Legislature advances sales tax changes for construction

Screen Shot 2015-02-19 at 1.52.05 PMBy Phil Riske | Managing Editor

(STATE CAPITOL)—Without debate, the Arizona Senate on Thursday by voice vote advanced a measure (SB 1446 ) changing the method sales tax is levied on the construction industry.

A companion bill in the House (HB 2590) cleared floor debate Wednesday, and both bills are expected to be read for a third time next week; any differences would then be reconciled.

Under the year-old tax reform law, construction is still taxed the old way: The tax (5.6%) on materials is included into the final price of the completed job.

Changes brought about by the new law have led to confusion about how to deal with the subcontractors’ existing inventories, who are now required to pay the tax where the materials are purchased.

The bills deal with that inventory, proposing that if subcontractors maintain a TPT prime contracting license, they would still buy materials tax-free, and when the materials are used for new construction, the tax would be folded into the final price of the service.

The bill also:

  • Prohibits a city, town and board of supervisors from requiring an applicant for a building permit to hold a TPT or business license as a condition for the issuance of a permit.
  • Permits a city or town to require a person that has been issued a building permit, and does not hold a business license from the city or town, to apply for a business license within 30 days after the issuance of a building permit.
  • Removes the requirement that an applicant possess a TPT license in order to obtain or renew a contractor’s license.
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