Some business transitions aren't subject to Arizona's Transaction Privilege Tax (TPT). These exemptions depend on the industry and type of sale. 

Examples TPT Exemptions 

Each industry has its own TPT exemptions. Businesses should focus on Arizona's industry-specific guidelines to determine if they fall under any exemptions. 

Membership Fees 

Nonprofit membership fees are exempt even if the organization has retail operations. For example, a nonprofit animal rescue operates a store selling pet supplies. On the same street, a for-profit retail store also sells pet supplies and has a fee-based membership. 

While these two organizations provide the same service – selling pet supplies – the nonprofit rescue's membership fees are exempt from TPT, while the for-profit retail store's fees are subject to TPT. 

Building Materials 

For TPT-Licensed MRRA contractors, materials are exempt at the point of purchase if consumed on the job site. Contractors must report the cost and retail equivalent during the quarter in which they use the materials.  

Even if exempt from TPT, these materials may still be subject to local or city taxes. The Arizona Department of Revenue provides this example: 

A contractor working on a site in Cave Creek purchases $10,000 in materials, all of which are used for that project. The materials qualify for a $4,000 deduction, leaving $6,000 subjected to retail equivalent taxes. Given the location of this project, the contractor will be subjected to approximately $560 in retail tax. 

Food 

In general, food sales do not fall under TPT. The exception is if food is purchased to be consumed on the premises. 

For example, a grocery store has a prepared food area and a dining area. Two individuals buy the same sandwich. One takes the sandwich back to their office. The other eats it in the store's dining area. In this example, the latter is not subject to TPT, while the former is. 

Exemption Certificates 

Even if a transition is exempt, a business must still have a record of it and have an exemption certificate. For these non-taxable transactions, businesses need to complete exemption certificates provided by the Department of Revenue. One reason for these certificates is that they provide a basis for any deductions or exemptions for state and city taxes.  

Exemption certificates must be completed and provided to vendors at the time of a sale.  

If you need help, call Senior Partner, Tax Controversy Attorney, and former IRS attorney Brandon A. Keim at (602) 200-7399 or contact him online to discuss your options.