ARIZONA STATE SENATE
Phoenix, Arizona
prime contracting sales tax;
grandfathering
An emergency measure that
exempts prime contractors from paying increased taxes on sales or income from a
contract, if the contract was entered before the sales tax increase became
effective.
Proposition 301, passed by
the voters in the 2000 general election, levied an additional six-tenths of a
percent transaction privilege tax and use tax (“sales tax”) beginning July 1,
2001. Some prime contractors accepted
contracts prior to the passage of this proposition that included sales tax
calculated at the current rate. If
payment is made pursuant to these contracts, after July 1, 2001 and the contractor
uses a cash basis accounting method, the contractor will be responsible for the
amount of taxes calculated at the new rate.
In many cases, contractors, because of the terms agreed to in the
contract, cannot charge the customer for the additional sales tax. S.B. 1258 addresses this situation by
exempting contractors from the additional taxes if the contract was entered
into before the sales tax increase become effective.
There would be some fiscal
impact to Prop 301 educational funding and other funds impacted by future sales
tax increase, in the form of unrealized revenue. According to the Department of Revenue, the amount in question at
this time is minimal.
Provisions
1. Exempts prime contractors from paying additional taxes, due to a sales tax increase, if a contract was entered into before the tax increase became effective, unless the contract contains a provision that allows the contractor to recover the additional tax from the purchaser.
2. Reconciles provisions relating to the prime contracting classification of transaction privilege taxation, for the purpose of blending multiple enactments.
3. Makes technical and conforming changes.
4. Contains an emergency clause.
Prepared by Senate Staff
January 31, 2001