TPR_99-1.pdf

ARIZONA TRANSACTION PRIVILEGE TAX RULING

(This ruling supersedes and rescinds Arizona Transaction Privilege Tax Ruling TPR 95-16)

'his substantive policy statement is advisory only. A substantive policy statement does not include internal procedural documents.

lat only affect the internal procedures of the agency and does not impose additional requirements or penalties on regulated parties ( include confidential information or rules made in accordance with the Arizona administrative procedure act. If you believe that this ubstantive policy statement does impose additional requirements or penalties on regulated parties you may petition the agency nder Arizona Revised Statutes § 41-1033 for a review of the statement.

SSUE:

~pplication of the transaction privilege and use tax statutes to transactions with the United States30vernment.. .

'PPLICABLE LAW:

~rizona Revised Statutes (AR.S.) § 42-5061 imposes the transaction privilege tax on the busi angible personal property at retail.

\.R.S. § 42-5061 (K)(1) provides a deduction from the tax base under the retail classification for:

Sales made directly to the United States government or its departments or agencies by a manufacturer, modifier, assembler or repairer.

~.R.s. § 42-5061 (L) provides that:

There shall be deducted from the tax base fifty per cent of the gross proceeds or gross incom~ ...

from any sale of tangible personal property made directly to the United States government or its departments or agencies, which. is not deducted under subsection K of this section.

~.R.s. § 42-5071 imposes the transaction privilege tax on the business of leasing orrenting tangible personalJroperty for a consideration

~.R.S. § 42-5071 (8)(2) provides a deduction from the tax base under the personal property rental~Iassification for: .

Leases or rentals of tangible personal property which, if it had been purchased instead of leasedor rented by the lessee, would have been exempt under§ 42-5061 ... subsection K, .

paragraph 1 t .

A.R.S. § 42-5155 imposes a use tax on the storage, use or consumption in this state of tangible personalproperty purchased from a retailer. .

A.R.S. § 42-5161 requires the seller to collect the use tax from the purchaser.

Arizona Administrative Code (AA.C.) R15-5-181(A) provides that:

Gross receipts from the sale of tangible personal property to the Federal Government or its http://www.revenue.state. az. us/ResearchStats/rulings/tpr99-1.htm 12(23/2008 .

. TPR 99.1

of sellingness departments and agencies are taxable at the rate prescribed by statute, unless otherwise exempt.

~.A.C. R15-5-2360(B) pertains to use tax and provides that, U[p]urchases by the Federal Government are not ixable. It

1 Arizona State Tax Commission v. Garrett Corporation, 79 Ariz. 389,291 P.2d 208 (1955), the Arizona lupreme Court held that the transaction privilege tax is nota sales tax and it applies to sales to the federal iovernment. The court emphasized that it had repeatedly held that the transaction privilege tax is a tax on the 'rivilege or the right to engage in business. The legal incidence of the tax is upon the person engaging in thelusiness of selling tangible personal property. . .

~ United States Comptroller General decision, September 7. 1990, advised that the Arizona transaction ,rivilege tax is a tax imposed on the vendor, not the purchaser. As such, there is no general exemption.ipplicable to the federal government or its departments or agencies. .

)ISCUSSION:

"ransaction Privilege Tax

-he transaction privilege tax is a tax on the privilege of conducting-business in the State of Arizona. It is a-tax In the seller, not on the purchaser. Since the tax is not imposed on the United States, the constitutional llmunity of the United States does not apply.

"herefore, sales to the United States Government are subject to transaction privilege tax. However, the ransaction privilege tax statutes provide deductions from the tax base under the retail classification for:

1. Sales made directly to the United States Government or its departments or agencies by a.

manufacturer, modifier, assembler or repairer; and,

2. Fifty percent of the. gross proceeds or gross in come from any sale of ta ngi ble perso na I. property made directly to the United States Government or its departments or agencies by persons otherthan a manufacturer, modifier, assembler or repairer. .

\ deduction is also allowed under the personal property rental classification for leases or rentals of tangible.

)ersonal property directly to the United States Government or its departments or agencies by a manufacturer,nodifier, assembler or repairer rhe transaction privilege tax is irTlposed on various business activities. The deductions for sales of tangible)ersonal property and for rentals of tangible personal property to the federal government are the only .

ieductions provided for transactions with the federal government. Transactions with t~e United States 30vernment under other business classifications, such as utilities, telecommunications, job printing, ;ommerciallease, transient lodging, restaurant,. and prime contracting, are subject to transaction privilege tax.

::redit Card Sales

\gencies of the United States Government may make purchases using credit cards issued by a variety of :ard-issuing banks under a new program named GSA SmartPay. Each federal agency will choose among the>ptions available rhe cards are used by federal employees for their travel-related business use. The government has two types )f accounts. One is billed directly to the employee/cardholder and the other is billed directly to the federal

Ittp://www.revenue. state. az. uslResearchS ~ats/rulings/tpr99~ 1 ~ btIn overnment, i.e., centrally billed. These accounts are distinguished by their account numbering scheme.

:ards that are always centrally billed are identified by one of two four-digit prefixes, 8699 or 5568. A second et of prefixes is used for cards that are both centrally billed and individually billed. To know the difference a lerson must look to the 6th digit. These prefixes are 4486,4716, and 5568. Sales charged to credit card Iccount numbers with 0,6,7,8, or 9, as the 6th digit are centrally billed to the federal government These ales constitute "sales made directly to the United States government" Thus. the statutory exemptions and leductions outlined above apply to any such transaction billed directly to the federal government.

.ales charged to credit card account numbers with lan to the federal government. These sales do not constitute "sales made directly to the United States ,overnment" Consequently, the income from these transactions is subject to transaction privilege tax.

'S9 Tax

.he use tax is imposed on purchases of tangible personal property from out-ot-state retailers. A.R.S. § 42-

.161 requires retailers selling to Arizona consumers to collect the tax from the purchaser.

-he U.S. Constitution prohibits a state from imposing a tax if the legal incidence of thetax falls directlyon the ederal government. Arizona's use tax is imposed on the purchaser. Therefore, purchases by departments or 1gencies of the federal government are not subject to use tax.

~ULING:

;ales made directly to the United States Government or its departments or agencies by a manufacturer, nodifier, assembler or repairer are exempt from transaction privilege tax under the retail classification. .

~dditionally, the tax base is 50 percent of the gross income or gross proceeds of sales for all other sales Inder the retail classification to the United States Government.

.eases or rentals of tangible personal property directly to the United StatesGovernment by a manufacturer, .

nodifier, assembler, or repairer are not subject to transaction privilege tax under the personal property rental:Iassification

~ transaction charged to a credit card account and billed directly 'to the federal government is deemed to Qe ~.

lale or lease made directly to the United States. These transactions are subject to transaction privilege tax mless a deduction that is outlined above applies to the transaction.

~ transaction charged to a government credit card account that is billed directly to an employee/cardholder is10t a sale made directly to the federal government; consequently, these transactions are subject to .

ran sacti on privilege tax

)ther than the above exemptions for sales and leases of tangible personal property under the retail and .

)ersonal property rental classifications, no other exemptions are available for sales to the federal government.

rhus, businesses operating under any other classification are subject to the full rate of transaction privilegeax for sales made to the federal government. . .

Jse tax does not apply to purchases made by the United States Government or its departments oragencies.

v1ark W. Killian, Director

=xplanatory Notice lt~:/ /WWW .revenue. state.~.. uslResearchS tats/rulings/tpr99~1.htIl1. 1 ~/23/2008

1,2,.3, or 4, are individually billed to the cardholder.rather

"he purpose of a tax ruling is to provide interpretive guidance to the general public and to department lersonnel. A tax ruling is intended to encompass issues of law that are not adequately covered in statute, :ase law or administrative rules. A tax ruling is a position statement that provides interpretation, detail, or :upplementary information concerning application of the law. Relevant statute, case law, or administrative ules, as well as a subsequent ruling, may modify or negate any or all of the provisions of any tax ruling. See 3TP 96-1 for more detailed information regarding documents issued by the Department of Revenue.

R~wm tQ..H9me ~a~ http:/ Iwww. .reVenUe,8tate~az. us/Res(:archStats/rulings/tpr99~ l.htm . 12/2312008 .'