TPT; luxury item classification

HB2639 - 572R - I Ver

REFERENCE TITLE:
TPT; luxury item classification

State of Arizona

House of Representatives

Fifty-seventh Legislature

Second Regular Session

2026

HB 2639

Introduced by

Representatives
Sandoval: Abeytia, Aguilar, Austin, Connolly, Contreras L, Garcia, Liguori,
Luna-N�jera, M�rquez, Peshlakai, Simacek, Stahl Hamilton, Tsosie, Villegas

AN
ACT

Amending sections 42-5010, 42-5010.01,
42-5029 and 42-5061, Arizona Revised Statutes; amending Title 42, chapter 5,
article 2, Arizona Revised Statutes, by adding section 42-5077; relating to
transaction privilege and use tax.

(TEXT OF BILL BEGINS ON NEXT PAGE)

Be it enacted by the Legislature of the State of Arizona:

Section 1. Section 42-5010, Arizona Revised
Statutes, is amended to read:

START_STATUTE
42-5010.

Rates; distribution base

A. The tax imposed by this article is levied and
shall be collected at the following rates:

1. Five percent of the tax base as computed for the
business of every person engaging or continuing in this state in the following
business classifications described in article 2 of this chapter:

(a) Transporting classification.

(b) Utilities classification.

(c) Telecommunications classification.

(d) Pipeline classification.

(e) Private car line classification.

(f) Publication classification.

(g) Job printing classification.

(h) Prime contracting classification.

(i) Amusement classification.

(j) Restaurant classification.

(k) Personal property rental classification.

(l) Retail classification and amounts equal to
retail transaction privilege tax due pursuant to section 42-5008.01.

2. Five and one-half percent of the tax base
as computed for the business of every person engaging or continuing in this
state in:

(a) The transient lodging classification described
in section 42-5070.

(b) The online lodging marketplace classification
described in section 42-5076 who has entered into an agreement with the
department to register for, or has otherwise obtained from the department, a
license to collect tax pursuant to section 42-5005, subsection L.

3. Three and one-eighth percent of the tax
base as computed for the business of every person engaging or continuing in
this state in the mining classification described in section 42-5072.

4. Zero percent of the tax base as computed for the
business of every person engaging or continuing in this state in the commercial
lease classification described in section 42-5069.

5. Six and one-half percent of
the tax base as computed for the business of every person engaging or
continuing in this state in the luxury item classification.

B. Except as provided by subsections J and K of this
section, twenty percent of the tax revenues collected at the rate prescribed by
subsection A, paragraph 1 of this section from persons on account of engaging
in business under the business classifications listed in subsection A,
paragraph 1, subdivisions (a) through (h) of this section is designated as
distribution base for the

purposes of section 42-5029.

C. Except as provided by subsection K of this
section, forty percent of the tax revenues collected at the rate prescribed by
subsection A, paragraph 1 of this section from persons on account of engaging
in business under the business classifications listed in subsection A,
paragraph 1, subdivisions (i) through (l) of this section is designated as
distribution base for the purposes of section 42-5029.

D. Thirty-two percent of the tax revenues
collected from persons on account of engaging in business under the business
classification listed in subsection A, paragraph 3 of this section is
designated as distribution base for the purposes of section 42-5029.

E. Fifty-three and one-third percent of
the tax revenues collected from persons on account of engaging in business
under the business classification listed in subsection A, paragraph 4 of this
section is designated as distribution base for the purposes of section 42-5029.

F. Fifty percent of the tax revenues collected from
persons on account of engaging in business under the business classification
listed in subsection A, paragraph 2 of this section is designated as
distribution base for the

purposes of section 42-5029.

G. In addition to the rates prescribed by subsection
A of this section, if approved by the qualified electors voting at a statewide
general election, an additional rate increment is imposed and shall be
collected through June 30, 2021. The taxpayer shall pay taxes
pursuant to this subsection at the same time and in the same manner as under
subsection A of this section. The department shall separately
account for the revenues collected with respect to the rates imposed pursuant
to this subsection and the state treasurer shall distribute all of those
revenues in the manner prescribed by section 42-5029, subsection E.� The
rates imposed pursuant to this subsection shall not be considered local
revenues for purposes of article IX, section 21, Constitution of
Arizona. The additional tax rate increment is levied at the rate of
six-tenths of one per cent of the tax base of every person engaging or
continuing in this state in a business classification listed in subsection A,
paragraph 1 of this section.

H. Any increase in the rate of tax that is imposed
by this chapter and that is enacted by the legislature or by a vote of the
people does not apply with respect to contracts entered into by prime
contractors or pursuant to written bids made by prime contractors on or before
the effective date of the legislation or the date of the election enacting the
increase. To qualify for the exemption under this subsection, the
prime contractor must maintain sufficient documentation, in a manner and form
prescribed by the department, to verify the date of the contract or written
bid.

I. For taxpayers that
are taxable under this chapter other than prime contractors taxable pursuant to
section 42-5075:

1. Any increase in
the rate of tax that is levied by this article or article 2 of this chapter
enacted by the legislature or by a vote of the people does not apply for a
period of one hundred twenty days after the date of the tax rate increase to
the gross proceeds of sales or gross income from the business of the taxpayer
with respect to written contracts entered into before the effective date of the
tax rate increase unless the taxpayer has entered into a contract that contains
a provision that entitles the taxpayer to recover from the purchaser the amount
of the additional tax levied.

2. The provisions of this subsection apply without
regard to the accounting method used by the taxpayer to report the taxes
imposed under article 2 of this chapter.

3. The provisions of this subsection shall not be
considered in determining the rate of tax imposed under chapter 6, article 3 of
this title.

J. Zero percent of the tax revenues that are
collected at the rate prescribed by subsection A, paragraph 1 of this section
from persons on account of engaging in business under the business
classification listed in subsection A, paragraph 1, subdivision (h) of this
section and that are subject to any distribution required by section 42-5032.02
is designated as distribution base for the purposes of section 42-5029
until the total amount subject to distribution pursuant to section 42-5032.02
has reached the maximum amount prescribed by section 42-5032.02,
subsection C.� Thereafter, twenty percent of the remaining tax revenues is
designated as distribution base for the purposes of section 42-5029 as
provided by subsection B of this section.

K. Subject to section 48-4238, beginning on
October 1, 2025 through December 31, 2055, zero percent of the tax revenues
that are collected at the rate prescribed by subsection A, paragraph 1 of this
section from persons engaging in business under the business classifications
listed in subsection A, paragraph 1, subdivisions (h), (i), (j) and (l) of this
section and that are subject to transmittal required by section 42-5032.03
is designated as distribution base for the purposes of section 42-5029.�
Beginning January 1, 2056, twenty percent of the remaining tax revenues
collected at the rate prescribed by subsection A, paragraph 1 of this section
from persons engaging in business under the business classification listed in
subsection A, paragraph 1, subdivision (h) of this section is designated as
distribution base for the purposes of section 42-5029 as provided by
subsection B of this section and forty percent of the remaining tax revenues
collected at the rate prescribed by subsection A, paragraph 1 of this section
from persons engaging in business under the business classifications listed in
subsection A, paragraph 1, subdivisions (i), (j) and (l) of this section is
designated as distribution base for the purposes of section 42-5029 as
provided by subsection C of this section.

K. Zero percent of the tax revenues
that are collected at the rate prescribed by subsection A, paragraph 5 of this
section is designated as distribution base for the purposes of section 42-5029.
The department shall separately account for the revenues collected pursuant to
subsection A, paragraph 5 of this section, and the state treasurer shall credit
those revenues to the state general fund pursuant to section 42-5029,
subsection m.
END_STATUTE

Sec. 2. Section 42-5010.01, Arizona Revised
Statutes, is amended to read:

START_STATUTE
42-5010.01.

Transaction privilege tax; additional rate increment

A. From and after June 30, 2021 through June 30,
2041, in addition to the rates prescribed by section 42-5010, subsection
A, an additional rate increment is imposed and shall be
collected. The additional tax rate increment is levied at the rate
of six-tenths of one percent of the tax base of every person engaging or
continuing in this state in a business classification listed in section 42-5010,
subsection A,
paragraph

paragraphs
1

and 5
.

B. The taxpayer shall pay taxes pursuant to this
section at the same time and in the same manner as under section 42-5010,
subsection A. The department shall separately account for the revenues
collected with respect to the rates imposed by this section, and the state
treasurer shall distribute all of those revenues in the manner prescribed by
section 42-5029.02.� The rates imposed by this section are not considered
local revenues for purposes of article IX, section 21, Constitution of Arizona.

END_STATUTE

Sec. 3. Section 42-5029, Arizona Revised
Statutes, is amended to read:

START_STATUTE
42-5029.

Remission and distribution of monies; withholding; definition

A. The department shall deposit, pursuant to
sections 35-146 and 35-147, all revenues collected under this
article and articles 4, 5 and 8 of this chapter pursuant to section 42-1116,
separately accounting for:

1. Payments of estimated tax under section 42-5014,
subsection D.

2. Revenues collected pursuant to section 42-5070.

3. Revenues collected under this article and article
5 of this chapter from and after June 30, 2000 from sources located on Indian
reservations in this state.

4. Revenues collected pursuant to section 42-5010,
subsection G and section 42-5155, subsection D.

5. Revenues collected pursuant to section 42-5010.01
and section 42-5155, subsection E.

6. Revenues collected pursuant to section 42-5061
from a remote seller.

7. Revenues collected pursuant to
section 42-5010, subsection A, paragraph 5.

B. The department shall credit payments of estimated
tax to an estimated tax clearing account and each month shall transfer all
monies in the estimated tax clearing account to a fund designated as the
transaction privilege and severance tax clearing account.� The department shall
credit all other payments to the transaction privilege and severance tax
clearing account, separately accounting for the monies designated as
distribution base under sections 42-5010, 42-5164 and 42-5205. Each
month the department shall report to the state treasurer the amount of monies
collected pursuant to this article and articles 4, 5 and 8 of this chapter.

C. On notification by the department, the state
treasurer shall distribute the monies deposited in the transaction privilege
and severance tax clearing account in the manner prescribed by this section and
by sections 42-5164 and 42-5205, after deducting warrants drawn
against the account pursuant to sections 42-1118 and 42-1254.

D. Of the monies designated as distribution base,
the department shall:

1. Pay twenty-five percent to the various
incorporated municipalities in this state in proportion to their population to
be used by the municipalities for any municipal purpose, except a municipality
shall use monies paid from revenues separately accounted for pursuant to
subsection A, paragraph 6 of this section and paid pursuant to this paragraph
for public safety before any other municipal purpose.

2. Pay 38.08 percent to the counties in this state
by averaging the following proportions:

(a) The proportion that the population of each
county bears to the total state population.

(b) The proportion that the distribution base monies
collected during the calendar month in each county under this article, section
42-5164, subsection B and section 42-5205, subsection B bear to the
total distribution base monies collected under this article, section 42-5164,
subsection B and section 42-5205, subsection B throughout the state for
the calendar month.

3. Pay an additional 2.43 percent to the counties in
this state as follows:

(a) Average the following proportions:

(i) The proportion that the assessed valuation used
to determine secondary property taxes of each county, after deducting that part
of the assessed valuation that is exempt from taxation at the beginning of the
month for which the amount is to be paid, bears to the total assessed
valuations used to determine secondary property taxes of all the counties after
deducting that portion of the assessed valuations that is exempt from taxation
at the beginning of the month for which the amount is to be paid.� Property of
a city or town that is not within or contiguous to the municipal corporate
boundaries and from which water is or may be withdrawn or diverted and
transported for use on other property is considered to be taxable property in
the county for purposes of determining assessed valuation in the county under
this item.

(ii) The proportion that the distribution base
monies collected during the calendar month in each county under this article,
section 42-5164, subsection B and section 42-5205, subsection B
bear to the total distribution base monies collected under this article,
section 42-5164, subsection B and section 42-5205, subsection B
throughout this state for the calendar month.

(b) If the proportion computed under subdivision (a)
of this paragraph for any county is greater than the proportion computed under
paragraph 2 of this subsection, the department shall compute the difference
between the amount distributed to that county under paragraph 2 of this
subsection and the amount that would have been distributed under paragraph 2 of
this subsection using the proportion computed under subdivision (a) of this
paragraph and shall pay that difference to the county from the amount available
for distribution under this paragraph. Any monies remaining after all payments
under this subdivision shall be distributed among the counties according to the
proportions computed under paragraph 2 of this subsection.

4. After any distributions required by sections 42-5030,
42-5030.01, 42-5031, 42-5032, 42-5032.01, 42-5032.02
and 42-5032.03 and after making any transfer to the water quality
assurance revolving fund as required by section 49-282, subsection B,
credit the remainder of the monies designated as distribution base to the state
general fund.� From this amount the legislature shall annually appropriate to:

(a) The department of revenue, sufficient monies to
administer and enforce this article and articles 5 and 8 of this chapter.

(b) The department of economic security, monies to
be used for the purposes stated in title 46, chapter 1.

(c) The firearms safety and ranges fund established
by section 17-273, $50,000 derived from the taxes collected from the
retail classification pursuant to section 42-5061 for the current fiscal
year.

E. If approved by the qualified electors voting at a
statewide general election, all monies collected pursuant to section 42-5010,
subsection G and section 42-5155, subsection D shall be distributed each
fiscal year pursuant to this subsection. The monies distributed
pursuant to this subsection are in addition to any other appropriation,
transfer or other allocation of public or private monies from any other source
and shall not supplant, replace or cause a reduction in other school district,
charter school, university or community college funding sources. The
monies shall be distributed as follows:

1. If there are outstanding state school facilities
revenue bonds pursuant to title 15, chapter 16, article 7, each month one-twelfth
of the amount that is necessary to pay the fiscal year's debt service on
outstanding state school improvement revenue bonds for the current fiscal year
shall be transferred each month to the school improvement revenue bond debt
service fund established by section 15-2084. The total amount
of bonds for which these monies may be allocated for the payment of debt
service shall not exceed a principal amount of eight hundred million dollars
exclusive of refunding bonds and other refinancing obligations.

2. After any transfer of monies pursuant to
paragraph 1 of this subsection, twelve per cent of the remaining monies
collected during the preceding month shall be transferred to the technology and
research initiative fund established by section 15-1648 to be distributed
among the universities for the purpose of investment in technology and research-based
initiatives.

3. After the transfer of monies pursuant to
paragraph 1 of this subsection, three per cent of the remaining monies
collected during the preceding month shall be transferred to the workforce
development account established in each community college district pursuant to
section 15-1472 for the purpose of investment in workforce development
programs.

4. After transferring monies pursuant to paragraphs
1, 2 and 3 of this subsection, one-twelfth of the amount a community
college that is owned, operated or chartered by a qualifying Indian tribe on
its own Indian reservation would receive pursuant to section 15-1472,
subsection D, paragraph 2 if it were a community college district shall be
distributed each month to the treasurer or other designated depository of a
qualifying Indian tribe.� Monies distributed pursuant to this paragraph are for
the exclusive purpose of providing support to one or more community colleges
owned, operated or chartered by a qualifying Indian tribe and shall be used in
a manner consistent with section 15-1472, subsection B. For
the purposes of this paragraph, "qualifying Indian tribe" has the
same meaning as defined in section 42-5031.01, subsection D.

5. After transferring monies pursuant to paragraphs
1, 2 and 3 of this subsection, one-twelfth of the following amounts shall
be transferred each month to the department of education for the increased cost
of basic state aid under section 15-971 due to added school days and
associated teacher salary increases enacted in 2000:

(a) In fiscal year 2001-2002, $15,305,900.

(b) In fiscal year 2002-2003, $31,530,100.

(c) In fiscal year 2003-2004, $48,727,700.

(d) In fiscal year 2004-2005, $66,957,200.

(e) In fiscal year 2005-2006 and each fiscal
year thereafter, $86,280,500.

6. After transferring monies pursuant to paragraphs
1, 2 and 3 of this subsection, seven million eight hundred thousand dollars is
appropriated each fiscal year, to be paid in monthly installments, to the
department of education to be used for school safety as provided in section 15-154
and two hundred thousand dollars is appropriated each fiscal year, to be paid
in monthly installments to the department of education to be used for the
character education matching grant program as provided in section 15-154.01.

7. After transferring monies pursuant to paragraphs
1, 2 and 3 of this subsection, no more than seven million dollars may be
appropriated by the legislature each fiscal year to the department of education
to be used for accountability purposes as described in section 15-241 and
title 15, chapter 9, article 8.

8. After transferring monies pursuant to paragraphs
1, 2 and 3 of this subsection, one million five hundred thousand dollars is
appropriated each fiscal year, to be paid in monthly installments, to the
failing schools tutoring fund established by section 15-241.

9. After transferring monies pursuant to paragraphs
1, 2 and 3 of this subsection, twenty-five million dollars shall be
transferred each fiscal year to the state general fund to reimburse the general
fund for the cost of the income tax credit allowed by section 43-1072.01.

10. After the payment of monies pursuant to
paragraphs 1 through 9 of this subsection, the remaining monies collected
during the preceding month shall be transferred to the classroom site fund
established by section 15-977. The monies shall be allocated
as follows in the manner prescribed by section 15-977:

(a) Forty per cent shall be allocated for teacher
compensation based on performance.

(b) Twenty per cent shall be allocated for increases
in teacher base compensation and employee related expenses.

(c) Forty per cent shall be allocated for
maintenance and operation purposes.

F. The department shall credit the remainder of the
monies in the transaction privilege and severance tax clearing account to the
state general fund, subject to any distribution required by section 42-5030.01.

G. Notwithstanding subsection D of this section, if
a court of competent jurisdiction finally determines that tax monies
distributed under this section were illegally collected under this article or
articles 5 and 8 of this chapter and orders the monies to be refunded to the
taxpayer, the department shall compute the amount of such monies that was
distributed to each city, town and county under this section. Each
city's, town's and county's proportionate share of the costs shall be based on
the amount of the original tax payment each municipality and county received.�
Each month the state treasurer shall reduce the amount otherwise distributable
to the city, town and county under this section by 1/36 of the total amount to
be recovered from the city, town or county until the total amount has been
recovered, but the monthly reduction for any city, town or county shall not
exceed ten percent of the full monthly distribution to that
entity. The reduction shall begin for the first calendar month after
the final disposition of the case and shall continue until the total amount,
including interest and costs, has been recovered.

H. On receiving a certificate of default from the
greater Arizona development authority pursuant to section 41-2257 or 41-2258
and to the extent not otherwise expressly prohibited by law, the state
treasurer shall withhold from the next succeeding distribution of monies
pursuant to this section due to the defaulting political subdivision the amount
specified in the certificate of default and immediately deposit the amount
withheld in the greater Arizona development authority revolving
fund. The state treasurer shall continue to withhold and deposit the
monies until the greater Arizona development authority certifies to the state
treasurer that the default has been cured. In no event may the state
treasurer withhold any amount that the defaulting political subdivision
certifies to the state treasurer and the authority as being necessary to make
any required deposits then due for the payment of principal and interest on
bonds of the political subdivision that were issued before the date of the loan
repayment agreement or bonds and that have been secured by a pledge of
distributions made pursuant to this section.

I. Except as provided by sections 42-5033 and
42-5033.01, the population of a county, city or town as determined by the
most recent United States decennial census plus any revisions to the decennial
census certified by the United States bureau of the census shall be used as the
basis for apportioning monies pursuant to subsection D of this section.

J. Except as otherwise provided by this subsection,
on notice from the department of revenue pursuant to section 42-6010,
subsection B, the state treasurer shall withhold from the distribution of
monies pursuant to this section to the affected city or town the amount of the
penalty for business location municipal tax incentives provided by the city or
town to a business entity that locates a retail business facility in the city
or town. The state treasurer shall continue to withhold monies
pursuant to this subsection until the entire amount of the penalty has been
withheld. The state treasurer shall credit any monies withheld pursuant to this
subsection to the state general fund as provided by subsection D, paragraph 4
of this section. The state treasurer shall not withhold any amount
that the city or town certifies to the department of revenue and the state
treasurer as being necessary to make any required deposits or payments for debt
service on bonds or other long-term obligations of the city or town that
were issued or incurred before the location incentives provided by the city or
town.

K. On notice from the
auditor general pursuant to section 9-626, subsection D, the state
treasurer shall withhold from the distribution of monies pursuant to this
section to the affected city the amount computed pursuant to section 9-626,
subsection D. The state treasurer shall continue to withhold monies
pursuant to this subsection until the entire amount specified in the notice has
been withheld. The state treasurer shall credit any monies withheld
pursuant to this subsection to the state general fund as provided by subsection
D, paragraph 4 of this section.

L. Except as otherwise provided by this subsection,
on notice from the attorney general pursuant to section 41-194.01,
subsection B, paragraph 1 that an ordinance, regulation, order or other
official action adopted or taken by the governing body of a county, city or
town violates state law or the Constitution of Arizona, the state treasurer
shall withhold the distribution of monies pursuant to this section to the
affected county, city or town and shall continue to withhold monies pursuant to
this subsection until the attorney general certifies to the state treasurer
that the violation has been resolved. The state treasurer shall
redistribute the monies withheld pursuant to this subsection among all other
counties, cities and towns in proportion to their population as provided by
subsection D of this section. The state treasurer shall not withhold
any amount that the county, city or town certifies to the attorney general and
the state treasurer as being necessary to make any required deposits or
payments for debt service on bonds or other long-term obligations of the
county, city or town that were issued or incurred before committing the
violation.

M. All monies collected pursuant to
section 42-5010, subsection A, paragraph 5 shall be credited to, and separately
accounted in, the state general fund.

M.
N.
For
the purposes of this section, "community college district" means a
community college district that is established pursuant to sections 15-1402
and 15-1403 and that is a political subdivision of this state and, unless
otherwise specified, includes a community college tuition financing district
established pursuant to section 15-1409.
END_STATUTE

Sec. 4. Section 42-5061, Arizona Revised
Statutes, is amended to read:

START_STATUTE
42-5061.

Retail classification; definitions

A. The retail classification is comprised of the
business of selling tangible personal property at retail. The tax
base for the retail classification is the gross proceeds of sales or gross
income derived from the business. The tax imposed on the retail
classification does not apply to the gross proceeds of sales or gross income
from:

1. Professional or personal service occupations or
businesses that involve sales or transfers of tangible personal property only
as inconsequential elements.

2. Services rendered in addition to selling tangible
personal property at retail.

3. Sales of warranty or service
contracts. The storage, use or consumption of tangible personal
property provided under the conditions of such contracts is subject to tax
under section 42-5156.

4. Sales of tangible personal property by any
nonprofit organization organized and operated exclusively for charitable
purposes and recognized by the United States internal revenue service under
section 501(c)(3) of the internal revenue code.

5. Sales to persons engaged in business classified
under the restaurant classification of articles used by human beings for food,
drink or condiment, whether simple, mixed or compounded.

6. Business activity that is properly included in
any other business classification that is taxable under this article.

7. The sale of stocks and bonds.

8. Drugs and medical oxygen, including delivery
hose, mask or tent, regulator and tank, if prescribed by a member of the
medical, dental or veterinarian profession who is licensed by law to administer
such substances.

9. Prosthetic appliances as defined in section 23-501
and as prescribed or recommended by a health professional who is licensed
pursuant to title 32, chapter 7, 8, 11, 13, 14, 15, 16, 17 or 29.

10. Insulin, insulin syringes and glucose test
strips.

11. Prescription eyeglasses or contact lenses.

12. Hearing aids as defined in section 36-1901.

13. Durable medical equipment that has a centers for
medicare and medicaid services common procedure code, is designated
reimbursable by medicare, is prescribed by a person who is licensed under title
32, chapter 7, 8, 13, 14, 15, 17 or 29, can withstand repeated use, is
primarily and customarily used to serve a medical purpose, is generally not
useful to a person in the absence of illness or injury and is appropriate for
use in the home.

14. Sales of motor vehicles to nonresidents of this
state for use outside this state if either of the following applies:

(a) The motor vehicle dealer ships or delivers the
motor vehicle to a destination out of this state.

(b) The vehicle, trailer or semitrailer has a gross
vehicle weight rating of more than ten thousand pounds, is used or maintained
to transport property in the furtherance of interstate commerce and otherwise
meets the definition of commercial motor vehicle as defined in section 28-5201.

15. Food, as provided in and subject to the
conditions of article 3 of this chapter and sections 42-5074 and 42-6017.

16. 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
United States Code 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
United States Code section 1786).

17. Textbooks by any bookstore that are required by
any state university or community college.

18. Food and drink to a person that is engaged in a
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 the employees' hours of employment.

19. Articles of food, drink or condiment and
accessory tangible personal property to a school district or charter school if
such articles and accessory tangible personal property are to be prepared and
served to persons for consumption on the premises of a public school within the
district or on the premises of the charter school during school hours.

20. Lottery tickets or shares pursuant to title 5,
chapter 5.1, article 2.

21. The sale of cash equivalents and the sale of
precious metal bullion and monetized bullion to the ultimate consumer, but the
sale of coins or other forms of money for manufacture into jewelry or works of
art is subject to the tax and 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 article is subject to
the tax. For the purposes of this paragraph:

(a) "Cash equivalents" means items or
intangibles, whether or not negotiable, that are sold to one 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:

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

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

(b) "Monetized bullion" means coins and
other forms of money that are manufactured from gold, silver or other metals
and that have been or are used as a medium of exchange in this or another
state, the United States or a foreign nation.

(c) "Precious metal bullion" means
precious metal, including gold, silver, platinum, rhodium and palladium, that
has been smelted or refined so that its value depends on its contents and not
on its form.

22. Motor vehicle fuel and use fuel that are subject
to a tax imposed under title 28, chapter 16, article 1, sales of use fuel to a
holder of a valid single trip use fuel tax permit issued under section 28-5739,
sales of aviation fuel that are subject to the tax imposed under section 28-8344
and sales of jet fuel that are subject to the tax imposed under article 8 of
this chapter.

23. Tangible personal property sold to a person
engaged in the business of leasing or renting such property under the personal
property rental classification if such property is to be leased or rented by
such person.

24. 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.

25. Tangible personal property sold to:

(a) A qualifying hospital as defined in section 42-5001.

(b) A qualifying health care organization as defined
in section 42-5001 if the tangible personal property is used by the
organization solely to provide health and medical related educational and
charitable services.

(c) A qualifying health care organization as defined
in section 42-5001 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.

(d) A qualifying community health center as defined
in section 42-5001.

(e) A nonprofit charitable organization that has
qualified under section 501(c)(3) of the internal revenue code and that
regularly serves meals to the needy and indigent on a continuing basis at no
cost.

(f) 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 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 years of
age in a facility that qualifies for a federal housing subsidy.

(g) A qualifying health sciences educational
institution as defined in section 42-5001.

(h) Any person representing or working on behalf of
another person described in subdivisions (a) through (g) of this paragraph if
the tangible personal property is incorporated or fabricated into a project
described in section 42-5075, subsection P.

26. Magazines or other periodicals or other
publications by this state to encourage tourist travel.

27. Tangible personal property sold to:

(a) A person that is subject to tax under this
article by reason of being engaged in business classified under section 42-5075
or to a subcontractor working under the control of a person engaged in business
classified under section 42-5075, if the property so sold is any of the
following:

(i) Incorporated or fabricated by the person into
any real property, structure, project, development or improvement as part of
the business.

(ii) Incorporated or fabricated by the person into
any project described in section 42-5075, subsection P.

(iii) Used in environmental response or remediation
activities under section 42-5075, subsection B, paragraph 6.

(b) A person that is not subject to tax under
section 42-5075 and that has been provided a copy of a certificate under
section 42-5009, subsection 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.

28. The sale of a motor vehicle to a nonresident of
this state if the purchaser's state of residence does not allow a corresponding
use tax exemption to the tax imposed by article 1 of this chapter and if the
nonresident has secured a special ninety day nonresident registration permit
for the vehicle as prescribed by sections 28-2154 and 28-2154.01.

29. Tangible personal property purchased 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 in programs for persons with mental or physical
disabilities if the programs are exclusively for training, job placement,
rehabilitation or testing.

30. Sales of tangible personal property 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 paragraph
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 section 42-5073.

31. Sales of commodities, as defined by title 7
United States Code section 2, that are consigned for resale in a warehouse in
this state in or from which the commodity is deliverable on a contract for
future delivery subject to the rules of a commodity market regulated by the
United States commodity futures trading commission.

32. Sales of tangible personal property by a nonprofit
organization that is exempt from taxation under section 501(c)(3), 501(c)(4),
501(c)(6), 501(c)(7) or 501(c)(8) of the internal revenue code if the
organization sponsors or operates a rodeo featuring primarily farm and ranch
animals and no part of the organization's net earnings inures to the benefit of
any private shareholder or individual.

33. Sales of propagative materials to persons who
use those items to commercially produce agricultural, horticultural,
viticultural or floricultural crops in this state. For the purposes of this
paragraph, "propagative materials":

(a) Includes seeds, seedlings, roots, bulbs, liners,
transplants, cuttings, soil and plant additives, agricultural minerals,
auxiliary soil and plant substances, micronutrients, fertilizers, insecticides,
herbicides, fungicides, soil fumigants, desiccants, rodenticides, adjuvants,
plant nutrients and plant growth regulators.

(b) Except for use in commercially producing
industrial hemp as defined in section 3-311, does not include any
propagative materials used in producing any part, including seeds, of any plant
of the genus cannabis.

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

35. Sales of natural gas or liquefied petroleum gas
used to propel a motor vehicle.

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

37. Coal, petroleum, coke, natural gas, virgin fuel
oil and electricity sold to a qualified environmental technology manufacturer,
producer or processor as defined in section 41-1514.02 and directly used
or consumed in generating or providing on-site power or energy solely for
environmental technology manufacturing, producing or processing or
environmental protection. This paragraph applies for twenty 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 that does not
manufacture paper, the time period begins with the date the first
manufacturing, processing or production equipment is placed in service.

38. Sales of liquid, solid or gaseous chemicals used
in manufacturing, processing, fabricating, mining, refining, metallurgical
operations, research and development and, beginning on January 1, 1999,
printing, if using or consuming the chemicals, alone or as part of an
integrated system of chemicals, involves direct contact with the materials from
which the product is produced for the purpose of causing or allowing a chemical
or physical change to occur in the materials as part of the production
process. This paragraph does not include chemicals that are used or
consumed in activities such as packaging, storage or transportation but does
not affect any deduction for such chemicals that is otherwise provided by this
section. For the purposes of this paragraph, "printing"
means a commercial printing operation and includes job printing, engraving,
embossing, copying and bookbinding.

39. Through December 31, 1994, personal property
liquidation transactions, conducted by a personal property
liquidator. From and after December 31, 1994, personal property
liquidation transactions shall be taxable under this section provided that
nothing in this subsection shall be construed to authorize the taxation of
casual activities or transactions under this chapter. For the
purposes of this paragraph:

(a) "Personal property liquidation
transaction" means a sale of personal property made by a personal property
liquidator acting solely on behalf of the owner of the personal property sold
at the dwelling of the owner or on the death of any owner, on behalf of the
surviving spouse, if any, any devisee or heir or the personal representative of
the estate of the deceased, if one has been appointed.

(b) "Personal property liquidator" means a
person who is retained to conduct a sale in a personal property liquidation
transaction.

40. 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.

41. A motor vehicle and any repair and replacement
parts and tangible personal property becoming a part of such motor vehicle sold
to a motor carrier that is subject to a fee prescribed in title 28, chapter 16,
article 4 and that is engaged in the business of leasing or renting such
property.

42. Sales of:

(a) Livestock and poultry to persons engaging in the
businesses of farming, ranching or producing livestock or poultry.

(b) Livestock and poultry feed, salts, 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
paragraph, "poultry" includes ratites.

43. Sales of implants used as growth promotants and
injectable medicines, not already exempt under paragraph 8 of this subsection,
for livestock or poultry owned by or in possession of persons that are engaged
in producing livestock, poultry, or livestock or poultry products or that are
engaged in feeding livestock or poultry commercially. For the
purposes of this paragraph, "poultry" includes ratites.

44. Sales of motor vehicles at auction to
nonresidents of this state for use outside this state if the vehicles are
shipped or delivered out of this state, regardless of where title to the motor
vehicles passes or its free on board point.

45. Tangible personal property sold to a person
engaged in business and subject to tax under the transient lodging
classification if the tangible personal property is a personal hygiene item or
articles used by human beings for food, drink or condiment, except alcoholic
beverages, that are furnished without additional charge to and intended to be
consumed by the transient during the transient's occupancy.

46. Sales of alternative fuel, as defined in section
1-215, to a used oil fuel burner who has received a permit to burn used
oil or used oil fuel under section 49-426 or 49-480.

47. 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:

(a) Printed or photographic materials, beginning
August 7, 1985.

(b) Electronic or digital media materials, beginning
July 17, 1994.

48. 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 paragraph, "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.

49. Sales of alternative fuel vehicles if the
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 section 1-215.

50. Sales of any spirituous, vinous or malt liquor
by a person that is licensed in this state as a wholesaler by the department of
liquor licenses and control pursuant to title 4, chapter 2, article 1.

51. Sales of tangible personal property to be
incorporated or installed as part of environmental response or remediation
activities under section 42-5075, subsection B, paragraph 6.

52. Sales of tangible personal property by a
nonprofit organization that is exempt from taxation under section 501(c)(6) of
the internal revenue code if the organization produces, organizes or promotes
cultural or civic related festivals or events and no part of the organization's
net earnings inures to the benefit of any private shareholder or individual.

53. 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 paragraph:

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

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

54. Sales of motor vehicle fuel and use fuel to a
qualified business under section 41-1516 for off-road use in harvesting,
processing or transporting qualifying forest products removed from qualifying
projects as defined in section 41-1516.

55. Sales of repair parts installed in equipment
used directly by a qualified business under section 41-1516 in
harvesting, processing or transporting qualifying forest products removed from
qualifying projects as defined in section 41-1516.

56. 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 paragraph, "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.

57. Orthodontic devices dispensed by a dental
professional who is licensed under title 32, chapter 11 to a patient as part of
the practice of dentistry.

58. Sales of tangible personal property incorporated
or fabricated into a project described in section 42-5075, subsection P,
that is located within the exterior boundaries of an Indian reservation for
which the owner, as defined in section 42-5075, of the project is an
Indian tribe or an affiliated Indian. For the purposes of this
paragraph:

(a) "Affiliated Indian" means an
individual Native American Indian who is duly registered on the tribal rolls of
the Indian tribe for whose benefit the Indian reservation was established.

(b) "Indian reservation" means all lands
that are within the limits of areas set aside by the United States for the
exclusive use and occupancy of an Indian tribe by treaty, law or executive
order and that are recognized as Indian reservations by the United States
department of the interior.

(c) "Indian tribe" means any organized
nation, tribe, band or community that is recognized as an Indian tribe by the
United States department of the interior and includes any entity formed under
the laws of the Indian tribe.

59. Sales of works of fine art, as defined in
section 44-1771, at an art auction or gallery in this state to
nonresidents of this state for use outside this state if the vendor ships or
delivers the work of fine art to a destination outside this state.

60. Sales of tangible personal property by a
marketplace seller that are facilitated by a marketplace facilitator in which
the marketplace facilitator has remitted or will remit the applicable tax to
the department pursuant to section 42-5014.

B. In addition to the deductions from the tax base
prescribed by subsection A of this section, the gross proceeds of sales or
gross income derived from sales of the following categories of tangible
personal property shall be deducted from the tax base:

1. Machinery, or equipment, used directly in
manufacturing, processing, fabricating, job printing, refining or metallurgical
operations. The terms "manufacturing", "processing",
"fabricating", "job printing", "refining" and
"metallurgical" as used in this paragraph refer to and include those
operations commonly understood within their ordinary meaning.
"Metallurgical operations" includes leaching, milling, precipitating,
smelting and refining.

2. Mining machinery, or equipment, used directly in
the process of extracting ores or minerals from the earth for commercial
purposes, including equipment required to prepare the materials for extraction
and handling, loading or transporting such extracted material to the surface.
"Mining" includes underground, surface and open pit operations for
extracting ores and minerals.

3. Tangible personal property sold to persons
engaged in business classified under the telecommunications classification,
including a person representing or working on behalf of such a person in a
manner described in section 42-5075, subsection P, and consisting of
central office switching equipment, switchboards, private branch exchange
equipment, microwave radio equipment and carrier equipment including optical
fiber, coaxial cable and other transmission media that are components of
carrier systems.

4. Machinery, equipment or transmission lines used
directly in producing or transmitting electrical power, but not including
distribution. Transformers and control equipment used at transmission
substation sites constitute equipment used in producing or transmitting
electrical power.

5. Machinery and equipment used directly for energy
storage for later electrical use. For the purposes of this paragraph:

(a) "Electric utility scale" means a
person that is engaged in a business activity described in section 42-5063,
subsection A or such person's equipment or wholesale electricity suppliers.

(b) "Energy storage" means commercially
available technology for electric utility scale that is capable of absorbing
energy, storing energy for a period of time and thereafter dispatching the
energy and that uses mechanical, chemical or thermal processes to store energy.

(c) "Machinery and equipment used
directly" means all machinery and equipment that are used for electric
energy storage from the point of receipt of such energy in order to facilitate
storage of the electric energy to the point where the electric energy is
released.

6. 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.

7. Pipes or valves four inches in diameter or larger
used to transport oil, natural gas, artificial gas, water, wastewater or coal
slurry, including compressor units, regulators, machinery and equipment,
fittings, seals and any other part that is used in operating the pipes or
valves.

8. Aircraft, navigational and communication
instruments and other accessories and related equipment sold to:

(a) A person:

(i) Holding, or exempted by federal law from
obtaining, a federal certificate of public convenience and necessity for use
as, in conjunction with or becoming part of an aircraft to be used to transport
persons for hire in intrastate, interstate or foreign commerce.

(ii) That is certificated or licensed under federal
aviation administration regulations (14 Code of Federal Regulations part 121 or
135) as a scheduled or unscheduled carrier of persons for hire for use as or in
conjunction with or becoming part of an aircraft to be used to transport
persons for hire in intrastate, interstate or foreign commerce.

(iii) Holding a foreign air carrier permit for air
transportation for use as or in conjunction with or becoming a part of aircraft
to be used to transport persons, property or United States mail in intrastate,
interstate or foreign commerce.

(iv) Operating an aircraft to transport persons in
any manner for compensation or hire, or for use in a fractional ownership
program that meets the requirements of federal aviation administration
regulations (14 Code of Federal Regulations part 91, subpart K), including
as an air carrier, a foreign air carrier or a commercial operator or under a
restricted category, within the meaning of 14 Code of Federal Regulations,
regardless of whether the operation or aircraft is regulated or certified under
part 91, 119, 121, 133, 135, 136 or 137, or another part of 14 Code of Federal
Regulations.

(v) That will lease or otherwise transfer
operational control, within the meaning of federal aviation administration
operations specification A008, or its successor, of the aircraft, instruments
or accessories to one or more persons described in item (i), (ii), (iii) or
(iv) of this subdivision, subject to section 42-5009, subsection Q.

(b) Any foreign government.

(c) Persons who are not residents of this state and
who will not use such property in this state other than in removing such
property from this state. This subdivision also applies to
corporations that are not incorporated in this state, regardless of maintaining
a place of business in this state, if the principal corporate office is located
outside this state and the property will not be used in this state other than
in removing the property from this state.

9. Machinery, tools, equipment and related supplies
used or consumed directly in repairing, remodeling or maintaining aircraft,
aircraft engines or aircraft component parts by or on behalf of a certificated
or licensed carrier of persons or property.

10. Railroad rolling stock, rails, ties and signal
control equipment used directly to transport persons or property.

11. Machinery or equipment used directly to drill
for oil or gas or used directly in the process of extracting oil or gas from
the earth for commercial purposes.

12. Buses or other urban mass transit vehicles that
are used directly to transport persons or property for hire or pursuant to a
governmentally adopted and controlled urban mass transportation program and
that are sold to bus companies holding a federal certificate of convenience and
necessity or operated by any city, town or other governmental entity or by any
person contracting with such governmental entity as part of a governmentally
adopted and controlled program to provide urban mass transportation.

13. Groundwater measuring devices required under
section 45-604.

14. Machinery and equipment consisting of
agricultural aircraft, tractors, off-highway vehicles, tractor-drawn
implements, self-powered implements, machinery and equipment necessary
for extracting milk, and machinery and equipment necessary for cooling milk and
livestock, and drip irrigation lines not already exempt under paragraph 7 of
this subsection and that are used for commercial production of agricultural,
horticultural, viticultural and floricultural crops and products in this
state. For the purposes of this paragraph:

(a) "Off-highway vehicles" means off-highway
vehicles as defined in section 28-1171 that are modified at the time of
sale to function as a tractor or to tow tractor-drawn implements and that
are not equipped with a modified exhaust system to increase horsepower or speed
or an engine that is more than one thousand cubic centimeters or that have a
maximum speed of fifty miles per hour or less.

(b) "Self-powered implements"
includes machinery and equipment that are electric-powered.

15. Machinery or equipment used in research and
development. For the purposes of this paragraph, "research and
development" means basic and applied research in the sciences and
engineering, and designing, developing or testing prototypes, processes or new
products, including research and development of computer software that is
embedded in or an integral part of the prototype or new product or that is
required for machinery or equipment otherwise exempt under this section to
function effectively. Research and development do not include
manufacturing quality control, routine consumer product testing, market
research, sales promotion, sales service, research in social sciences or
psychology, computer software research that is not included in the definition
of research and development, or other nontechnological activities or technical
services.

16. Tangible personal property that is used by
either of the following to receive, store, convert, produce, generate, decode,
encode, control or transmit telecommunications information:

(a) Any direct broadcast satellite television or
data transmission service that operates pursuant to 47 Code of Federal
Regulations part 25.

(b) Any satellite television or data transmission
facility, if both of the following conditions are met:

(i) Over two-thirds of the transmissions,
measured in megabytes, transmitted by the facility during the test period were
transmitted to or on behalf of one or more direct broadcast satellite
television or data transmission services that operate pursuant to 47 Code of
Federal Regulations part 25.

(ii) Over two-thirds of the transmissions,
measured in megabytes, transmitted by or on behalf of those direct broadcast
television or data transmission services during the test period were
transmitted by the facility to or on behalf of those services. For the
purposes of subdivision (b) of this paragraph, "test period" means
the three hundred sixty-five day period beginning on the later of the
date on which the tangible personal property is purchased or the date on which
the direct broadcast satellite television or data transmission service first
transmits information to its customers.

17. Clean rooms that are used for manufacturing,
processing, fabrication or research and development, as defined in paragraph 15
of this subsection, of semiconductor products. For the purposes of
this paragraph, "clean room" means all property that comprises or
creates an environment where humidity, temperature, particulate matter and
contamination are precisely controlled within specified parameters, without
regard to whether the property is actually contained within that environment or
whether any of the property is affixed to or incorporated into real property.
Clean room:

(a) Includes the integrated systems, fixtures,
piping, movable partitions, lighting and all property that is necessary or
adapted to reduce contamination or to control airflow, temperature, humidity,
chemical purity or other environmental conditions or manufacturing tolerances,
as well as the production machinery and equipment operating in conjunction with
the clean room environment.

(b) Does not include the building or other
permanent, nonremovable component of the building that houses the clean room
environment.

18. Machinery and equipment used directly in feeding
poultry, environmentally controlling housing for poultry, moving eggs within a
production and packaging facility or sorting or cooling eggs. This
exemption does not apply to vehicles used for transporting eggs.

19. Machinery or equipment, including related
structural components and containment structures, that is employed in
connection with manufacturing, processing, fabricating, job printing, refining,
mining, natural gas pipelines, metallurgical operations, telecommunications,
producing or transmitting electricity or research and development and that is
used directly to meet or exceed rules or regulations adopted by the federal
energy regulatory commission, the United States environmental protection
agency, the United States nuclear regulatory commission, the Arizona department
of environmental quality or a political subdivision of this state to prevent,
monitor, control or reduce land, water or air pollution. For the
purposes of this paragraph, "containment structure" means a structure
that prevents, monitors, controls or reduces noxious or harmful discharge into
the environment.

20. Machinery and equipment that are sold to a
person engaged in commercially producing livestock, livestock products or
agricultural, horticultural, viticultural or floricultural crops or products in
this state, including a person representing or working on behalf of such a
person in a manner described in section 42-5075, subsection P, if the
machinery and equipment are used directly and primarily to prevent, monitor,
control or reduce air, water or land pollution.

21. Machinery or equipment that enables a television
station to originate and broadcast or to receive and broadcast digital
television signals and that was purchased to facilitate compliance with the
telecommunications act of 1996 (P.L. 104-104; 110 Stat. 56; 47 United
States Code section 336) and the federal communications commission order issued
April 21, 1997 (47 Code of Federal Regulations part 73). This
paragraph does not exempt any of the following:

(a) Repair or replacement parts purchased for the
machinery or equipment described in this paragraph.

(b) Machinery or equipment purchased to replace
machinery or equipment for which an exemption was previously claimed and taken
under this paragraph.

(c) Any machinery or equipment purchased after the
television station has ceased analog broadcasting, or purchased after November
1, 2009, whichever occurs first.

22. Qualifying equipment that is purchased from and
after June 30, 2004 through December 31, 2028 by a qualified business
under section 41-1516 for harvesting or processing qualifying forest
products removed from qualifying projects as defined in section 41-1516. To
qualify for this deduction, the qualified business at the time of purchase must
present its certification approved by the department.

23. 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 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 paragraph, "computer data
center", "computer data center equipment", "qualification
period" and "qualified colocation tenant" have the same meanings
prescribed in section 41-1519.

C. The deductions provided by subsection B of this
section do not include sales of:

1. Expendable materials. For the purposes
of this paragraph, expendable materials do not include any of the categories of
tangible personal property specified in subsection B of this section regardless
of the cost or useful life of that property.

2. Janitorial equipment and hand tools.

3. Office equipment, furniture and supplies.

4. Tangible personal property used in selling or
distributing activities, other than the telecommunications transmissions
described in subsection B, paragraph 16 of this section.

5. Motor vehicles required to be licensed by this
state, except buses or other urban mass transit vehicles specifically exempted
pursuant to subsection B, paragraph 12 of this section, without regard to the
use of such motor vehicles.

6. Shops, buildings, docks, depots and all other
materials of whatever kind or character not specifically included as exempt.

7. Motors and pumps used in drip irrigation systems.

8. Machinery and equipment or other tangible
personal property used by a contractor in performing a contract.

D. In addition to the deductions from the tax base
prescribed by subsection A of this section, there shall be deducted from the
tax base the gross proceeds of 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 section 41-1514.02. This
subsection applies for ten full consecutive calendar or fiscal years after the
start of initial construction.

E. In computing the tax base, gross proceeds of
sales or gross income from retail sales of heavy trucks and trailers does not
include any amount attributable to federal excise taxes imposed by 26 United
States Code section 4051.

F. If a person is engaged in an occupation or
business to which subsection A of this section applies, the person's books
shall be kept so as to show separately the gross proceeds of sales of tangible
personal property and the gross income from sales of services, and if not so
kept the tax shall be imposed on the total of the person's gross proceeds of
sales of tangible personal property and gross income from services.

G. If a person is engaged in the business of selling
tangible personal property at both wholesale and retail, the tax under this
section applies only to the gross proceeds of the sales made other than at
wholesale if the person's books are kept so as to show separately the gross
proceeds of sales of each class, and if the books are not so kept, the tax
under this section applies to the gross proceeds of every sale so made.

H. 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) Transporting classification.

(b) Utilities classification.

(c) Telecommunications classification.

(d) Pipeline classification.

(e) Private car line classification.

(f) Publication classification.

(g) Job printing classification.

(h) Prime contracting classification.

(i) Restaurant classification.

I. The gross proceeds of sales or gross income
derived from the following shall be deducted from the tax base for the retail
classification:

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

2. 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. 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. 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 paragraph 3
of this subsection.

J. There shall be deducted from the tax base fifty
percent 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 subsection I of this
section.

K. The department shall require every person
claiming a deduction provided by subsection I or J of this section to file on
forms prescribed by the department at such times as the department directs a
sworn statement disclosing the name of the purchaser and the exact amount of
sales on which the exclusion or deduction is claimed.

L. In computing the tax base, gross proceeds of
sales or gross income does not include:

1. A manufacturer's cash rebate on the sales price
of a motor vehicle if the buyer assigns the buyer's right in the rebate to the
retailer.

2. The waste tire disposal fee imposed pursuant to
section 44-1302.

M. There shall be deducted from the tax base the
amount received from sales of solar energy devices. The retailer
shall register with the department 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.

N. In computing the tax base in the case of the sale
or transfer of wireless telecommunications equipment as an inducement to a
customer to enter into or continue a contract for telecommunications services
that are taxable under section 42-5064, 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.

O. For the purposes of this section, a sale of
wireless telecommunications 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 telecommunications services that are taxable under section 42-5064
is considered to be a sale for resale in the regular course of business.

P. 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.

Q. 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.

R. For the purposes of this section, the transfer of
title or possession of coal from an owner or operator of a power plant to a
person in the business of refining coal is not a sale of 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.

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 paragraph,
"coal refining process" means the application of a coal additive
system that aids in the reduction of power plant emissions during the
combustion of coal and the treatment of flue gas.

S. If a seller is entitled to a deduction pursuant
to subsection B, paragraph 16, subdivision (b) of this section, the
department may require the purchaser to establish that the requirements of
subsection B, paragraph 16, subdivision (b) of this section have been
satisfied. If the purchaser cannot establish that the requirements
of subsection B, paragraph 16, subdivision (b) of this section have been
satisfied, the purchaser is liable in an amount equal to any tax, penalty and
interest that the seller would have been required to pay under article 1 of
this chapter if the seller had not made a deduction pursuant to subsection B,
paragraph 16, subdivision (b) of this section. Payment of the amount
under this subsection exempts the purchaser from liability for any tax imposed
under article 4 of this chapter and related to the tangible personal property
purchased. The amount shall be treated as transaction privilege tax
to the purchaser and as tax revenues collected from the seller to designate the
distribution base pursuant to section 42-5029.

T. For the purposes of section 42-5032.01, the
department shall separately account for revenues collected under the retail
classification from businesses selling tangible personal property at retail:

1. On the premises of a multipurpose facility that
is owned, leased or operated by the tourism and sports authority pursuant to
title 5, chapter 8.

2. At professional football contests that are held
in a stadium located on the campus of an institution under the jurisdiction of
the Arizona board of regents.

U. For the purposes of section 42-5032.03 and
subject to section 48-4238, beginning October 1, 2025 and each month
thereafter through December 31, 2055, the department shall separately account
for revenues collected under the retail classification from each business
selling tangible personal property at retail on the premises of a major league
baseball facility or an adjacent building that is owned by a county stadium
district pursuant to title 48, chapter 26 and operated by the county stadium
district or the professional baseball franchise organization that occupies the
major league baseball

facility or adjacent
building. For the purposes of this subsection, "adjacent
building" and "major league baseball facility" have the same
meanings prescribed in section 48-4201.

V. In computing the tax base for the sale of a motor
vehicle to a nonresident of this state, if the purchaser's state of residence
allows a corresponding use tax exemption to the tax imposed by article 1 of
this chapter and the rate of the tax in the purchaser's state of residence is
lower than the rate prescribed in article 1 of this chapter or if the
purchaser's state of residence does not impose an excise tax, and the
nonresident has secured a special ninety day nonresident registration permit
for the vehicle as prescribed by sections 28-2154 and 28-2154.01,
there shall be deducted from the tax base a portion of the gross proceeds or
gross income from the sale so that the amount of transaction privilege tax that
is paid in this state is equal to the excise tax that is imposed by the
purchaser's state of residence on the nonexempt sale or use of the motor
vehicle.

W. In lieu of a separate transaction
privilege tax license, the department shall provide without additional cost an
endorsement to a retail classification transaction privilege tax license for a
person that is in the business of selling tangible personal property at retail
and that sells luxury items included under the luxury item classification.

W.
X.
For
the purposes of this section:

1. "Agricultural aircraft" means an
aircraft that is built for agricultural use for the aerial application of
pesticides or fertilizer or for aerial seeding.

2. "Aircraft"
includes:

(a) An airplane
flight simulator that is approved by the federal aviation administration for
use as a phase II or higher flight simulator under appendix H, 14 Code of
Federal Regulations part 121.

(b) Tangible personal property that is permanently
affixed or attached as a component part of an aircraft that is owned or
operated by a certificated or licensed carrier of persons or property.

3. "Other accessories and related
equipment" includes aircraft accessories and equipment such as ground
service equipment that physically contact aircraft at some point during the
overall carrier operation.

4. "Selling at retail" means a sale for
any purpose other than for resale in the regular course of business in the form
of tangible personal property, but transfer of possession, lease and rental as
used in the definition of sale mean only such transactions as are found on
investigation to be in lieu of sales as defined without the words lease or
rental.

X. For the purposes of subsection I of this section:

1. "Assembler" means a person who unites
or combines products, wares or articles of manufacture so as to produce a
change in form or substance without changing or altering the component parts.

2. "Manufacturer" means a person who is
principally engaged in fabricating, producing or manufacturing products, wares
or articles for use from raw or prepared materials, imparting to those
materials new forms, qualities, properties and combinations.

3. "Modifier" means a person who reworks,
changes or adds to products, wares or articles of manufacture.

4. "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 performing 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.

5. "Repairer" means a person who restores
or renews products, wares or articles of manufacture.

6. "Subcontract" means an agreement
between a contractor and any person who is not an employee of the contractor
for furnishing supplies or services that, in whole or in part, are necessary to
perform one or more government contracts, or under which any portion of the
contractor's obligation under one 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 performing the
subcontract to pass to the government or that includes provisions incorporating
such title passing clauses in a government contract into the subcontract.
END_STATUTE

Sec. 5. Title 42, chapter 5, article 2, Arizona
Revised Statutes, is amended by adding section 42-5077, to read:

START_STATUTE
42-5077.

Luxury item classification; definition

A. The luxury item classification is
comprised of the business of selling luxury items at retail.

B. The tax base of the luxury item
classification is the gross proceeds of sales or gross income derived from the
business. The tax base is separate from the tax bases of other retail
activities that the taxpayer engages in, and the tax due under the luxury item
classification is in addition to the tax due under the retail classification on
the gross proceeds of luxury items.

C. For the purposes of this section,
"luxury item" means:

1. Jewelry sold at a retail price of
more than $5,000.

2. The following items sold at a
retail price of more than $1,000:

(
a
) Articles of
clothing or footwear intended to be worn on the human body.

(
b
) luggage.

(
c
) Handbags.

(
d
) umbrellas.

(
e
) Wallets.

(
f
) Watches.
END_STATUTE

Sec. 6.
Requirements for enactment; two-thirds vote

Pursuant to article IX, section 22,
Constitution of Arizona, this act is effective only on the affirmative vote of
at least two-thirds of the members of each house of the legislature and is
effective immediately on the signature of the governor or, if the governor
vetoes this act, on the subsequent affirmative vote of at least three-fourths
of the members of each house of the legislature.