local TPT; residential property; exemption

SB1033 - 572R - I Ver

PREFILED��� DEC 17 2025

REFERENCE TITLE:
local TPT; residential property; exemption

State of Arizona

Senate

Fifty-seventh Legislature

Second Regular Session

2026

SB 1033

Introduced by

Senator
Kavanagh

AN
ACT

amending section 42-6004, Arizona
Revised Statutes; relating to local excise taxes.

(TEXT OF BILL BEGINS ON NEXT PAGE)

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

Section 1. Section 42-6004, Arizona Revised
Statutes, is amended to read:

START_STATUTE
42-6004.

Exemption from municipal tax; definitions

A. A city, town or special taxing district shall not
levy a transaction privilege, sales, use or other similar tax on:

1. Exhibition events in this state sponsored,
conducted or operated 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
state transaction privilege tax under section 42-5073.

2. Interstate telecommunications services, which
include that portion of telecommunications services, such as subscriber line
service, allocable by federal law to interstate telecommunications service.

3. Sales of warranty or service contracts.

4. 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 outside 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.

5. Interest on finance contracts.

6. Dealer documentation fees on the sales of motor
vehicles.

7. 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.

8. Sales of internet access services to the person's
subscribers and customers.� For the purposes of this paragraph:

(a) "Internet" means the computer and
telecommunications facilities that comprise the interconnected worldwide
network of networks that employ the transmission control protocol or internet
protocol, or any predecessor or successor protocol, to communicate information
of all kinds by wire or radio.

(b) "Internet access" means a service that
enables users to access content, information, electronic mail or other services
over the internet. Internet access does not include telecommunication services
provided by a common carrier.

9. The gross proceeds of sales or gross income
retained by the Arizona exposition and state fair board from ride ticket sales
at the annual Arizona state fair.

10. Leasing real property between affiliated
companies, businesses, persons or reciprocal insurers.� For the purposes of
this paragraph:

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

(b) "Affiliated persons" means members of
the individual's family or persons who have ownership or control of a business
entity.

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

(d) "Members of the individual's family"
means the individual's spouse and brothers and sisters, whether by whole or
half blood, including adopted persons, ancestors and lineal descendants.

(e) "Reciprocal insurer" has the same
meaning prescribed in section 20-762.

11. The gross proceeds of sales or gross income
derived from a contract for the installation, assembly, repair or maintenance
of machinery, equipment or other tangible personal property that is described
in section 42-5061, subsection B and that has independent functional
utility, pursuant to the following provisions:

(a) The deduction provided in this paragraph
includes the gross proceeds of sales or gross income derived from all of the
following:

(i) Any activity performed on machinery, equipment
or other tangible personal property with independent functional utility.

(ii) Any activity performed on any tangible personal
property relating to machinery, equipment or other tangible personal property
with independent functional utility in furtherance of any of the purposes
provided for under subdivision (d) of this paragraph.

(iii) Any activity that is related to the activities
described in items (i) and (ii) of this subdivision, including inspecting the
installation of or testing the machinery, equipment or other tangible personal
property.

(b) The deduction provided in this paragraph does
not include gross proceeds of sales or gross income from the portion of any
contracting activity that consists of the development of, or modification to,
real property in order to facilitate the installation, assembly, repair,
maintenance or removal of machinery, equipment or other tangible personal
property described in section 42-5061, subsection B.

(c) The deduction provided in this paragraph shall
be determined without regard to the size or useful life of the machinery,
equipment or other tangible personal property.

(d) For the purposes of this paragraph,
"independent functional utility" means that the machinery, equipment
or other tangible personal property can independently perform its function
without attachment to real property, other than attachment for any of the
following purposes:

(i) Assembling the machinery, equipment or other
tangible personal property.

(ii) Connecting items of machinery, equipment or
other tangible personal property to each other.

(iii) Connecting the machinery, equipment or other
tangible personal property, whether as an individual item or as a system of
items, to water, power, gas, communication or other services.

(iv) Stabilizing or protecting the machinery,
equipment or other tangible personal property during operation by bolting,
burying or performing other dissimilar nonpermanent connections to either real
property or real property improvements.

12. The leasing or renting of certified ignition
interlock devices installed pursuant to the requirements prescribed by section
28-1461. For the purposes of this paragraph, "certified
ignition interlock device" has the same meaning prescribed in section 28-1301.

13. 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.

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

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

(b) Any term not defined in this paragraph that is
defined in section 42-5075 has the same meaning prescribed in section 42-5075.

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

(i) Community facilities districts, fire districts,
county television improvement districts, community park maintenance districts,
cotton pest control districts, hospital districts, pest abatement districts,
health service districts, agricultural improvement districts, county free
library districts, county jail districts, county stadium districts, special
health care districts, public health services districts, theme park districts
or revitalization districts.

(ii) Any special taxing district not specified in
item (i) of this subdivision if the district does not substantially engage in
the modification, maintenance, repair, replacement or alteration of surface or
subsurface improvements to land.

15. Monitoring services relating to an alarm system
as defined in section 32-101.

16. Tangible personal property, job printing or
publications sold to or purchased by, or tangible personal property leased,
rented or licensed for use to or by, a qualifying health sciences educational
institution as defined in section 42-5001.

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

(a) The transfer of title or possession of the coal
is for the purpose of refining the coal.

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

18. Tangible personal property incorporated or
fabricated into a project described in paragraph 14 of this subsection, 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 that Indian tribe.

19. The charges for the leasing or renting of space
to make attachments to utility poles as follows:

(a) By a person that is engaged in the business of
providing or furnishing electrical services or telecommunication services or
that is a cable operator.

(b) To a person that is engaged in the business of
providing or furnishing electrical services or telecommunication services or
that is a cable operator.

20. Until March 1, 2017, the gross proceeds of sales
or gross income derived from entry fees paid by participants for events that
consist of a run, walk, swim or bicycle ride or a similar event, or any
combination of these events.

21. The gross proceeds of sales or gross income
derived from entry fees paid by participants for events that are operated or
conducted by nonprofit organizations that are exempt from taxation under
section 501(c)(3) of the internal revenue code and of which no part of the
organization's net earnings inures to the benefit of any private shareholder or
individual, if the event consists of a run, walk, swim or bicycle ride or a
similar event, or any combination of these events.

22. The gross proceeds of sales or gross income
derived from sales of 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.

23. The gross proceeds of sales or gross income
derived from a contract to install containment structures. For the
purposes of this paragraph, "containment structure" means a structure
that prevents, monitors, controls or reduces noxious or harmful discharge into
the environment.

B. A city, town or other taxing jurisdiction shall
not levy a transaction privilege, sales, use, franchise or other similar tax or
fee, however denominated, on natural gas or liquefied petroleum gas used to
propel a motor vehicle.

C. A city, town or other taxing jurisdiction shall
not levy a transaction privilege, sales, gross receipts, use, franchise or
other similar tax or fee, however denominated, on gross proceeds of sales or
gross income derived from any of the following:

1. A motor carrier's use on the public highways in
this state if the motor carrier is subject to a fee prescribed in title 28,
chapter 16, article 4.

2. Leasing, renting or licensing a motor vehicle
subject to and on which the fee has been paid under title 28, chapter 16,
article 4.

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

4. Incarcerating or detaining in a privately
operated prison, jail or detention facility prisoners who are under the
jurisdiction of the United States, this state or any other state or a political
subdivision of this state or of any other state.

5. Transporting for hire persons, freight or
property by light motor vehicles subject to a fee under title 28, chapter 15,
article 4.

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

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

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

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

7. Any amount attributable to fees collected by
transportation network companies issued a permit pursuant to section 28-9552.

8. Transporting for hire persons by transportation
network company drivers on transactions involving transportation network
services as defined in section 28-9551.

9. Transporting for hire persons by vehicle for hire
companies that are issued permits pursuant to section 28-9503.

10. Transporting for hire persons by vehicle for
hire drivers on transactions involving vehicle for hire services as defined in
section 28-9501.

D. A city, town or other taxing jurisdiction shall
not levy a transaction privilege, sales, use, franchise or other similar tax or
fee, however denominated, in excess of one-tenth of one percent of the value of
the entire product mined, smelted, extracted, refined, produced or prepared for
sale, profit or commercial use, on persons engaged in the business of mineral
processing, except to the extent that the tax is computed on the gross proceeds
or gross income from sales at retail.

E. In computing the tax base, any city, town or
other taxing jurisdiction shall not include in the gross proceeds of sales or
gross income:

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.

F. A city or town shall not levy a use tax on the
storage, use or consumption of tangible personal property in the city or town
by a school district or charter school.

G. A city, town or taxing jurisdiction shall not
levy a transaction privilege, sales, gross receipts, use, franchise or other
similar tax or fee, however denominated, on gross proceeds of sales or gross
income derived from over-the-top services. For the
purposes of this subsection, "over-the-top services"
means audio or video programming services that are received by the purchaser by
means of an internet connection, regardless of the technology used, that
include linear or live programming and that are generally considered comparable
to programming provided by a radio or television broadcast station and includes
related on-demand programming that is provided at no additional charge,
regardless of whether the services are provided independently or packaged with
other audio or video programming.

H. From and after December 31, 2024, a city, town or
other taxing jurisdiction may not levy a transaction privilege, sales, gross
receipts, use, franchise or other similar tax or fee, however denominated, on
the business of renting or leasing real property for residential purposes.�
This subsection:

1. Does not apply to health care facilities, long-term
care facilities or hotel, motel or other transient lodging businesses.

2. Applies regardless of whether the city or town
has adopted the model city tax code pursuant to article 2 of this chapter.

I. A
city, town or special taxing district may not levy a transaction privilege,
sales, use or other similar tax on the bona fide nonbusiness sale of
residential property, regardless of the stage of completion of the residence,
as follows:

1. The
sale of the residential property must meet the following CRITERIA:

(
a
) The property is used as the primary residence or vacation
residence of the seller or a member of the seller's family, as described in
section 42-12053, for the six months proceeding the date on which the
property is offered for sale or is sold within the twelve months before or
after the date of the final decree or judgment of divorce from the seller, or
both.

(
b
) The seller has not sold more than two primary residences
or, if the residence is a vacation residence, two vacation residences within
the thirty-six months immediately proceeding the date on which the
property is offered for sale.

(
c
) The seller has not licensed, leased or rented the
property for any period within the twenty-four months proceeding the date
on which the property is offered for sale.

2. Construction
contracting for improvements to a primary residence is presumed to be for a
bona fide nonbusiness purpose and all construction contractors are required to
report and pay the tax imposed on those improvements.

3. The
purchase of tangible personal property for inclusion in any construction,
alteration or repair of a person's primary or vacation residence is subject to
tax as a retail sale to the ultimate consumer.

I.
J.
For
the purposes of this section:

1. "Cable operator" has the same meaning
prescribed in section 9-505 and includes a video service provider.

2. "Electrical services" means
transmitting or distributing electricity, electric lights, current or power
over lines, wires or cables.

3. "Qualified
trust" means any legal trust in which a beneficiary of the trust is an
individual who has been the resident of the property or who was divorced as
described in subsection i, paragraph 1 of this section.

4. "Seller":

(
a
) Means an individual or qualified
trust.

(
b
) Does not include any other entity, association or
representative, except an administrator, executor, personal representative or
guardian in guardianship or probate proceedings, for the estate of a deceased
or incompetent individual or a minor, if the deceased, incompetent individual
or minor would have otherwise qualified with respect to the specific property
involved.

3.
5.
"Telecommunication
services" means transmitting or relaying sound, visual image, data,
information, images or material over lines, wires or cables by radio signal,
light beam, telephone, telegraph or other electromagnetic means.

4.
6.
"Utility
pole" means any wooden, metal or other pole used for utility purposes and
the pole's appurtenances that are attached or authorized for attachment by the
person controlling the pole.
END_STATUTE

Sec. 2.
Retroactivity

This act
applies retroactively to bona fide nonbusiness sales of residential property
occurring from and after December 31, 2022.