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.

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