Arizona allows manufacturers in the state to purchase machinery and equipment directly used in the manufacturing process “transaction privilege tax” exempt. While Arizona does not technically collect sales tax, they do collect transaction privilege tax which is treated in the same manner as most states treat sales tax. Transaction privilege tax is the tax levied by the state of Arizona on a vendor for the privilege of conducting business in the state. The main difference in transaction privilege tax and traditional sales tax is that the burden lies on the seller versus the purchaser. Because of this many of the transaction privilege tax laws have a corresponding use tax law. The Arizona transaction privilege tax exemption for manufacturing extends to manufacturing machinery and equipment used directly in processing, fabrication, job printing, refining, metal working, mining, electrical power transmitting, oil and gas extraction, and research and development [Ariz. Rev. Stat. Ann. §42-5061(B)(1)]. Directly used in manufacturing means the item purchased must be involved in the direct production of the product.

Tax Exempt Items (Directly Used In Manufacturing):

• Machinery and equipment
• Repair and replacement parts on exempt machinery
• Industrial gases
• Cleanrooms
• Ingredients – COGS items physically incorporated into final product

Tax Taxable Items (Not Used Directly In Manufacturing)

• Expendable materials
• Janitorial equipment
• Hand Tools
• Office Equipment
• Motors and Pumps used in irrigation systems
• Motor vehicles

How To Claim Arizona Transaction Privilege Tax Exemption For Manufacturing

The manufacturer should already be purchasing manufacturing equipment tax exempt from their vendors because the burden of transaction privilege tax lies on the seller and not the purchaser, but this is not always the case. In order to ensure the Arizona transaction privilege tax exemption for manufacturing, manufacturers can supply their vendors with a “Transaction Privilege Tax Exemption Certificate”. “Arizona form 5000 – TPT Exemption Certificate” which can be found at the Arizona Department of Revenue’s website. The manufacturer will fill out, sign and send to their vendor to have their account set up as tax exempt. This will guarantee manufacturing sales will be purchased tax exempt. Please contact the experienced sales tax consultants at Agile Consulting to help you determine if you are being charged tax incorrectly.

The entity that remitted tax to the state is the only entity that can recover refunds from the Arizona Department of Revenue. Due to this, the purchaser must go back to their vendor in order to secure the refund. The purchaser can go back up to 4 years (48 months) to collect taxes paid in error. Once the purchaser requests a transaction privilege tax refund of exempt purchases from their vendor the vendor has one of two options. Option one is for the vendor to amend their returns and issue a credit or check to their customer. Option two is for the vendor to fill out, sign and send in  “Form SCR (Seller’s Claim for Refund)” along with the  “Refund Request Workbook” into the Arizona Department of Revenue at TPTREfunds@azdor.gov. Once submitted the refund request will be assigned to an Arizona auditor and either accepted or denied. Once auditor has completed review and accepted the refund request, a check will be mailed to the vendor. The vendor will then reimburse their customer of the transaction privilege tax paid in error. Agile’s knowledgeable and skilled tax consultants are ready to assist you with your interaction with Arizona auditors.

As with all sales and use tax research, the specifics of each case need to be considered when determining taxability.  Additional advice from Agile Consulting Group’s sales tax consultants can be found on our page summarizing Arizona sales and use tax exemptions.

Have a question? Contact Aaron Giles.