Form 5005 relates to Arizona's transaction privilege tax. Subcontractors must have this form for their records to show they aren't liable for any tax.
This exemption doesn't relate to any income a subcontractor earns on a project.
TPT
Arizona has a transaction privilege tax (TPT). Despite being referred to as a sales tax, TPT is instead a tax on businesses that conduct businesses within the state. Businesses must have a TPT license from the Arizona Department of Revenue in order to engage in business activities.
Form 5005
Known as the Contractor's Certificate, Form 5005 relates directly to TPT. It addresses who is liable for paying the tax.
Contractors must provide this form to both the Arizona Department of Revenue and all subcontractors. The form establishes that subcontractors are exempt from taxes.
While this form is submitted to the Department of Revenue, subcontractors should still keep their copy. This form establishes that they're exempt from any state taxes.
Subcontractors can be exempt from:
- Prime contracting TPT
- Liability for an amount that's equal to the retail TPT for materials involved in a project related to maintenance, repair, replacement, or alteration (MRRA)
Without Form 5005, subcontractors may find themselves responsible for TPT taxes.
Project Changes
MRRA projects aren't static, but changes to the project don't affect a subcontractor's tax liability. If a contractor has already submitted Form 5005 to all subcontractors, this means that subcontractors have already submitted all of the receipts for the job's materials. Their exemption from paying taxes doesn't change because of alterations to the project.
Contractors, not subcontractors, have six months to file the MRRA Credit Summary Workbook after changes to a project.
Sub-Subcontractor
In situations when a subcontractor hires another subcontractor, the first subcontractor, not the contractor, is responsible for providing the new subcontractor with a Form 5005. Arizona also recommends that subcontractors include a copy of their Form 5005 from the contractor to all subcontractors.
Unlicensed Sub-subcontractors
While unlicensed subcontractors don't have to report TPT, they should still have a copy of Form 5005. When presented in conjunction with Form 5000M, they will be able to purchase materials tax-exempt.
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.
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