pursuant to A.R.S. Title 5, Chapter 5, Article I.

3. Sales of platinum, bullion, or monetized bullion, except minted or manufactured coins transferred or acquired primarily for their numismatic value as prescribed by regulation.

4. Gross income derived from the transfer of tangible personal property which is specifically included as the gross income of a business activity upon which another section of this division imposes a tax shall be considered gross income of that business activity, and is not includable as gross income subject to the tax imposed by this section.

5. Sales by professional or personal service occupations where such sales are inconsequential elements of the service provided.

6. Sales of cash equivalents. 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 chapter are subject to the tax. "Cash equivalents" means items or intangibles, whether or not negotiable, that are sold to one (1) 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:

a. Items or intangibles that are sold to one (1) or more persons, through which a value is not denominated in money.

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

D. (Reserved)

E. When this City and another Arizona city or town with an equivalent excise tax could claim nexus for taxing a retail sale, the city or town where the permanent business location of the seller at which the order was received shall be deemed to have precedence, and for the purposes of this chapter such city or town has sole and exclusive right to such tax.

F. The appropriate tax liability for any retail sale where the order is received at a permanent business location of the seller located in this City or in an Arizona city or town that levies an equivalent excise tax shall be at the tax rate of the city or town of such seller’s location.

G. Retail sales of prepaid calling cards or prepaid authorization numbers for telecommunications services, including sales of reauthorization of a prepaid card or authorization number, are subject to tax under this section.

H. Membership, admission, or other fees charged by limited access retailers are considered part of taxable gross income of the business activity of selling tangible personal property at retail.

I. Sales of merchandise acquired on consignment are taxable as retail sales. In cases where the merchant is acting as an agent on behalf of another dealer, sales of the consigned merchandise are taxable to the principal, provided the merchant makes full disclosure to customers that he is acting only as an agent for the named principal. However, when the principal is not deemed to be a dealer, such sales are considered to be those of the merchant and are taxable to him.

J. A person who engages in manufacturing, baling, crating, boxing, barreling, canning, bottling, sacking, preserving, processing, or otherwise preparing for sale or commercial use any livestock, agricultural or horticultural product, or any other product, article, substance, or commodity and who sells the product of such business at retail in this state is deemed, as to such sales, to be engaged in business classified under the retail classification. This subsection does not apply to:

1. Agricultural producers who are owners, proprietors, or tenants of agricultural lands, orchards, farms, or gardens where agricultural products are grown, raised, or prepared for market and who are marketing their own agricultural products.

2. Businesses classified under the:

a. Advertising classification.

b. Construction contracting classifications.

c. Job printing classification.

d. Manufactured buildings classification.

e. Publishing and periodical distribution classification.

f. Restaurants and bars classification.

g. Telecommunications classification.

h. Transporting for hire classification.

i. Utility services classification.

j. Wastewater removal services classification. (Ord. 1924, 01/07/1997; Ord. 2008, Amended, 11/02/1999; Ord. 2000-14, Amended, 06/06/2000; Ord. 2013-26, Amended, 01/07/2014; Ord. 2014-34, Amended, 01/06/2015; Ord. 2019-01, Amended, 02/19/2019; Ord. 2025-11, Amended, 05/20/2025)

3-05-004-0462 RETAIL SALES: FOOD FOR HOME CONSUMPTION

A. The tax rate shall be at an amount equal to zero percent (0%) of the gross income from the business activity upon every person engaging or continuing in the business of selling food for home consumption at retail.

B. For the purposes of this section only, the following definitions shall be applicable:

1. "Eligible grocery business" means an establishment that is deemed eligible to participate in the Supplemental Nutritional Assistance Program established by the Food and Nutrition Act of 2008 (P.L. 110-246; 122 Stat. 1651; 7 U.S.C. Sections 2011 through 2036a) by the United States Department of Agriculture Food and Nutrition Service or an establishment that proves to the satisfaction of the Department of Revenue that, based on the nature of the establishment’s food sales, could be eligible to participate in the Supplemental Nutrition Assistance Program established by the Food and Nutrition Act of 2008.

2. "Facilities for the consumption of food" means tables, chairs, benches, booths, stools, counters, and similar conveniences, trays, glasses, dishes, or other tableware and parking areas for the convenience of in-car consumption of food in or on the premises on which the retailer conducts business.

3. "Food for consumption on the premises" means any of the following:

a. "Hot prepared food" as defined below.

b. Hot or cold sandwiches.

c. Food served by an attendant to be eaten at tables, chairs, benches, booths, stools, counters, and similar conveniences and within parking areas for the convenience of in-car consumption of food.

d. Food served with trays, glasses, dishes, or other tableware.

e. Beverages sold in cups, glasses, or open containers.

f. Food sold by caterers.

g. Food sold within the premises of theaters, movies, operas, shows of any type or nature, exhibitions, concerts, carnivals, circuses, amusement parks, fairs, races, contests, games, athletic events, rodeos, billiard and pool parlors, bowling alleys, public dances, dance halls, boxing, wrestling and other matches, and any business which charges admission, entrance, or cover fees for exhibition, amusement, entertainment, or instruction.

h. Any items contained in subsections (A)(3)(a) through (A)(3)(g) of this section even though they are sold on a "take-out" or "to go" basis, and whether or not the item is packaged, wrapped, or is actually taken from the premises.

4. "Hot prepared food" means those products, items, or ingredients of food which are prepared and intended for consumption in a heated condition. "Hot prepared food" includes a combination of hot and cold food items or ingredients if a single price has been established.

5. "Premises" means the total space and facilities in or on which a vendor conducts business and which are owned or controlled, in whole or in part, by a vendor or which are made available for the use of customers of the vendor or group of vendors, including any building or part of a building, parking lot, or grounds.

6. "Food for home consumption" means all food, except food for consumption on the premises, if sold by any of the following:

a. An eligible grocery business.

b. A person who conducts a business whose primary business is not the sale of food but who sells food which is displayed, packaged, and sold in a similar manner as an eligible grocery business.

c. A person who sells food and does not provide or make available any facilities for the consumption of food on the premises.

d. A person who conducts a delicatessen business either from a counter which is separate from the place and cash register where taxable sales are made or from a counter which has two (2) cash registers and which are used to record taxable and tax exempt sales, or a retailer who conducts a delicatessen business who uses a cash register which has at least two (2) tax computing keys which are used to record taxable and tax exempt sales.

e. Vending machines and other types of automatic retailers.

f. A person’s 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.

C. Income derived from the following sources is exempt from the tax imposed by this section:

1. Sales of food for home consumption to a person regularly engaged in the business of selling such property.

2. Out-of-City sales or out-of-State sales.

3. Charges for delivery or other "direct customer services" as prescribed in Section 3-05-001-0100.2.

4. 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 U.S.C. 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 U.S.C. Section 1786).

5. Sales of food products by producers as provided for by A.R.S. Sections 3-561, 3-562 and 3-563.

6. Sales of food, beverages, condiments and accessories to a public educational entity, pursuant to any of the provisions of A.R.S. Title 15, including a regularly organized private or parochial school that offers an educational program for grade twelve (12) or under which may be attended in substitution for a public school pursuant to A.R.S. 15-802; to the extent such items are to be prepared or served to individuals for consumption on the premises of a public educational entity during school hours. For the purposes of this subsection, "accessories" means paper plates, plastic eating utensils, napkins, paper cups, drinking straws, paper sacks or other disposable containers, or other items which facilitate the consumption of the food.

7. Sales of food, beverages, condiments and accessories to a nonprofit charitable organization that has qualified as an exempt organization under 26 U.S.C. Section 501(c)(3) and regularly serves meals to the needy and indigent on a continuing basis at no cost. For the purposes of this subsection, "accessories" means paper plates, plastic eating utensils, napkins, paper cups, drinking straws, paper sacks or other disposable containers, or other items which facilitate the consumption of the food.

D. Reporting. Such persons who sell food for home consumption shall, in conjunction with the return required pursuant to Section 3-05-005-0520, report to the Tax Collector in a manner prescribed by the Tax Collector all sales of food for home consumption exempted from taxes imposed by this chapter.

E. Recordkeeping.

1. Retailers shall maintain accurate, verifiable, and complete records of all purchases and sales of tangible personal property in order to verify exemptions from taxes imposed by this chapter. A retailer may use any method of reporting that properly reflects all purchases and sales of food for home consumption, as well as all purchases and sales of items subject to taxes imposed by this chapter; provided, that such records are maintained in accordance with Division 3-05-003.

2. Any person who fails to maintain records as provided herein shall be deemed to have had no sales of food for home consumption, and if upon request by the Tax Collector, a person cannot demonstrate to the Tax Collector that such records and reports do properly reflect all sales of food for home consumption, the Tax Collector may recompute the amount of tax to be paid as provided in Sections 3-05-003-0370 and 3-05-005-0545(B).

F. If a city, town, or other taxing jurisdiction imposes a transaction privilege, sales, use, franchise, or other similar tax or fee, however denominated, on the sale of food items intended for human consumption as defined by rule adopted pursuant to A.R.S. Section 42-5106 or items prescribed by A.R.S. Section 42-5106(D), for home consumption, the tax must be applied uniformly with respect to all food, and an additional tax or fee differential may not be assessed or applied with respect to any specific food item. (Ord. 2013-26, Enacted, 01/07/2014; Ord. 2025-11, Amended, 05/20/2025)

3-05-004-0465 RETAIL SALES: EXEMPTIONS

Income derived from the following sources is exempt from the tax imposed by Section 3-05-004-0460:

A. Sales of tangible personal property to a person regularly engaged in the business of selling such property.

B. Out-of-City sales or out-of-State sales, including 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.

C. Charges for delivery, installation, or other direct customer services as prescribed by Section 3-05-001-0100.2.

D. Charges for repair services as prescribed by regulation, when separately charged and separately maintained in the books and records of the taxpayer.

E. Sales of warranty, maintenance, and service contracts, when separately charged and separately maintained in the books and records of the taxpayer.

F. Sales of prosthetics.

G. Sales of income-producing capital equipment.

H. Tangible personal property sold to a person engaged in the business of renting, leasing, or licensing for use of such property under the rental, leasing, and licensing for use of tangible personal property classification if such property is to be rented, leased, or licensed for use by such person.

I. Sales of mining and metallurgical supplies.

J. Sales of:

1. Motor vehicle fuel and use fuel which are subject to a tax imposed under the provisions of A.R.S. Title 28, Chapter 16, Article I or II.

2. Use fuel to a holder of a valid single trip use fuel tax permit issued under A.R.S. Section 28-5739.3.

3. Natural gas or liquefied petroleum gas used to propel a motor vehicle.

4. Motor vehicle fuel and use fuel to a qualified business under A.R.S. Section 41-1516 for off-road use in harvesting, processing, or transporting qualifying forest products removed from qualifying projects as defined in A.R.S. Section 41-1516.

5. Repair parts installed in equipment used directly by a qualified business under A.R.S. Section 41-1516 in harvesting, processing, or transporting qualifying forest products removed from qualifying projects as defined in A.R.S. Section 41-1516.

K. Sales of tangible personal property to:

1. A construction contractor who holds a valid privilege tax license for engaging or continuing in the business of construction contracting where the tangible personal property sold is incorporated into any structure or improvement to real property as part of construction contracting activity.

2. A person that is not subject to tax under Section 3-05-004-0415(B)(12) and that has been provided a copy of a certificate under A.R.S. Section 42-5009(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.

L. 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 outside this State.

M. Sales of tangible personal property which directly enters into and becomes an ingredient or component part of a product sold in the regular course of the business of job printing, manufacturing, or publication of newspapers, magazines, or other periodicals. Tangible personal property which is consumed or used up in a manufacturing, job printing, publishing, or production process is not an ingredient nor component part of a product.

N. The following shall be deducted from the tax base for the retail classification:

1. The gross proceeds of sales or gross income derived from sales made directly to the United States government or its departments or agencies by a manufacturer, modifier, assembler, or repairer.

2. The gross proceeds of sales or gross income derived from sales made directly to a manufacturer, modifier, assembler, or repairer if such sales are of any ingredient or component part of products sold directly to the United States government or its departments or agencies by the manufacturer, modifier, assembler, or repairer.

3. The gross proceeds of sales or gross income derived from overhead materials or other tangible personal property that is used in performing a contract between the United States government and a manufacturer, modifier, assembler, or repairer, including property used in performing a subcontract with a government contractor who is a manufacturer, modifier, assembler, or repairer, to which title passes to the government under the terms of the contract or subcontract.

4. The gross proceeds of sales or gross income derived from sales of overhead materials or other tangible personal property to a manufacturer, modifier, assembler, or repairer if the gross proceeds of sales or gross income derived from the property by the manufacturer, modifier, assembler, or repairer will be exempt under subsection (N)(3) of this section.

5. Fifty percent (50%) of the gross proceeds or gross income from any sale of tangible personal property made directly to the United States government or its departments or agencies that is not deducted under subsections (N)(1) through (N)(4) of this section.

6. For the purposes of this subsection:

a. "Overhead materials" means tangible personal property, the gross proceeds of sales or gross income derived from that would otherwise be included in the retail classification, and that are used or consumed in the performance of a contract, the cost of which is charged to an overhead expense account and allocated to various contracts based on generally accepted accounting principles and consistent with government contract accounting standards.

b. "Subcontract" means an agreement between a contractor and any person who is not an employee of the contractor for furnishing of supplies or services that, in whole or in part, are necessary to the performance of one (1) or more government contracts, or under which any portion of the contractor’s obligation under one (1) or more government contracts is performed, undertaken, or assumed and that includes provisions causing title to overhead materials or other tangible personal property used in the performance of the subcontract to pass to the government or that includes provisions incorporating such title passing clauses in a government contract into the subcontract.

O. Sales to hotels, bars, restaurants, dining cars, lunchrooms, boarding houses, or similar establishments of articles consumed as food, drink, or condiment, whether simple, mixed, or compounded, where such articles are customarily prepared or served to patrons for consumption on or off the premises, where the purchaser is properly licensed and paying a tax under Section 3-05-004-0455 or the equivalent excise tax upon such income.

P. Tangible personal property sold to:

1. A qualifying hospital;

2. A qualifying health care organization if the tangible personal property is used by the organization solely to provide health and medical related educational and charitable services;

3. A qualifying health care organization 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 (21);

4. A qualifying community health center;

5. A nonprofit charitable organization that has qualified under Section 6501(c)(3) of the Internal Revenue Code and that regularly serves meals to the needy and indigent on a continuing basis at no cost;

6. 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 (62) 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 (62) years of age in a facility that qualifies for a Federal housing subsidy;

7. A qualifying health sciences educational institution;

8. Any person representing or working on behalf of another person described in subsections (P)(1) through (P)(7) of this section if the tangible personal property is incorporated or fabricated into a project described in A.R.S. Section 42-5075(O).

Q. (Reserved)

R. Sales of:

1. Livestock and poultry to persons engaging in the business of farming, ranching, or producing livestock or poultry.

2. Livestock and poultry feed, sales, 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 subsection, "poultry" includes ratites.

3. Implants used as growth promotants and injectable medicines, not already exempt under the definition of "prosthetic," for livestock, poultry, or livestock or poultry products or who are engaged in feeding livestock or poultry commercially. For the purposes of this subsection, "poultry" includes ratites.

4. 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.

S. Sales of groundwater measuring devices required by A.R.S. Section 45-604.

T. (Reserved)

U. Seeds, seedlings, roots, bulbs, cuttings, and other propagative material to persons who use those items to commercially produce agricultural, horticultural, viticultural, or floricultural crops in this state.

V. Sales of food products by producers as provided for by A.R.S. Sections 3-561, 3-562 and 3-563. This includes sales made directly by owners, proprietors, or tenants of agricultural lands or farms who sell livestock or poultry feed that is grown or raised on their lands to any of the following:

1. Persons who feed their own livestock or poultry.

2. Persons who are engaged in the business of producing livestock or poultry commercially.

3. Persons who are engaged in the business of feeding livestock or poultry commercially or who board livestock noncommercially.

W. (Reserved)

X. Sales of food and drink to a person who is engaged in 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 such employees’ hours of employment.

Y. (Reserved)

Z. (Reserved)

AA. The sale of tangible personal property used in remediation contracting as defined in Sections 3-05-001-0100 and 3-05-001-0100.5.

BB. 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:

1. Printed or photographic materials.

2. Electronic or digital media materials.

CC. 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 subsection, "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.

DD. In computing the tax base in the case of the sale or transfer of wireless telecommunication equipment as an inducement to a customer to enter into or continue a contract for telecommunication services that are taxable under Section 3-05-004-0470, gross proceeds of sales or gross income does not include any sales commissions or other compensation received by the retailer as a result of the customer entering into or continuing a contract for the telecommunications services.

EE. For the purposes of this section, a sale of wireless telecommunication equipment to a person who holds the equipment for sale or transfer to a customer as an inducement to enter into or continue a contract for telecommunication services that are taxable under Section 3-05-004-0470 is considered to be a sale for resale in the regular course of business.

FF. Sales of alternative fuel as defined in A.R.S. Section 1-215, to a used oil fuel burner who has received a Department of Environmental Quality permit to burn used oil or used oil fuel under A.R.S. Section 49-426 or 49-480.

GG. Sales of food, beverages, condiments and accessories to a public educational entity pursuant to any of the provisions of A.R.S. Title 15, including a regularly organized private or parochial school that offers an educational program for grade twelve (12) or under which may be attended in substitution for a public school pursuant to A.R.S. Section 15-802; to the extent such items are to be prepared or served to individuals for consumption on the premises of a public educational entity during school hours. For the purposes of this subsection, "accessories" means paper plates, plastic eating utensils, napkins, paper cups, drinking straws, paper sacks or other disposable containers, or other items which facilitate the consumption of the food.

HH. Sales of personal hygiene items to a person engaged in the business of and subject to tax under Section 3-05-004-0444 if the tangible personal property is furnished without additional charge to and intended to be consumed by the person during his occupancy.

II. For the purposes of this section, the diversion of gas from a pipeline by a person engaged in the business of:

1. Operating a natural or artificial gas pipeline, for the sole purpose of fueling compressor equipment to pressurize the pipeline, is not a sale of the gas to the operator of the pipeline.

2. Converting natural gas into liquefied natural gas, for the sole purpose of fueling compressor equipment used in the conversion process, is not a sale of gas to the operator of the compressor equipment.

JJ. Sales of food, beverages, condiments and accessories to a nonprofit charitable organization that has qualified as an exempt organization under 26 U.S.C Section 501(c)(3) and regularly serves meals to the needy and indigent on a continuing basis at no cost. For the purposes of this subsection, "accessories" means paper plates, plastic eating utensils, napkins, paper cups, drinking straws, paper sacks or other disposable containers, or other items which facilitate the consumption of the food.

KK. Sales of alternative fuel vehicles if such vehicle was manufactured as a diesel fuel vehicle and converted to operate on alternative fuel and sales of equipment that is installed in a conventional diesel fuel motor vehicle to convert the vehicle to operate on an alternative fuel, as defined in A.R.S. Section 1-215.

LL. Sales of solar energy devices. The retailer shall register with the Department of Revenue as a solar energy retailer. By registering, the retailer acknowledges that it will make its books and records relating to sales of solar energy devices available to the Department for examination.

MM. 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 subsection "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.

NN. Sales of magazines or other periodicals or other publications by this state to encourage tourist travel.

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

PP. Sales of petroleum, coke, natural gas, virgin fuel oil and electricity sold to a qualified environmental technology manufacturer, producer or processor as defined in A.R.S. Section 41-1514.02 and directly used or consumed in the generation or provision of on-site power or energy solely for environmental technology manufacturing, producing or processing or environmental protection. This subsection shall apply for twenty (20) 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 who does not manufacture paper, the time period shall begin with the date the first manufacturing, processing or production equipment is placed in service.

QQ. Sales or gross income derived from sales of machinery, equipment, materials and other tangible personal property used directly and predominantly to construct a qualified environmental technology manufacturing, producing or processing facility as described in A.R.S. Section 41-1514.02. This subsection applies for ten (10) full consecutive calendar or fiscal years after the start of initial construction.

RR. The transfer of title or possession of coal back and forth between an owner or operator of a power plant and a person who is responsible for refining coal if both of the following apply:

1. The transfer of title or possession of the coal is for the purpose of refining the coal; and

2. The title or possession of the coal is transferred back to the owner or operator of the power plant after completion of the coal refining process. For the purposes of this subsection, "coal refining process" means the application of a coal additive system that aids the reduction of power plant emissions during the combustion of coal and the treatment of flue gas.

SS. (Reserved)

TT. Computer data center equipment sold to the owner, operator, or qualified colocation tenant of a computer data center that is certified by the Arizona Commerce Authority under A.R.S. Section 41-1519 or an authorized agent of the owner, operator, or qualified colocation tenant during the qualification period for use in the qualified computer data center. For the purposes of this subsection, "computer data center," "computer data center equipment," "qualification period," and "qualified colocation tenant" have the same meanings prescribed in A.R.S. Section 41-1519.

UU. The sale, manufacture, wholesale, or distribution to or among any wholesalers, distributors, or retailers, of food items intended for human consumption as defined by rule adopted pursuant to A.R.S. Section 42-5106 or items prescribed by A.R.S. Section 42-5106(D), for home consumption or for consumption on the premises.

VV. The sale of any container or packaging used exclusively for transporting, protecting, or consuming food items intended for human consumption as defined by rule adopted pursuant to A.R.S. Section 42-5106 or items prescribed by A.R.S. Section 42-5106(D), for home consumption or for consumption on the premises.

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

XX. Application services that are designed to assess or test student learning or to promote curriculum design or enhancement purchased by or for any school district, charter school, community college, or state university. For the purposes of this subsection:

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

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

YY. Sales of coal. (Ord. 1924, 01/07/1997; Ord. 1979, Amended, 10/06/1998; Ord. 2008, Amended, 11/02/1999; Ord. 2000-29, Amended, 11/21/2000; Ord. 2001-04, Amended, 01/16/2001; Ord. 2004-25, Amended, 01/10/2005; Ord. 2007-28, Amended, 05/01/2007; Ord. 2009-16, Amended, 06/16/2009; Ord. 2013-26, Amended, 01/07/2014; Ord. 2025-11, Amended, 05/20/2025)

3-05-004-0470 TELECOMMUNICATION SERVICES (REG. 470.1)

3-05-004-0475 TRANSPORTING FOR HIRE (REG. 475.1)

3-05-004-0480 UTILITY SERVICES

A. The tax rate shall be at an amount equal to two and four hundred eighty-six thousandths percent (2.486%) of the gross income from the business activity upon every person engaging or continuing in the business of producing, providing, or furnishing utility services, including electricity, electric lights, current, power, gas (natural or artificial), or water to:

1. Consumers or ratepayers who reside within the City.

2. Consumers or ratepayers of this City, whether within the City or without, to the extent that this City provides such persons utility services, excluding consumers or ratepayers who are residents of another city or town which levies an equivalent excise tax upon this City for providing such utility services to such persons.

B. Exclusion of Certain Sales of Natural Gas to a Public Utility. Notwithstanding the provisions of subsection (A) of this section, the gross income derived from the sale of natural gas to a public utility for the purpose of generation of power to be transferred by the utility to its ratepayers shall be considered a retail sale of tangible personal property subject to Sections 3-5-004-0460 and 3-5-004-0465, and not considered gross income taxable under this section.

C. Resale Utility Services. Sales of utility services to another provider of the same utility services for the purpose of providing such utility services either to another properly licensed utility provider or directly to such purchaser’s customers or ratepayers shall be exempt and deductible from the gross income subject to the tax imposed by this section; provided, that the purchaser is properly licensed by all applicable taxing jurisdictions to engage or continue in the business of providing utility services, and further provided that the seller maintains proper documentation, in a manner similar to that for sales for resale, of such transactions.

D. (Reserved)

E. The tax imposed by this section shall not apply to sales of utility services to a qualifying hospital, qualifying community health center or a qualifying health care organization, except when sold for use in activities resulting in gross income from unrelated business income as that term is defined in 26 U.S.C. Section 512.

F. The tax imposed by this section shall not apply to sales of natural gas or liquefied petroleum gas used to propel a motor vehicle.

G. The tax imposed by this section shall not apply to:

1. Revenues received by a municipally owned utility in the form of fees charged to persons constructing residential, commercial or industrial developments or connecting residential, commercial or industrial developments to a municipal utility system or systems if the fees are segregated and used only for capital expansion, system enlargement or debt service of the utility system or systems.

2. Revenues received by any person or persons owning a utility system in the form of reimbursement or contribution compensation for property and equipment installed to provide utility access to, on or across the land of an actual utility consumer if the property and equipment become the property of the utility. This exclusion shall not exceed the value of such property and equipment.

H. The tax imposed by this section shall not apply to sales of alternative fuel as defined in A.R.S. Section 1-215, to a used oil fuel burner who has received a Department of Environmental Quality permit to burn used oil or used oil fuel under A.R.S. Section 49-426 or 49-480.

I. The tax imposed by this section shall not apply to 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 subsection, "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.

J. The tax imposed by this section shall not apply to the portion of gross proceeds of sales or gross income attributable to transfers of electricity by any retail electric customer owning a solar photovoltaic energy generating system to an electric distribution system, if the electricity transferred is generated by the customer’s system.

K. (Reserved). (Ord. 1924, 01/07/1997; Ord. 1979, Amended, 10/06/1998; Ord. 2000-14, Amended, 06/06/2000; Ord. 2006-16, Amended, 06/06/2006; Ord. 2013-26, Amended, 01/07/2014; Ord. 2014-34, Amended, 01/06/2015; Ord. 2019-01, Amended, 02/19/2019; Ord. 2025-11, Amended, 05/20/2025)

3-05-004-0485 WASTEWATER REMOVAL SERVICES

A. The tax rate shall be an amount equal to zero percent (0%) of the gross income from the business activity upon every person engaging or continuing in the business of providing wastewater removal services by means of sewer lines or similar pipelines to:

1. Consumers or ratepayers who reside within the City.

2. Consumers or ratepayers of this City, whether within the City or without, to the extent that this City provides such persons wastewater removal services, excluding consumers or ratepayers who are residents of another city or town which levies an equivalent excise tax upon this City for providing such wastewater removal services to such persons.

B. The tax imposed by this section shall not apply to gross income relating to the providing of wastewater removal services from a qualifying hospital, qualifying community health center or a qualifying health care organization. (Ord. 2013-26, Enacted, 01/07/2014; Ord. 2025-11, Amended, 05/20/2025)