Bill Text: AZ HB2778 | 2025 | Fifty-seventh Legislature 1st Regular | Introduced
Bill Title: Luxury tax; nicotine; vapor; products
Spectrum: Moderate Partisan Bill (Democrat 4-1)
Status: (Introduced) 2025-02-11 - House read second time [HB2778 Detail]
Download: Arizona-2025-HB2778-Introduced.html
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REFERENCE TITLE: luxury tax; nicotine; vapor; products |
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State of Arizona House of Representatives Fifty-seventh Legislature First Regular Session 2025
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HB 2778 |
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Introduced by Representatives Hernandez C: Contreras L, Hernandez A, Powell, Volk
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An Act
amending sections 42-1102, 42-1124, 42-1125, 42-2003, 42-3001, 42-3008, 42-3051, 42-3052 and 42-3053, Arizona Revised Statutes; amending title 42, chapter 3, article 3, Arizona Revised Statutes, by adding section 42-3107; amending sections 42-3401, 42-3403, 42-3404, 42-3405, 42-3406, 42-3501 and 42-3502, Arizona Revised Statutes; amending title 42, chapter 3, article 12, Arizona Revised Statutes, by adding section 42-3504; relating to luxury tax.
(TEXT OF BILL BEGINS ON NEXT PAGE)
Be it enacted by the Legislature of the State of Arizona:
Section 1. Section 42-1102, Arizona Revised Statutes, is amended to read:
42-1102. Taxpayer bonds; definition
A. If the department deems it necessary to protect the revenues to be collected under this title and title 43, it may require a person liable for the tax to file a bond to secure the payment of the tax, penalty or interest, which may become due from that person. The bond shall be:
1. Issued by a surety company authorized to transact business in this state and approved by the director of the department of insurance and financial institutions of this state as to solvency and responsibility or composed of securities or cash that are deposited with, and kept in the custody of, the department.
2. Except as otherwise provided in this section, in the amount that the department prescribes by administrative rule to secure the payment of any tax, penalty or interest, which may become due from the person.
B. For the purposes of licenses to sell tobacco products, nicotine products or vapor products issued under section 42-3401, the amount of the bond required under this section is the greater of $500 or four times the average monthly tax liability. For the purposes of determining the bond amount, the average monthly tax liability is equal to the average monthly tax due from the applicant for the preceding six consecutive months. If an applicant does not have a six-month payment history, the bond amount is a minimum of $500. If an applicant provides a surety bond and the bond lapses, the applicant shall deposit with the department cash or other security in an amount equal to the lapsed surety bond within five business days after the applicant's receipt of written notification by the department. The bond amount may be increased or decreased as necessary based on any reason listed in subsection D of this section or a change in the applicant's previous filing period, filing compliance record or payment history. If the bond amount is increased above the amount computed under this subsection, the applicant may request a hearing pursuant to subsection C of this section to show why the order increasing the bond amount is in error.
C. If the department determines that a person is to file a bond it shall notify the person to that effect, specifying the amount of the bond required. The person shall file the bond within five days after the giving of notice unless within that time the person requests in writing a hearing before the department at which time the department shall determine the necessity, propriety and amount of the bond. The determination is final unless within fifteen days after the giving of notice of the determination the person appeals the determination to the state board of tax appeals. The board shall decide on the appeal within fifteen days of its receipt. The bond, at any time without notice, may be applied to any tax, penalties or interest due, and for that purpose the securities may be sold at public or private sale without notice to the depositor.
D. For purposes of this section a bond may be required if:
1. After investigation of financial status, the department determines that an applicant for a new license would be unable to timely remit amounts due.
2. An applicant for a new license held a license for a prior business, and the remittance record for the prior business falls within one of the conditions in paragraph 5 of this subsection.
3. The department experienced collection problems while the applicant was engaged in business under a prior license.
4. The applicant is substantially similar to a person who would have been required to post a bond under paragraph 5 of this subsection or the person had a previous license that was revoked. An applicant is substantially similar if it is owned or controlled by persons who owned or controlled a previous licensee.
5. An existing licensee has had two or more delinquencies in remitting tax during the preceding twenty-four months if filing on a quarterly or less frequent basis or four or more delinquencies during the preceding twenty-four months if filing on a monthly or more frequent basis.
E. If a licensee who is required to post a bond or security maintains a good filing and payment record for a period of two years, the licensee may request that the department waive the continued bond or security requirement.
F. For the purposes of this section, "person" includes a firm, partnership, joint venture, association, corporation, sole proprietorship or other business or governmental entity subject to a tax administered by this article but does not include an individual subject to individual income tax.
Sec. 2. Section 42-1124, Arizona Revised Statutes, is amended to read:
42-1124. Failure to affix stamps or pay or account for tax; forfeiture of commodity; sale of forfeited commodity; effect of seizure and sale; request for administrative hearing; definitions
A. If the department or its authorized agents or representatives discover any luxury subject to tax under chapter 3 of this title to which official stamps have not been affixed as required or on which the tax has not been paid or accounted for, the department or its agent or representative may seize and take possession of the luxury, and it is deemed forfeited to this state. Except as provided in subsection D or E of this section, the department, within a reasonable time thereafter, pursuant to a notice posted on the premises or by publication in a newspaper of general circulation in the county where the sale is to take place, not fewer than five days before the date of sale, shall offer for sale and sell the forfeited luxuries. The department shall pay the proceeds of the sale into the state general fund. The sale shall take place in the county that is most convenient and economical. The department need not offer any property for sale if, in its opinion, the probable cost of sale exceeds the value of the property.
B. The seizure and sale do not relieve any person from the penalties provided for violating this title.
C. The department of revenue may enter into an interagency agreement with the department of transportation for the purpose of carrying out tobacco, nicotine product or vapor product enforcement under chapter 3 of this title at ports of entry.
D. All tobacco products, nicotine products and vapor products that are seized for violations under this title shall be forfeited to this state. All tobacco products that are forfeited to this state pursuant to section 13-3711, 36-798.06 or 42-3461 or section 44-7111, section 6(b) shall be destroyed. If a distributor defrauds this state by knowingly and intentionally failing to keep or make any record, return, report or inventory pertaining to tobacco products, nicotine products or vapor products, by refusing to pay any luxury tax for tobacco products, nicotine products or vapor products subject to tax under chapter 3 of this title or by attempting to evade or defeat any requirement of this title, the distributor shall forfeit to this state all fixtures, equipment and all other materials and personal property that are located on the premises of the distributor. Alternatively, at the request of the department, the distributor may be enjoined by an action commenced by the attorney general or a county attorney in the name of the state from engaging or continuing in any business for which a tax is imposed by this chapter until the tax has been paid and until the person has complied with this title.
E. The department may sell or otherwise dispose of any tobacco products, nicotine products and vapor products forfeited to this state on such conditions as it deems most advantageous and just under the circumstances, unless the tobacco products, nicotine products or vapor products are forfeited pursuant to section 13-3711, 36-798.06 or 42-3461 or section 44-7111, section 6(b), as applicable. The department shall deposit the proceeds of any sales made pursuant to this subsection in the state general fund.
F. The department shall give notice of the seizure and forfeiture of tobacco products, nicotine products or vapor products described in this section by personal service or by certified mail to all persons known by the department to have any right, title or interest in the property. Notice shall include a description of the tobacco products, nicotine products and vapor products seized, the reason for the seizure and the time and place of the seizure. For seizures of cigarettes of more than sixty-one cartons of two hundred cigarettes each or the equivalent in cigarette count, the department shall post and maintain an online notice of seizure and forfeiture on its website for a period of at least six months, beginning not later than ten business days after the date of the personal service of the notice to a person or the date of the mailing of the notice. The online notice shall display the date on which the department posts the notice to the website, which shall serve as the date of publication of the notice.
G. Any person whose legal rights, duties or privileges are determined by the notice of seizure and forfeiture may file a request for an administrative hearing with the department on a form prescribed by the department. The request for an administrative hearing shall contain a statement of the petitioner's interest in the tobacco products, nicotine products or vapor products and an explanation of why the release or recovery of the tobacco products, nicotine products or vapor products is warranted on the ground that the tobacco products, nicotine products or vapor products were erroneously or illegally seized.
H. The seizure and forfeiture of tobacco products, nicotine products and vapor products by the department is an appealable agency action as defined in section 41-1092 and is governed by title 41, chapter 6, article 10 and section 42-1251, except that:
1. A request for an administrative hearing that is filed under subsection G of this section is deemed to be timely filed if the request is filed with the department within ten days after the date of personal service on the petitioner or the date of mailing the notice to the petitioner. Any person who is not served personally or by mail shall file the request within ten days after the date of publication of the notice. The failure of a person to file a timely request constitutes a bar to that person's right to any interest in the tobacco products, nicotine products or vapor products, except insofar as the rights of that person may be established in an action filed by the department under this chapter.
2. If a request for an administrative hearing is not filed with the department at the expiration of ten days after the notice has been personally served, mailed or published, the department's determination is final. If a timely request for an administrative hearing has been filed with the department, the department shall request a hearing by the office of administrative hearings and the department shall suspend action until the final order of the department has been issued. An order that is issued by the office of administrative hearings is the final order of the department thirty days after the petitioner receives the decision unless a decision by the director is issued pursuant to section 42-1251. If the director issues a decision, that decision is the final order of the department.
I. For the purposes of this section, "cigarette", "distributor", and "nicotine products", "tobacco products" and "vapor products" have the same meanings prescribed in section 42-3001.
Sec. 3. Section 42-1125, Arizona Revised Statutes, is amended to read:
42-1125. Civil penalties; definition
A. If a taxpayer fails to make and file a return for a tax administered pursuant to this article on or before the due date of the return or the due date as extended by the department, unless it is shown that the failure is due to reasonable cause and not due to wilful neglect, four and one-half percent of the tax required to be shown on the return shall be added to the tax for each month or fraction of a month elapsing between the due date of the return and the date on which it is filed. The total penalty shall not exceed twenty-five percent of the tax found to be remaining due. The penalty so added to the tax is due and payable on notice and demand from the department. For the purpose of computing the penalty imposed under this subsection, the amount required to be shown as tax on a return shall be reduced by the amount of any part of the tax that is paid on or before the beginning of the month and by the amount of any credit against the tax that may be claimed on the return. If the amount required to be shown as tax on a return is less than the amount shown as tax on the return, the penalty described in this subsection shall be applied by substituting the lower amount.
B. If a taxpayer fails or refuses to file a return on notice and demand by the department, the taxpayer shall pay a penalty of twenty-five percent of the tax, which is due and payable on notice and demand by the department, in addition to any penalty prescribed by subsection A of this section, unless it is shown that the failure is due to reasonable cause and not due to wilful neglect. This penalty is payable on notice and demand from the department.
C. If a taxpayer fails or refuses to furnish any information requested in writing by the department, the department may add a penalty of twenty-five percent of the amount of any deficiency tax assessed by the department concerning the assessment of which the information was required, unless it is shown that the failure is due to reasonable cause and not due to wilful neglect.
D. If a person fails to pay the amount shown as tax on any return within the time prescribed, a penalty of one-half of one percent, not to exceed a total of ten percent, shall be added to the amount shown as tax for each month or fraction of a month during which the failure continues, unless it is shown that the failure is due to reasonable cause and not due to wilful neglect. If the department determines that the person's failure to pay was due to reasonable cause and not due to wilful neglect and that a payment agreement pursuant to section 42-2057 is appropriate, the department shall not impose the penalty unless the taxpayer fails to comply with the payment agreement. If the taxpayer is also subject to a penalty under subsection A of this section for the same tax period, the total penalties under subsection A of this section and this subsection shall not exceed twenty-five percent. For the purpose of computing the penalty imposed under this subsection:
1. The amount shown as tax on a return shall be reduced by the amount of any part of the tax that is paid on or before the beginning of that month and by the amount of any credit against the tax that may be claimed on the return.
2. If the amount shown as tax on a return is greater than the amount required to be shown as tax on that return, the penalty shall be applied by substituting the lower amount.
E. If a person fails to pay any amount required to be shown on any return that is not so shown within twenty-one calendar days after the date of notice and demand, a penalty of one-half of one percent, not to exceed a total of ten percent, shall be added to the amount of tax for each month or fraction of a month during which the failure continues, unless it is shown that the failure is due to reasonable cause and not due to wilful neglect. If the taxpayer is also subject to penalty under subsection A of this section for the same tax period, the total penalties under subsection A of this section and this subsection shall not exceed twenty-five percent. For the purpose of computing the penalty imposed under this subsection, any amount required to be shown on any return shall be reduced by the amount of any part of the tax that is paid on or before the beginning of that month and by the amount of any credit against the tax that may be claimed on the return.
F. In the case of a deficiency, for which a determination is made of an additional amount due, that is due to negligence but without intent to defraud, the person shall pay a penalty of ten percent of the amount of the deficiency.
G. If part of a deficiency is due to fraud with intent to evade tax, fifty percent of the total amount of the tax, in addition to the deficiency, interest and other penalties provided in this section, shall be assessed, collected and paid as if it were a deficiency.
H. If the amount, whether determined by the department or the taxpayer, required to be withheld by the employer pursuant to title 43, chapter 4 is not paid to the department on or before the date prescribed for its remittance, the department may add a penalty of twenty-five percent of the amount required to be withheld and paid, unless it is shown that the failure is due to reasonable cause and not due to wilful neglect.
I. A person who, with or without intent to evade any requirement of this article or any lawful administrative rule of the department of revenue under this article, fails to file a return or to supply information required under this article or who, with or without such intent, makes, prepares, renders, signs or verifies a false or fraudulent return or statement or supplies false or fraudulent information shall pay a penalty of not more than $1,000. This penalty shall be recovered by the department of law in the name of this state by an action in any court of competent jurisdiction.
J. If the taxpayer files what purports to be a return of any tax administered pursuant to this article but that is frivolous or that is made with the intent to delay or impede the administration of the tax laws, that person shall pay a penalty of $500.
K. If any person who is required to file or provide an information return under this title or title 43 or who is required to file or provide a return or report under chapter 3 of this title fails to file the return or report at the prescribed time or in the manner required, or files a return or report that fails to show the information required, that person shall pay a penalty of $100 for each month or fraction of a month during which the failure continues unless it is shown that the failure is due to reasonable cause and not due to wilful neglect. The total penalties for each return or report under this subsection shall not exceed $500.
L. If it appears to the superior court that proceedings before it have been instituted or maintained by a taxpayer primarily for delay or that the taxpayer's position is frivolous or groundless, the court may award damages in an amount not to exceed $1,000 to this state. Damages so awarded shall be collected as a part of the tax.
M. A person who is required under section 43-413 to furnish a statement to an employee and who wilfully furnishes a false or fraudulent statement, or who wilfully fails to furnish a statement required by section 43-413, is for each such failure subject to a penalty of $50.
N. A person who is required to collect or truthfully account for and pay a tax administered pursuant to this article, including any luxury privilege tax, and who wilfully fails to collect the tax or truthfully account for and pay the tax, or wilfully attempts in any manner to evade or defeat the tax or its payment, is, in addition to other penalties provided by law, liable for a penalty equal to the total amount of the tax evaded, not collected or not accounted for and paid. Except as provided in subsections U, V and W of this section, no other penalty under this section relating to failure to pay tax may be imposed for any offense to which this subsection applies.
O. For reporting periods beginning from and after February 28, 2011, if a taxpayer who is required under section 42-1129 to pay by electronic funds transfer fails to do so, that taxpayer shall pay a penalty of five percent of the amount of the payment not made by electronic funds transfer unless it is shown that the failure is due to reasonable cause and not due to wilful neglect. For the reporting periods beginning on July 1, 2015, the penalty in this subsection applies to any taxpayer who is required under section 42-3053 to pay by electronic funds transfer and fails to do so unless it is shown that the failure is due to reasonable cause and not due to wilful neglect.
P. Unless due to reasonable cause and not to wilful neglect:
1. A person who fails to provide that person's taxpayer identification number in any return, statement or other document as required by section 42-1105, subsection A shall pay a penalty of $5 for each such failure.
2. A person, when filing any return, statement or other document for compensation on behalf of a taxpayer, who fails to include that person's own taxpayer identification number and the taxpayer's identification number shall pay a penalty of $50 for each such failure.
3. A person, when filing any return, statement or other document without compensation on behalf of a taxpayer, who fails to include that person's own taxpayer identification number and the taxpayer's identification number is not subject to a penalty.
No other penalty under this section may be imposed if the only violation is failure to provide taxpayer identification numbers.
Q. If a taxpayer fails to pay the full amount of estimated tax required by title 43, chapter 5, article 6, a penalty is assessed equal to the amount of interest that would otherwise accrue under section 42-1123 on the amount not paid for the period of nonpayment, not exceeding ten percent of the amount not paid. The penalty prescribed by this subsection is in lieu of any other penalty otherwise prescribed by this section and in lieu of interest prescribed by section 42-1123.
R. Beginning January 1, 2015, if a taxpayer continues in business without timely renewing a municipal privilege tax license as prescribed in section 42-5005, subsection D, a civil penalty of up to $25 shall be added to the renewal fee for each jurisdiction.
S. The department of law, with the consent of the department of revenue, may compromise any penalty for which it may bring an action under this section.
T. Penalties shall not be assessed under subsection D of this section on additional amounts of tax paid by a taxpayer at the time the taxpayer voluntarily files an amended return. This subsection does not apply if:
1. The taxpayer is under audit by the department.
2. The amended return was filed on demand or request by the department.
U. In addition to other penalties provided by law, a person who knowingly and intentionally does not comply with any requirement under chapter 3 of this title relating to tobacco products, nicotine products or vapor products shall pay a penalty of $1,000. A person who knowingly and intentionally does not pay any luxury tax that relates to tobacco products, nicotine products or vapor products imposed by chapter 3 of this title shall pay a penalty that is equal to ten percent of the amount of the unpaid tax.
V. A manufacturer or importer or a distributor, as defined in section 42-3001, who knowingly and intentionally sells or possesses cigarettes with false manufacturing labels or cigarettes with counterfeit tax stamps, or who obtains cigarettes through the use of a counterfeit license, shall pay the following penalties:
1. For a first violation involving two thousand or more cigarettes, $1,000.
2. For a subsequent violation involving two thousand or more cigarettes, $5,000.
W. The civil penalties in this section are in addition to any civil penalty under chapter 3, article 10, 11 or 12 of this title.
X. Notwithstanding subsection A of this section:
1. And except as provided by paragraph 2 of this subsection, the penalty imposed on a taxpayer that fails to make and file a return for tax administered pursuant to chapter 5 or 6 of this title on or before the due date of the return or the due date as extended by the department, unless it is shown that the failure is due to a reasonable cause and not due to wilful neglect, is four and one-half percent of the tax required to be shown on the return, or $25, whichever is greater. The penalty shall be added to the tax for each month or fraction of a month elapsing between the due date of the return and the date on which it is filed. The total penalty may not exceed twenty-five percent of the tax required to be shown on the return, or $100, whichever is greater.
2. The penalty imposed on a taxpayer that is required under section 42-5014 to file electronically and that fails to do so is five percent of the tax required to be shown on the return, or $25, whichever is greater, unless the failure is due to a reasonable cause and not due to wilful neglect.
3. For the purposes of this subsection, "tax required to be shown on the return" means the total tax liability before deducting payments.
Y. Notwithstanding subsection B of this section, the penalty imposed on a taxpayer that fails to file a return pursuant to chapter 5 or 6 of this title on notice and demand by the department is twenty-five percent of the tax, or $100, whichever is greater. The penalty is due and payable on notice and demand by the department, in addition to any penalty prescribed by subsection A of this section, unless it is shown that the failure is due to a reasonable cause and not due to wilful neglect.
Z. For the purposes of this section, and only as applied to the taxes imposed by chapter 5, articles 1 through 6 and chapter 6, articles 1, 2 and 3 of this title, "reasonable cause" means a reasonable basis for the taxpayer to believe that the tax did not apply to the business activity or the storage, use or consumption of the taxpayer's tangible personal property in this state.
Sec. 4. Section 42-2003, Arizona Revised Statutes, is amended to read:
42-2003. Authorized disclosure of confidential information
A. Confidential information relating to:
1. A taxpayer may be disclosed to the taxpayer, its successor in interest or a designee of the taxpayer who is authorized in writing by the taxpayer. A principal corporate officer of a parent corporation may execute a written authorization for a controlled subsidiary. If a taxpayer elects to file an Arizona small business income tax return under section 43-302, a written authorization by the taxpayer to allow the department to disclose personal income tax information to a designee includes the corresponding Arizona small business income tax return.
2. A corporate taxpayer may be disclosed to any principal officer, any person designated by a principal officer or any person designated in a resolution by the corporate board of directors or other similar governing body. If a corporate officer signs a statement under penalty of perjury representing that the officer is a principal officer, the department may rely on the statement until the statement is shown to be false. For the purposes of this paragraph, "principal officer" includes a chief executive officer, president, secretary, treasurer, vice president of tax, chief financial officer, chief operating officer or chief tax officer or any other corporate officer who has the authority to bind the taxpayer on matters related to state taxes.
3. A partnership may be disclosed to any partner of the partnership. This exception does not include disclosure of confidential information of a particular partner unless otherwise authorized.
4. A limited liability company may be disclosed to any member of the company or, if the company is manager-managed, to any manager.
5. An estate may be disclosed to the personal representative of the estate and to any heir, next of kin or beneficiary under the will of the decedent if the department finds that the heir, next of kin or beneficiary has a material interest that will be affected by the confidential information.
6. A trust may be disclosed to the trustee or trustees, jointly or separately, and to the grantor or any beneficiary of the trust if the department finds that the grantor or beneficiary has a material interest that will be affected by the confidential information.
7. A government entity may be disclosed to the head of the entity or a member of the governing board of the entity, or any employee of the entity who has been delegated the authorization in writing by the head of the entity or the governing board of the entity.
8. Any taxpayer may be disclosed if the taxpayer has waived any rights to confidentiality either in writing or on the record in any administrative or judicial proceeding.
9. The name and taxpayer identification numbers of persons issued direct payment permits may be publicly disclosed.
10. Any taxpayer may be disclosed during a meeting or telephone call if the taxpayer is present during the meeting or telephone call and authorizes the disclosure of confidential information.
B. Confidential information may be disclosed to:
1. Any employee of the department whose official duties involve tax administration.
2. The office of the attorney general solely for its use in preparation for, or in an investigation that may result in, any proceeding involving tax administration before the department or any other agency or board of this state, or before any grand jury or any state or federal court.
3. The department of liquor licenses and control for its use in determining whether a spirituous liquor licensee has paid all transaction privilege taxes and affiliated excise taxes incurred as a result of the sale of spirituous liquor, as defined in section 4-101, at the licensed establishment and imposed on the licensed establishments by this state and its political subdivisions.
4. Other state tax officials whose official duties require the disclosure for proper tax administration purposes if the information is sought in connection with an investigation or any other proceeding conducted by the official. Any disclosure is limited to information of a taxpayer who is being investigated or who is a party to a proceeding conducted by the official.
5. The following agencies, officials and organizations, if they grant substantially similar privileges to the department for the type of information being sought, pursuant to statute and a written agreement between the department and the foreign country, agency, state, Indian tribe or organization:
(a) The United States internal revenue service, alcohol and tobacco tax and trade bureau of the United States treasury, United States bureau of alcohol, tobacco, firearms and explosives of the United States department of justice, United States drug enforcement agency and federal bureau of investigation.
(b) A state tax official of another state.
(c) An organization of states, federation of tax administrators or multistate tax commission that operates an information exchange for tax administration purposes.
(d) An agency, official or organization of a foreign country with responsibilities that are comparable to those listed in subdivision (a), (b) or (c) of this paragraph.
(e) An agency, official or organization of an Indian tribal government with responsibilities comparable to the responsibilities of the agencies, officials or organizations identified in subdivision (a), (b) or (c) of this paragraph.
6. The auditor general, in connection with any audit of the department subject to the restrictions in section 42-2002, subsection D.
7. Any person to the extent necessary for effective tax administration in connection with:
(a) The processing, storage, transmission, destruction and reproduction of the information.
(b) The programming, maintenance, repair, testing and procurement of equipment for purposes of tax administration.
(c) The collection of the taxpayer's civil liability.
8. The office of administrative hearings relating to taxes administered by the department pursuant to section 42-1101, but the department shall not disclose any confidential information without the taxpayer's written consent:
(a) Regarding income tax or withholding tax.
(b) On any tax issue relating to information associated with the reporting of income tax or withholding tax.
9. The United States treasury inspector general for tax administration for the purpose of reporting a violation of internal revenue code section 7213A (26 United States Code section 7213A), unauthorized inspection of returns or return information.
10. The financial management service of the United States treasury department for use in the treasury offset program.
11. The United States treasury department or its authorized agent for use in the state income tax levy program and in the electronic federal tax payment system.
12. The Arizona commerce authority for its use in:
(a) Qualifying renewable energy operations for the tax incentives under section 42-12006.
(b) Qualifying businesses with a qualified facility for income tax credits under sections 43-1083.03 and 43-1164.04.
(c) Fulfilling its annual reporting responsibility pursuant to section 41-1512, subsections U and V and section 41-1517, subsection L.
(d) Certifying computer data centers for tax relief under section 41-1519.
(e) Certifying applicants for the tax credit for motion picture production costs under sections 43-1082 and 43-1165.
13. A prosecutor for purposes of section 32-1164, subsection C.
14. The office of the state fire marshal for use in determining compliance with and enforcing title 37, chapter 9, article 5.
15. The department of transportation for its use in administering taxes, surcharges and penalties prescribed by title 28.
16. The Arizona health care cost containment system administration for its use in administering nursing facility provider assessments.
17. The department of administration risk management division and the office of the attorney general if the information relates to a claim against this state pursuant to section 12-821.01 involving the department of revenue.
18. Another state agency if the taxpayer authorizes the disclosure of confidential information in writing, including an authorization that is part of an application form or other document submitted to the agency.
19. The department of economic security for its use in determining whether an employer has paid all amounts due under the unemployment insurance program pursuant to title 23, chapter 4.
20. The department of health services for its use in determining the following:
(a) Whether a medical marijuana dispensary is in compliance with the tax requirements of chapter 5 of this title for the purposes of section 36-2806, subsection A.
(b) Whether a marijuana establishment, marijuana testing facility or dual licensee licensed under title 36, chapter 28.2 is in compliance with the tax obligations under this title or title 43.
21. The Arizona department of agriculture for the purpose of ascertaining compliance with the licensing provisions in title 3.
22. The office of economic opportunity for the purpose of performing the duties and obligations to or on behalf of this state prescribed by title 41, chapter 53.
C. Confidential information may be disclosed in any state or federal judicial or administrative proceeding pertaining to tax administration pursuant to the following conditions:
1. One or more of the following circumstances must apply:
(a) The taxpayer is a party to the proceeding.
(b) The proceeding arose out of, or in connection with, determining the taxpayer's civil or criminal liability, or the collection of the taxpayer's civil liability, with respect to any tax imposed under this title or title 43.
(c) The treatment of an item reflected on the taxpayer's return is directly related to the resolution of an issue in the proceeding.
(d) Return information directly relates to a transactional relationship between a person who is a party to the proceeding and the taxpayer and directly affects the resolution of an issue in the proceeding.
2. Confidential information may not be disclosed under this subsection if the disclosure is prohibited by section 42-2002, subsection C or D.
D. Identity information may be disclosed for purposes of notifying persons entitled to tax refunds if the department is unable to locate the persons after reasonable effort.
E. The department, on the request of any person, shall provide the names and addresses of bingo licensees as defined in section 5-401, verify whether or not a person has a privilege license and number, a tobacco product, nicotine product or vapor product distributor's license and number or a withholding license and number or disclose the information to be posted on the department's website or otherwise publicly accessible pursuant to section 42-1124, subsection F and section 42-3401.
F. A department employee, in connection with the official duties relating to any audit, collection activity or civil or criminal investigation, may disclose return information to the extent that disclosure is necessary to obtain information that is not otherwise reasonably available. These official duties include the correct determination of and liability for tax, the amount to be collected or the enforcement of other state tax revenue laws.
G. Confidential information relating to transaction privilege tax, use tax, severance tax, jet fuel excise and use tax and any other tax collected by the department on behalf of any jurisdiction may be disclosed to any county, city or town tax official if the information relates to a taxpayer who is or may be taxable by a county, city or town or who may be subject to audit by the department pursuant to section 42-6002. Any taxpayer information that is released by the department to the county, city or town:
1. May be used only for internal purposes, including audits. If there is a legitimate business need relating to enforcing laws, regulations and ordinances pursuant to section 9-500.39 or 11-269.17, a county, city or town tax official may redisclose transaction privilege tax information relating to a vacation rental or short-term rental property owner or online lodging operator from the new license report and license update report, subject to the following:
(a) The information redisclosed is limited to the following:
(i) The transaction privilege tax license number.
(ii) The type of organization or ownership of the business.
(iii) The legal business name and doing business as name, if different from the legal name.
(iv) The business mailing address, tax record physical location address, telephone number, email address and fax number.
(v) The date the business started in this state, the business description and the North American industry classification system code.
(vi) The name, address and telephone number for each owner, partner, corporate officer, member, managing member or official of the employing unit.
(b) Redisclosure is limited to nonelected officials in other units within the county, city or town. The information may not be redisclosed to an elected official or the elected official's staff.
(c) All redisclosures of confidential information made pursuant to this paragraph are subject to paragraph 2 of this subsection.
2. May not be disclosed to the public in any manner that does not comply with confidentiality standards established by the department. The county, city or town shall agree in writing with the department that any release of confidential information that violates the confidentiality standards adopted by the department will result in the immediate suspension of any rights of the county, city or town to receive taxpayer information under this subsection.
H. The department may disclose statistical information gathered from confidential information if it does not disclose confidential information attributable to any one taxpayer. The department may disclose statistical information gathered from confidential information, even if it discloses confidential information attributable to a taxpayer, to:
1. The state treasurer in order to comply with the requirements of section 42-5029, subsection A, paragraph 3.
2. The joint legislative income tax credit review committee, the joint legislative budget committee staff and the legislative staff in order to comply with the requirements of section 43-221.
I. The department may disclose the aggregate amounts of any tax credit, tax deduction or tax exemption enacted after January 1, 1994. Information subject to disclosure under this subsection shall not be disclosed if a taxpayer demonstrates to the department that such information would give an unfair advantage to competitors.
J. Except as provided in section 42-2002, subsection C, confidential information, described in section 42-2001, paragraph 1, subdivision (a), item (ii), may be disclosed to law enforcement agencies for law enforcement purposes.
K. The department may provide transaction privilege tax license information to property tax officials in a county for the purpose of identification and verification of the tax status of commercial property.
L. The department may provide transaction privilege tax, luxury tax, use tax, property tax and severance tax information to the ombudsman-citizens aide pursuant to title 41, chapter 8, article 5.
M. Except as provided in section 42-2002, subsection D, a court may order the department to disclose confidential information pertaining to a party to an action. An order shall be made only on a showing of good cause and that the party seeking the information has made demand on the taxpayer for the information.
N. This section does not prohibit the disclosure by the department of any information or documents submitted to the department by a bingo licensee. Before disclosing the information, the department shall obtain the name and address of the person requesting the information.
O. If the department is required or allowed to disclose confidential information, it may charge the person or agency requesting the information for the reasonable cost of its services.
P. Except as provided in section 42-2002, subsection D, the department of revenue shall release confidential information as requested by the department of economic security pursuant to section 42-1122 or 46-291. Information disclosed under this subsection is limited to the same type of information that the United States internal revenue service is authorized to disclose under section 6103(l)(6) of the internal revenue code.
Q. Except as provided in section 42-2002, subsection D, the department shall release confidential information as requested by the courts and clerks of the court pursuant to section 42-1122.
R. To comply with the requirements of section 42-5031, the department may disclose to the state treasurer, to the county stadium district board of directors and to any city or town tax official that is part of the county stadium district confidential information attributable to a taxpayer's business activity conducted in the county stadium district.
S. The department shall release to the attorney general confidential information as requested by the attorney general for purposes of determining compliance with or enforcing any of the following:
1. Any public health control law relating to tobacco sales as provided under title 36, chapter 6, article 14.
2. Any law relating to reduced cigarette ignition propensity standards as provided under title 37, chapter 9, article 5.
3. Sections 44-7101 and 44-7111, the master settlement agreement referred to in those sections and all agreements regarding disputes under the master settlement agreement.
T. For proceedings before the department, the office of administrative hearings, the state board of tax appeals or any state or federal court involving penalties that were assessed against a return preparer, an electronic return preparer or a payroll service company pursuant to section 42-1103.02, 42-1125.01 or 43-419, confidential information may be disclosed only before the judge or administrative law judge adjudicating the proceeding, the parties to the proceeding and the parties' representatives in the proceeding prior to its introduction into evidence in the proceeding. The confidential information may be introduced as evidence in the proceeding only if the taxpayer's name, the names of any dependents listed on the return, all social security numbers, the taxpayer's address, the taxpayer's signature and any attachments containing any of the foregoing information are redacted and if either:
1. The treatment of an item reflected on such a return is or may be related to the resolution of an issue in the proceeding.
2. Such a return or the return information relates or may relate to a transactional relationship between a person who is a party to the proceeding and the taxpayer that directly affects the resolution of an issue in the proceeding.
3. The method of payment of the taxpayer's withholding tax liability or the method of filing the taxpayer's withholding tax return is an issue for the period.
U. The department and attorney general may share the information specified in subsection S of this section with any of the following:
1. Federal, state or local agencies located in this state for the purposes of enforcement of the statutes or agreements specified in subsection S of this section or for the purposes of enforcement of corresponding laws of other states.
2. Indian tribes located in this state for the purposes of enforcement of the statutes or agreements specified in subsection S of this section.
3. A court, arbitrator, data clearinghouse or similar entity for the purpose of assessing compliance with or making calculations required by the master settlement agreement or agreements regarding disputes under the master settlement agreement, and with counsel for the parties or expert witnesses in any such proceeding, if the information otherwise remains confidential.
V. The department may provide the name and address of qualifying hospitals and qualifying health care organizations, as defined in section 42-5001, to a business that is classified and reporting transaction privilege tax under the utilities classification.
W. The department may disclose to an official of any city, town or county in a current agreement or considering a prospective agreement with the department as described in section 42-5032.02, subsection G any information relating to amounts that are subject to distribution and that are required by section 42-5032.02. Information disclosed by the department under this subsection:
1. May be used only by the city, town or county for internal purposes.
2. May not be disclosed to the public in any manner that does not comply with confidentiality standards established by the department. The city, town or county must agree with the department in writing that any release of confidential information that violates the confidentiality standards will result in the immediate suspension of any rights of the city, town or county to receive information under this subsection.
X. Notwithstanding any other provision of this section, the department may not disclose information provided by an online lodging marketplace, as defined in section 42-5076, without the written consent of the online lodging marketplace, and the information may be disclosed only pursuant to subsection A, paragraphs 1 through 6, 8 and 10, subsection B, paragraphs 1, 2, 7 and 8 and subsections C, D and G of this section. Such information:
1. Is not subject to disclosure pursuant to title 39, relating to public records.
2. May not be disclosed to any agency of this state or of any county, city, town or other political subdivision of this state.
Sec. 5. Section 42-3001, Arizona Revised Statutes, is amended to read:
42-3001. Definitions
In this chapter, unless the context otherwise requires:
1. "Affix" and "affixed" include imprinting tax meter stamps on packages and individual containers as authorized by the department.
2. "Brand family" has the same meaning prescribed in section 44-7111.
3. "Cavendish" means a tobacco product that is smoked from a pipe and that meets one of the following criteria:
(a) Is described as cavendish, as containing cavendish or as a cavendish blend on its packaging, labeling or promotional materials.
(b) Appears to have been processed or manufactured with an amount of flavorings and humectants that exceeds twenty percent of the weight of the tobacco contained in the product.
(c) Appears to be blended with or contain a tobacco product described in subdivision (b) of this paragraph.
4. "Cider" means vinous liquor that is made from the normal alcoholic fermentation of the juice of sound, ripe apples, pears or other pome fruit, including flavored, sparkling and carbonated cider and cider made from condensed apple, pear or other pome fruit must, and that contains more than one-half of one percent of alcohol by volume but not more than seven percent of alcohol by volume.
5. "Cigar" means any roll of tobacco wrapped in leaf tobacco or in any substance containing tobacco other than any roll of tobacco that is a cigarette, as defined in paragraph 6, subdivision (b) of this section.
6. "Cigarette" means either of the following:
(a) Any roll of tobacco wrapped in paper or any substance not containing tobacco.
(b) Any roll of tobacco wrapped in any substance containing tobacco that, because of its appearance, the type of tobacco used in the filler or its packaging and labeling, is likely to be offered to or purchased by a consumer as a cigarette described in subdivision (a) of this paragraph. This subdivision shall be interpreted consistently with the classification guidelines established by the federal alcohol and tobacco tax and trade bureau.
7. "Consumer" means a person in this state that comes into possession of any luxury subject to the tax imposed by this chapter and that, on coming into possession of the luxury, is not a distributor intending to sell or distribute the luxury, a retailer or a wholesaler.
8. "Craft distiller" means a distiller in the United States or in a territory or possession of the United States that holds a license pursuant to section 4-205.10.
9. "Distributor" means any person that manufactures, produces, ships, transports or imports into this state or in any manner acquires or possesses for the purpose of making the first sale of the following:
(a) Cigarettes without Arizona tax stamps affixed as required by this article.
(b) Roll-your-own tobacco or other tobacco products on which the taxes have not been paid as required by this chapter.
(c) Nicotine products or vapor products on which the taxes have not been paid as required by this chapter.
10. "Farm winery" has the same meaning prescribed in section 4-101.
11. "First sale" means the initial sale or distribution in intrastate commerce or the initial use or consumption of cigarettes, roll-your-own tobacco, or other tobacco products, nicotine products or vapor products.
12. "Luxury" means any article, object or device on which a tax is imposed under this chapter.
13. "Malt liquor" means any liquid that contains more than one-half of one percent alcohol by volume and that is made by the process of fermentation and not distillation of hops or grains, but not including:
(a) Liquids made by the process of distillation of such substances.
(b) Medicines that are unsuitable for beverage purposes.
14. "Master settlement agreement" has the same meaning prescribed in section 44-7101.
15. "Microbrewery" has the same meaning prescribed in section 4-101.
16. "Nicotine product":
(a) Means any noncombustible product containing nicotine that is intended for human consumption, whether chewed, absorbed, dissolved or ingested by any other means.
(b) Does not include:
(i) A tobacco product.
(ii) a vapor product.
(iii) A drug, device or combination product authorized for sale by the united states food and drug administration, as those terms are defined in the federal food, drug, and cosmetic act (52 Stat. 1040; 21 United States Code section 321) or the regulations adopted pursuant to the federal food, drug, and cosmetic act.
16. 17. "Nonparticipating manufacturer" has the same meaning prescribed in section 44-7111.
17. 18. "Other tobacco products" means tobacco products other than cigarettes and roll-your-own tobacco.
18. 19. "Participating manufacturer" has the same meaning prescribed in section 44-7111.
19. 20. "Person" means any individual, firm, partnership, joint venture, association, corporation, municipal corporation, estate, trust, club, society or other group or combination acting as a unit, and the plural as well as the singular number.
20. 21. "Place of business":
(a) Means a building, facility site or location where an order is received or where tobacco products, nicotine products or vapor products are sold, distributed or transferred. Place of business
(b) Does not include a vehicle.
21. 22. "Retailer" means any person that comes into possession of any luxury subject to the taxes imposed by this chapter for the purpose of selling it for consumption and not for resale.
22. 23. "Roll-your-own tobacco" means any tobacco that, because of its appearance, type, packaging or labeling, is suitable for use and likely to be offered to or purchased by consumers as tobacco for making cigarettes. This paragraph shall be interpreted consistently with the term as used in section 44-7101. This paragraph shall be interpreted consistently with the classification guidelines established by the federal alcohol and tobacco tax and trade bureau.
23. 24. "Smoking tobacco":
(a) Means any tobacco that, because of its appearance, type, packaging, labeling or promotion, is suitable for use and likely to be offered to or purchased by consumers as tobacco for making cigarettes or otherwise consumed by burning. Smoking tobacco
(b) Includes pipe tobacco and roll-your-own tobacco.
24. 25. "Spirituous liquor":
(a) Means any liquid that contains more than one-half of one percent alcohol by volume, that is produced by distillation of any fermented substance and that is used or prepared for use as a beverage. Spirituous liquor
(b) Does not include medicines that are unsuitable for beverage purposes.
25. 26. "Tobacco product manufacturer" has the same meaning prescribed in section 44-7101.
26. 27. "Tobacco products" means all luxuries included in section 42-3052, paragraphs 5 through 9.
28. "vapor product":
(a) means any device that may be used to deliver any aerosolized or vaporized substance to the person who inhales from the device, including an e-cigarette, e-cigar, e-pipe, vape pen or e-hookah.
(b) includes whether or not sold separately:
(i) Any component, part or accessory of the device.
(ii) Any substance that is intended to be aerosolized or vaporized during the use of the device, whether or not the substance contains nicotine.
(c) Does not include:
(i) Marijuana or marijuana products.
(ii) drugs, devices or combination products authorized for sale by the United States food and drug administration, as those terms are defined in the federal food, drug, and cosmetic act (52 Stat. 1040; 21 United States Code section 321) or the regulations adopted pursuant to the federal food, drug, and cosmetic act.
27. 29. "Vehicle" means a device in, on or by which a person or property is or may be transported or drawn on the roads of this state regardless of the means by which it is propelled or whether it runs on a track.
28. 30. "Vinous liquor":
(a) Means any liquid that contains more than one-half of one percent alcohol by volume and that is made by the process of fermentation of grapes, berries, fruits, vegetables or other substances. but
(b) Does not include:
(a) (i) Liquids in which hops or grains are used in the process of fermentation.
(b) (ii) Liquids made by the process of distillation of hops or grains.
(c) (iii) Medicines that are unsuitable for beverage purposes.
29. 31. "Wholesaler" means a person that sells any spirituous, vinous or malt liquor taxed under this chapter to retail dealers or for the purposes of resale only.
Sec. 6. Section 42-3008, Arizona Revised Statutes, is amended to read:
42-3008. Refunds; definitions
A. Except as provided in subsection C of this section, the tax imposed by this chapter on any luxury shall be refunded when the amount of the tax has been paid and when one of the following applies:
1. Proof is made to the department that the luxuries were exported from this state or that the stamps have been affixed to luxuries on which stamps are not required.
2. Proof is made to the department that the luxury becomes unfit for sale due to breakage or spoilage within either six months from the date that the distributor originally receives the luxury for sale or two months from the date that the luxury was returned to the distributor by a retailer, whichever occurs later.
3. Within six months after a distributor returns a luxury to the manufacturer or importer, proof of the return is made to the department.
B. The manner of making proof shall be in accordance with rules adopted by the department.
C. The department shall not refund the tax for stamps that are affixed to luxuries that are deemed contraband under this chapter.
D. Except as otherwise provided in section 42-1123, interest is calculated sixty days after receipt by the department of a claim for refund under this section.
E. For the purposes of this section:
1. "Breakage" means damage to the outer wrapping or container of a tobacco product, nicotine product or vapor product.
2. "Importer" and "manufacturer" have the same meanings prescribed in section 42-3451.
3. "Spoilage" means mutilation, product expiration or unfit for intended consumption.
Sec. 7. Section 42-3051, Arizona Revised Statutes, is amended to read:
42-3051. Levy of tax
In addition to all other taxes, there is levied and imposed and there shall be collected and deposited, pursuant to sections 35-146 and 35-147, in the manner provided by this chapter, taxes on all spirituous, vinous and malt liquors, and on all cigarettes, cigars, smoking tobacco, plug tobacco, snuff and other forms of tobacco and on nicotine products and vapor products, for use as may be prescribed by law.
Sec. 8. Section 42-3052, Arizona Revised Statutes, is amended to read:
42-3052. Classifications of luxuries; rates of tax
The taxes under this chapter are imposed at the following rates:
1. On each sealed container of spirituous liquor at the rate of three dollars $3 per gallon and at a proportionate rate for any lesser or greater quantity than one gallon.
2. On each container of vinous liquor, except cider, of which the alcoholic content is not greater than twenty-four per cent percent by volume at the rate of eighty-four cents $.84 per gallon and at a proportionate rate for any lesser or greater quantity than one gallon.
3. On each container of vinous liquor of which the alcoholic content is greater than twenty-four per cent percent by volume, containing eight ounces or less, twenty-five cents $.25, and for each eight ounces for containers containing more than eight ounces, twenty-five cents $.25.
4. On each gallon of malt liquor or cider, sixteen cents $.16, and at a proportionate rate for any lesser or greater quantity than one gallon.
5. On each cigarette, nine-tenths cent $.009.
6. On smoking tobacco, snuff, fine cut chewing tobacco, cut and granulated tobacco, shorts and refuse of fine cut chewing tobacco, and refuse, scraps, clippings, cuttings and sweepings of tobacco, excluding tobacco powder or tobacco products used exclusively for agricultural or horticultural purposes and unfit for human consumption, two cents $.02 per ounce or major fraction of an ounce.
7. On all cavendish, plug or twist tobacco, one-half cent $.005 per ounce or fractional part of an ounce.
8. On each twenty small cigars or fractional part weighing not more than three pounds per thousand, four cents $.04.
9. On cigars of all descriptions except those included in paragraph 8 of this section, made of tobacco or any tobacco substitute:
(a) If manufactured to retail at not more than five cents $.05 each, two cents $.02 on each three cigars.
(b) If manufactured to retail at more than five cents $.05 each, two cents $.02 on each cigar.
10. On each nicotine product and vapor product, fifty percent of the wholesale price.
Sec. 9. Section 42-3053, Arizona Revised Statutes, is amended to read:
42-3053. Method of payment; receipts; electronic filings of returns, reports and other documents; license applications and requests for refund or rebate; definition
A. All orders for the purchase or receipt of tax stamps required under this chapter must be submitted pursuant to an electronic filing program established by the department. Except as provided in subsection B of this section, all remittances of taxes for the purchase of Arizona tax stamps imposed by this chapter shall be made by electronic funds transfer to the department in monies that are immediately available to this state on the date of transfer. A remittance other than cash does not constitute a final discharge of liability for the tax levied by this chapter until it has been paid in cash to the department.
B. Any distributor remitting any taxes levied under section 42-3302 or under this chapter on any tobacco product other than cigarettes or on any nicotine product or vapor product that is subject to tax under this chapter is required to pay the tax liability on or before the payment date in monies that are immediately available to this state on the date of transfer. The payment in immediately available monies must be made by electronic funds transfer and with the state treasurer's approval. The distributor must furnish evidence as prescribed by the department that the payment was remitted on or before the payment due date.
C. A person is required to electronically file any report, return or other document required under this chapter pursuant to an electronic filing program established by the department. The report, return or other document is deemed filed and received by the department on the date of the electronic postmark pursuant to section 42-1105.02.
D. An application for a license issued pursuant to section 42-3401 and any request for a refund or rebate of taxes paid on tobacco products, nicotine products or vapor products made pursuant to section 42-3406 must be submitted pursuant to an electronic filing program established by the department. The application or request is considered to be filed and received by the department on the date of the electronic postmark pursuant to section 42-1105.02. The department may not consider applications or requests that fail to comply with this subsection. An applicant shall pay the application fee required under section 42-3401 to the department by electronic funds transfer.
E. A distributor who is required to make payment by electronic funds transfer under this chapter and who fails to do so is subject to the civil penalties prescribed by section 42-1125, subsection O. A distributor who fails to make a timely payment in immediately available monies as prescribed by this section is subject to civil penalties prescribed by section 42-1125, subsection D. A person who is required to electronically file any report, return or document under this chapter but fails to do so is subject to the civil penalty prescribed by section 42-1125, subsection K.
F. For the purposes of this section, "electronic filing program" has the same meaning prescribed in section 42-1105.02.
Sec. 10. Title 42, chapter 3, article 3, Arizona Revised Statutes, is amended by adding section 42-3107, to read:
42-3107. Monies collected from nicotine products and vapor products
Notwithstanding section 42-3102, monies collected pursuant to section 42-3052, paragraph 10 shall be deposited as follows:
1. forty percent in the state general fund.
2. sixty percent in the early childhood development and health fund established by section 8-1181. Monies deposited pursuant to this paragraph shall be allocated as follows:
(a) seventy percent DEPOSITED in the same manner as monies deposited in the early childhood development and health fund pursuant to section 8-1181, subsection D.
(b) thirty percent deposited in the grant monies account established by section 8-1181, subsection B for the purposes of improving the quality of and increasing access to early childhood education programs.
Sec. 11. Heading change
The article heading of title 42, chapter 3, article 10, Arizona Revised Statutes, is changed from "DISTRIBUTORS AND RETAILERS OF TOBACCO PRODUCTS" to "DISTRIBUTORS AND RETAILERS OF TOBACCO PRODUCTS, NICOTINE PRODUCTS AND VAPOR PRODUCTS".
Sec. 12. Section 42-3401, Arizona Revised Statutes, is amended to read:
42-3401. Tobacco product, nicotine product and vapor product distributor licenses; application; conditions; revocations and cancellations
A. Every person acquiring or possessing for the purpose of making the initial sale or distribution in this state of any tobacco products, nicotine products or vapor products on which a tax is imposed by this chapter shall obtain from the department a license to sell tobacco products, nicotine products or vapor products. The application for the license shall be in the form provided by the department and shall be accompanied by a fee of $25 for each place of business listed in the application. The form shall state that the identity of the applicant will be posted to the department's website for public inspection. The application for a license shall include the applicant's name and address, the applicant's principal place of business, all other places of business where the applicant's business is conducted for the purpose of making the initial sale or distribution of tobacco products, nicotine products or vapor products in this state, including any location that maintains an inventory of tobacco products, nicotine products or vapor products, and any other information required by the department. The applicant's principal place of business and other business locations may not include a residential location or post office box address, except as allowed under subsection D, paragraph 2, subdivision (c) of this section. If the applicant is a firm, partnership, limited liability company, limited liability partnership or association, the applicant shall list the name and address of each of the applicant's members. If the applicant is a corporation, the application shall list the name and address of the applicant's officers and any person who directly or indirectly owns an aggregate amount of ten percent or more of the ownership interest in the corporation. If a licensee is a corporation, firm, partnership, limited liability company, limited liability partnership or association, the licensee under this subsection shall notify the department in writing within thirty days after any change in membership, legal entity status or ownership of more than fifty percent of the total ownership interest in a single transaction. If a licensee changes its business location, the licensee under this subsection shall notify the department within thirty days after a change in location. If the licensee is making a change in its business location by adding or replacing one or more additional places of business that are not currently listed on its application, the licensee must remit a fee of $25 for each additional place of business.
B. For the purposes of subsection A of this section, an applicant with a controlling interest in more than one business engaged in activities as a distributor shall apply for a single license encompassing all such businesses and list each place of business in its application. For the purposes of this subsection, "controlling interest" means direct or indirect ownership of at least eighty percent of the voting shares of a corporation or of the interests in a company, business or person other than a corporation.
C. The department shall issue a license authorizing the applicant to acquire or possess tobacco products, nicotine products or vapor products in this state on the condition that the applicant complies with this chapter and the rules of the department. The department may issue separate licenses for tobacco products, nicotine products and vapor products and may charge the fees prescribed in subsection A of this section for each license or issue a single license for tobacco products, nicotine products or vapor products. The license:
1. Shall be nontransferable. A licensee may not transfer its license to a new owner when selling its business, and any court-appointed trustee, receiver or other person shall obtain a license in its own name in cases of liquidation, insolvency or bankruptcy or pursuant to a court order if the business remains in operation as a distributor of tobacco products, nicotine products or vapor products. In cases of liquidation, insolvency or bankruptcy or pursuant to a court order, the department will not consider a business as remaining in operation under this paragraph if the court-appointed trustee, receiver or other person winds up the business within sixty days after the order is issued. A licensee shall apply for a new license if it changes its legal entity status or otherwise changes the legal structure of its business.
2. Shall be valid for one year unless earlier canceled or revoked by the department.
3. Shall be displayed in a conspicuous place at the licensee's place of business. If the licensee operates from more than one place of business, the licensee must display a copy of its license in a conspicuous place at each location.
D. As a condition of licensure under this section, an applicant agrees to the following conditions:
1. A person may not hold or store any tobacco products, nicotine products or vapor products, whether within or outside of this state, for sale or distribution in this state by or on behalf of a distributor at any place other than a location that has been disclosed to the department pursuant to subsection A of this section. This paragraph does not include a person holding or storing tobacco products, nicotine products or vapor products by or on behalf of the distributor when the tobacco products, nicotine products or vapor products are in transit to a distributor or retailer as part of a lawful sale.
2. All tobacco products, nicotine products or vapor products held or stored, whether within or outside of this state, for sale or distribution in this state by or on behalf of a distributor:
(a) Shall be accessible to the department during normal business hours without a judicial warrant or prior written consent of the distributor.
(b) May not be held or stored in a vehicle, except as allowed under section 42-3403, subsection B.
3. Tobacco products, nicotine products or vapor products may be sold, transferred or distributed to a retailer located on an Indian reservation in this state only if the retailer is registered with, and has a registration identification number issued by, the department.
E. A person who is convicted of an offense described in section 42-1127, subsection E is permanently ineligible to hold a license issued under this section.
F. The department may not issue or renew a license to an applicant and may revoke a license issued under subsection C of this section if any of the following applies:
1. The applicant or licensee owes $1,000 or more in delinquent taxes imposed on tobacco products, nicotine products or vapor products under this chapter that are not under protest or subject to a payment agreement.
2. The department has revoked any license held by the applicant or licensee within the previous two years.
3. The applicant or licensee has been convicted of a crime that relates to stolen or counterfeit cigarettes.
4. The applicant or licensee has imported cigarettes into the United States for sale or distribution in violation of 19 United States Code section 1681a.
5. The applicant or licensee has imported cigarettes into the United States for sale or distribution without fully complying with the federal cigarette labeling and advertising act (P.L. 89-92; 79 Stat. 282; 15 United States Code section 1331).
6. The applicant or licensee is in violation of section 13-3711 or section 36-798.06, subsection A.
7. Pursuant to section 44-7111, section 6(a), the applicant or licensee is in violation of section 44-7111, section 3(c).
8. The civil rights of the applicant or licensee have been suspended under section 13-904. An applicant or licensee whose civil rights have been suspended is ineligible to hold a license for a period of five years following the restoration of the applicant's or licensee's civil rights.
G. In addition to any other civil or criminal penalty and except as otherwise provided in this section, the department may deny the issuance or renewal of or revoke a license issued under subsection C of this section if the person violates any requirement under this title more than two times within a three-year period or fails to otherwise maintain the conditions of licensure in this section.
H. The department shall publish on its website the names of each person who is issued a license under subsection C of this section, including any trade names or business names used by the licensee. The department shall update the published names at least once each month.
I. A person may not apply for or hold a distributor's license if that person does not engage in the activities described in subsection A of this section. In addition to any other applicable penalty, the department may cancel the license of any licensee that fails to incur any tax liability under this chapter for twelve consecutive months.
J. Any revocation, cancellation or denial of a license issued under this section by the department must comply with section 41-1092.11, subsection B.
K. Notwithstanding any other law, for the purposes of subsection F, paragraphs 1 and 2 of this section, section 42-1127, subsection C and section 42-3461, subsection B, if a distributor has listed in its application more than one place of business, any revocation, cancellation, denial or nonrenewal of the distributor's license shall apply only with effect to remove the place of business or business location at which the activity occurred from the distributor's license. If such a removal occurs, the distributor shall be subject to restrictions that the department prescribes by rule.
Sec. 13. Section 42-3403, Arizona Revised Statutes, is amended to read:
42-3403. Tobacco product, nicotine product and vapor product retailers; vehicle as place of business prohibited; exceptions
A. A retailer may sell any tobacco product, nicotine product or vapor product that is not otherwise prohibited by federal or state law from sale for resale, but a retailer may not acquire or possess unstamped cigarettes, or other tobacco products, or cigarettes, nicotine products or vapor products on which taxes levied under this chapter have not been paid, unless the retailer holds a valid license issued under section 42-3401.
B. A person may not use a vehicle as a place of business for selling, transferring or otherwise distributing tobacco products, nicotine products or vapor products. This subsection does not prohibit the lawful delivery of other tobacco products, nicotine products or vapor products by a person who holds a valid license issued under section 42-3401, or by that person's representative, using a vehicle that is owned, operated or contracted by that person or that person's representative. That person or that person's representative is expressly allowed to use such a vehicle to carry and store tax-paid other tobacco products, nicotine products or vapor products in the normal course of performing the person's or the person's representative's duties, including for the purpose of selling other tobacco products, nicotine products or vapor products to, and performing similar lawful transactions with, retailers and distributors. If a vehicle is used by a licensed distributor to carry and store tax-paid other tobacco products, nicotine products or vapor products, as a condition of licensure, the distributor shall provide written consent and allow access to the department to inspect the stock of luxuries and all books, papers, invoices, records and electronically stored data showing sales, receipts and purchases of luxuries. The distributor shall submit the written consent to the department with the license application or on demand of the department.
C. This section does not prohibit business activities that are allowed under sections 42-3454 and 42-3502 for both taxed and untaxed tobacco products, nicotine products or vapor products.
Sec. 14. Section 42-3404, Arizona Revised Statutes, is amended to read:
42-3404. Exemptions and exclusions of certain tobacco products, nicotine products and vapor products from tobacco taxes and nicotine products and vapor products taxes
A. The taxes imposed by this chapter do not apply to:
1. Tobacco products that are sold to the United States army, air force, navy, marine corps or coast guard exchanges and commissaries and navy or coast guard ships' stores.
2. Tobacco products that are sold to the United States department of veterans affairs.
3. Tobacco products that are non-tax-paid under subtitle E, chapter 52 of the internal revenue code and that are under internal revenue bond or customs control.
4. Tobacco products that are sold or transferred to a law enforcement agency for use in a criminal investigation if the sale or transfer is authorized by the department. A law enforcement agency authorized by the department to receive or purchase tobacco products is not required to:
(a) Be licensed as a distributor.
(b) Collect or remit the tax imposed by this chapter with respect to authorized distributions.
5. Tobacco products that are sold by a distributor licensed under section 42-3401 to a common carrier engaged in foreign passenger service or to a retailer that sells tobacco products on the facilities of the carrier that are dedicated to foreign passenger service.
6. Federally tax free tobacco products that are sold or given for delivery directly from the manufacturer under internal revenue bond to a veterans' home of this state or a hospital or domiciliary facility of the United States department of veterans affairs for gratuitous issue to veterans receiving hospitalization or domiciliary care. The taxes are not imposed with respect to the use or consumption of the tobacco products by the institution, veteran patients or domiciliaries.
7. Tobacco products that are sold by a manufacturer to a distributor licensed under section 42-3401.
8. Tobacco products that are manufactured outside the United States and that are sold by an importer to a distributor licensed under section 42-3401.
b. The taxes imposed by this chapter do not apply to nicotine products or vapor products to the same extent that taxes do not apply to tobacco products as described in subsection A of this section.
B. C. Subsection A, paragraphs 1 and 2 of this section do not apply after the first day of the first calendar month beginning more than sixty days after existing federal law is amended to permit state taxation of cigarettes sold by or through federal military installations.
C. D. Sales of tobacco products, nicotine products or vapor products by a licensed distributor to an instrumentality of the United States government must be supported by a separate sales invoice and a properly completed federal exemption certificate. Each sales invoice must be numbered, be dated and show the name of the seller, the name of the purchaser and the destination.
D. E. This section does not affect the imposition of transaction privilege and use taxes pursuant to chapter 5 of this title to any transactions described in subsection A or B of this section if the transaction is otherwise subject to transaction privilege tax or use tax.
E. F. The exemptions and exclusions provided in subsection A or B of this section do not affect the taxability under this chapter of tobacco products, nicotine products or vapor products that are sold, given or transferred to a person in this state subsequent to the transactions described in subsection A or B of this section.
Sec. 15. Section 42-3405, Arizona Revised Statutes, is amended to read:
42-3405. Tobacco product, nicotine product and vapor product manufacturers, importers, distributors and retailers; recordkeeping and invoicing requirements; retention period
A. Except for retail transactions with consumers, each manufacturer, importer and distributor of tobacco products, nicotine products and vapor products shall maintain copies of invoices or equivalent documentation for each facility and for each transaction that involves the sale, purchase, transfer, consignment or receipt of tobacco products, nicotine products or vapor products within this state. The invoices or equivalent documentation for each transaction shall be in the form and manner prescribed by the department and shall indicate the name and address of the other party and the quantity by brand style of the tobacco products, nicotine products or vapor products involved in the transaction.
B. A distributor of tobacco products, nicotine products or vapor products shall issue an invoice or equivalent documentation for each transaction that involves the sale, purchase or consignment of tobacco products to a retailer. The invoice or equivalent documentation must include the license number of the distributor, which the retailer may use to ascertain whether the license is current and valid.
C. Any retailer of tobacco products, nicotine products or vapor products shall retain all invoices or equivalent documentation received under subsection B of this section.
D. Records required under this section shall be preserved on the premises described in the relevant license in a manner as to ensure accessibility for inspection at reasonable hours by authorized personnel of the department. With the department's permission, persons with multiple places of business may retain centralized records, but shall transmit duplicates of the invoices or the equivalent documentation to each place of business within three business days after a request by the department.
E. The records required by this section shall be retained for a period of four years after the date of the transaction.
F. On request, the department and the United States secretary of the treasury or secretary's designee shall have access to records required under this section and reports required under section 42-3462. The department at its sole discretion may share the records and reports required by this chapter with other law enforcement officials of federal and state governments under conditions that assume the confidentiality of taxpayer information contained in the records and reports.
Sec. 16. Section 42-3406, Arizona Revised Statutes, is amended to read:
42-3406. Refunds and rebates of tobacco taxes and nicotine products and vapor products taxes; supporting documentation; distributor's burden of proof
A. Except as otherwise provided under subsection B of this section or by the department for a refund or redemption under section 42-3008 or 42-3460, a distributor requesting any refund or rebate of taxes paid on tobacco products, nicotine products or vapor products pursuant to article 2, 6, 7 or 9 of this chapter shall establish entitlement to the refund or rebate by obtaining a report executed by the retailer that purchased the tobacco products, nicotine products or vapor products on which the distributor paid taxes, indicating the name and address of the retailer and the quantities of tobacco products, nicotine products or vapor products sold, separately identified by the tax category of tobacco product, nicotine product or vapor product and the necessary facts to establish the appropriate amount of refund or rebate. The report is subject to the following conditions:
1. The report shall be provided in the form and manner prescribed by the department. Under such rules as it may prescribe, the department may identify transactions for which a distributor may not rely solely on the information in the retailer's report but must instead obtain additional information as required by the rules in order to be entitled to the refund or rebate.
2. The burden of proof for the refund or rebate is on the distributor, but if the distributor complies in all other respects with this section, the department may require the retailer that caused the execution of the report to establish the accuracy and completeness of the information required to be contained in the report that would entitle the distributor to the refund or rebate. If the retailer cannot establish the accuracy and completeness of the information, the retailer is liable in an amount equal to any tax, penalty and interest that the distributor would have been liable for under this chapter if the distributor had not otherwise complied with this section. Payment of the amount under this section by the retailer exempts the distributor from liability for the underlying tax, penalty and interest. All amounts paid by a retailer under this paragraph shall be treated as tax revenues collected from the distributor in order to designate the distribution base for the purposes of this chapter.
B. In its discretion and in circumstances in which a retailer is uncooperative, nonresponsive or no longer in business, the department may accept proof other than a report described in subsection A of this section if the distributor shows, to the satisfaction of the department, that it exercised ordinary business care and prudence but was unable to furnish a report executed by the retailer. Acceptable forms of proof presented by the distributor pursuant to this subsection must consist of books, records or papers maintained by the distributor or retailer in the regular course of business.
Sec. 17. Heading change
The article heading of title 42, chapter 3, article 12, Arizona Revised Statutes, is changed from "TOBACCO PRODUCTS OTHER THAN CIGARETTES" to "TOBACCO PRODUCTS OTHER THAN CIGARETTES, NICOTINE PRODUCTS AND VAPOR PRODUCTS".
Sec. 18. Section 42-3501, Arizona Revised Statutes, is amended to read:
42-3501. Return and payment by distributors of tobacco products, nicotine products or vapor products other than cigarettes
A. Except for tobacco products described in section 42-3402, every distributor of tobacco products other than cigarettes, nicotine products or vapor products shall pay the tax imposed by this chapter on all those products received within the THIS state and shall add the amount of the tax to the sales price.
B. The distributor shall pay the tax to the department monthly on or before the twentieth day of the month next succeeding the month in which the tax accrues.
C. On or before that date the distributor shall prepare a sworn return for the month in which the tax accrues in the form prescribed by the department, showing:
1. The amount of tobacco products other than cigarettes, nicotine products or vapor products received in this state during the month in which the tax accrues.
2. The amount of tax for the period covered by the return.
3. Any other information the department deems necessary for the proper administration of this chapter, including information required for roll-your-own tobacco provided under section 42-3462.
D. The distributor shall deliver the return, together with a remittance of the amount of the tax due, to the department.
E. A taxpayer who fails to pay the tax within ten days of after the date on which the payment becomes due is subject to and shall pay a penalty determined under section 42-1125 plus interest at the rate determined pursuant to section 42-1123 from the time the tax was due and payable until paid.
Sec. 19. Section 42-3502, Arizona Revised Statutes, is amended to read:
42-3502. Transport of untaxed other tobacco products, nicotine products or vapor products prohibited; exceptions; definition
A. Except as allowed in section 42-3403, a person may not hold, store or transport untaxed other tobacco products, nicotine products or vapor products for sale or distribution in this state in any vehicle.
B. This section does not apply to either of the following:
1. A vehicle that is owned, operated or contracted by a person who holds a valid license issued under section 42-3401 and is transporting untaxed other tobacco products, nicotine products or vapor products from one to another of the licensee's places of business listed on its application.
2. A vehicle that is transporting untaxed other tobacco products, nicotine products or vapor products to a licensed distributor as part of a lawful sale or in interstate commerce to a person lawfully operating as a manufacturer, distributor or retailer of other tobacco products, nicotine products or vapor products.
C. For the purposes of this section, "untaxed other tobacco products, nicotine products or vapor products" means other tobacco products, nicotine products or vapor products on which applicable taxes have not been remitted pursuant to this chapter.
Sec. 20. Title 42, chapter 3, article 12, Arizona Revised Statutes, is amended by adding section 42-3504, to read:
42-3504. Acquisition and possession of untaxed nicotine products and vapor products
A. A person, other than a manufacturer or an importer shipping into this state, shall be licensed as a distributor if the person acquires or possesses untaxed nicotine products or vapor products for sale, barter or exchange or for any other purpose besides or in addition to personal use or consumption in this state, including Indian reservations in this state.
B. A distributor shall obtain nicotine products and vapor products only from a manufacturer or an importer or a distributer with a current license issued under section 42-3401.
Sec. 21. Exemption from rulemaking
Notwithstanding any other law, for the purposes of this act, the department of revenue is exempt from the rulemaking requirements of title 41, chapter 6, Arizona Revised Statutes, for one year after the effective date of this act.
Sec. 22. Applicability
This act applies to taxable periods beginning on or after December 31, 2025.
Sec. 23. Requirements for enactment; two-thirds vote
Pursuant to article IX, section 22, Constitution of Arizona, this act is effective only on the affirmative vote of at least two-thirds of the members of each house of the legislature and is effective immediately on the signature of the governor or, if the governor vetoes this act, on the subsequent affirmative vote of at least three-fourths of the members of each house of the legislature.
