Bill Text: AZ HCR2057 | 2012 | Fiftieth Legislature 2nd Regular | Introduced

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Bill Title: Tax deductions; exemptions; credits; repeal

Spectrum: Partisan Bill (Democrat 2-0)

Status: (Introduced - Dead) 2012-02-09 - Referred to House WM Committee [HCR2057 Detail]

Download: Arizona-2012-HCR2057-Introduced.html

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REFERENCE TITLE: tax deductions; exemptions; credits; repeal

 

 

 

State of Arizona

House of Representatives

Fiftieth Legislature

Second Regular Session

2012

 

 

HCR 2057

 

Introduced by

Representatives Chabin, Farley

 

 

A CONCURRENT RESOLUTION

 

Enacting and ordering the submission to the people of a measure relating to taxation.

 

 

(TEXT OF BILL BEGINS ON NEXT PAGE)

 

Be it resolved by the House of Representatives of the State of Arizona, the Senate concurring:

1.  Under the power of the referendum, as vested in the Legislature, the following measure, relating to taxation, is enacted to become valid as a law if approved by the voters and on proclamation of the Governor:

AN ACT

Amending Title 42, chapter 5, article 1, Arizona Revised Statutes, by adding section 42-5039; Amending sections 42-5061, 42-5062, 42-5063, 42-5064, 42‑5065, 42-5066, 42-5067, 42-5069, 42-5070, 42‑5071, 42-5072, 42-5073, 42‑5074, 42‑5075, 42-5102, 42-5159, 43-223, 43-1071, 43-1072, 43-1072.01, 43-1073 and 43‑1074, Arizona Revised Statutes; amending section 43‑1074.01, Arizona Revised Statutes, as amended by laws 2011, second special session, chapter 1, sections 96 and 97; amending sections 43-1077, 43-1078, 43-1079, 43-1079.01, 43-1081, 43‑1081.01, 43-1083, 43-1083.02, 43-1084, 43-1087, 43-1088, 43‑1089, 43-1089.01, 43-1089.02, 43-1090, 43-1161, 43-1164.03, 43-1165, 43-1166, 43‑1167 and 43-1167.01, arizona revised statutes; amending section 43-1168, Arizona revised statutes, as amended by laws 2011, second special session, chapter 1, sections 113 and 114; amending sections 43-1170, 43-1170.01, 43‑1175, 43‑1176, 43-1178, 43-1181, 43-1183 and 43-1184, Arizona Revised Statutes; relating to taxation.

Be it enacted by the Legislature of the State of Arizona:

Section 1.  Title 42, chapter 5, article 1, Arizona Revised Statutes, is amended by adding section 42-5039, to read:

START_STATUTE42-5039.  Requirements for new transaction privilege or use tax deductions and exemptions established by the legislature

Any new transaction privilege or use tax deduction or exemption that is established by the legislature under this chapter shall include in its enabling legislation a specific repeal date for the deduction or exemption.  The specific repeal date shall be from and after December 31 of the seventh full calendar year following the date the deduction or exemption is enacted. END_STATUTE

Sec. 2.  Section 42-5061, Arizona Revised Statutes, is amended to read:

START_STATUTE42-5061.  Retail classification; definitions

A.  The retail classification is comprised of the business of selling tangible personal property at retail.  The tax base for the retail classification is the gross proceeds of sales or gross income derived from the business.  The tax imposed on the retail classification does not apply to the gross proceeds of sales or gross income from:

1.  Professional or personal service occupations or businesses which involve sales or transfers of tangible personal property only as inconsequential elements.

2.  Services rendered in addition to selling tangible personal property at retail.

3.  Sales of warranty or service contracts.  The storage, use or consumption of tangible personal property provided under the conditions of such contracts is subject to tax under section 42‑5156.

4.  Sales of tangible personal property by any nonprofit organization organized and operated exclusively for charitable purposes and recognized by the United States internal revenue service under section 501(c)(3) of the internal revenue code.

5.  Sales to persons engaged in business classified under the restaurant classification of articles used by human beings for food, drink or condiment, whether simple, mixed or compounded.

6.  Business activity which is properly included in any other business classification which is taxable under this article.

7.  The sale of stocks and bonds.

8.  Drugs and medical oxygen, including delivery hose, mask or tent, regulator and tank, on the prescription of a member of the medical, dental or veterinarian profession who is licensed by law to administer such substances.

9.  Prosthetic appliances as defined in section 23‑501 prescribed or recommended by a health professional who is licensed pursuant to title 32, chapter 7, 8, 11, 13, 14, 15, 16, 17 or 29.

10.  Insulin, insulin syringes and glucose test strips.

11.  Prescription eyeglasses or contact lenses.

12.  Hearing aids as defined in section 36‑1901.

13.  Durable medical equipment which has a centers for medicare and medicaid services common procedure code, is designated reimbursable by medicare, is prescribed by a person who is licensed under title 32, chapter 7, 8, 13, 14, 15, 17 or 29, can withstand repeated use, is primarily and customarily used to serve a medical purpose, is generally not useful to a person in the absence of illness or injury and is appropriate for use in the home.

14.  Sales to nonresidents of this state for use outside this state if the vendor ships or delivers the tangible personal property out of this state.

15.  Food, as provided in and subject to the conditions of article 3 of this chapter and section 42‑5074.

16.  Items purchased with United States department of agriculture food stamp coupons issued under the food stamp act of 1977 (P.L. 95‑113; 91 Stat. 958) or food instruments issued under section 17 of the child nutrition act (P.L. 95‑627; 92 Stat. 3603; P.L. 99‑661, section 4302; 42 United States Code section 1786).

17.  Textbooks by any bookstore that are required by any state university or community college.

18.  Food and drink to a person who is engaged in business which is classified under the restaurant classification and which provides such food and drink without monetary charge to its employees for their own consumption on the premises during the employees' hours of employment.

19.  Articles of food, drink or condiment and accessory tangible personal property to a school district or charter school if such articles and accessory tangible personal property are to be prepared and served to persons for consumption on the premises of a public school within the district or on the premises of the charter school during school hours.

20.  Lottery tickets or shares pursuant to title 5, chapter 5, article 1.

21.  The sale of precious metal bullion and monetized bullion to the ultimate consumer, but the sale of coins or other forms of money for manufacture into jewelry or works of art is subject to the tax.  For the purposes of this paragraph:

(a)  "Monetized bullion" means coins and other forms of money which are manufactured from gold, silver or other metals and which have been or are used as a medium of exchange in this or another state, the United States or a foreign nation.

(b)  "Precious metal bullion" means precious metal, including gold, silver, platinum, rhodium and palladium, which has been smelted or refined so that its value depends on its contents and not on its form.

22.  Motor vehicle fuel and use fuel that are subject to a tax imposed under title 28, chapter 16, article 1, sales of use fuel to a holder of a valid single trip use fuel tax permit issued under section 28‑5739, sales of aviation fuel that are subject to the tax imposed under section 28‑8344 and sales of jet fuel that are subject to the tax imposed under article 8 of this chapter.

23.  Tangible personal property sold to a person engaged in the business of leasing or renting such property under the personal property rental classification if such property is to be leased or rented by such person.

24.  Tangible personal property sold in interstate or foreign commerce if prohibited from being so taxed by the Constitution of the United States or the constitution of this state.

25.  Tangible personal property sold to:

(a)  A qualifying hospital as defined in section 42‑5001.

(b)  A qualifying health care organization as defined in section 42‑5001 if the tangible personal property is used by the organization solely to provide health and medical related educational and charitable services.

(c)  A qualifying health care organization as defined in section 42‑5001 if the organization is dedicated to providing educational, therapeutic, rehabilitative and family medical education training for blind, visually impaired and multihandicapped children from the time of birth to age twenty‑one.

(d)  A qualifying community health center as defined in section 42‑5001.

(e)  A nonprofit charitable organization that has qualified under section 501(c)(3) of the internal revenue code and that regularly serves meals to the needy and indigent on a continuing basis at no cost.

(f)  For taxable periods beginning from and after June 30, 2001, a nonprofit charitable organization that has qualified under section 501(c)(3) of the internal revenue code and that provides residential apartment housing for low income persons over sixty‑two years of age in a facility that qualifies for a federal housing subsidy, if the tangible personal property is used by the organization solely to provide residential apartment housing for low income persons over sixty‑two years of age in a facility that qualifies for a federal housing subsidy.

26.  Magazines or other periodicals or other publications by this state to encourage tourist travel.

27.  Tangible personal property sold to a person that is subject to tax under this article by reason of being engaged in business classified under the prime contracting classification under section 42‑5075, or to a subcontractor working under the control of a prime contractor that is subject to tax under article 1 of this chapter, if the property so sold is any of the following:

(a)  Incorporated or fabricated by the person into any real property, structure, project, development or improvement as part of the business.

(b)  Used in environmental response or remediation activities under section 42‑5075, subsection B, paragraph 6.

(c)  Incorporated or fabricated by the person into any lake facility development in a commercial enhancement reuse district under conditions prescribed for the deduction allowed by section 42‑5075, subsection B, paragraph 8.

28.  The sale of a motor vehicle to:

(a)  A nonresident of this state if the purchaser's state of residence does not allow a corresponding use tax exemption to the tax imposed by article 1 of this chapter and if the nonresident has secured a special ninety day nonresident registration permit for the vehicle as prescribed by sections 28‑2154 and 28‑2154.01.

(b)  An enrolled member of an Indian tribe who resides on the Indian reservation established for that tribe.

29.  Tangible personal property purchased in this state by a nonprofit charitable organization that has qualified under section 501(c)(3) of the United States internal revenue code and that engages in and uses such property exclusively in programs for mentally or physically handicapped persons if the programs are exclusively for training, job placement, rehabilitation or testing.

30.  Sales of tangible personal property by a nonprofit organization that is exempt from taxation under section 501(c)(3), 501(c)(4) or 501(c)(6) of the internal revenue code if the organization is associated with a major league baseball team or a national touring professional golfing association and no part of the organization's net earnings inures to the benefit of any private shareholder or individual.

31.  Sales of commodities, as defined by title 7 United States Code section 2, that are consigned for resale in a warehouse in this state in or from which the commodity is deliverable on a contract for future delivery subject to the rules of a commodity market regulated by the United States commodity futures trading commission.

32.  Sales of tangible personal property by a nonprofit organization that is exempt from taxation under section 501(c)(3), 501(c)(4), 501(c)(6), 501(c)(7) or 501(c)(8) of the internal revenue code if the organization sponsors or operates a rodeo featuring primarily farm and ranch animals and no part of the organization's net earnings inures to the benefit of any private shareholder or individual.

33.  Sales of seeds, seedlings, roots, bulbs, cuttings and other propagative material to persons who use those items to commercially produce agricultural, horticultural, viticultural or floricultural crops in this state.

34.  Machinery, equipment, technology or related supplies that are only useful to assist a person who is physically disabled as defined in section 46‑191, has a developmental disability as defined in section 36‑551 or has a head injury as defined in section 41‑3201 to be more independent and functional.

35.  Sales of tangible personal property that is shipped or delivered directly to a destination outside the United States for use in that foreign country.

36.  Sales of natural gas or liquefied petroleum gas used to propel a motor vehicle.

37.  Paper machine clothing, such as forming fabrics and dryer felts, sold to a paper manufacturer and directly used or consumed in paper manufacturing.

38.  Coal, petroleum, coke, natural gas, virgin fuel oil and electricity sold to a qualified environmental technology manufacturer, producer or processor as defined in section 41‑1514.02 and directly used or consumed in the generation or provision of on-site power or energy solely for environmental technology manufacturing, producing or processing or environmental protection.  This paragraph shall apply for twenty full consecutive calendar or fiscal years from the date the first paper manufacturing machine is placed in service.  In the case of an environmental technology manufacturer, producer or processor who does not manufacture paper, the time period shall begin with the date the first manufacturing, processing or production equipment is placed in service.

39.  Sales of liquid, solid or gaseous chemicals used in manufacturing, processing, fabricating, mining, refining, metallurgical operations, research and development and, beginning on January 1, 1999, printing, if using or consuming the chemicals, alone or as part of an integrated system of chemicals, involves direct contact with the materials from which the product is produced for the purpose of causing or permitting a chemical or physical change to occur in the materials as part of the production process.  This paragraph does not include chemicals that are used or consumed in activities such as packaging, storage or transportation but does not affect any deduction for such chemicals that is otherwise provided by this section.  For the purposes of this paragraph, "printing" means a commercial printing operation and includes job printing, engraving, embossing, copying and bookbinding.

40.  Through December 31, 1994, personal property liquidation transactions, conducted by a personal property liquidator.  From and after December 31, 1994, personal property liquidation transactions shall be taxable under this section provided that nothing in this subsection shall be construed to authorize the taxation of casual activities or transactions under this chapter.  For the purposes of this paragraph:

(a)  "Personal property liquidation transaction" means a sale of personal property made by a personal property liquidator acting solely on behalf of the owner of the personal property sold at the dwelling of the owner or upon the death of any owner, on behalf of the surviving spouse, if any, any devisee or heir or the personal representative of the estate of the deceased, if one has been appointed.

(b)  "Personal property liquidator" means a person who is retained to conduct a sale in a personal property liquidation transaction.

41.  Sales of food, drink and condiment for consumption within the premises of any prison, jail or other institution under the jurisdiction of the state department of corrections, the department of public safety, the department of juvenile corrections or a county sheriff.

42.  A motor vehicle and any repair and replacement parts and tangible personal property becoming a part of such motor vehicle sold to a motor carrier who is subject to a fee prescribed in title 28, chapter 16, article 4 and who is engaged in the business of leasing or renting such property.

43.  Livestock and poultry feed, salts, vitamins and other additives for livestock or poultry consumption that are sold to persons who are engaged in producing livestock, poultry, or livestock or poultry products or who are engaged in feeding livestock or poultry commercially.  For the purposes of this paragraph, "poultry" includes ratites.

44.  Sales of implants used as growth promotants and injectable medicines, not already exempt under paragraph 8 of this subsection, for livestock or poultry owned by or in possession of persons who are engaged in producing livestock, poultry, or livestock or poultry products or who are engaged in feeding livestock or poultry commercially.  For the purposes of this paragraph, "poultry" includes ratites.

45.  Sales of motor vehicles at auction to nonresidents of this state for use outside this state if the vehicles are shipped or delivered out of this state, regardless of where title to the motor vehicles passes or its free on board point.

46.  Tangible personal property sold to a person engaged in business and subject to tax under the transient lodging classification if the tangible personal property is a personal hygiene item or articles used by human beings for food, drink or condiment, except alcoholic beverages, which are furnished without additional charge to and intended to be consumed by the transient during the transient's occupancy.

47.  Sales of alternative fuel, as defined in section 1‑215, to a used oil fuel burner who has received a permit to burn used oil or used oil fuel under section 49‑426 or 49‑480.

48.  Sales of materials that are purchased by or for publicly funded libraries including school district libraries, charter school libraries, community college libraries, state university libraries or federal, state, county or municipal libraries for use by the public as follows:

(a)  Printed or photographic materials, beginning August 7, 1985.

(b)  Electronic or digital media materials, beginning July 17, 1994.

49.  Tangible personal property sold to a commercial airline and consisting of food, beverages and condiments and accessories used for serving the food and beverages, if those items are to be provided without additional charge to passengers for consumption in flight.  For the purposes of this paragraph, "commercial airline" means a person holding a federal certificate of public convenience and necessity or foreign air carrier permit for air transportation to transport persons, property or United States mail in intrastate, interstate or foreign commerce.

50.  Sales of alternative fuel vehicles if the vehicle was manufactured as a diesel fuel vehicle and converted to operate on alternative fuel and equipment that is installed in a conventional diesel fuel motor vehicle to convert the vehicle to operate on an alternative fuel, as defined in section 1‑215.

51.  Sales of any spirituous, vinous or malt liquor by a person that is licensed in this state as a wholesaler by the department of liquor licenses and control pursuant to title 4, chapter 2, article 1.

52.  Sales of tangible personal property to be incorporated or installed as part of environmental response or remediation activities under section 42‑5075, subsection B, paragraph 6.

53.  Sales of tangible personal property by a nonprofit organization that is exempt from taxation under section 501(c)(6) of the internal revenue code if the organization produces, organizes or promotes cultural or civic related festivals or events and no part of the organization's net earnings inures to the benefit of any private shareholder or individual.

54.  Through August 31, 2014, sales of Arizona centennial medallions by the historical advisory commission.

55.  Application services that are designed to assess or test student learning or to promote curriculum design or enhancement purchased by or for any school district, charter school, community college or state university. For the purposes of this paragraph:

(a)  "Application services" means software applications provided remotely using hypertext transfer protocol or another network protocol.

(b)  "Curriculum design or enhancement" means planning, implementing or reporting on courses of study, lessons, assignments or other learning activities.

B.  In addition to the deductions from the tax base prescribed by subsection A of this section, the gross proceeds of sales or gross income derived from sales of the following categories of tangible personal property shall be deducted from the tax base:

1.  Machinery, or equipment, used directly in manufacturing, processing, fabricating, job printing, refining or metallurgical operations.  The terms "manufacturing", "processing", "fabricating", "job printing", "refining" and "metallurgical" as used in this paragraph refer to and include those operations commonly understood within their ordinary meaning.  "Metallurgical operations" includes leaching, milling, precipitating, smelting and refining.

2.  Mining machinery, or equipment, used directly in the process of extracting ores or minerals from the earth for commercial purposes, including equipment required to prepare the materials for extraction and handling, loading or transporting such extracted material to the surface.  "Mining" includes underground, surface and open pit operations for extracting ores and minerals.

3.  Tangible personal property sold to persons engaged in business classified under the telecommunications classification and consisting of central office switching equipment, switchboards, private branch exchange equipment, microwave radio equipment and carrier equipment including optical fiber, coaxial cable and other transmission media which are components of carrier systems.

4.  Machinery, equipment or transmission lines used directly in producing or transmitting electrical power, but not including distribution.  Transformers and control equipment used at transmission substation sites constitute equipment used in producing or transmitting electrical power.

5.  Neat animals, horses, asses, sheep, ratites, swine or goats used or to be used as breeding or production stock, including sales of breedings or ownership shares in such animals used for breeding or production.

6.  Pipes or valves four inches in diameter or larger used to transport oil, natural gas, artificial gas, water or coal slurry, including compressor units, regulators, machinery and equipment, fittings, seals and any other part that is used in operating the pipes or valves.

7.  Aircraft, navigational and communication instruments and other accessories and related equipment sold to:

(a)  A person holding a federal certificate of public convenience and necessity, a supplemental air carrier certificate under federal aviation regulations (14 Code of Federal Regulations part 121) or a foreign air carrier permit for air transportation for use as or in conjunction with or becoming a part of aircraft to be used to transport persons, property or United States mail in intrastate, interstate or foreign commerce.

(b)  Any foreign government.

(c)  Persons who are not residents of this state and who will not use such property in this state other than in removing such property from this state.  This subdivision also applies to corporations that are not incorporated in this state, regardless of maintaining a place of business in this state, if the principal corporate office is located outside this state and the property will not be used in this state other than in removing the property from this state.

8.  Machinery, tools, equipment and related supplies used or consumed directly in repairing, remodeling or maintaining aircraft, aircraft engines or aircraft component parts by or on behalf of a certificated or licensed carrier of persons or property.

9.  Railroad rolling stock, rails, ties and signal control equipment used directly to transport persons or property.

10.  Machinery or equipment used directly to drill for oil or gas or used directly in the process of extracting oil or gas from the earth for commercial purposes.

11.  Buses or other urban mass transit vehicles which are used directly to transport persons or property for hire or pursuant to a governmentally adopted and controlled urban mass transportation program and which are sold to bus companies holding a federal certificate of convenience and necessity or operated by any city, town or other governmental entity or by any person contracting with such governmental entity as part of a governmentally adopted and controlled program to provide urban mass transportation.

12.  Groundwater measuring devices required under section 45‑604.

13.  New machinery and equipment consisting of tractors, tractor‑drawn implements, self‑powered implements, machinery and equipment necessary for extracting milk, and machinery and equipment necessary for cooling milk and livestock, and drip irrigation lines not already exempt under paragraph 6 of this subsection and that are used for commercial production of agricultural, horticultural, viticultural and floricultural crops and products in this state.  For the purposes of this paragraph:

(a)  "New machinery and equipment" means machinery and equipment which have never been sold at retail except pursuant to leases or rentals which do not total two years or more.

(b)  "Self‑powered implements" includes machinery and equipment that are electric‑powered.

14.  Machinery or equipment used in research and development.  For the purposes of this paragraph, "research and development" means basic and applied research in the sciences and engineering, and designing, developing or testing prototypes, processes or new products, including research and development of computer software that is embedded in or an integral part of the prototype or new product or that is required for machinery or equipment otherwise exempt under this section to function effectively.  Research and development do not include manufacturing quality control, routine consumer product testing, market research, sales promotion, sales service, research in social sciences or psychology, computer software research that is not included in the definition of research and development, or other nontechnological activities or technical services.

15.  Machinery and equipment that are purchased by or on behalf of the owners of a soundstage complex and primarily used for motion picture, multimedia or interactive video production in the complex.  This paragraph applies only if the initial construction of the soundstage complex begins after June 30, 1996 and before January 1, 2002 and the machinery and equipment are purchased before the expiration of five years after the start of initial construction.  For the purposes of this paragraph:

(a)  "Motion picture, multimedia or interactive video production" includes products for theatrical and television release, educational presentations, electronic retailing, documentaries, music videos, industrial films, CD‑ROM, video game production, commercial advertising and television episode production and other genres that are introduced through developing technology.

(b)  "Soundstage complex" means a facility of multiple stages including production offices, construction shops and related areas, prop and costume shops, storage areas, parking for production vehicles and areas that are leased to businesses that complement the production needs and orientation of the overall facility.

16.  Tangible personal property that is used by either of the following to receive, store, convert, produce, generate, decode, encode, control or transmit telecommunications information:

(a)  Any direct broadcast satellite television or data transmission service that operates pursuant to 47 Code of Federal Regulations part 25.

(b)  Any satellite television or data transmission facility, if both of the following conditions are met:

(i)  Over two‑thirds of the transmissions, measured in megabytes, transmitted by the facility during the test period were transmitted to or on behalf of one or more direct broadcast satellite television or data transmission services that operate pursuant to 47 Code of Federal Regulations part 25.

(ii)  Over two‑thirds of the transmissions, measured in megabytes, transmitted by or on behalf of those direct broadcast television or data transmission services during the test period were transmitted by the facility to or on behalf of those services.

For the purposes of subdivision (b) of this paragraph, "test period" means the three hundred sixty‑five day period beginning on the later of the date on which the tangible personal property is purchased or the date on which the direct broadcast satellite television or data transmission service first transmits information to its customers.

17.  Clean rooms that are used for manufacturing, processing, fabrication or research and development, as defined in paragraph 14 of this subsection, of semiconductor products.  For the purposes of this paragraph, "clean room" means all property that comprises or creates an environment where humidity, temperature, particulate matter and contamination are precisely controlled within specified parameters, without regard to whether the property is actually contained within that environment or whether any of the property is affixed to or incorporated into real property.  Clean room:

(a)  Includes the integrated systems, fixtures, piping, movable partitions, lighting and all property that is necessary or adapted to reduce contamination or to control airflow, temperature, humidity, chemical purity or other environmental conditions or manufacturing tolerances, as well as the production machinery and equipment operating in conjunction with the clean room environment.

(b)  Does not include the building or other permanent, nonremovable component of the building that houses the clean room environment.

18.  Machinery and equipment used directly in the feeding of poultry, the environmental control of housing for poultry, the movement of eggs within a production and packaging facility or the sorting or cooling of eggs.  This exemption does not apply to vehicles used for transporting eggs.

19.  Machinery or equipment, including related structural components, that is employed in connection with manufacturing, processing, fabricating, job printing, refining, mining, natural gas pipelines, metallurgical operations, telecommunications, producing or transmitting electricity or research and development and that is used directly to meet or exceed rules or regulations adopted by the federal energy regulatory commission, the United States environmental protection agency, the United States nuclear regulatory commission, the Arizona department of environmental quality or a political subdivision of this state to prevent, monitor, control or reduce land, water or air pollution.

20.  Machinery and equipment that are sold to a person engaged in the commercial production of livestock, livestock products or agricultural, horticultural, viticultural or floricultural crops or products in this state and that are used directly and primarily to prevent, monitor, control or reduce air, water or land pollution.

21.  Machinery or equipment that enables a television station to originate and broadcast or to receive and broadcast digital television signals and that was purchased to facilitate compliance with the telecommunications act of 1996 (P.L. 104‑104; 110 Stat. 56; 47 United States Code section 336) and the federal communications commission order issued April 21, 1997 (47 Code of Federal Regulations part 73).  This paragraph does not exempt any of the following:

(a)  Repair or replacement parts purchased for the machinery or equipment described in this paragraph.

(b)  Machinery or equipment purchased to replace machinery or equipment for which an exemption was previously claimed and taken under this paragraph.

(c)  Any machinery or equipment purchased after the television station has ceased analog broadcasting, or purchased after November 1, 2009, whichever occurs first.

22.  Qualifying equipment that is purchased from and after June 30, 2004 through June 30, 2014 by a qualified business under section 41‑1516 for harvesting or the initial processing of qualifying forest products removed from qualifying projects as defined in section 41‑1516.  To qualify for this deduction, the qualified business at the time of purchase must present its certification approved by the department.

23.  Machinery, equipment and other tangible personal property used directly in motion picture production by a motion picture production company.  To qualify for this deduction, at the time of purchase, the motion picture production company must present to the retailer its certificate that is issued pursuant to section 42‑5009, subsection H and that establishes its qualification for the deduction.

C.  The deductions provided by subsection B of this section do not include sales of:

1.  Expendable materials.  For the purposes of this paragraph, expendable materials do not include any of the categories of tangible personal property specified in subsection B of this section regardless of the cost or useful life of that property.

2.  Janitorial equipment and hand tools.

3.  Office equipment, furniture and supplies.

4.  Tangible personal property used in selling or distributing activities, other than the telecommunications transmissions described in subsection B, paragraph 16 of this section.

5.  Motor vehicles required to be licensed by this state, except buses or other urban mass transit vehicles specifically exempted pursuant to subsection B, paragraph 11 of this section, without regard to the use of such motor vehicles.

6.  Shops, buildings, docks, depots and all other materials of whatever kind or character not specifically included as exempt.

7.  Motors and pumps used in drip irrigation systems.

D.  In addition to the deductions from the tax base prescribed by subsection A of this section, there shall be deducted from the tax base the gross proceeds of sales or gross income derived from sales of machinery, equipment, materials and other tangible personal property used directly and predominantly to construct a qualified environmental technology manufacturing, producing or processing facility as described in section 41‑1514.02.  This subsection applies for ten full consecutive calendar or fiscal years after the start of initial construction.

E.  In computing the tax base, gross proceeds of sales or gross income from retail sales of heavy trucks and trailers does not include any amount attributable to federal excise taxes imposed by 26 United States Code section 4051.

F.  In computing the tax base, gross proceeds of sales or gross income from the sale of use fuel, as defined in section 28‑5601, does not include any amount attributable to federal excise taxes imposed by 26 United States Code section 4091.

G.  If a person is engaged in an occupation or business to which subsection A of this section applies, the person's books shall be kept so as to show separately the gross proceeds of sales of tangible personal property and the gross income from sales of services, and if not so kept the tax shall be imposed on the total of the person's gross proceeds of sales of tangible personal property and gross income from services.

H.  If a person is engaged in the business of selling tangible personal property at both wholesale and retail, the tax under this section applies only to the gross proceeds of the sales made other than at wholesale if the person's books are kept so as to show separately the gross proceeds of sales of each class, and if the books are not so kept, the tax under this section applies to the gross proceeds of every sale so made.

I.  A person who engages in manufacturing, baling, crating, boxing, barreling, canning, bottling, sacking, preserving, processing or otherwise preparing for sale or commercial use any livestock, agricultural or horticultural product or any other product, article, substance or commodity and who sells the product of such business at retail in this state is deemed, as to such sales, to be engaged in business classified under the retail classification.  This subsection does not apply to businesses classified under the:

1.  Transporting classification.

2.  Utilities classification.

3.  Telecommunications classification.

4.  Pipeline classification.

5.  Private car line classification.

6.  Publication classification.

7.  Job printing classification.

8.  Prime contracting classification.

9.  Owner builder sales classification.

10.  Restaurant classification.

J.  The gross proceeds of sales or gross income derived from the following shall be deducted from the tax base for the retail classification:

1.  Sales made directly to the United States government or its departments or agencies by a manufacturer, modifier, assembler or repairer.

2.  Sales made directly to a manufacturer, modifier, assembler or repairer if such sales are of any ingredient or component part of products sold directly to the United States government or its departments or agencies by the manufacturer, modifier, assembler or repairer.

3.  Overhead materials or other tangible personal property that is used in performing a contract between the United States government and a manufacturer, modifier, assembler or repairer, including property used in performing a subcontract with a government contractor who is a manufacturer, modifier, assembler or repairer, to which title passes to the government under the terms of the contract or subcontract.

4.  Sales of overhead materials or other tangible personal property to a manufacturer, modifier, assembler or repairer if the gross proceeds of sales or gross income derived from the property by the manufacturer, modifier, assembler or repairer will be exempt under paragraph 3 of this subsection.

K.  There shall be deducted from the tax base fifty per cent of the gross proceeds or gross income from any sale of tangible personal property made directly to the United States government or its departments or agencies, which is not deducted under subsection J of this section.

L.  The department shall require every person claiming a deduction provided by subsection J or K of this section to file on forms prescribed by the department at such times as the department directs a sworn statement disclosing the name of the purchaser and the exact amount of sales on which the exclusion or deduction is claimed.

M.  In computing the tax base, gross proceeds of sales or gross income does not include:

1.  A manufacturer's cash rebate on the sales price of a motor vehicle if the buyer assigns the buyer's right in the rebate to the retailer.

2.  The waste tire disposal fee imposed pursuant to section 44‑1302.

N.  There shall be deducted from the tax base the amount received from sales of solar energy devices.  The retailer shall register with the department as a solar energy retailer.  By registering, the retailer acknowledges that it will make its books and records relating to sales of solar energy devices available to the department for examination.

O.  In computing the tax base in the case of the sale or transfer of wireless telecommunications equipment as an inducement to a customer to enter into or continue a contract for telecommunications services that are taxable under section 42‑5064, gross proceeds of sales or gross income does not include any sales commissions or other compensation received by the retailer as a result of the customer entering into or continuing a contract for the telecommunications services.

P.  For the purposes of this section, a sale of wireless telecommunications equipment to a person who holds the equipment for sale or transfer to a customer as an inducement to enter into or continue a contract for telecommunications services that are taxable under section 42‑5064 is considered to be a sale for resale in the regular course of business.

Q.  Retail sales of prepaid calling cards or prepaid authorization numbers for telecommunications services, including sales of reauthorization of a prepaid card or authorization number, are subject to tax under this section.

R.  For the purposes of this section, the diversion of gas from a pipeline by a person engaged in the business of:

1.  Operating a natural or artificial gas pipeline, for the sole purpose of fueling compressor equipment to pressurize the pipeline, is not a sale of the gas to the operator of the pipeline.

2.  Converting natural gas into liquefied natural gas, for the sole purpose of fueling compressor equipment used in the conversion process, is not a sale of gas to the operator of the compressor equipment.

S.  If a seller is entitled to a deduction pursuant to subsection B, paragraph 16, subdivision (b) of this section, the department may require the purchaser to establish that the requirements of subsection B, paragraph 16, subdivision (b) of this section have been satisfied.  If the purchaser cannot establish that the requirements of subsection B, paragraph 16, subdivision (b) of this section have been satisfied, the purchaser is liable in an amount equal to any tax, penalty and interest which the seller would have been required to pay under article 1 of this chapter if the seller had not made a deduction pursuant to subsection B, paragraph 16, subdivision (b) of this section.  Payment of the amount under this subsection exempts the purchaser from liability for any tax imposed under article 4 of this chapter and related to the tangible personal property purchased.  The amount shall be treated as transaction privilege tax to the purchaser and as tax revenues collected from the seller to designate the distribution base pursuant to section 42‑5029.

T.  For the purposes of section 42‑5032.01, the department shall separately account for revenues collected under the retail classification from businesses selling tangible personal property at retail:

1.  On the premises of a multipurpose facility that is owned, leased or operated by the tourism and sports authority pursuant to title 5, chapter 8.

2.  At professional football contests that are held in a stadium located on the campus of an institution under the jurisdiction of the Arizona board of regents.

U.  In computing the tax base for the sale of a motor vehicle to a nonresident of this state, if the purchaser's state of residence allows a corresponding use tax exemption to the tax imposed by article 1 of this chapter and the rate of the tax in the purchaser's state of residence is lower than the rate prescribed in article 1 of this chapter or if the purchaser's state of residence does not impose an excise tax, and the nonresident has secured a special ninety day nonresident registration permit for the vehicle as prescribed by sections 28‑2154 and 28‑2154.01, there shall be deducted from the tax base a portion of the gross proceeds or gross income from the sale so that the amount of transaction privilege tax that is paid in this state is equal to the excise tax that is imposed by the purchaser's state of residence on the nonexempt sale or use of the motor vehicle.

V.  Notwithstanding subsections A and B of this section, the items described in subsections A and B of this section shall not be deducted or exempted from the tax base for taxable periods beginning from and after December 31, 2019.  The legislature, by majority vote, may extend this date for any deduction or exemption allowed by this section.

V.  w.  For the purposes of this section:

1.  "Aircraft" includes:

(a)  An airplane flight simulator that is approved by the federal aviation administration for use as a phase II or higher flight simulator under appendix H, 14 Code of Federal Regulations part 121.

(b)  Tangible personal property that is permanently affixed or attached as a component part of an aircraft that is owned or operated by a certificated or licensed carrier of persons or property.

2.  "Other accessories and related equipment" includes aircraft accessories and equipment such as ground service equipment that physically contact aircraft at some point during the overall carrier operation.

3.  "Selling at retail" means a sale for any purpose other than for resale in the regular course of business in the form of tangible personal property, but transfer of possession, lease and rental as used in the definition of sale mean only such transactions as are found on investigation to be in lieu of sales as defined without the words lease or rental.

W.  x.  For the purposes of subsection J of this section:

1.  "Assembler" means a person who unites or combines products, wares or articles of manufacture so as to produce a change in form or substance without changing or altering the component parts.

2.  "Manufacturer" means a person who is principally engaged in the fabrication, production or manufacture of products, wares or articles for use from raw or prepared materials, imparting to those materials new forms, qualities, properties and combinations.

3.  "Modifier" means a person who reworks, changes or adds to products, wares or articles of manufacture.

4.  "Overhead materials" means tangible personal property, the gross proceeds of sales or gross income derived from which would otherwise be included in the retail classification, and which are used or consumed in the performance of a contract, the cost of which is charged to an overhead expense account and allocated to various contracts based upon generally accepted accounting principles and consistent with government contract accounting standards.

5.  "Repairer" means a person who restores or renews products, wares or articles of manufacture.

6.  "Subcontract" means an agreement between a contractor and any person who is not an employee of the contractor for furnishing of supplies or services that, in whole or in part, are necessary to the performance of one or more government contracts, or under which any portion of the contractor's obligation under one or more government contracts is performed, undertaken or assumed and that includes provisions causing title to overhead materials or other tangible personal property used in the performance of the subcontract to pass to the government or that includes provisions incorporating such title passing clauses in a government contract into the subcontract. END_STATUTE

Sec. 3.  Section 42-5062, Arizona Revised Statutes, is amended to read:

START_STATUTE42-5062.  Transporting classification

A.  The transporting classification is comprised of the business of transporting for hire persons, freight or property by motor vehicle, railroads or aircraft from one point to another point in this state.  The transporting classification does not include:

1.  Transporting for hire persons, freight or property by motor carriers subject to a fee prescribed in title 28, chapter 16, article 4 or by light motor vehicles subject to a fee under title 28, chapter 15, article 4.

2.  The business of transporting for hire persons traveling in air commerce by aircraft if taxation of the business is preempted by federal law.

3.  Ambulances or ambulance services provided under title 48 or certified pursuant to title 36, chapter 21.1 or provided by a city or town in a county with a population of less than one hundred fifty thousand persons as determined in the most recent United States decennial census.

4.  Public transportation program services for the dial‑a‑ride programs and special needs transportation services.

5.  Transporting freight or property for hire by a railroad operating exclusively in this state if the transportation comprises a portion of a single shipment of freight or property, involving more than one railroad, either from a point in this state to a point outside this state or from a point outside this state to a point in this state.  For the purposes of this paragraph, "a single shipment" means the transportation that begins at the point at which one of the railroads first takes possession of the freight or property and continues until the point at which one of the railroads relinquishes possession of the freight or property to a party other than one of the railroads.

6.  Arranging transportation as a convenience or service to a person's customers if that person is not otherwise engaged in the business of transporting persons, freight or property for hire.  This exception does not apply to businesses that dispatch vehicles pursuant to customer orders and send the billings and receive the payments associated with that activity, including when the transportation is performed by third party independent contractors.  For the purposes of this paragraph, "arranging" includes billing for or collecting transportation charges from a person's customers on behalf of the persons providing the transportation.

B.  The tax base for the transporting classification is the gross proceeds of sales or gross income derived from the business, except that the following shall be deducted from the tax base:

1.  The gross proceeds of sales or gross income derived from transporting for hire persons, freight or property by a railroad pursuant to a contract with another railroad that is also considered to be engaged in the businesses of transporting persons, freight or property for hire if the other railroad is liable for the tax on gross proceeds of sales or gross income attributable to the transportation.

2.  The gross proceeds of sales or gross income derived from business activity that is properly included in any other business classification under this article and that is taxable to the person engaged in that classification, but the gross proceeds of sales or gross income to be deducted shall not exceed the consideration paid to the person conducting the activity.

3.  The gross proceeds of sales or gross income derived from a business activity that is arranged by the person who is subject to tax under this section and that is not taxable to the person conducting the activity due to an exclusion, exemption or deduction under this section or section 42‑5073, but the gross proceeds of sales or gross income to be deducted shall not exceed the consideration paid to the person conducting the activity.

4.  The gross proceeds of sales or gross income derived from business activity that is arranged by a person who is subject to tax under this section and that is taxable to another person under this section who conducts the activity, but the gross proceeds of sales or gross income to be deducted shall not exceed the consideration paid to the person conducting the activity.

5.  The gross proceeds of sales or gross income derived from transporting fertilizer by a railroad from a point in this state to another point in this state.

C.  Notwithstanding subsections A and B of this section, the items described in subsections A and B of this section shall not be deducted or exempted from the tax base for taxable periods beginning from and after December 31, 2019.  The legislature, by majority vote, may extend this date for any deduction or exemption allowed by this section. END_STATUTE

Sec. 4.  Section 42-5063, Arizona Revised Statutes, is amended to read:

START_STATUTE42-5063.  Utilities classification; definitions

A.  The utilities classification is comprised of the business of:

1.  Producing and furnishing or furnishing to consumers natural or artificial gas and water.

2.  Providing to retail electric customers ancillary services, electric distribution services, electric generation services, electric transmission services and other services related to providing electricity.

B.  The utilities classification does not include:

1.  Sales of ancillary services, electric distribution services, electric generation services, electric transmission services and other services related to providing electricity, gas or water to a person who resells the services.

2.  Sales of natural gas or liquefied petroleum gas used to propel a motor vehicle.

3.  Sales of alternative fuel, as defined in section 1‑215, to a used oil fuel burner who has received a permit to burn used oil or used oil fuel under section 49‑426 or 49‑480.

4.  Sales of ancillary services, electric distribution services, electric generation services, electric transmission services and other services that are related to providing electricity to a retail electric customer who is located outside this state for use outside this state if the electricity is delivered to a point of sale outside this state.

C.  The tax base for the utilities classification is the gross proceeds of sales or gross income derived from the business, but the following shall be deducted from the tax base:

1.  Revenues received by a municipally owned utility in the form of fees charged to persons constructing residential, commercial or industrial developments or connecting residential, commercial or industrial developments to a municipal utility system or systems if the fees are segregated and used only for capital expansion, system enlargement or debt service of the utility system or systems.

2.  Revenues received by any person or persons owning a utility system in the form of reimbursement or contribution compensation for property and equipment installed to provide utility access to, on or across the land of an actual utility consumer if the property and equipment become the property of the utility.  This deduction shall not exceed the value of such property and equipment.

3.  Gross proceeds of sales or gross income derived from sales to:

(a)  Qualifying hospitals as defined in section 42‑5001.

(b)  A qualifying health care organization as defined in section 42‑5001 if the tangible personal property is used by the organization solely to provide health and medical related educational and charitable services.

4.  The portion of gross proceeds of sales or gross income that is derived from sales to a qualified environmental technology manufacturer, producer or processor as defined in section 41-1514.02 of a utility product and that is used directly in environmental technology manufacturing, producing or processing.  This paragraph shall apply for twenty full consecutive calendar or fiscal years from the date the first paper manufacturing machine is placed in service.  In the case of a qualified environmental technology manufacturer, producer or processor who does not manufacture paper, the time period shall begin with the date the first manufacturing, processing or production equipment is placed in service.

D.  Notwithstanding subsections B and C of this section, the items described in subsections B and C of this section shall not be deducted or exempted from the tax base for taxable periods beginning from and after December 31, 2019.  The legislature, by majority vote, may extend this date for any deduction or exemption allowed by this section. 

D.  e.  For the purposes of this section:

1.  "Ancillary services" means those services so designated in federal energy regulatory commission order 888 adopted in 1996 that include the services necessary to support the transmission of electricity from resources to loads while maintaining reliable operation of the transmission system according to good utility practice.

2.  "Electric distribution service" means distributing electricity to retail electric customers through the use of electric distribution facilities.

3.  "Electric generation service" means providing electricity for sale to retail electric customers but excluding electric distribution or transmission services.

4.  "Electric transmission service" means transmitting electricity to retail electric customers or to electric distribution facilities so classified by the federal energy regulatory commission or, to the extent permitted by law, so classified by the Arizona corporation commission.

5.  "Other services" includes metering, meter reading services, billing and collecting services.

6.  "Retail electric customer" means a person who purchases electricity for that person's own use, including use in that person's trade or business and not for resale, redistribution or retransmission. END_STATUTE

Sec. 5.  Section 42-5064, Arizona Revised Statutes, is amended to read:

START_STATUTE42-5064.  Telecommunications classification; definitions

A.  The telecommunications classification is comprised of the business of providing intrastate telecommunications services.  The telecommunications classification does not include:

1.  Sales of intrastate telecommunications services by a cable television system as defined in section 9‑505 or by a microwave television transmission system that transmits television programming to multiple subscribers and that is operated pursuant to 47 Code of Federal Regulations parts 21 and 74.

2.  Sales of internet access or application services to the person's subscribers and customers.  For the purposes of this paragraph:

(a)  "Application services" means software applications provided remotely using hypertext transfer protocol or another network protocol and purchased by or for any school district, charter school, community college or state university to assess or test student learning or to promote curriculum design or enhancement.

(b)  "Curriculum design or enhancement" means planning, implementing or reporting on courses of study, lessons, assignments or other learning activities.

B.  The tax base for the telecommunications classification is the gross proceeds of sales or gross income derived from the business, including the gross income derived from tolls, subscriptions and services on behalf of subscribers or from the publication of a directory of the names of subscribers.  However, the gross proceeds of sales or gross income derived from the following shall be deducted from the tax base:

1.  Sales of intrastate telecommunications services to:

(a)  Other persons engaged in businesses classified under the telecommunications classification for use in such business.

(b)  A direct broadcast satellite television or data transmission service that operates pursuant to 47 Code of Federal Regulations part 25 for use in its direct broadcast satellite television or data transmission operation by a facility described in section 42‑5061, subsection B, paragraph 16, subdivision (b).

2.  End user common line charges established by federal communications commission regulations (47 Code of Federal Regulations section 69.104(a)).

3.  Carrier access charges established by federal communications commission regulations (47 Code of Federal Regulations sections 69.105(a) through 69.118).

4.  Sales of direct broadcast satellite television services pursuant to 47 Code of Federal Regulations part 25 by a direct broadcast satellite television service that operates pursuant to 47 Code of Federal Regulations part 25.

5.  Telecommunications services purchased with a prepaid calling card, or a prepaid authorization number for telecommunications services, that is taxable under section 42‑5061.

C.  A person that is engaged in a transient lodging business subject to taxation under section 42-5070 and that provides telephone, fax or internet access services to its customers at an additional charge, which is separately stated on the customer invoice, is considered to be engaged in business subject to taxation under this section for the purposes of taxing the gross proceeds of sales or gross income derived from providing those services.

D.  The gross proceeds of sales or gross income derived from a bundled transaction of services that are taxable pursuant to section 42‑5023 are subject to the following:

1.  A telecommunications service provider who can reasonably identify the portion of the sales price of the bundled transaction derived from charges for nontaxable services is subject to tax only on the gross proceeds of sales or gross income derived from the taxable services.  For the purposes of this section, the telecommunications service provider may elect to reasonably identify the portion of the sales price of the bundled transaction derived from charges for nontaxable services by using allocation percentages derived from the telecommunications service provider's entire service area, including territories outside of this state.  On request, the department may require the telecommunications service provider to provide this allocation information.  The reasonableness of the allocation is subject to audit by the department.

2.  Notwithstanding sections 42‑1118, 42‑1120 and 42‑1121, the telecommunications service provider shall waive the right to file a claim for a refund of taxes paid on the bundled transaction if the taxes paid are based on the allocation percentage the telecommunications service provider had determined to be reasonable at the beginning of the tax period at issue.

3.  The burden of proof is on the telecommunications service provider to establish that the gross proceeds of sales or gross income is derived from charges for nontaxable services.

E.  Notwithstanding subsections A and B of this section, the items described in subsections A and B of this section shall not be deducted or exempted from the tax base for taxable periods beginning from and after December 31, 2019.  The legislature, by majority vote, may extend this date for any deduction or exemption allowed by this section. 

E.  f.  For the purposes of this section:

1.  "Bundled transaction" means a sale of multiple services in which both of the following apply:

(a)  The sale consists of both taxable and nontaxable services.

(b)  The telecommunications service provider charges a customer one sales price for all services that are sold instead of separately charging for each individual service.

2.  "Internet" means the computer and telecommunications facilities that comprise the interconnected worldwide network of networks that employ the transmission control protocol or internet protocol, or any predecessor or successor protocol, to communicate information of all kinds by wire or radio.

3.  "Internet access" means a service that enables users to access content, information, electronic mail or other services over the internet. Internet access does not include telecommunications services provided by a common carrier.

4.  "Intrastate telecommunications services" means transmitting signs, signals, writings, images, sounds, messages, data or other information of any nature by wire, radio waves, light waves or other electromagnetic means if the information transmitted originates and terminates in this state. END_STATUTE

Sec. 6.  Section 42-5065, Arizona Revised Statutes, is amended to read:

START_STATUTE42-5065.  Publication classification; definition

A.  The publication classification is comprised of the business of publishing newspapers, magazines or other periodicals and publications if published in this state.  The publication classification does not include:

1.  Manufacturing or publishing books.

2.  Sales of magazines or other periodicals or other publications by this state to encourage tourist travel.

B.  The tax base for the publication classification is the gross proceeds of sales or gross income derived from the business, including the gross income derived from notices and subscription income, but the following shall be deducted from the tax base:

1.  Gross income derived from advertising.

2.  Gross proceeds of sales or gross income derived from sales of personal property to:

(a)  Qualifying hospitals as defined in section 42‑5001.

(b)  A qualifying health care organization as defined in section 42‑5001 if the tangible personal property is used by the organization solely to provide health and medical related educational and charitable services.

C.  Notwithstanding subsections A and B of this section, the items described in subsections A and B of this section shall not be deducted or exempted from the tax base for taxable periods beginning from and after December 31, 2019.  The legislature, by majority vote, may extend this date for any deduction or exemption allowed by this section.

C.  d.  For purposes of this section "subscription income" includes all circulation revenue, except amounts actually retained by or credited to carriers and other vendors as compensation for sale or delivery of publications and revenue from publications sold, directly or through wholesalers or jobbers, to retailers for resale. END_STATUTE

Sec. 7.  Section 42-5066, Arizona Revised Statutes, is amended to read:

START_STATUTE42-5066.  Job printing classification

A.  The job printing classification is comprised of the business of job printing, engraving, embossing and copying.

B.  The tax base for the job printing classification is the gross proceeds of sales or gross income derived from the business, but the gross proceeds of sales or gross income derived from the following shall be deducted from the tax base:

1.  Sales to a person in this state who has a transaction privilege tax license issued in this state, and who does either of the following:

(a)  Resells the job printing, engraving, embossing or copying.

(b)  Distributes such printing, engraving, embossing or copying without consideration in connection with the publication of a newspaper or magazine.

2.  Sales of job printing, engraving, embossing and copying for use outside this state if the materials are shipped or delivered out of this state regardless of where title to the materials passes or their free on board point.

3.  Sales of personal property to:

(a)  Qualifying hospitals as defined in section 42‑5001.

(b)  A qualifying health care organization as defined in section 42‑5001 if the tangible personal property is used by the organization solely to provide health and medical related educational and charitable services.

4.  Sales of postage and freight except that the amount deducted shall not exceed the actual postage and freight expense that is paid to the United States postal service or a commercial delivery service and that is separately itemized by the taxpayer on the customer's invoice and in the taxpayer's records.

5.  Sales to a motion picture production company that will use the job printing, engraving, embossing or copying directly in motion picture production.  To qualify for this deduction, at the time of sale, the motion picture production company must present the job printer its certificate that is issued pursuant to section 42-5009, subsection H, and that establishes its qualifications for the deduction.

C.  Notwithstanding subsection B of this section, the items described in subsection B of this section shall not be deducted or exempted from the tax base for taxable periods beginning from and after December 31, 2019.  The legislature, by majority vote, may extend this date for any deduction or exemption allowed by this section.  END_STATUTE

Sec. 8.  Section 42-5067, Arizona Revised Statutes, is amended to read:

START_STATUTE42-5067.  Pipeline classification

A.  The pipeline classification is comprised of the business of operating pipelines for transporting oil or natural or artificial gas through pipes or conduits from one point to another point in this state.  The pipeline classification does not include sales of natural gas or liquefied petroleum gas used to propel a motor vehicle.

B.  The tax base for the pipeline classification is the gross proceeds of sales or gross income derived from the business, but the taxpayer shall deduct from the tax base the gross proceeds of sales or gross income derived from pipeline services to:

1.  Qualifying hospitals as defined in section 42‑5001.

2.  A qualifying health care organization as defined in section 42‑5001 if the oil or gas is used by the organization solely to provide health and medical related educational and charitable services.

C.  Notwithstanding subsections A and B of this section, the items described in subsections A and B of this section shall not be deducted or exempted from the tax base for taxable periods beginning from and after December 31, 2019.  The legislature, by majority vote, may extend this date for any deduction or exemption allowed by this section. END_STATUTE

Sec. 9.  Section 42-5069, Arizona Revised Statutes, is amended to read:

START_STATUTE42-5069.  Commercial lease classification; definitions

A.  The commercial lease classification is comprised of the business of leasing for a consideration the use or occupancy of real property.

B.  A person who, as a lessor, leases or rents for a consideration under one or more leases or rental agreements the use or occupancy of real property that is used by the lessee for commercial purposes is deemed to be engaged in business and subject to the tax imposed by article 1 of this chapter, but this subsection does not include leases or rentals of real property used for residential or agricultural purposes.

C.  The commercial lease classification does not include:

1.  Any business activities that are classified under the transient lodging classification.

2.  Activities engaged in by the Arizona exposition and state fair board or county fair commissions in connection with events sponsored by those entities.

3.  Leasing real property to a lessee who subleases the property if the lessee is engaged in business classified under the commercial lease classification or the transient lodging classification.

4.  Leasing real property pursuant to a written lease agreement entered into before December 1, 1967.  This exclusion does not apply to the businesses of hotels, guest houses, dude ranches and resorts, rooming houses, apartment houses, office buildings, automobile storage garages, parking lots or tourist camps, or to the extension or renewal of any such written lease agreement.

5.  Leasing real property by a corporation to an affiliated corporation.  For the purposes of this paragraph, "affiliated corporation" means a corporation that owns or controls at least eighty per cent of the lessor, that is at least eighty per cent owned or controlled by the lessor or that is at least eighty per cent owned or controlled by a corporation that also owns or controls at least eighty per cent of the lessor.  Ownership and control are determined by reference to the voting shares of a corporation.

6.  Leasing real property for boarding horses.

7.  Leasing or renting real property or the right to use real property at exhibition events in this state sponsored, operated or conducted by a nonprofit organization that is exempt from taxation under section 501(c)(3), 501(c)(4) or 501(c)(6) of the internal revenue code if the organization is associated with major league baseball teams or a national touring professional golfing association and no part of the organization's net earnings inures to the benefit of any private shareholder or individual.

8.  Leasing or renting real property or the right to use real property for use as a rodeo featuring primarily farm and ranch animals in this state sponsored, operated or conducted by a nonprofit organization that is exempt from taxation under section 501(c)(3), 501(c)(4), 501(c)(6), 501(c)(7) or 501(c)(8) of the internal revenue code and no part of the organization's net earnings inures to the benefit of any private shareholder or individual.

9.  Leasing or renting dwelling units, lodging facilities or trailer or mobile home spaces if the units, facilities or spaces are intended to serve as the principal or permanent place of residence for the lessee or renter or if the unit, facility or space is leased or rented to a single tenant thirty or more consecutive days.

10.  Leasing or renting real property and improvements for use primarily for religious worship by a nonprofit organization that is exempt from taxation under section 501(c)(3) of the internal revenue code and no part of the organization's net earnings inures to the benefit of any private shareholder or individual.

11.  Leasing or renting real property used for agricultural purposes under either of the following circumstances:

(a)  The lease or rental is between family members, trusts, estates, corporations, partnerships, joint venturers or similar entities, or any combination thereof, if the individuals or at least eighty per cent of the beneficiaries, shareholders, partners or joint venturers share a family relationship as parents or ancestors of parents, children or descendants of children, siblings, cousins of the first degree, aunts, uncles, nieces or nephews of the first degree, spouses of any of the listed relatives and listed relatives by the half-blood or by adoption.

(b)  The lessor leases or rents real property used for agricultural purposes under no more than three leases or rental agreements.

12.  Leasing, renting or granting the right to use real property to vendors or exhibitors by a trade or industry association that is a qualifying organization pursuant to section 513(d)(3)(C) of the internal revenue code for a period not to exceed twenty-one days in connection with an event that meets all of the following conditions:

(a)  The majority of such vending or exhibition activities relate to the nature of the trade or business sponsoring the event.

(b)  The event is held in conjunction with a formal business meeting of the trade or industry association.

(c)  The event is organized by the persons engaged in the particular trade or industry.

13.  Leasing, renting or granting the right to use real property for a period not to exceed twenty-one days by a coliseum, civic center, civic plaza, convention center, auditorium or arena owned by this state or any of its political subdivisions.

14.  Leasing or subleasing real property used by a nursing care institution as defined in section 36-401 that is licensed pursuant to title 36, chapter 4.

15.  Leasing or renting an eligible facility as defined in section 28‑7701.

16.  Granting or providing rights to real property that constitute a profit à prendre for the severance of minerals, including all rights to use the surface or subsurface of the property as is necessary or convenient to the right to sever the minerals.  This paragraph does not exclude from the commercial lease classification leasehold rights to the real property that are granted in addition to and not included within the right of profit à prendre, but the tax base for the grant of such a leasehold right, if the gross income derived from the grant is not separately stated from the gross income derived from the grant of the profit à prendre, shall not exceed the fair market value of the leasehold rights computed after excluding the value of all rights under the profit à prendre.  For the purposes of this paragraph, "profit à prendre" means a right to use the land of another to mine minerals, and carries with it the right of entry and the right to remove and take the minerals from the land and also includes the right to use the surface of the land as is necessary and convenient for exercise of the profit.

D.  The tax base for the commercial lease classification is the gross proceeds of sales or gross income derived from the business, but reimbursements to the lessor for utility service shall be deducted from the tax base.

E.  Notwithstanding section 42‑1104, subsection B, paragraph 1, subdivision (b) and paragraph 2, the failure to file tax returns for the commercial lease classification that report gross income derived from any agreement that constitutes, in whole or in part, a grant of a right of profit à prendre for the severance of minerals does not constitute an exception to the general rule for the statute of limitations.

F.  Notwithstanding subsections B, C and D of this section, the items described in subsections B, C and D of this section shall not be deducted or exempted from the tax base for taxable periods beginning from and after December 31, 2019.  The legislature, by majority vote, may extend this date for any deduction or exemption allowed by this section.

F.  g.  For the purposes of this section:

1.  "Leasing" includes renting.

2.  "Real property" includes any improvements, rights or interest in such property. END_STATUTE

Sec. 10.  Section 42-5070, Arizona Revised Statutes, is amended to read:

START_STATUTE42-5070.  Transient lodging classification; definition

A.  The transient lodging classification is comprised of the business of operating, for occupancy by transients, a hotel or motel, including an inn, tourist home or house, dude ranch, resort, campground, studio or bachelor hotel, lodging house, rooming house, apartment house, dormitory, public or private club, mobile home or house trailer at a fixed location or other similar structure, and also including a space, lot or slab which is occupied or intended or designed for occupancy by transients in a mobile home or house trailer furnished by them for such occupancy.

B.  The transient lodging classification does not include:

1.  Operating a convalescent home or facility, home for the aged, hospital, jail, military installation or fraternity or sorority house or operating any structure exclusively by an association, institution, governmental agency or corporation for religious, charitable or educational purposes, if no part of the net earnings of the association, corporation or other entity inures to the benefit of any private shareholder or individual.

2.  A lease or rental of a mobile home or house trailer at a fixed location or any other similar structure, and also including a space, lot or slab which is occupied or intended or designed for occupancy by transients in a mobile home or house trailer furnished by them for such occupancy for thirty or more consecutive days.

3.  Leasing or renting four or fewer rooms of an owner‑occupied residential home, together with furnishing no more than a breakfast meal, to transient lodgers at no more than a fifty per cent average annual occupancy rate.

C.  The tax base for the transient lodging classification is the gross proceeds of sales or gross income derived from the business, except that the tax base does not include:

1.  Gross proceeds of sales or gross income derived from business activity that is properly included in another business classification under this article and that is taxable to the person engaged in that business classification, but the gross proceeds of sales or gross income to be deducted shall not exceed the consideration paid to the person conducting the activity.

2.  Gross proceeds of sales or gross income from leases or rentals of lodging space to a motion picture production company if, at the time of lease or rental, the motion picture production company presents to the business its certificate of qualification that is issued pursuant to section 42‑5009, subsection H.

D.  For the purposes of this section, the tax base for the transient lodging classification does not include gross proceeds of sales or gross income derived from:

1.  Transactions or activities that are not limited to transients and that would not be taxable if engaged in by a person not subject to tax under this article.

2.  Transactions or activities that are not limited to transients and that would not be taxable if engaged in by a person subject to taxation under section 42‑5062 or 42‑5073 due to an exclusion, exemption or deduction.

3.  Commissions paid to a person that is engaged in transient lodging business subject to taxation under this section by a person providing services or property to the customers of the person engaging in the transient lodging business.

E.  Notwithstanding subsections B, C and D of this section, the items described in subsections B, C and D of this section shall not be deducted or exempted from the tax base for taxable periods beginning from and after December 31, 2019.  The legislature, by majority vote, may extend this date for any deduction or exemption allowed by this section.

E.  f.  For the purposes of this section, "transient" means any person who either at the person's own expense or at the expense of another obtains lodging space or the use of lodging space on a daily or weekly basis, or on any other basis for less than thirty consecutive days. END_STATUTE

Sec. 11.  Section 42-5071, Arizona Revised Statutes, is amended to read:

START_STATUTE42-5071.  Personal property rental classification

A.  The personal property rental classification is comprised of the business of leasing or renting tangible personal property for a consideration.  The tax does not apply to:

1.  Leasing or renting films, tapes or slides used by theaters or movies, which are engaged in business under the amusement classification, or used by television stations or radio stations.

2.  Activities engaged in by the Arizona exposition and state fair board or county fair commissions in connection with events sponsored by such entities.

3.  Leasing or renting tangible personal property by a parent corporation to a subsidiary corporation or by a subsidiary corporation to another subsidiary of the same parent corporation if taxes were paid under this chapter on the gross proceeds or gross income accruing from the initial sale of the tangible personal property.  For the purposes of this paragraph, "subsidiary" means a corporation of which at least eighty per cent of the voting shares are owned by the parent corporation.

4.  Operating coin operated washing, drying and dry cleaning machines or coin operated car washing machines at establishments for the use of such machines.

5.  Leasing or renting tangible personal property for incorporation into or comprising any part of a qualified environmental technology facility as described in section 41‑1514.02.  This paragraph shall apply for ten full consecutive calendar or fiscal years following the initial lease or rental by each qualified environmental technology manufacturer, producer or processor.

6.  Leasing or renting aircraft, flight simulators or similar training equipment to students or staff by nonprofit, accredited educational institutions that offer associate or baccalaureate degrees in aviation or aerospace related fields.

7.  Leasing or renting photographs, transparencies or other creative works used by this state on internet web sites, in magazines or in other publications that encourage tourism.

B.  The tax base for the personal property rental classification is the gross proceeds of sales or gross income derived from the business, but the gross proceeds of sales or gross income derived from the following shall be deducted from the tax base:

1.  Reimbursements by the lessee to the lessor of a motor vehicle for payments by the lessor of the applicable fees and taxes imposed by sections 28‑2003, 28‑2352, 28‑2402, 28‑2481 and 28‑5801, title 28, chapter 15, article 2 and article IX, section 11, Constitution of Arizona, to the extent such amounts are separately identified as such fees and taxes and are billed to the lessee.

2.  Leases or rentals of tangible personal property which, if it had been purchased instead of leased or rented by the lessee, would have been exempt under:

(a)  Section 42‑5061, subsection A, paragraph 8, 9, 12, 13, 25, 29, 50 or 55.

(b)  Section 42‑5061, subsection B, except that a lease or rental of new machinery or equipment is not exempt pursuant to:

(i)  Section 42‑5061, subsection B, paragraph 13 if the lease is for less than two years.

(ii)  Section 42-5061, subsection B, paragraph 22 if the lease is for less than five years.

(c)  Section 42‑5061, subsection J, paragraph 1.

(d)  Section 42‑5061, subsection N.

3.  Motor vehicle fuel and use fuel that are subject to a tax imposed under title 28, chapter 16, article 1, sales of use fuel to a holder of a valid single trip use fuel tax permit issued under section 28‑5739 and sales of aviation fuel that are subject to the tax imposed under section 28‑8344.

4.  Leasing or renting a motor vehicle subject to and upon which the fee has been paid under title 28, chapter 16, article 4.

5.  Amounts received by a motor vehicle dealer for the first month of a lease payment if the lease and the lease payment for the first month of the lease are transferred to a third party leasing company.

C.  Sales of tangible personal property to be leased or rented to a person engaged in a business classified under the personal property rental classification are deemed to be resale sales.

D.  In computing the tax base, the gross proceeds of sales or gross income from the lease or rental of a motor vehicle does not include any amount attributable to the car rental surcharge under section 28‑5810 or 48‑4234.

E.  Until December 31, 1988, leasing or renting animals for recreational purposes is exempt from the tax imposed by this section.  Beginning January 1, 1989, the gross proceeds or gross income from leasing or renting animals for recreational purposes is subject to taxation under this section.  Tax liabilities, penalties and interest paid for taxable periods before January 1, 1989 shall not be refunded unless the taxpayer requesting the refund provides proof satisfactory to the department that the monies paid as taxes will be returned to the customer.

F.  Notwithstanding subsections A and B of this section, the items described in subsections A and B of this section shall not be deducted or exempted from the tax base for taxable periods beginning from and after December 31, 2019.  The legislature, by majority vote, may extend this date for any deduction or exemption allowed by this section. END_STATUTE

Sec. 12.  Section 42-5072, Arizona Revised Statutes, is amended to read:

START_STATUTE42-5072.  Mining classification; definition

A.  The mining classification is comprised of the business of mining, quarrying or producing for sale, profit or commercial use any nonmetalliferous mineral product that has been mined, quarried or otherwise extracted within the boundaries of this state described in article I, section 1, Constitution of Arizona.

B.  The tax base for the mining classification is the gross proceeds of sales or gross income derived from the business.  Through December 31, 2019, unless the legislature, by majority vote, extends this date, the gross proceeds of sales or gross income derived from sales described under section 42‑5061, subsection A, paragraph 27 and subsection J, paragraph 2 shall be deducted from the tax base.

C.  The tax base includes the value of the entire product mined, quarried or produced for sale, profit or commercial use in this state, regardless of the place of sale of the product or of the fact that deliveries may be made to points without this state.  If, however, the sale price of the product includes freight, the sale price shall be reduced by the actual freight paid by any person from the place of production to the place of delivery.

D.  In the case of a person engaged in business classified under the mining classification all or part of whose income is derived from service or manufacturing charges instead of from sales of the products manufactured or handled, the tax base includes the gross income of the person derived from the service or manufacturing charge.

E.  If a person engaging in business classified under the mining classification ships or transports all or part of a product out of this state without making sale of the product or ships his product outside of this state in an unfinished condition, the value of the product or article in the condition or form in which it existed when transported out of this state and before it enters interstate commerce is included in the tax base, and the department shall prescribe equitable and uniform rules for ascertaining that value.  In determining the tax base, if the product or any part of the product has been processed in this state and the proceeds of such processing have been included in the tax base of the processor under this chapter, the person may deduct from the value of the product when transported out of this state the cost of such processing.

F.  A person who conducts a business classified under the mining classification may be deemed also to be engaged in business classified under the retail classification to the extent the person's activities comprise business under the retail classification if the tax is paid at the rate imposed on the retail classification by section 42‑5010.  If the transaction is not subject to taxation under the retail classification, the transaction shall be included in the tax base under this section.

G.  For the purposes of this section, "nonmetalliferous mineral product" means oil, natural gas, limestone, sand, gravel or any other nonmetalliferous mineral product, compound or combination of nonmetalliferous mineral products. END_STATUTE

Sec. 13.  Section 42-5073, Arizona Revised Statutes, is amended to read:

START_STATUTE42-5073.  Amusement classification

A.  The amusement classification is comprised of the business of operating or conducting theaters, movies, operas, shows of any type or nature, exhibitions, concerts, carnivals, circuses, amusement parks, menageries, fairs, races, contests, games, billiard or pool parlors, bowling alleys, public dances, dance halls, boxing and wrestling matches, skating rinks, tennis courts, except as provided in subsection B of this section, video games, pinball machines, sports events or any other business charging admission or user fees for exhibition, amusement or entertainment, including the operation or sponsorship of events by a tourism and sports authority under title 5, chapter 8.  For purposes of this section, admission or user fees include, but are not limited to, any revenues derived from any form of contractual agreement for rights to or use of premium or special seating facilities or arrangements.  The amusement classification does not include:

1.  Activities or projects of bona fide religious or educational institutions.

2.  Private or group instructional activities.  For the purposes of this paragraph, "private or group instructional activities" includes, but is not limited to, performing arts, martial arts, gymnastics and aerobic instruction.

3.  The operation or sponsorship of events by the Arizona exposition and state fair board or county fair commissions.

4.  A musical, dramatic or dance group or a botanical garden, museum or zoo that is qualified as a nonprofit charitable organization under section 501(c)(3) of the United States internal revenue code and if no part of its net income inures to the benefit of any private shareholder or individual.

5.  Exhibition events in this state sponsored, conducted or operated by a nonprofit organization that is exempt from taxation under section 501(c)(3), 501(c)(4) or 501(c)(6) of the internal revenue code if the organization is associated with major league baseball teams or a national touring professional golfing association and no part of the organization's net earnings inures to the benefit of any private shareholder or individual.

6.  Operating or sponsoring rodeos that feature primarily farm and ranch animals in this state and that are sponsored, conducted or operated by a nonprofit organization that is exempt from taxation under section 501(c)(3), 501(c)(4), 501(c)(6), 501(c)(7) or 501(c)(8) of the internal revenue code and no part of the organization's net earnings inures to the benefit of any private shareholder or individual.

7.  Sales of admissions to intercollegiate football contests if the contests are both:

(a)  Operated by a nonprofit organization that is exempt from taxation under section 501(c)(3) of the internal revenue code and no part of the organization's net earnings inures to the benefit of any private shareholder or individual.

(b)  Not held in a multipurpose facility that is owned or operated by the tourism and sports authority pursuant to title 5, chapter 8.

8.  Activities and events of, or fees and assessments received by, a homeowners organization from persons who are members of the organization or accompanied guests of members.  For the purposes of this paragraph, "homeowners organization" means a mandatory membership organization comprised of owners of residential property within a specified residential real estate subdivision development or similar area and established to own property for the benefit of its members where both of the following apply:

(a)  No part of the organization's net earnings inures to the benefit of any private shareholder or individual.

(b)  The primary purpose of the organization is to provide for the acquisition, construction, management, maintenance or care of organization property.

9.  Activities and events of, or fees received by, a nonprofit organization that is exempt from taxation under section 501(c)(6) of the internal revenue code if the organization produces, organizes or promotes cultural or civic related festivals or events and no part of the organization's net earnings inures to the benefit of any private shareholder or individual.

10.  Arranging an amusement activity as a service to a person's customers if that person is not otherwise engaged in the business of operating or conducting an amusement personally or through others. This exception does not apply to businesses that operate or conduct amusements pursuant to customer orders and send the billings and receive the payments associated with that activity, including when the amusement is performed by third party independent contractors.  For the purposes of this paragraph, "arranging" includes billing for or collecting amusement charges from a person's customers on behalf of the persons providing the amusement.

B.  The tax base for the amusement classification is the gross proceeds of sales or gross income derived from the business, except that the following shall be deducted from the tax base:

1.  The gross proceeds of sales or gross income derived from memberships, including initiation fees, which provide for the right to use a health or fitness establishment or a private recreational establishment, or any portion of an establishment, including tennis and other racquet courts at that establishment, for participatory purposes for twenty‑eight days or more and fees charged for use of the health or fitness establishment or private recreational establishment by bona fide accompanied guests of members, except that this paragraph does not include additional fees, other than initiation fees, charged by a health or fitness establishment or a private recreational establishment for purposes other than memberships which provide for the right to use a health or fitness establishment or private recreational establishment, or any portion of an establishment, for participatory purposes for twenty‑eight days or more and accompanied guest use fees.

2.  Amounts that are exempt under section 5‑111, subsection H.

3.  The gross proceeds of sales or gross income derived from membership fees, including initiation fees, that provide for the right to use a transient lodging recreational establishment, including golf courses and tennis and other racquet courts at that establishment, for participatory purposes for twenty‑eight days or more, except that this paragraph does not include additional fees, other than initiation fees, that are charged by a transient lodging recreational establishment for purposes other than memberships and that provide for the right to use a transient lodging recreational establishment or any portion of the establishment for participatory purposes for twenty‑eight days or more.

4.  The gross proceeds of sales or gross income derived from sales to persons engaged in the business of transient lodging classified under section 42‑5070, if all of the following apply:

(a)  The persons who are engaged in the transient lodging business sell the amusement to another person for consideration.

(b)  The consideration received by the transient lodging business is equal to or greater than the amount to be deducted under this subsection.

(c)  The transient lodging business has provided an exemption certificate to the person engaging in business under this section.

5.  The gross proceeds of sales or gross income derived from:

(a)  Business activity that is properly included in any other business classification under this article and that is taxable to the person engaged in that classification, but the gross proceeds of sales or gross income to be deducted shall not exceed the consideration paid to the person conducting the activity.

(b)  Business activity that is arranged by the person who is subject to tax under this section and that is not taxable to the person conducting the activity due to an exclusion, exemption or deduction under this section or section 42‑5062, but the gross proceeds of sales or gross income to be deducted shall not exceed the consideration paid to the person conducting the activity.

(c)  Business activity that is arranged by a person who is subject to tax under this section and that is taxable to another person under this section who conducts the activity, but the gross proceeds of sales or gross income to be deducted shall not exceed the consideration paid to the person conducting the activity.

C.  For the purposes of subsection B of this section:

1.  "Health or fitness establishment" means a facility whose primary purpose is to provide facilities, equipment, instruction or education to promote the health and fitness of its members and at least eighty per cent of the monthly gross revenue of the facility is received through accounts of memberships and accompanied guest use fees which provide for the right to use the facility, or any portion of the facility, under the terms of the membership agreement for participatory purposes for twenty‑eight days or more.

2.  "Private recreational establishment" means a facility whose primary purpose is to provide recreational facilities, such as tennis, golf and swimming, for its members and where at least eighty per cent of the monthly gross revenue of the facility is received through accounts of memberships and accompanied guest use fees which provide for the right to use the facility, or any portion of the facility, for participatory purposes for twenty‑eight days or more.

3.  "Transient lodging recreational establishment" means a facility whose primary purpose is to provide facilities for transient lodging, that is subject to taxation under this chapter and that also provides recreational facilities, such as tennis, golf and swimming, for members for a period of twenty‑eight days or more.

D.  Until December 31, 1988, the revenues from hayrides and other animal‑drawn amusement rides, from horseback riding and riding instruction and from recreational tours using motor vehicles designed to operate on and off public highways are exempt from the tax imposed by this section.  Beginning January 1, 1989, the gross proceeds or gross income from hayrides and other animal‑drawn amusement rides, from horseback riding and from recreational tours using motor vehicles designed to operate on and off public highways are subject to taxation under this section.  Tax liabilities, penalties and interest paid for taxable periods before January 1, 1989 shall not be refunded unless the taxpayer requesting the refund provides proof satisfactory to the department that the taxes will be returned to the customer.

E.  If a person is engaged in the business of offering both exhibition, amusement or entertainment and private or group instructional activities, the person's books shall be kept to show separately the gross income from exhibition, amusement or entertainment and the gross income from instructional activities.  If the books do not provide this separate accounting, the tax is imposed on the person's total gross income from the business.

F.  For purposes of section 42‑5032.01, the department shall separately account for revenues collected under the amusement classification from sales of admissions to:

1.  Events that are held in a multipurpose facility that is owned or operated by the tourism and sports authority pursuant to title 5, chapter 8, including intercollegiate football contests that are operated by a nonprofit organization that is exempt from taxation under section 501(c)(3) of the internal revenue code.

2.  Professional football contests that are held in a stadium located on the campus of an institution under the jurisdiction of the Arizona board of regents.

G.  Notwithstanding subsections A and B of this section, the items described in subsections A and B of this section shall not be deducted or exempted from the tax base for taxable periods beginning from and after December 31, 2019.  The legislature, by majority vote, may extend this date for any deduction or exemption allowed by this section. END_STATUTE

Sec. 14.  Section 42-5074, Arizona Revised Statutes, is amended to read:

START_STATUTE42-5074.  Restaurant classification

A.  The restaurant classification is comprised of the business of operating restaurants, dining cars, dining rooms, lunchrooms, lunch stands, soda fountains, catering services or similar establishments where articles of food or drink are sold for consumption on or off the premises.

B.  The tax base for the restaurant classification is the gross proceeds of sales or gross income derived from the business.  The gross proceeds of sales or gross income derived from the following shall be deducted from the tax base:

1.  Sales to a person engaged in business classified under the restaurant classification if the items sold are to be resold in the regular course of the business.

2.  Sales by a congressionally chartered veterans organization of food or drink prepared for consumption on the premises leased, owned or maintained by the organization.

3.  Sales by churches, fraternal benefit societies and other nonprofit organizations, as these organizations are defined in the federal internal revenue code (26 United States Code section 501), which do not regularly engage or continue in the restaurant business for the purpose of fund‑raising.

4.  Sales by a nonprofit organization that is exempt from taxation under section 501(c)(3), 501(c)(4) or 501(c)(6) of the internal revenue code if the organization is associated with a major league baseball team or a national touring professional golfing association and no part of the organization's net earnings inures to the benefit of any private shareholder or individual.

5.  Sales at a rodeo featuring primarily farm and ranch animals in this state by a nonprofit organization that is exempt from taxation under section 501(c)(3), 501(c)(4), 501(c)(6), 501(c)(7) or 501(c)(8) of the internal revenue code and no part of the organization's net earnings inures to the benefit of any private shareholder or individual.

6.  Sales by any nonprofit organization organized and operated exclusively for charitable purposes and recognized by the United States internal revenue service under section 501(c)(3) of the internal revenue code.

7.  Sales to qualifying hospitals as defined in section 42‑5001.

8.  Sales to a qualifying health care organization as defined in section 42‑5001 if the tangible personal property is used by the organization solely to provide health and medical related educational and charitable services.

9.  Sales of food, drink and condiment for consumption within the premises of any prison, jail or other institution under the jurisdiction of the state department of corrections, the department of public safety, the department of juvenile corrections or a county sheriff.

10.  Sales of catered food, drink and condiment to a motion picture production company.  To qualify for this deduction, at the time of purchase, the motion picture production company must present to the business its certificate of qualification that is issued pursuant to section 42‑5009, subsection H and that establishes its qualification for the deduction.

11.  Sales of articles of prepared or unprepared food, drink or condiment and accessory tangible personal property to a school district or charter school if the articles and accessory tangible personal property are served to persons for consumption on the premises of a public school in the school district or charter school during school hours.

12.  Prepared food, drink or condiment donated by a restaurant to a nonprofit charitable organization that has qualified under section 501(c)(3) of the internal revenue code and that regularly serves meals to the needy and indigent on a continuing basis at no cost.

C.  The tax imposed on the restaurant classification pursuant to this section does not apply to the gross proceeds of sales or gross income from tangible personal property sold to a commercial airline consisting of food, beverages and condiments and accessories used for serving the food and beverages, if those items are to be provided without additional charge to passengers for consumption in flight.  For the purposes of this subsection, "commercial airline" means a person holding a federal certificate of public convenience and necessity or foreign air carrier permit for air transportation to transport persons, property or United States mail in intrastate, interstate or foreign commerce.

D.  For purposes of section 42‑5032.01, the department shall separately account for revenues collected under the restaurant classification from businesses operating restaurants, dining rooms, lunchrooms, lunch stands, soda fountains, catering services or similar establishments:

1.  On the premises of a multipurpose facility that is owned or operated by the tourism and sports authority pursuant to title 5, chapter 8 for consumption on or off the premises.

2.  At professional football contests that are held in a stadium located on the campus of an institution under the jurisdiction of the Arizona board of regents.

E.  Notwithstanding subsections B and C of this section, the items described in subsections B and C of this section shall not be deducted or exempted from the tax base for taxable periods beginning from and after December 31, 2019.  The legislature, by majority vote, may extend this date for any deduction or exemption allowed by this section. END_STATUTE

Sec. 15.  Section 42-5075, Arizona Revised Statutes, is amended to read:

START_STATUTE42-5075.  Prime contracting classification; exemptions; definitions

A.  The prime contracting classification is comprised of the business of prime contracting and dealership of manufactured buildings.  Sales for resale to another dealership of manufactured buildings are not subject to tax.  Sales for resale do not include sales to a lessor of manufactured buildings.  The sale of a used manufactured building is not taxable under this chapter.  The proceeds from alteration and repairs to a used manufactured building are taxable under this section.

B.  The tax base for the prime contracting classification is sixty‑five per cent of the gross proceeds of sales or gross income derived from the business.  Through December 31, 2019, unless the legislature, by majority vote extends this date, the following amounts shall be deducted from the gross proceeds of sales or gross income before computing the tax base:

1.  The sales price of land, which shall not exceed the fair market value.

2.  Sales and installation of groundwater measuring devices required under section 45‑604 and groundwater monitoring wells required by law, including monitoring wells installed for acquiring information for a permit required by law.

3.  The sales price of furniture, furnishings, fixtures, appliances and attachments that are not incorporated as component parts of or attached to a manufactured building or the setup site.  The sale of such items may be subject to the taxes imposed by article 1 of this chapter separately and distinctly from the sale of the manufactured building.

4.  The gross proceeds of sales or gross income received from a contract entered into for the construction, alteration, repair, addition, subtraction, improvement, movement, wrecking or demolition of any building, highway, road, railroad, excavation, manufactured building or other structure, project, development or improvement located in a military reuse zone for providing aviation or aerospace services or for a manufacturer, assembler or fabricator of aviation or aerospace products within an active military reuse zone after the zone is initially established or renewed under section 41‑1531.  To be eligible to qualify for this deduction, before beginning work under the contract, the prime contractor must have applied for a letter of qualification from the department of revenue.

5.  The gross proceeds of sales or gross income derived from a contract to construct a qualified environmental technology manufacturing, producing or processing facility, as described in section 41‑1514.02, and from subsequent construction and installation contracts that begin within ten years after the start of initial construction.  To qualify for this deduction, before beginning work under the contract, the prime contractor must obtain a letter of qualification from the department of revenue.  This paragraph shall apply for ten full consecutive calendar or fiscal years after the start of initial construction.

6.  The gross proceeds of sales or gross income from a contract to provide for one or more of the following actions, or a contract for site preparation, constructing, furnishing or installing machinery, equipment or other tangible personal property, including structures necessary to protect exempt incorporated materials or installed machinery or equipment, and tangible personal property incorporated into the project, to perform one or more of the following actions in response to a release or suspected release of a hazardous substance, pollutant or contaminant from a facility to the environment, unless the release was authorized by a permit issued by a governmental authority:

(a)  Actions to monitor, assess and evaluate such a release or a suspected release.

(b)  Excavation, removal and transportation of contaminated soil and its treatment or disposal.

(c)  Treatment of contaminated soil by vapor extraction, chemical or physical stabilization, soil washing or biological treatment to reduce the concentration, toxicity or mobility of a contaminant.

(d)  Pumping and treatment or in situ treatment of contaminated groundwater or surface water to reduce the concentration or toxicity of a contaminant.

(e)  The installation of structures, such as cutoff walls or caps, to contain contaminants present in groundwater or soil and prevent them from reaching a location where they could threaten human health or welfare or the environment.

This paragraph does not include asbestos removal or the construction or use of ancillary structures such as maintenance sheds, offices or storage facilities for unattached equipment, pollution control equipment, facilities or other control items required or to be used by a person to prevent or control contamination before it reaches the environment.

7.  The gross proceeds of sales or gross income that is derived from a contract entered into for the installation, assembly, repair or maintenance of machinery, equipment or other tangible personal property that is deducted from the tax base of the retail classification pursuant to section 42‑5061, subsection B, or that is exempt from use tax pursuant to section 42‑5159, subsection B, and that does not become a permanent attachment to a building, highway, road, railroad, excavation or manufactured building or other structure, project, development or improvement.  If the ownership of the realty is separate from the ownership of the machinery, equipment or tangible personal property, the determination as to permanent attachment shall be made as if the ownership were the same.  The deduction provided in this paragraph does not include gross proceeds of sales or gross income from that portion of any contracting activity which consists of the development of, or modification to, real property in order to facilitate the installation, assembly, repair, maintenance or removal of machinery, equipment or other tangible personal property that is deducted from the tax base of the retail classification pursuant to section 42‑5061, subsection B or that is exempt from use tax pursuant to section 42‑5159, subsection B.  For the purposes of this paragraph, "permanent attachment" means at least one of the following:

(a)  To be incorporated into real property.

(b)  To become so affixed to real property that it becomes a part of the real property.

(c)  To be so attached to real property that removal would cause substantial damage to the real property from which it is removed.

8.  Through December 31, 2009, the gross proceeds of sales or gross income received from a contract for constructing any lake facility development in a commercial enhancement reuse district that is designated pursuant to section 9‑499.08 if the prime contractor maintains the following records in a form satisfactory to the department and to the city or town in which the property is located:

(a)  The certificate of qualification of the lake facility development issued by the city or town pursuant to section 9‑499.08, subsection D.

(b)  All state and local transaction privilege tax returns for the period of time during which the prime contractor received gross proceeds of sales or gross income from a contract to construct a lake facility development in a designated commercial enhancement reuse district, showing the amount exempted from state and local taxation.

(c)  Any other information that the department considers to be necessary.

9.  The gross proceeds of sales or gross income attributable to the purchase of machinery, equipment or other tangible personal property that is exempt from or deductible from transaction privilege and use tax under:

(a)  Section 42‑5061, subsection A, paragraph 25 or 29.

(b)  Section 42‑5061, subsection B.

(c)  Section 42‑5159, subsection A, paragraph 13, subdivision (a), (b), (c), (d), (e), (f), (i), (j) or (l).

(d)  Section 42‑5159, subsection B.

10.  The gross proceeds of sales or gross income received from a contract for the construction of an environmentally controlled facility for the raising of poultry for the production of eggs and the sorting, cooling and packaging of eggs.

11.  The gross proceeds of sales or gross income that is derived from a contract entered into with a person who is engaged in the commercial production of livestock, livestock products or agricultural, horticultural, viticultural or floricultural crops or products in this state for the construction, alteration, repair, improvement, movement, wrecking or demolition or addition to or subtraction from any building, highway, road, excavation, manufactured building or other structure, project, development or improvement used directly and primarily to prevent, monitor, control or reduce air, water or land pollution.

12.  The gross proceeds of sales or gross income that is derived from the installation, assembly, repair or maintenance of clean rooms that are deducted from the tax base of the retail classification pursuant to section 42‑5061, subsection B, paragraph 17.

13.  For taxable periods beginning from and after June 30, 2001, the gross proceeds of sales or gross income derived from a contract entered into for the construction of a residential apartment housing facility that qualifies for a federal housing subsidy for low income persons over sixty‑two years of age and that is owned by a nonprofit charitable organization that has qualified under section 501(c)(3) of the internal revenue code.

14.  For taxable periods beginning from and after December 31, 1996 and ending before January 1, 2017, the gross proceeds of sales or gross income derived from a contract to provide and install a solar energy device.  The contractor shall register with the department as a solar energy contractor.  By registering, the contractor acknowledges that it will make its books and records relating to sales of solar energy devices available to the department for examination.

15.  The gross proceeds of sales or gross income derived from a contract entered into for the construction of a launch site, as defined in 14 Code of Federal Regulations section 401.5.

16.  The gross proceeds of sales or gross income derived from a contract entered into for the construction of a domestic violence shelter that is owned and operated by a nonprofit charitable organization that has qualified under section 501(c)(3) of the internal revenue code.

17.  The gross proceeds of sales or gross income derived from contracts to perform postconstruction treatment of real property for termite and general pest control, including wood destroying organisms.

18.  The gross proceeds of sales or gross income received from contracts entered into before July 1, 2006 for constructing a state university research infrastructure project if the project has been reviewed by the joint committee on capital review before the university enters into the construction contract for the project.  For the purposes of this paragraph, "research infrastructure" has the same meaning prescribed in section 15‑1670.

19.  The gross proceeds of sales or gross income received from a contract for the construction of any building, or other structure, project, development or improvement owned by a qualified business under section 41‑1516 for harvesting or the initial processing of qualifying forest products removed from qualifying projects as defined in section 41‑1516 if actual construction begins before January 1, 2010.  To qualify for this deduction, the prime contractor must obtain a letter of qualification from the department of commerce before beginning work under the contract.

20.  The gross proceeds of sales or gross income received from a contract for the construction of any building or other structure associated with motion picture production in this state.  To qualify for the deduction, at the time the contract is entered into the motion picture production company must present to the prime contractor its certificate that is issued pursuant to section 42‑5009, subsection H and that establishes its qualification for the deduction.

21.  Any amount of the gross proceeds of sales or gross income attributable to development fees that are incurred in relation to a contract for construction, development or improvement of real property and that are paid by a prime contractor or subcontractor.  For the purposes of this paragraph:

(a)  The attributable amount shall not exceed the value of the development fees actually imposed.

(b)  The attributable amount is equal to the total amount of development fees paid by the prime contractor or subcontractor, and the total development fees credited in exchange for the construction of, contribution to or dedication of real property for providing public infrastructure, public safety or other public services necessary to the development. The real property must be the subject of the development fees.

(c)  "Development fees" means fees imposed to offset capital costs of providing public infrastructure, public safety or other public services to a development and authorized pursuant to section 9-463.05, section 11-1102 or title 48 regardless of the jurisdiction to which the fees are paid.

C.  Entitlement to the deduction pursuant to subsection B, paragraph 7 of this section is subject to the following provisions:

1.  A prime contractor may establish entitlement to the deduction by both:

(a)  Marking the invoice for the transaction to indicate that the gross proceeds of sales or gross income derived from the transaction was deducted from the base.

(b)  Obtaining a certificate executed by the purchaser indicating the name and address of the purchaser, the precise nature of the business of the purchaser, the purpose for which the purchase was made, the necessary facts to establish the deductibility of the property under section 42‑5061, subsection B, and a certification that the person executing the certificate is authorized to do so on behalf of the purchaser.  The certificate may be disregarded if the prime contractor has reason to believe that the information contained in the certificate is not accurate or complete.

2.  A person who does not comply with paragraph 1 of this subsection may establish entitlement to the deduction by presenting facts necessary to support the entitlement, but the burden of proof is on that person.

3.  The department may prescribe a form for the certificate described in paragraph 1, subdivision (b) of this subsection.  The department may also adopt rules that describe the transactions with respect to which a person is not entitled to rely solely on the information contained in the certificate provided in paragraph 1, subdivision (b) of this subsection but must instead obtain such additional information as required in order to be entitled to the deduction.

4.  If a prime contractor is entitled to a deduction by complying with paragraph 1 of this subsection, the department may require the purchaser who caused the execution of the certificate to establish the accuracy and completeness of the information required to be contained in the certificate which would entitle the prime contractor to the deduction.  If the purchaser cannot establish the accuracy and completeness of the information, the purchaser is liable in an amount equal to any tax, penalty and interest which the prime contractor would have been required to pay under article 1 of this chapter if the prime contractor had not complied with paragraph 1 of this subsection.  Payment of the amount under this paragraph exempts the purchaser from liability for any tax imposed under article 4 of this chapter.  The amount shall be treated as a transaction privilege tax to the purchaser and as tax revenues collected from the prime contractor in order to designate the distribution base for purposes of section 42‑5029.

D.  Subcontractors or others who perform services in respect to any improvement, building, highway, road, railroad, excavation, manufactured building or other structure, project, development or improvement are not subject to tax if they can demonstrate that the job was within the control of a prime contractor or contractors or a dealership of manufactured buildings and that the prime contractor or dealership is liable for the tax on the gross income, gross proceeds of sales or gross receipts attributable to the job and from which the subcontractors or others were paid.

E.  Amounts received by a contractor for a project are excluded from the contractor's gross proceeds of sales or gross income derived from the business if the person who hired the contractor executes and provides a certificate to the contractor stating that the person providing the certificate is a prime contractor and is liable for the tax under article 1 of this chapter.  The department shall prescribe the form of the certificate.  If the contractor has reason to believe that the information contained on the certificate is erroneous or incomplete, the department may disregard the certificate.  If the person who provides the certificate is not liable for the tax as a prime contractor, that person is nevertheless deemed to be the prime contractor in lieu of the contractor and is subject to the tax under this section on the gross receipts or gross proceeds received by the contractor.

F.  Every person engaging or continuing in this state in the business of prime contracting or dealership of manufactured buildings shall present to the purchaser of such prime contracting or manufactured building a written receipt of the gross income or gross proceeds of sales from such activity and shall separately state the taxes to be paid pursuant to this section.

G.  For the purposes of section 42‑5032.01, the department shall separately account for revenues collected under the prime contracting classification from any prime contractor engaged in the preparation or construction of a multipurpose facility, and related infrastructure, that is owned, operated or leased by the tourism and sports authority pursuant to title 5, chapter 8.

H.  Through December 31, 2019, unless the legislature, by majority vote, extends this date, the gross proceeds of sales or gross income derived from a contract for lawn maintenance services are not subject to tax under this section if the contract does not include landscaping activities.  Lawn maintenance service is a service pursuant to section 42‑5061, subsection A, paragraph 1, and includes lawn mowing and edging, weeding, repairing sprinkler heads or drip irrigation heads, seasonal replacement of flowers, refreshing gravel, lawn de‑thatching, seeding winter lawns, leaf and debris collection and removal, tree or shrub pruning or clipping, garden and gravel raking and applying pesticides, as defined in section 3‑361, and fertilizer materials, as defined in section 3‑262.

I.  The gross proceeds of sales or gross income derived from landscaping activities are subject to tax under this section.  Landscaping includes installing lawns, grading or leveling ground, installing gravel or boulders, planting trees and other plants, felling trees, removing or mulching tree stumps, removing other imbedded plants, building or modifying irrigation berms, repairing sprinkler or watering systems, installing railroad ties and installing underground sprinkler or watering systems.

J.  Through December 31, 2019, unless the legislature, by majority vote, extends this date, the portion of gross proceeds of sales or gross income attributable to the actual direct costs of providing architectural or engineering services that are incorporated in a contract is not subject to tax under this section.  For the purposes of this subsection, "direct costs" means the portion of the actual costs that are directly expended in providing architectural or engineering services.

K.  Through December 31, 2019, unless the legislature, by majority vote, extends this date, operating a landfill or a solid waste disposal facility is not subject to taxation under this section, including filling, compacting and creating vehicle access to and from cell sites within the landfill. Constructing roads to a landfill or solid waste disposal facility and constructing cells within a landfill or solid waste disposal facility may be deemed prime contracting under this section.

L.  The following apply to manufactured buildings:

1.  For sales in this state where the dealership of manufactured buildings contracts to deliver the building to a setup site or to perform the setup in this state, the taxable situs is the setup site.

2.  For sales in this state where the dealership of manufactured buildings does not contract to deliver the building to a setup site or does not perform the setup, the taxable situs is the location of the dealership where the building is delivered to the buyer.

3.  For sales in this state where the dealership of manufactured buildings contracts to deliver the building to a setup site that is outside this state, the situs is outside this state and the transaction is excluded from tax.

M.  Through December 31, 2019, unless the legislature, by majority vote, extends this date, the gross proceeds of sales or gross income attributable to a separate, written design phase services contract or professional services contract, executed before modification begins, is not subject to tax under this section, regardless of whether the services are provided sequential to or concurrent with prime contracting activities that are subject to tax under this section.  This subsection does not include the gross proceeds of sales or gross income attributable to construction phase services.  For the purposes of this subsection:

1.  "Construction phase services" means services for the execution and completion of any modification, including the following:

(a)  Administration or supervision of any modification performed on the project, including team management and coordination, scheduling, cost controls, submittal process management, field management, safety program, close-out process and warranty period services.

(b)  Administration or supervision of any modification performed pursuant to a punch list.  For the purposes of this subdivision, "punch list" means minor items of modification work performed after substantial completion and before final completion of the project.

(c)  Administration or supervision of any modification performed pursuant to change orders.  For the purposes of this subdivision, "change order" means a written instrument issued after execution of a contract for modification work, providing for all of the following:

(i)  The scope of a change in the modification work, contract for modification work or other contract documents.

(ii)  The amount of an adjustment, if any, to the guaranteed maximum price as set in the contract for modification work.  For the purposes of this item, "guaranteed maximum price" means the amount guaranteed to be the maximum amount due to a prime contractor for the performance of all modification work for the project.

(iii)  The extent of an adjustment, if any, to the contract time of performance set forth in the contract.

(d)  Administration or supervision of any modification performed pursuant to change directives.  For the purposes of this subdivision, "change directive" means a written order directing a change in modification work before agreement on an adjustment of the guaranteed maximum price or contract time.

(e)  Inspection to determine the dates of substantial completion or final completion.

(f)  Preparation of any manuals, warranties, as-built drawings, spares or other items the prime contractor must furnish pursuant to the contract for modification work.  For the purposes of this subdivision, "as-built drawing" means a drawing that indicates field changes made to adapt to field conditions, field changes resulting from change orders or buried and concealed installation of piping, conduit and utility services.

(g)  Preparation of status reports after modification work has begun detailing the progress of work performed, including preparation of any of the following:

(i)  Master schedule updates.

(ii)  Modification work cash flow projection updates.

(iii)  Site reports made on a periodic basis.

(iv)  Identification of discrepancies, conflicts or ambiguities in modification work documents that require resolution.

(v)  Identification of any health and safety issues that have arisen in connection with the modification work.

(h)  Preparation of daily logs of modification work, including documentation of personnel, weather conditions and on‑site occurrences.

(i)  Preparation of any submittals or shop drawings used by the prime contractor to illustrate details of the modification work performed.

(j)  Administration or supervision of any other activities for which a prime contractor receives a certificate for payment or certificate for final payment based on the progress of modification work performed on the project.

2.  "Design phase services" means services for developing and completing a design for a project that are not construction phase services, including the following:

(a)  Evaluating surveys, reports, test results or any other information on-site conditions for the project, including physical characteristics, legal limitations and utility locations for the site.

(b)  Evaluating any criteria or programming objectives for the project to ascertain requirements for the project, such as physical requirements affecting cost or projected utilization of the project.

(c)  Preparing drawings and specifications for architectural program documents, schematic design documents, design development documents, modification work documents or documents that identify the scope of or materials for the project.

(d)  Preparing an initial schedule for the project, excluding the preparation of updates to the master schedule after modification work has begun.

(e)  Preparing preliminary estimates of costs of modification work before completion of the final design of the project, including an estimate or schedule of values for any of the following:

(i)  Labor, materials, machinery and equipment, tools, water, heat, utilities, transportation and other facilities and services used in the execution and completion of modification work, regardless of whether they are temporary or permanent or whether they are incorporated in the modifications.

(ii)  The cost of labor and materials to be furnished by the owner of the real property.

(iii)  The cost of any equipment of the owner of the real property to be assigned by the owner to the prime contractor.

(iv)  The cost of any labor for installation of equipment separately provided by the owner of the real property that has been designed, specified, selected or specifically provided for in any design document for the project.

(v)  Any fee paid by the owner of the real property to the prime contractor pursuant to the contract for modification work.

(vi)  Any bond and insurance premiums.

(vii)  Any applicable taxes.

(viii)  Any contingency fees for the prime contractor that may be used before final completion of the project.

(f)  Reviewing and evaluating cost estimates and project documents to prepare recommendations on site use, site improvements, selection of materials, building systems and equipment, modification feasibility, availability of materials and labor, local modification activity as related to schedules and time requirements for modification work.

(g)  Preparing the plan and procedures for selection of subcontractors, including any prequalification of subcontractor candidates.

3.  "Professional services" means architect services, assayer services, engineer services, geologist services, land surveying services or landscape architect services that are within the scope of those services as provided in title 32, chapter 1 and for which gross proceeds of sales or gross income has not otherwise been deducted under subsection J of this section.

N.  Notwithstanding subsection O, paragraph 8 of this section, a person owning real property who enters into a contract for sale of the real property, who is responsible to the new owner of the property for modifications made to the property in the period subsequent to the transfer of title and who receives a consideration for the modifications is considered a prime contractor solely for purposes of taxing the gross proceeds of sale or gross income received for the modifications made subsequent to the transfer of title.  The original owner's gross proceeds of sale or gross income received for the modifications shall be determined according to the following methodology:

1.  If any part of the contract for sale of the property specifies amounts to be paid to the original owner for the modifications to be made in the period subsequent to the transfer of title, the amounts are included in the original owner's gross proceeds of sale or gross income under this section.  Proceeds from the sale of the property that are received after transfer of title and that are unrelated to the modifications made subsequent to the transfer of title are not considered gross proceeds of sale or gross income from the modifications.

2.  If the original owner enters into an agreement separate from the contract for sale of the real property providing for amounts to be paid to the original owner for the modifications to be made in the period subsequent to the transfer of title to the property, the amounts are included in the original owner's gross proceeds of sale or gross income received for the modifications made subsequent to the transfer of title.

3.  If the original owner is responsible to the new owner for modifications made to the property in the period subsequent to the transfer of title and derives any gross proceeds of sale or gross income from the project subsequent to the transfer of title other than a delayed disbursement from escrow unrelated to the modifications, it is presumed that the amounts are received for the modifications made subsequent to the transfer of title unless the contrary is established by the owner through its books, records and papers kept in the regular course of business.

4.  The tax base of the original owner is computed in the same manner as a prime contractor under this section.

O.  For the purposes of this section:

1.  "Contracting" means engaging in business as a contractor.

2.  "Contractor" is synonymous with the term "builder" and means any person or organization that undertakes to or offers to undertake to, or purports to have the capacity to undertake to, or submits a bid to, or does personally or by or through others, modify any building, highway, road, railroad, excavation, manufactured building or other structure, project, development or improvement, or to do any part of such a project, including the erection of scaffolding or other structure or works in connection with such a project, and includes subcontractors and specialty contractors.  For all purposes of taxation or deduction, this definition shall govern without regard to whether or not such contractor is acting in fulfillment of a contract.

3.  "Dealership of manufactured buildings" means a dealer who either:

(a)  Is licensed pursuant to title 41, chapter 16 and who sells manufactured buildings to the final consumer.

(b)  Supervises, performs or coordinates the excavation and completion of site improvements, setup or moving of a manufactured building including the contracting, if any, with any subcontractor or specialty contractor for the completion of the contract.

4.  "Manufactured building" means a manufactured home, mobile home or factory‑built building, as defined in section 41‑2142.

5.  "Modification" means construction, alteration, repair, addition, subtraction, improvement, movement, wreckage or demolition.

6.  "Modify" means to construct, alter, repair, add to, subtract from, improve, move, wreck or demolish.

7.  "Prime contracting" means engaging in business as a prime contractor.

8.  "Prime contractor" means a contractor who supervises, performs or coordinates the modification of any building, highway, road, railroad, excavation, manufactured building or other structure, project, development or improvement including the contracting, if any, with any subcontractors or specialty contractors and who is responsible for the completion of the contract.  Except as provided in subsections E and N of this section, a person who owns real property, who engages one or more contractors to modify that real property and who does not itself modify that real property is not a prime contractor within the meaning of this paragraph regardless of the existence of a contract for sale or the subsequent sale of that real property.

9.  "Sale of a used manufactured building" does not include a lease of a used manufactured building. END_STATUTE

Sec. 16.  Section 42-5102, Arizona Revised Statutes, is amended to read:

START_STATUTE42-5102.  Tax exemption for sales of food; nonexempt sales

A.  Through December 31, 2019, unless the legislature, by majority vote, extends this date, except for the gross proceeds of sales or gross income from the sale of food for consumption on the premises, the taxes imposed by this chapter do not apply to the gross proceeds of sales or gross income from sales of food by any of the following:

1.  A retailer who conducts an eligible grocery business.

2.  A retailer who conducts a business whose primary business is not the sale of food but who sells food which is displayed, packaged and sold in a similar manner as an eligible grocery business.

3.  A retailer who sells food and does not provide or make available any facilities for the consumption of food on the premises.

4.  A retailer who conducts a delicatessen business either from a counter which is separate from the place and cash register where taxable sales are made or from a counter which has two cash registers which are used to record taxable and tax exempt sales or a retailer who conducts a delicatessen business and who uses a cash register which has at least two tax computing keys which are used to record taxable and tax exempt sales.

5.  A retailer who is a street or sidewalk vendor and who uses a pushcart, mobile facility, motor vehicle or other such conveyance.

6.  Vending machines and other types of automatic retailers.

B.  Through December 31, 2019, unless the legislature, by majority vote, extends this date, the taxes imposed by this chapter do not apply to the gross proceeds of sales or gross income from sales of food by a state university or community college or its designee on its campuses to students using a validated meal ticket or to patients purchasing or consuming food at the Arizona health sciences center.

C.  Through December 31, 2019, unless the legislature, by majority vote, extends this date, the taxes imposed by this chapter do not apply to the gross proceeds of sales or gross income from sales of food by a retailer to:

1.  A regularly organized private or parochial school that offers an educational program for grade twelve or under which may be attended in substitution for a public school pursuant to section 15‑802.

2.  A child care facility that is licensed under section 36‑882 or a child care group home certified under section 36‑897.01.

3.  A facility which provides on a regular basis care and supervision of persons who, because of age or a mental or physical condition, are incapable of caring for themselves and where they are unaccompanied by their custodians or guardians for periods of less than twenty-four hours a day.

4.  An organization which is tax exempt under section 501(c)(3) of the internal revenue code and which provides the articles to persons with a nominal charge or without a monetary charge.

5.  A prison, jail or other institution under the jurisdiction of the state department of corrections, the department of public safety, the department of juvenile corrections or a county sheriff for consumption on the premises. END_STATUTE

Sec. 17.  Section 42-5159, Arizona Revised Statutes, is amended to read:

START_STATUTE42-5159.  Exemptions

A.  The tax levied by this article does not apply to the storage, use or consumption in this state of the following described tangible personal property:

1.  Tangible personal property sold in this state, the gross receipts from the sale of which are included in the measure of the tax imposed by articles 1 and 2 of this chapter.

2.  Tangible personal property the sale or use of which has already been subjected to an excise tax at a rate equal to or exceeding the tax imposed by this article under the laws of another state of the United States. If the excise tax imposed by the other state is at a rate less than the tax imposed by this article, the tax imposed by this article is reduced by the amount of the tax already imposed by the other state.

3.  Tangible personal property, the storage, use or consumption of which the constitution or laws of the United States prohibit this state from taxing or to the extent that the rate or imposition of tax is unconstitutional under the laws of the United States.

4.  Tangible personal property which directly enters into and becomes an ingredient or component part of any manufactured, fabricated or processed article, substance or commodity for sale in the regular course of business.

5.  Motor vehicle fuel and use fuel, the sales, distribution or use of which in this state is subject to the tax imposed under title 28, chapter 16, article 1, use fuel which is sold to or used by a person holding a valid single trip use fuel tax permit issued under section 28‑5739, aviation fuel, the sales, distribution or use of which in this state is subject to the tax imposed under section 28‑8344, and jet fuel, the sales, distribution or use of which in this state is subject to the tax imposed under article 8 of this chapter.

6.  Tangible personal property brought into this state by an individual who was a nonresident at the time the property was purchased for storage, use or consumption by the individual if the first actual use or consumption of the property was outside this state, unless the property is used in conducting a business in this state.

7.  Purchases of implants used as growth promotants and injectable medicines, not already exempt under paragraph 16 of this subsection, for livestock and poultry owned by, or in possession of, persons who are engaged in producing livestock, poultry, or livestock or poultry products, or who are engaged in feeding livestock or poultry commercially.  For the purposes of this paragraph, "poultry" includes ratites.

8.  Livestock, poultry, supplies, feed, salts, vitamins and other additives for use or consumption in the businesses of farming, ranching and feeding livestock or poultry, not including fertilizers, herbicides and insecticides.  For the purposes of this paragraph, "poultry" includes ratites.

9.  Seeds, seedlings, roots, bulbs, cuttings and other propagative material for use in commercially producing agricultural, horticultural, viticultural or floricultural crops in this state.

10.  Tangible personal property not exceeding two hundred dollars in any one month purchased by an individual at retail outside the continental limits of the United States for the individual's own personal use and enjoyment.

11.  Advertising supplements which are intended for sale with newspapers published in this state and which have already been subjected to an excise tax under the laws of another state in the United States which equals or exceeds the tax imposed by this article.

12.  Materials that are purchased by or for publicly funded libraries including school district libraries, charter school libraries, community college libraries, state university libraries or federal, state, county or municipal libraries for use by the public as follows:

(a)  Printed or photographic materials, beginning August 7, 1985.

(b)  Electronic or digital media materials, beginning July 17, 1994.

13.  Tangible personal property purchased by:

(a)  A hospital organized and operated exclusively for charitable purposes, no part of the net earnings of which inures to the benefit of any private shareholder or individual.

(b)  A hospital operated by this state or a political subdivision of this state.

(c)  A licensed nursing care institution or a licensed residential care institution or a residential care facility operated in conjunction with a licensed nursing care institution or a licensed kidney dialysis center, which provides medical services, nursing services or health related services and is not used or held for profit.

(d)  A qualifying health care organization, as defined in section 42‑5001, if the tangible personal property is used by the organization solely to provide health and medical related educational and charitable services.

(e)  A qualifying health care organization as defined in section 42‑5001 if the organization is dedicated to providing educational, therapeutic, rehabilitative and family medical education training for blind, visually impaired and multihandicapped children from the time of birth to age twenty‑one.

(f)  A nonprofit charitable organization that has qualified under section 501(c)(3) of the United States internal revenue code and that engages in and uses such property exclusively in programs for mentally or physically handicapped persons if the programs are exclusively for training, job placement, rehabilitation or testing.

(g)  A person that is subject to tax under article 1 of this chapter by reason of being engaged in business classified under the prime contracting classification under section 42‑5075, or a subcontractor working under the control of a prime contractor, if the tangible personal property is any of the following:

(i)  Incorporated or fabricated by the contractor into a structure, project, development or improvement in fulfillment of a contract.

(ii)  Used in environmental response or remediation activities under section 42‑5075, subsection B, paragraph 6.

(iii)  Incorporated or fabricated by the person into any lake facility development in a commercial enhancement reuse district under conditions prescribed for the deduction allowed by section 42‑5075, subsection B, paragraph 8.

(h)  A nonprofit charitable organization that has qualified under section 501(c)(3) of the internal revenue code if the property is purchased from the parent or an affiliate organization that is located outside this state.

(i)  A qualifying community health center as defined in section 42‑5001.

(j)  A nonprofit charitable organization that has qualified under section 501(c)(3) of the internal revenue code and that regularly serves meals to the needy and indigent on a continuing basis at no cost.

(k)  A person engaged in business under the transient lodging classification if the property is a personal hygiene item or articles used by human beings for food, drink or condiment, except alcoholic beverages, which are furnished without additional charge to and intended to be consumed by the transient during the transient's occupancy.

(l)  For taxable periods beginning from and after June 30, 2001, a nonprofit charitable organization that has qualified under section 501(c)(3) of the internal revenue code and that provides residential apartment housing for low income persons over sixty‑two years of age in a facility that qualifies for a federal housing subsidy, if the tangible personal property is used by the organization solely to provide residential apartment housing for low income persons over sixty‑two years of age in a facility that qualifies for a federal housing subsidy.

14.  Commodities, as defined by title 7 United States Code section 2, that are consigned for resale in a warehouse in this state in or from which the commodity is deliverable on a contract for future delivery subject to the rules of a commodity market regulated by the United States commodity futures trading commission.

15.  Tangible personal property sold by:

(a)  Any nonprofit organization organized and operated exclusively for charitable purposes and recognized by the United States internal revenue service under section 501(c)(3) of the internal revenue code.

(b)  A nonprofit organization that is exempt from taxation under section 501(c)(3) or 501(c)(6) of the internal revenue code if the organization is associated with a major league baseball team or a national touring professional golfing association and no part of the organization's net earnings inures to the benefit of any private shareholder or individual.

(c)  A nonprofit organization that is exempt from taxation under section 501(c)(3), 501(c)(4), 501(c)(6), 501(c)(7) or 501(c)(8) of the internal revenue code if the organization sponsors or operates a rodeo featuring primarily farm and ranch animals and no part of the organization's net earnings inures to the benefit of any private shareholder or individual.

16.  Drugs and medical oxygen, including delivery hose, mask or tent, regulator and tank, on the prescription of a member of the medical, dental or veterinarian profession who is licensed by law to administer such substances.

17.  Prosthetic appliances, as defined in section 23‑501, prescribed or recommended by a person who is licensed, registered or otherwise professionally credentialed as a physician, dentist, podiatrist, chiropractor, naturopath, homeopath, nurse or optometrist.

18.  Prescription eyeglasses and contact lenses.

19.  Insulin, insulin syringes and glucose test strips.

20.  Hearing aids as defined in section 36‑1901.

21.  Durable medical equipment which has a centers for medicare and medicaid services common procedure code, is designated reimbursable by medicare, is prescribed by a person who is licensed under title 32, chapter 7, 13, 17 or 29, can withstand repeated use, is primarily and customarily used to serve a medical purpose, is generally not useful to a person in the absence of illness or injury and is appropriate for use in the home.

22.  Food, as provided in and subject to the conditions of article 3 of this chapter and section 42‑5074.

23.  Items purchased with United States department of agriculture food stamp coupons issued under the food stamp act of 1977 (P.L. 95‑113; 91 Stat. 958) or food instruments issued under section 17 of the child nutrition act (P.L. 95‑627; 92 Stat. 3603; P.L. 99‑661, section 4302; 42 United States Code section 1786).

24.  Food and drink provided without monetary charge by a taxpayer which is subject to section 42‑5074 to its employees for their own consumption on the premises during the employees' hours of employment.

25.  Tangible personal property that is used or consumed in a business subject to section 42‑5074 for human food, drink or condiment, whether simple, mixed or compounded.

26.  Food, drink or condiment and accessory tangible personal property that are acquired for use by or provided to a school district or charter school if they are to be either served or prepared and served to persons for consumption on the premises of a public school in the school district or on the premises of the charter school during school hours.

27.  Lottery tickets or shares purchased pursuant to title 5, chapter 5, article 1.

28.  Textbooks, sold by a bookstore, that are required by any state university or community college.

29.  Magazines, other periodicals or other publications produced by this state to encourage tourist travel.

30.  Paper machine clothing, such as forming fabrics and dryer felts, purchased by a paper manufacturer and directly used or consumed in paper manufacturing.

31.  Coal, petroleum, coke, natural gas, virgin fuel oil and electricity purchased by a qualified environmental technology manufacturer, producer or processor as defined in section 41‑1514.02 and directly used or consumed in the generation or provision of on‑site power or energy solely for environmental technology manufacturing, producing or processing or environmental protection.  This paragraph shall apply for twenty full consecutive calendar or fiscal years from the date the first paper manufacturing machine is placed in service.  In the case of an environmental technology manufacturer, producer or processor who does not manufacture paper, the time period shall begin with the date the first manufacturing, processing or production equipment is placed in service.

32.  Motor vehicles that are removed from inventory by a motor vehicle dealer as defined in section 28‑4301 and that are provided to:

(a)  Charitable or educational institutions that are exempt from taxation under section 501(c)(3) of the internal revenue code.

(b)  Public educational institutions.

(c)  State universities or affiliated organizations of a state university if no part of the organization's net earnings inures to the benefit of any private shareholder or individual.

33.  Natural gas or liquefied petroleum gas used to propel a motor vehicle.

34.  Machinery, equipment, technology or related supplies that are only useful to assist a person who is physically disabled as defined in section 46‑191, has a developmental disability as defined in section 36‑551 or has a head injury as defined in section 41‑3201 to be more independent and functional.

35.  Liquid, solid or gaseous chemicals used in manufacturing, processing, fabricating, mining, refining, metallurgical operations, research and development and, beginning on January 1, 1999, printing, if using or consuming the chemicals, alone or as part of an integrated system of chemicals, involves direct contact with the materials from which the product is produced for the purpose of causing or permitting a chemical or physical change to occur in the materials as part of the production process.  This paragraph does not include chemicals that are used or consumed in activities such as packaging, storage or transportation but does not affect any exemption for such chemicals that is otherwise provided by this section.  For the purposes of this paragraph, "printing" means a commercial printing operation and includes job printing, engraving, embossing, copying and bookbinding.

36.  Food, drink and condiment purchased for consumption within the premises of any prison, jail or other institution under the jurisdiction of the state department of corrections, the department of public safety, the department of juvenile corrections or a county sheriff.

37.  A motor vehicle and any repair and replacement parts and tangible personal property becoming a part of such motor vehicle sold to a motor carrier who is subject to a fee prescribed in title 28, chapter 16, article 4 and who is engaged in the business of leasing or renting such property.

38.  Tangible personal property which is or directly enters into and becomes an ingredient or component part of cards used as prescription plan identification cards.

39.  Overhead materials or other tangible personal property that is used in performing a contract between the United States government and a manufacturer, modifier, assembler or repairer, including property used in performing a subcontract with a government contractor who is a manufacturer, modifier, assembler or repairer, to which title passes to the government under the terms of the contract or subcontract.  For the purposes of this paragraph:

(a)  "Overhead materials" means tangible personal property, the gross proceeds of sales or gross income derived from which would otherwise be included in the retail classification, and which are used or consumed in the performance of a contract, the cost of which is charged to an overhead expense account and allocated to various contracts based upon generally accepted accounting principles and consistent with government contract accounting standards.

(b)  "Subcontract" means an agreement between a contractor and any person who is not an employee of the contractor for furnishing of supplies or services that, in whole or in part, are necessary to the performance of one or more government contracts, or under which any portion of the contractor's obligation under one or more government contracts is performed, undertaken or assumed, and that includes provisions causing title to overhead materials or other tangible personal property used in the performance of the subcontract to pass to the government or that includes provisions incorporating such title passing clauses in a government contract into the subcontract.

40.  Through December 31, 1994, tangible personal property sold pursuant to a personal property liquidation transaction, as defined in section 42‑5061.  From and after December 31, 1994, tangible personal property sold pursuant to a personal property liquidation transaction, as defined in section 42‑5061, if the gross proceeds of the sales were included in the measure of the tax imposed by article 1 of this chapter or if the personal property liquidation was a casual activity or transaction.

41.  Wireless telecommunications equipment that is held for sale or transfer to a customer as an inducement to enter into or continue a contract for telecommunications services that are taxable under section 42‑5064.

42.  Alternative fuel, as defined in section 1‑215, purchased by a used oil fuel burner who has received a permit to burn used oil or used oil fuel under section 49‑426 or 49‑480.

43.  Tangible personal property purchased by a commercial airline and consisting of food, beverages and condiments and accessories used for serving the food and beverages, if those items are to be provided without additional charge to passengers for consumption in flight.  For the purposes of this paragraph, "commercial airline" means a person holding a federal certificate of public convenience and necessity or foreign air carrier permit for air transportation to transport persons, property or United States mail in intrastate, interstate or foreign commerce.

44.  Alternative fuel vehicles if the vehicle was manufactured as a diesel fuel vehicle and converted to operate on alternative fuel and equipment that is installed in a conventional diesel fuel motor vehicle to convert the vehicle to operate on an alternative fuel, as defined in section 1‑215.

45.  Gas diverted from a pipeline, by a person engaged in the business of:

(a)  Operating a natural or artificial gas pipeline, and used or consumed for the sole purpose of fueling compressor equipment that pressurizes the pipeline.

(b)  Converting natural gas into liquefied natural gas, and used or consumed for the sole purpose of fueling compressor equipment used in the conversion process.

46.  Tangible personal property that is excluded, exempt or deductible from transaction privilege tax pursuant to section 42‑5063.

47.  Tangible personal property purchased to be incorporated or installed as part of environmental response or remediation activities under section 42‑5075, subsection B, paragraph 6.

48.  Tangible personal property sold by a nonprofit organization that is exempt from taxation under section 501(c)(6) of the internal revenue code if the organization produces, organizes or promotes cultural or civic related festivals or events and no part of the organization's net earnings inures to the benefit of any private shareholder or individual.

49.  Prepared food, drink or condiment donated by a restaurant as classified in section 42‑5074, subsection A to a nonprofit charitable organization that has qualified under section 501(c)(3) of the internal revenue code and that regularly serves meals to the needy and indigent on a continuing basis at no cost.

50.  Application services that are designed to assess or test student learning or to promote curriculum design or enhancement purchased by or for any school district, charter school, community college or state university.  For the purposes of this paragraph:

(a)  "Application services" means software applications provided remotely using hypertext transfer protocol or another network protocol.

(b)  "Curriculum design or enhancement" means planning, implementing or reporting on courses of study, lessons, assignments or other learning activities.

B.  In addition to the exemptions allowed by subsection A of this section, the following categories of tangible personal property are also exempt:

1.  Machinery, or equipment, used directly in manufacturing, processing, fabricating, job printing, refining or metallurgical operations.  The terms "manufacturing", "processing", "fabricating", "job printing", "refining" and "metallurgical" as used in this paragraph refer to and include those operations commonly understood within their ordinary meaning.  "Metallurgical operations" includes leaching, milling, precipitating, smelting and refining.

2.  Machinery, or equipment, used directly in the process of extracting ores or minerals from the earth for commercial purposes, including equipment required to prepare the materials for extraction and handling, loading or transporting such extracted material to the surface.  "Mining" includes underground, surface and open pit operations for extracting ores and minerals.

3.  Tangible personal property sold to persons engaged in business classified under the telecommunications classification under section 42‑5064 and consisting of central office switching equipment, switchboards, private branch exchange equipment, microwave radio equipment and carrier equipment including optical fiber, coaxial cable and other transmission media which are components of carrier systems.

4.  Machinery, equipment or transmission lines used directly in producing or transmitting electrical power, but not including distribution.  Transformers and control equipment used at transmission substation sites constitute equipment used in producing or transmitting electrical power.

5.  Neat animals, horses, asses, sheep, ratites, swine or goats used or to be used as breeding or production stock, including sales of breedings or ownership shares in such animals used for breeding or production.

6.  Pipes or valves four inches in diameter or larger used to transport oil, natural gas, artificial gas, water or coal slurry, including compressor units, regulators, machinery and equipment, fittings, seals and any other part that is used in operating the pipes or valves.

7.  Aircraft, navigational and communication instruments and other accessories and related equipment sold to:

(a)  A person holding a federal certificate of public convenience and necessity, a supplemental air carrier certificate under federal aviation regulations (14 Code of Federal Regulations part 121) or a foreign air carrier permit for air transportation for use as or in conjunction with or becoming a part of aircraft to be used to transport persons, property or United States mail in intrastate, interstate or foreign commerce.

(b)  Any foreign government, or sold to persons who are not residents of this state and who will not use such property in this state other than in removing such property from this state.

8.  Machinery, tools, equipment and related supplies used or consumed directly in repairing, remodeling or maintaining aircraft, aircraft engines or aircraft component parts by or on behalf of a certificated or licensed carrier of persons or property.

9.  Rolling stock, rails, ties and signal control equipment used directly to transport persons or property.

10.  Machinery or equipment used directly to drill for oil or gas or used directly in the process of extracting oil or gas from the earth for commercial purposes.

11.  Buses or other urban mass transit vehicles which are used directly to transport persons or property for hire or pursuant to a governmentally adopted and controlled urban mass transportation program and which are sold to bus companies holding a federal certificate of convenience and necessity or operated by any city, town or other governmental entity or by any person contracting with such governmental entity as part of a governmentally adopted and controlled program to provide urban mass transportation.

12.  Groundwater measuring devices required under section 45‑604.

13.  New machinery and equipment consisting of tractors, tractor‑drawn implements, self‑powered implements, machinery and equipment necessary for extracting milk, and machinery and equipment necessary for cooling milk and livestock, and drip irrigation lines not already exempt under paragraph 6 of this subsection and that are used for commercial production of agricultural, horticultural, viticultural and floricultural crops and products in this state.  For the purposes of this paragraph:

(a)  "New machinery and equipment" means machinery or equipment which has never been sold at retail except pursuant to leases or rentals which do not total two years or more.

(b)  "Self‑powered implements" includes machinery and equipment that are electric‑powered.

14.  Machinery or equipment used in research and development.  For the purposes of this paragraph, "research and development" means basic and applied research in the sciences and engineering, and designing, developing or testing prototypes, processes or new products, including research and development of computer software that is embedded in or an integral part of the prototype or new product or that is required for machinery or equipment otherwise exempt under this section to function effectively.  Research and development do not include manufacturing quality control, routine consumer product testing, market research, sales promotion, sales service, research in social sciences or psychology, computer software research that is not included in the definition of research and development, or other nontechnological activities or technical services.

15.  Machinery and equipment that are purchased by or on behalf of the owners of a soundstage complex and primarily used for motion picture, multimedia or interactive video production in the complex.  This paragraph applies only if the initial construction of the soundstage complex begins after June 30, 1996 and before January 1, 2002 and the machinery and equipment are purchased before the expiration of five years after the start of initial construction.  For the purposes of this paragraph:

(a)  "Motion picture, multimedia or interactive video production" includes products for theatrical and television release, educational presentations, electronic retailing, documentaries, music videos, industrial films, CD‑ROM, video game production, commercial advertising and television episode production and other genres that are introduced through developing technology.

(b)  "Soundstage complex" means a facility of multiple stages including production offices, construction shops and related areas, prop and costume shops, storage areas, parking for production vehicles and areas that are leased to businesses that complement the production needs and orientation of the overall facility.

16.  Tangible personal property that is used by either of the following to receive, store, convert, produce, generate, decode, encode, control or transmit telecommunications information:

(a)  Any direct broadcast satellite television or data transmission service that operates pursuant to 47 Code of Federal Regulations part 25.

(b)  Any satellite television or data transmission facility, if both of the following conditions are met:

(i)  Over two‑thirds of the transmissions, measured in megabytes, transmitted by the facility during the test period were transmitted to or on behalf of one or more direct broadcast satellite television or data transmission services that operate pursuant to 47 Code of Federal Regulations part 25.

(ii)  Over two‑thirds of the transmissions, measured in megabytes, transmitted by or on behalf of those direct broadcast television or data transmission services during the test period were transmitted by the facility to or on behalf of those services.

For the purposes of subdivision (b) of this paragraph, "test period" means the three hundred sixty‑five day period beginning on the later of the date on which the tangible personal property is purchased or the date on which the direct broadcast satellite television or data transmission service first transmits information to its customers.

17.  Clean rooms that are used for manufacturing, processing, fabrication or research and development, as defined in paragraph 14 of this subsection, of semiconductor products.  For the purposes of this paragraph, "clean room" means all property that comprises or creates an environment where humidity, temperature, particulate matter and contamination are precisely controlled within specified parameters, without regard to whether the property is actually contained within that environment or whether any of the property is affixed to or incorporated into real property.  Clean room:

(a)  Includes the integrated systems, fixtures, piping, movable partitions, lighting and all property that is necessary or adapted to reduce contamination or to control airflow, temperature, humidity, chemical purity or other environmental conditions or manufacturing tolerances, as well as the production machinery and equipment operating in conjunction with the clean room environment.

(b)  Does not include the building or other permanent, nonremovable component of the building that houses the clean room environment.

18.  Machinery and equipment that are used directly in the feeding of poultry, the environmental control of housing for poultry, the movement of eggs within a production and packaging facility or the sorting or cooling of eggs.  This exemption does not apply to vehicles used for transporting eggs.

19.  Machinery or equipment, including related structural components, that is employed in connection with manufacturing, processing, fabricating, job printing, refining, mining, natural gas pipelines, metallurgical operations, telecommunications, producing or transmitting electricity or research and development and that is used directly to meet or exceed rules or regulations adopted by the federal energy regulatory commission, the United States environmental protection agency, the United States nuclear regulatory commission, the Arizona department of environmental quality or a political subdivision of this state to prevent, monitor, control or reduce land, water or air pollution.

20.  Machinery and equipment that are used in the commercial production of livestock, livestock products or agricultural, horticultural, viticultural or floricultural crops or products in this state and that are used directly and primarily to prevent, monitor, control or reduce air, water or land pollution.

21.  Machinery or equipment that enables a television station to originate and broadcast or to receive and broadcast digital television signals and that was purchased to facilitate compliance with the telecommunications act of 1996 (P.L. 104‑104; 110 Stat. 56; 47 United States Code section 336) and the federal communications commission order issued April 21, 1997 (47 Code of Federal Regulations part 73).  This paragraph does not exempt any of the following:

(a)  Repair or replacement parts purchased for the machinery or equipment described in this paragraph.

(b)  Machinery or equipment purchased to replace machinery or equipment for which an exemption was previously claimed and taken under this paragraph.

(c)  Any machinery or equipment purchased after the television station has ceased analog broadcasting, or purchased after November 1, 2009, whichever occurs first.

22.  Qualifying equipment that is purchased from and after June 30, 2004 through June 30, 2014 by a qualified business under section 41‑1516 for harvesting or the initial processing of qualifying forest products removed from qualifying projects as defined in section 41‑1516.  To qualify for this exemption, the qualified business must obtain and present its certification from the Arizona commerce authority at the time of purchase.

23.  Machinery, equipment and other tangible personal property used directly in motion picture production by a motion picture production company. To qualify for this exemption, at the time of purchase, the motion picture production company must present to the retailer its certificate that is issued pursuant to section 42-5009, subsection H and that establishes its qualification for the exemption.

C.  The exemptions provided by subsection B of this section do not include:

1.  Expendable materials.  For the purposes of this paragraph, expendable materials do not include any of the categories of tangible personal property specified in subsection B of this section regardless of the cost or useful life of that property.

2.  Janitorial equipment and hand tools.

3.  Office equipment, furniture and supplies.

4.  Tangible personal property used in selling or distributing activities, other than the telecommunications transmissions described in subsection B, paragraph 16 of this section.

5.  Motor vehicles required to be licensed by this state, except buses or other urban mass transit vehicles specifically exempted pursuant to subsection B, paragraph 11 of this section, without regard to the use of such motor vehicles.

6.  Shops, buildings, docks, depots and all other materials of whatever kind or character not specifically included as exempt.

7.  Motors and pumps used in drip irrigation systems.

D.  The following shall be deducted in computing the purchase price of electricity by a retail electric customer from a utility business:

1.  Revenues received from sales of ancillary services, electric distribution services, electric generation services, electric transmission services and other services related to providing electricity to a retail electric customer who is located outside this state for use outside this state if the electricity is delivered to a point of sale outside this state.

2.  Revenues received from providing electricity, including ancillary services, electric distribution services, electric generation services, electric transmission services and other services related to providing electricity with respect to which the transaction privilege tax imposed under section 42‑5063 has been paid.

E.  The tax levied by this article does not apply to:

1.  The storage, use or consumption in Arizona of machinery, equipment, materials or other tangible personal property if used directly and predominantly to construct a qualified environmental technology manufacturing, producing or processing facility, as described in section 41‑1514.02.  This paragraph applies for ten full consecutive calendar or fiscal years after the start of initial construction.

2.  The purchase of electricity by a qualified environmental technology manufacturer, producer or processor as defined in section 41‑1514.02 that is used directly in environmental technology manufacturing, producing or processing. This paragraph shall apply for twenty full consecutive calendar or fiscal years from the date the first paper manufacturing machine is placed in service.  In the case of an environmental technology manufacturer, producer or processor who does not manufacture paper, the time period shall begin with the date the first manufacturing, processing or production equipment is placed in service.

3.  The purchase of solar energy devices from a retailer that is registered with the department as a solar energy retailer or a solar energy contractor.

F.  The following shall be deducted in computing the purchase price of electricity by a retail electric customer from a utility business:

1.  Fees charged by a municipally owned utility to persons constructing residential, commercial or industrial developments or connecting residential, commercial or industrial developments to a municipal utility system or systems if the fees are segregated and used only for capital expansion, system enlargement or debt service of the utility system or systems.

2.  Reimbursement or contribution compensation to any person or persons owning a utility system for property and equipment installed to provide utility access to, on or across the land of an actual utility consumer if the property and equipment become the property of the utility.  This deduction shall not exceed the value of such property and equipment.

G.  Notwithstanding subsections A and B of this section, the items described in subsections A and B of this section shall not be deducted or exempted from the tax base for taxable periods beginning from and after December 31, 2019.  The legislature, by majority vote, may extend this date for any deduction or exemption allowed by this section.  

G.  h.  For the purposes of subsection B of this section:

1.  "Aircraft" includes:

(a)  An airplane flight simulator that is approved by the federal aviation administration for use as a phase II or higher flight simulator under appendix H, 14 Code of Federal Regulations part 121.

(b)  Tangible personal property that is permanently affixed or attached as a component part of an aircraft that is owned or operated by a certificated or licensed carrier of persons or property.

2.  "Other accessories and related equipment" includes aircraft accessories and equipment such as ground service equipment that physically contact aircraft at some point during the overall carrier operation.

H.  I.  For the purposes of subsection D of this section, "ancillary services", "electric distribution service", "electric generation service", "electric transmission service" and "other services" have the same meanings prescribed in section 42‑5063. END_STATUTE

Sec. 18.  Section 43-223, Arizona Revised Statutes, is amended to read:

START_STATUTE43-223.  Requirements for new income tax credits established by the legislature

Any new individual or corporate income tax credit that is enacted by the legislature shall include in its enabling legislation:

1.  A specific review year for the joint legislative income tax credit review committee to review the credit.  The specific review year shall be the fifth full calendar year following the date the credit is enacted.

2.  A specific repeal date for the tax credit.  The repeal date shall be from and after December 31 of the seventh full calendar year following the date the credit is enacted.  The required repeal does not affect the carryforward of any tax credit to which a taxpayer is entitled.  A taxpayer may continue to apply the amounts carried forward to subsequent years' income tax liabilities as provided by the credit.

2.  3.  A purpose clause that explains the rationale and objective of the tax credit. END_STATUTE

Sec. 19.  Section 43-1071, Arizona Revised Statutes, is amended to read:

START_STATUTE43-1071.  Credit for income taxes paid to other states; definitions

A.  For taxable years through December 31, 2019, unless the legislature, by majority vote, extends this date, and subject to the following conditions, residents shall be allowed a credit against the taxes imposed by this chapter for net income taxes imposed by and paid to another state or country on income taxable under this chapter:

1.  The credit shall be allowed only for taxes paid to the other state or country on income that is derived from sources within that state or country and that is taxable under its laws irrespective of the residence or domicile of the recipient.

2.  The credit shall not be allowed if the other state or country allows residents of this state a credit against the taxes imposed by that state or country for taxes paid or payable under this chapter.

3.  The credit shall not exceed the proportion of the tax payable under this chapter as the income subject to tax in the other state or country and also taxable under this title bears to the taxpayer's entire income on which the tax is imposed by this chapter.

B.  If any taxes paid to another state or country for which a taxpayer has been allowed a credit under this section are at any time credited or refunded to the taxpayer:

1.  The taxpayer shall immediately report that fact to the department.

2.  A tax equal to the credit allowed for the taxes credited or refunded by the other state or country is due and payable from the taxpayer on notice and demand from the department.

3.  Interest shall be added to and collected as a part of the tax at the rate determined pursuant to section 42‑1123 from the date the credit was allowed under this chapter to the date of the notice and demand.

4.  If the tax and interest are not paid within ten days from the date of notice and demand, there shall be collected as a part of the tax interest on the unpaid amount of tax and interest at the rate of twelve per cent a year from the date of the notice and demand until the amount is paid.

C.  The credit against the taxes imposed by this chapter for net income taxes paid to another state or country shall not be allowed to any taxpayer or any class of taxpayers if the allowances of the credit will result in any invalid or illegal discrimination against another taxpayer or another class of taxpayers.

D.  For taxable years beginning on or after January 1, 2002 through December 31, 2019, unless the legislature, by majority vote, extends this date, and subject to the following conditions, a resident of this state, who is also considered to be a resident of another state under the laws of the other state, is allowed a credit against the taxes imposed by this title for net income taxes imposed by and paid to that state on income taxable under this title as follows:

1.  The credit is allowed only if the other state taxes the income to the resident of this state and does not allow the taxpayer a credit against taxes imposed by that state on that income for taxes paid or payable on that income under this title.

2.  The credit is allowed only for the proportion of the taxes paid to the other state as the income taxable under this title and also subject to tax in the other state bears to the entire income on which the taxes paid to the other state are imposed.

3.  The credit may not exceed the proportion of the tax payable under this title as the income taxable under this title and also subject to tax in the other state bears to the entire income taxable under this title.

4.  For the purpose of the credit allowed under this subsection, "income taxable under this title and also subject to tax in the other state" means income that would be sourced to the other state if the other state were imposing its income tax on the taxpayer as if the taxpayer was a nonresident of that other state.

E.  For the purposes of this section, net income taxes imposed by another country include taxes that qualify for a credit under sections 901 and 903 of the internal revenue code and the regulations under those sections.

F.  For the purposes of this section:

1.  "Entire income on which the other state's or country's tax is imposed" means the other state's or country's income computed under the equivalent of section 43-1094 but does not include any exemption allowable under the equivalent of section 43-1023.

2.  "Entire income on which the tax is imposed by this chapter" means Arizona adjusted gross income as defined and computed under section 43-1001 but does not include any exemption allowed under section 43-1023.

3.  "Income subject to tax in the other state or country and also taxable under this title" means the portion of income that is included in entire income on which the tax is imposed under by this chapter that is also included in the entire income on which the other state's or country's tax is imposed.  The taxpayer shall increase or reduce the portion of income that is included in the entire income on which the tax is imposed under by this chapter by any related additions under section 43-1021 and by any related subtractions under section 43-1022.  The taxpayer shall increase or reduce the portion of income that is included in the entire income on which the other state's or country's tax is imposed by any related additions and subtractions under the other state's equivalent of sections 43‑1021 and 43‑1022, as applicable.

4.  "Tax payable under this chapter" means the income tax imposed by this state on the taxpayer's taxable income as defined under section 43-1001 minus all of the following:

(a)  The reduction amount received under section 16-954, subsection A.

(b)  Any tax credit amount claimed under section 16-954, subsection B.

(c)  Any tax credit amount claimed for the taxable year under this article but not including the credit amount allowed under this section. END_STATUTE

Sec. 20.  Section 43-1072, Arizona Revised Statutes, is amended to read:

START_STATUTE43-1072.  Earned credit for property taxes; residents sixty-five years of age or older; definitions

A.  For taxable years through December 31, 2019, unless the legislature, by majority vote, extends this date, there shall be allowed to each resident a credit against the taxes imposed by this title for a taxable year for property taxes accrued or rent, or both, paid in that taxable year, in accordance with subsection B of this section, if all of the following apply:

1.  Such resident attained the age of sixty-five years prior to or during the taxable year or such resident is a recipient of public monies under title 16 of the social security act, as amended.

2.  Such person paid either property taxes or rent during the taxable year.

3.  Such person either:

(a)  Did not live with a spouse or any other persons and had an income from all sources in the taxable year of less than three thousand seven hundred fifty-one dollars.

(b)  Lived with a spouse or one or more persons and the combined income from all sources in the taxable year of all persons residing in the residence was less than five thousand five hundred one dollars.

B.  The credit allowed under this section is the amount of property taxes actually paid during the taxable year or the amount computed as follows, whichever is less:

1.  For a person eligible under subsection A, paragraph 3, subdivision (a) of this section, according to the following table:

Household Income                    Tax Credit

$    0-1,750                          $502

 1,751-1,850                           479

 1,851-1,950                          457

 1,951-2,050                          435

 2,051-2,150                          412

 2,151-2,250                          390

 2,251-2,350                          368

 2,351-2,450                          345

 2,451-2,550                          323

 2,551-2,650                          301

 2,651-2,750                          279

 2,751-2,850                          256

 2,851-2,950                          234

 2,951-3,050                          212

 3,051-3,150                          189

 3,151-3,250                          167

 3,251-3,350                          145

 3,351-3,450                          123

 3,451-3,550                          100

 3,551-3,650                            78

 3,651-3,750                            56

2.  For a person eligible under subsection A, paragraph 3, subdivision (b) of this section, according to the following table:

      Household Income                    Tax Credit

      $    0-2,500                           $502

       2,501-2,650                          479

       2,651-2,800                          457

       2,801-2,950                          435

       2,951-3,100                          412

       3,101-3,250                          390

       3,251-3,400                          368

       3,401-3,550                          345

       3,551-3,700                          323

       3,701-3,850                          301

       3,851-4,000                          279

       4,001-4,150                          256

       4,151-4,300                          234

       4,301-4,450                          212

       4,451-4,600                          189

       4,601-4,750                          167

       4,751-4,900                          145

       4,901-5,050                          123

       5,051-5,200                          100

       5,201-5,350                            78

       5,351-5,500                            56

C.  The owner or lessor of property leased or rented solely for residential purposes, on request, shall furnish to the tenants of the property a written statement of the percentage of rental payments that are attributable to property tax for purposes of this section.

D.  Disposition of the claimant's allowable credit shall be as provided below:

1.  If the allowable amount of such claim exceeds the income taxes otherwise due on the claimant's income, the amount of the claim not used as an offset against income taxes, after audit by the department, shall be paid in the same manner as a refund granted under chapter 6, article 1 of this title.  Refunds made pursuant to this paragraph are subject to setoff under section 42-1122.

2.  The amount of any claim otherwise payable for credit for property taxes accrued or rent may be applied by the department against any liability outstanding on the books of the department against the claimant or against the claimant's spouse who was a member of the claimant's household in the taxable year.

E.  The department shall make available suitable forms with instructions for claimants.  Claimants who certify on the prescribed form that they have no income tax liability for the taxable year shall not be required to file an individual income tax return.  The claim shall be in such form as the department may prescribe but shall require the social security numbers of persons who were allowed to claim as dependents for the taxes imposed by this title claimants filing pursuant to this section. The claimant shall also submit a copy of the claimant's property tax statement or a suitable representation of the statement as prescribed by the department.  The department shall audit a sufficient number of claims to enforce the provisions of this chapter.

F.  No claim with respect to property taxes or with respect to rent shall be allowed or paid unless the claim is actually filed on or before April 15 for the next preceding calendar year.  The department may, upon request, may grant for a period of not to exceed six months an extension of time for filing the claim.

G.  Only one claimant per household per year shall be entitled to a tax credit pursuant to this section.

H.  In For the purposes of this section, unless the context otherwise requires:

1.  "Claimant" means a person who has filed a claim for credit under this section and was a resident of this state during the entire taxable year.  In the case of a claim for rent, the claimant shall have rented property in this state during the entire taxable year except as otherwise provided by this section.  If two individuals of a household are able to meet the qualifications for a claimant, they may determine between them as to whom the claimant shall be.  If they are unable to agree, the matter shall be referred to the department and its decision shall be final.  If a homestead is occupied by two or more individuals and more than one individual is able to qualify as a claimant, and some or all of the qualified individuals are not related, the individuals may determine among them as to whom the claimant shall be.  If they are unable to agree, the matter shall be referred to the department, and its decision shall be final.

2.  "Gross rent" means rental paid for the right of occupancy of a homestead or space rental paid to a landlord for the parking of a mobile home.  If the department is satisfied that the gross rent charge was paid solely for purposes of receiving a credit pursuant to this section, it shall not allow a claim.

3.  "Homestead" means the principal dwelling, whether owned or rented by the claimant.  "Homestead" may also include a mobile home and the land upon which it is located.

4.  "Household" means the household of the claimant and such other persons as resided with the claimant in the claimant's homestead during the taxable year.

5.  "Household income" means all income received by all persons of a household in a taxable year while members of the household.

6.  "Income" means the sum of the following:

(a)  Adjusted gross income as defined by the department.

(b)  The amount of capital gains excluded from adjusted gross income.

(c)  Nontaxable strike benefits.

(d)  Nontaxable interest received from the federal government or any of its instrumentalities.

(e)  Payments received from a retirement program paid by this state or any of its political subdivisions.

(f)  Payments received from a retirement program paid by the United States through any of its agencies, instrumentalities or programs, except as provided in subsection I of this section.

(g)  The gross amount of any pension or annuity not otherwise exempted except as provided in subsection I of this section.

7.  "Property taxes" means property taxes levied on a claimant's homestead in this state in any taxable year.  For purposes of this paragraph, property taxes are "levied" when the tax roll is delivered to the county treasurer for collection.  If a claimant and the claimant's household own their homestead part of the taxable year and rent it or different homesteads for the rest of the same year, provided property taxes were levied on the homestead which was owned by the claimant and the claimant's household, such claimant shall be eligible for a credit pursuant to this section.

I.  Income as defined in subsection H, paragraph 6, subdivisions (f) and (g) of this section shall not include monies received from cash public assistance and relief, relief granted under the provisions of this section, railroad retirement benefits, payments received under the federal social security act (49 Stat. 620), payments received under Arizona state unemployment insurance laws, payments received from veterans' disability pensions, payments received as workers' compensation, the gross amount of "loss of time" insurance, and gifts from nongovernmental sources or surplus foods or other relief in kind supplied by a governmental agency. END_STATUTE

Sec. 21.  Section 43-1072.01, Arizona Revised Statutes, is amended to read:

START_STATUTE43-1072.01.  Credit for increased excise taxes paid

A.  Subject to the conditions prescribed by this section and if approved by the qualified electors voting at a statewide general election, for tax years beginning from and after December 31, 2000 through December 31, 2019, unless the legislature, by majority vote, extends this date, a credit is allowed against the taxes imposed by this chapter for a taxable year for a taxpayer who is not claimed as a dependent by any other taxpayer and whose federal adjusted gross income is:

1.  Twenty‑five thousand dollars or less for a married couple or a single person who is a head of a household.

2.  Twelve thousand five hundred dollars or less for a single person or a married person filing separately.

B.  The credit is considered to be in mitigation of increased tax rates pursuant to section 42‑5010, subsection G and section 42‑5155, subsection D.

C.  The amount of the credit shall not exceed twenty‑five dollars for each person who is a resident of this state and for whom a personal or dependent exemption is allowed with respect to the taxpayer pursuant to section 43‑1023, subsection B, paragraph 1 and section 43‑1043, but not more than one hundred dollars for all persons in the taxpayer's household, as defined in section 43‑1072.

D.  If the allowable amount of the credit exceeds the income taxes otherwise due on the claimant's income, the amount of the claim not used as an offset against income taxes shall be paid in the same manner as a refund granted under section 42‑1118.  Refunds made pursuant to this subsection are subject to setoff under section 42‑1122.

E.  The department shall make available suitable forms with instructions for claimants.  Claimants who certify on the prescribed form that they have no income tax liability for the taxable year and who do not meet the filing requirements of section 43‑301 are not required to file an individual income tax return.  The claim shall be in a form prescribed by the department.

F.  For taxable years beginning from and after December 31, 2002, a person who is sentenced for at least sixty days of the taxable year to the custody of the federal bureau of prisons, the state department of corrections or a county jail is not eligible to claim a credit pursuant to this section. END_STATUTE

Sec. 22.  Section 43-1073, Arizona Revised Statutes, is amended to read:

START_STATUTE43-1073.  Family income tax credit

A.  For taxable years through December 31, 2019, unless the legislature, by majority vote, extends this date, and subject to the conditions prescribed by this section, a credit is allowed against the taxes imposed by this chapter for a taxable year for taxpayers whose Arizona adjusted gross income, plus the amount subtracted for exemptions under section 43‑1023, is:

1.  Twenty thousand dollars or less in the case of a married couple filing a joint return with no more than one dependent or a single person who is a head of a household with no more than one dependent.

2.  Twenty-three thousand six hundred dollars or less in the case of a married couple filing a joint return with two dependents.

3.  Twenty-seven thousand three hundred dollars or less in the case of a married couple filing a joint return with three dependents.

4.  Thirty‑one thousand dollars or less in the case of a married couple filing a joint return with four or more dependents.

5.  Twenty thousand one hundred thirty-five dollars or less in the case of a single person who is a head of a household with two dependents.

6.  Twenty-three thousand eight hundred dollars or less in the case of a single person who is a head of a household with three dependents.

7.  Twenty-five thousand two hundred dollars or less in the case of a single person who is a head of a household with four dependents.

8.  Twenty-six thousand five hundred seventy-five dollars or less in the case of a single person who is a head of a household with five or more dependents.

9.  Ten thousand dollars or less in the case of a single person or a married person filing separately.

B.  The amount of the credit is equal to forty dollars for each person who is a resident of this state and for whom a personal or dependent exemption is allowed with respect to the taxpayer pursuant to section 43-1043 and section 43-1023, subsection B, paragraph 1, but not to exceed:

1.  Two hundred forty dollars in the case of a married couple filing a joint return or a single person who is a head of a household.

2.  One hundred twenty dollars in the case of a single person or a married couple filing separately.

3.  For any taxpayer, the amount of taxes due under this chapter for the taxable year. END_STATUTE

Sec. 23.  Section 43-1074, Arizona Revised Statutes, is amended to read:

START_STATUTE43-1074.  Credit for new employment

A.  For taxable years through December 31, 2019, unless the legislature, by majority vote, extends this date, a credit is allowed against the taxes imposed by this title for net increases in full‑time employees hired in qualified employment positions as certified by the Arizona commerce authority pursuant to section 41‑1525.

B.  Subject to subsection E of this section, the amount of the credit is equal to three thousand dollars for each full‑time employee hired for the full taxable year in a qualified employment position in each of the first three years of employment, but not more than four hundred employees in any taxable year.

C.  To qualify for a credit under this section, the taxpayer and the employment positions must meet the requirements prescribed by section 41‑1525.

D.  A credit is allowed for employment in the second and third year only for qualified employment positions for which a credit was claimed and allowed in the first year.

E.  The net increase in the number of qualified employment positions is the lesser of the total number of filled qualified employment positions created during the taxable year or the difference between the average number of full‑time employees in the current tax year and the average number of full‑time employees during the immediately preceding taxable year.  The net increase in the number of qualified employment positions computed under this subsection may not exceed four hundred qualified employment positions per taxpayer each year.

F.  A taxpayer who claims a credit under section 43‑1077, 43‑1079 or 43‑1083.01 shall not claim a credit under this section with respect to the same employment positions.

G.  If the allowable tax credit exceeds the income taxes otherwise due on the claimant's income, or if there are no state income taxes due on the claimant's income, the amount of the claim not used as an offset against the income taxes may be carried forward as a tax credit against subsequent years' income tax liability for a period not exceeding five taxable years.

H.  Co-owners of a business, including partners in a partnership and shareholders of an S corporation, as defined in section 1361 of the internal revenue code, may each claim only the pro rata share of the credit allowed under this section based on the ownership interest.  The total of the credits allowed all such owners of the business may not exceed the amount that would have been allowed for a sole owner of the business.

I.  If the business is sold or changes ownership through reorganization, stock purchase or merger, the new taxpayer may claim first year credits only for the qualified employment positions that it created and filled with an eligible employee after the purchase or reorganization was complete.  If a person purchases a taxpayer that had qualified for first or second year credits or changes ownership through reorganization, stock purchase or merger, the new taxpayer may claim the second or third year credits if it meets other eligibility requirements of this section.  Credits for which a taxpayer qualified before the changes described in this subsection are terminated and lost at the time the changes are implemented.

J.  A failure to timely report and certify to the Arizona commerce authority the information prescribed by section 41‑1525, subsection D, and in the manner prescribed by section 41‑1525, subsection E disqualifies the taxpayer from the credit under this section.  The department shall require written evidence of the timely report to the Arizona commerce authority.

K.  A tax credit under this section is subject to recovery for a violation described in section 41‑1525, subsection G. END_STATUTE

Sec. 24.  Section 43-1074.01, Arizona Revised Statutes, as amended by Laws 2011, second special session, chapter 1, section 96, is amended to read:

START_STATUTE43-1074.01.  Credit for increased research activities

A.  For taxable years through December 31, 2019, unless the legislature, by majority vote, extends this date, a credit is allowed against the taxes imposed by this title in an amount determined pursuant to section 41 of the internal revenue code, except that:

1.  The amount of the credit is based on the excess, if any, of the qualified research expenses for the taxable year over the base amount as defined in section 41(c) of the internal revenue code and is computed as follows:

(a)  If the excess is two million five hundred thousand dollars or less, the credit is equal to twenty-four per cent of that amount.

(b)  If the excess is over two million five hundred thousand dollars, the credit is equal to six hundred thousand dollars plus fifteen per cent of any amount exceeding two million five hundred thousand dollars, except that:

(i)  For taxable years beginning from and after December 31, 2000 through December 31, 2001, the credit shall not exceed one million five hundred thousand dollars.

(ii)  For taxable years beginning from and after December 31, 2001 through December 31, 2002, the credit shall not exceed two million five hundred thousand dollars.

(c)  For taxable years beginning from and after December 31, 2011, an additional credit amount is allowed if the taxpayer made basic research payments during the taxable year to a university under the jurisdiction of the Arizona board of regents.  The additional credit amount is equal to ten per cent of the basic research payments that constitute excess expenses for the taxable year over the base amount.  The department shall not allow credit amounts under this subdivision and section 43‑1168, subsection A, paragraph 1, subdivision (d) that exceed, in the aggregate, a combined total of ten million dollars in any calendar year.  Subject to that limit, on application by the taxpayer, the department shall preapprove credit amounts under this subdivision and section 43-1168, subsection A, paragraph 1, subdivision (d) based on priority placement established by the date that the taxpayer filed the application.  Notwithstanding subsections B and C of this section, any amount of the additional credit under this subdivision that exceeds the taxes otherwise due under this title is not refundable, but may be carried forward to the next five consecutive taxable years.  For the purposes of this subdivision, "basic research payments" has the same meaning prescribed by section 41(e) of the internal revenue code without regard whether the taxpayer is or is not a corporation.

2.  Qualified research includes only research conducted in this state including research conducted at a university in this state and paid for by the taxpayer.

3.  If two or more taxpayers, including partners in a partnership and shareholders of an S corporation, as defined in section 1361 of the internal revenue code, share in the eligible expenses, each taxpayer is eligible to receive a proportionate share of the credit.

4.  The credit under this section applies only to expenses incurred from and after December 31, 2000.

5.  The termination provisions of section 41 of the internal revenue code do not apply.

B.  Except as provided by subsection C of this section, if the allowable credit under this section exceeds the taxes otherwise due under this title on the claimant's income, or if there are no taxes due under this title, the amount of the credit not used to offset taxes may be carried forward to the next fifteen consecutive taxable years.  The amount of credit carryforward from taxable years beginning from and after December 31, 2000 through December 31, 2002 that may be used in any taxable year may not exceed the taxpayer's tax liability under this title or five hundred thousand dollars, whichever is less, minus the credit under this section for the current taxable year's qualified research expenses.  The amount of credit carryforward from taxable years beginning from and after December 31, 2002 that may be used in any taxable year may not exceed the taxpayer's tax liability under this title minus the credit under this section for the current taxable year's qualified research expenses.  A taxpayer who carries forward any amount of credit under this subsection may not thereafter claim a refund of any amount of the credit under subsection C of this section.

C.  For taxable years beginning from and after December 31, 2009, if a taxpayer who claims a credit under this section employs fewer than one hundred fifty persons in the taxpayer's trade or business and if the allowable credit under this section exceeds the taxes otherwise due under this title on the claimant's income, or if there are no taxes due under this title, in lieu of carrying the excess amount of credit forward to subsequent taxable years under subsection B of this section, the taxpayer may elect to receive a refund as follows:

1.  The taxpayer must apply to the department of commerce for qualification for the refund pursuant to section 41‑1507 and submit a copy of the department of commerce's certificate of qualification to the department of revenue with the taxpayer's income tax return.

2.  The amount of the refund is limited to seventy-five per cent of the amount by which the allowable credit under this section exceeds the taxpayer's tax liability under this title for the taxable year.  The remainder of the excess amount of the credit is waived.

3.  The refund shall be paid in the manner prescribed by section 42‑1118.

4.  The refund is subject to setoff under section 42‑1122.

5.  If the department determines that a credit refunded pursuant to this subsection is incorrect or invalid, the excess credit issued may be treated as a tax deficiency pursuant to section 42‑1108.

D.  A taxpayer that claims a credit for increased research and development activity under this section shall not claim a credit under section 43‑1085.01 for the same expenses. END_STATUTE

Sec. 25.  Section 43-1074.01, Arizona Revised Statutes, as amended by Laws 2011, second special session, chapter 1, section 97, is amended to read:

START_STATUTE43-1074.01.  Credit for increased research activities

A.  For taxable years through December 31, 2026, unless the legislature, by majority vote, extends this date, a credit is allowed against the taxes imposed by this title in an amount determined pursuant to section 41 of the internal revenue code, except that:

1.  The amount of the credit is based on the excess, if any, of the qualified research expenses for the taxable year over the base amount as defined in section 41(c) of the internal revenue code and is computed as follows:

(a)  If the excess is two million five hundred thousand dollars or less, the credit is equal to twenty per cent of that amount.

(b)  If the excess is over two million five hundred thousand dollars, the credit is equal to five hundred thousand dollars plus eleven per cent of any amount exceeding two million five hundred thousand dollars, except that:

(i)  For taxable years beginning from and after December 31, 2000 through December 31, 2001, the credit shall not exceed one million five hundred thousand dollars.

(ii)  For taxable years beginning from and after December 31, 2001 through December 31, 2002, the credit shall not exceed two million five hundred thousand dollars.

(c)  For taxable years beginning from and after December 31, 2011, an additional credit amount is allowed if the taxpayer made basic research payments during the taxable year to a university under the jurisdiction of the Arizona board of regents.  The additional credit amount is equal to ten per cent of the basic research payments that constitute excess expenses for the taxable year over the base amount.  The department shall not allow credit amounts under this subdivision and section 43‑1168, subsection A, paragraph 1, subdivision (d) that exceed, in the aggregate, a combined total of ten million dollars in any calendar year.  Subject to that limit, on application by the taxpayer, the department shall preapprove credit amounts under this subdivision and section 43-1168, subsection A, paragraph 1, subdivision (d) based on priority placement established by the date that the taxpayer filed the application.  Notwithstanding subsections B and C of this section, any amount of the additional credit under this subdivision that exceeds the taxes otherwise due under this title is not refundable, but may be carried forward to the next five consecutive taxable years.  For the purposes of this subdivision, "basic research payments" has the same meaning prescribed by section 41(e) of the internal revenue code without regard to whether the taxpayer is or is not a corporation.

2.  Qualified research includes only research conducted in this state including research conducted at a university in this state and paid for by the taxpayer.

3.  If two or more taxpayers, including partners in a partnership and shareholders of an S corporation, as defined in section 1361 of the internal revenue code, share in the eligible expenses, each taxpayer is eligible to receive a proportionate share of the credit.

4.  The credit under this section applies only to expenses incurred from and after December 31, 2000.

5.  The termination provisions of section 41 of the internal revenue code do not apply.

B.  Except as provided by subsection C of this section, if the allowable credit under this section exceeds the taxes otherwise due under this title on the claimant's income, or if there are no taxes due under this title, the amount of the credit not used to offset taxes may be carried forward to the next fifteen consecutive taxable years.  The amount of credit carryforward from taxable years beginning from and after December 31, 2000 through December 31, 2002 that may be used in any taxable year may not exceed the taxpayer's tax liability under this title or five hundred thousand dollars, whichever is less, minus the credit under this section for the current taxable year's qualified research expenses.  The amount of credit carryforward from taxable years beginning from and after December 31, 2002 that may be used in any taxable year may not exceed the taxpayer's tax liability under this title minus the credit under this section for the current taxable year's qualified research expenses.  A taxpayer who carries forward any amount of credit under this subsection may not thereafter claim a refund of any amount of the credit under subsection C of this section.

C.  For taxable years beginning from and after December 31, 2009, if a taxpayer who claims a credit under this section employs fewer than one hundred fifty persons in the taxpayer's trade or business and if the allowable credit under this section exceeds the taxes otherwise due under this title on the claimant's income, or if there are no taxes due under this title, in lieu of carrying the excess amount of credit forward to subsequent taxable years under subsection B of this section, the taxpayer may elect to receive a refund as follows:

1.  The taxpayer must apply to the department of commerce Arizona commerce authority for qualification for the refund pursuant to section 41‑1507 and submit a copy of the department of commerce's Arizona commerce authority's certificate of qualification to the department of revenue with the taxpayer's income tax return.

2.  The amount of the refund is limited to seventy-five per cent of the amount by which the allowable credit under this section exceeds the taxpayer's tax liability under this title for the taxable year.  The remainder of the excess amount of the credit is waived.

3.  The refund shall be paid in the manner prescribed by section 42‑1118.

4.  The refund is subject to setoff under section 42‑1122.

5.  If the department determines that a credit refunded pursuant to this subsection is incorrect or invalid, the excess credit issued may be treated as a tax deficiency pursuant to section 42‑1108.

D.  A taxpayer that claims a credit for increased research and development activity under this section shall not claim a credit under section 43‑1085.01 for the same expenses. END_STATUTE

Sec. 26.  Section 43-1077, Arizona Revised Statutes, is amended to read:

START_STATUTE43-1077.  Credit for employment by qualified defense contractor

A.  For taxable years through December 31, 2019, unless the legislature, by majority vote, extends this date, a credit is allowed against the taxes imposed by this title for:

1.  Net increases in employment under United States department of defense contracts during the taxable year, as computed under subsection D of this section, by a qualified defense contractor who is certified by the Arizona commerce authority under section 41‑1508.

2.  Net increases in private commercial employment during the taxable year, as computed under subsection E of this section, by a qualified defense contractor who is certified by the Arizona commerce authority under section 41‑1508 due to full‑time equivalent employee positions transferred during the taxable year by the taxpayer from exclusively defense related activities to employment by the taxpayer in exclusively private commercial activities.

B.  The amount of the credit is a dollar amount allowed for each full‑time equivalent employee position created, determined as follows:

      1st year                            $2,500

      2nd year                            $2,000

      3rd year                            $1,500

      4th year                            $1,000

      5th year                            $  500

C.  If the allowable tax credit exceeds the taxes otherwise due under this title on the claimant's income, or if there are no taxes due under this title, the taxpayer may carry the amount of the claim not used to offset the taxes under this title forward until taxable years beginning from and after December 31, 2011 as a credit against subsequent years' income tax liability, regardless of continuing certification as a qualified defense contractor.

D.  The net increase in employment under defense related contracts shall be determined as follows:

1.  Establish an employment baseline for the taxpayer based on a multiyear forecast of employment on United States department of defense contracts that was submitted to the department of defense before June 1, 1992.  The annual average employment forecast for the first year the taxpayer qualified is the baseline.  If the taxpayer did not make such a forecast before June 1, 1992, the baseline is the average annual employment as reported to the department of economic security during the preceding taxable year.  If a taxpayer qualifies in the same year it relocates into this state, the taxpayer's baseline is zero.

2.  For the first year of the credit, the taxpayer's net increase in average employment is the increase in employment reported to the department of economic security for the taxable year over the employment baseline.

3.  For each succeeding year of the credit, the taxpayer's net increase in average employment is the increase in employment reported to the department of economic security for the taxable year over the preceding taxable year's average employment.

E.  In computing the amount of credit allowed under subsection A, paragraph 2 of this section, the taxpayer shall:

1.  Prorate employment during the taxable year according to the date of transfer from defense to private commercial activities or the date of transfer from private commercial activities to defense.

2.  Compute and subtract an amount pursuant to subsection B of this section for full‑time equivalent employee positions that were transferred during the taxable year by the taxpayer from exclusively private commercial activities to exclusively defense related activities.

F.  The taxpayer shall account for qualifying full‑time equivalent employee positions on a first‑in first‑out basis.  If a decrease in qualifying employment occurs, the taxpayer shall subtract the decrease from the earliest qualifying positions.

G.  A credit is not allowed under both subsection A, paragraphs 1 and 2 of this section with respect to the same employee position.  A full‑time equivalent employee position may be considered for purposes of computing the credit under either subsection A, paragraph 1 or 2 of this section, but not both.

H.  A credit is not allowed under this section with respect to employment that was transferred from an outside contractor in this state to in‑house employment by the taxpayer solely for purposes of qualifying for the credit.

I.  A taxpayer who claims a credit under section 43‑1074, 43‑1079 or 43‑1083.01 may not claim a credit under this section with respect to the same employee positions.

J.  Co‑owners of a business, including partners in a partnership and shareholders of an S corporation, as defined in section 1361 of the internal revenue code, may each claim only the pro rata share of the credit allowed under this section based on the ownership interest.  The total of the credits allowed all such owners may not exceed the amount that would have been allowed for a sole owner of the business. END_STATUTE

Sec. 27.  Section 43-1078, Arizona Revised Statutes, is amended to read:

START_STATUTE43-1078.  Credit for property taxes paid by qualified defense contractor

A.  For taxable years through December 31, 2019, unless the legislature, by majority vote, extends this date, a credit is allowed against the taxes imposed by this title equal to a portion of the amount paid as taxes during the taxable year by a qualified defense contractor that is certified by the Arizona commerce authority under section 41‑1508, on property in this state that is classified as class one, paragraphs 12 and 13 pursuant to section 42‑12001.

B.  The amount of the credit is determined as follows:

1.  Multiply the amount paid as taxes on property classified as class one, paragraphs 12 and 13 pursuant to section 42‑12001 in this state during the taxable year by a percentage based on net new defense related employment, determined by subtracting the employment baseline determined pursuant to section 43‑1077, subsection D, paragraph 1, from average annual employment as reported to the department of economic security for the taxable year, as follows:

      New employment                Credit percentage

      More than 900                       40%

        601 - 900                         30%

        301 - 600                         20%

          1 - 300                         10%

2.  Multiply the amount determined under paragraph 1 of this subsection by a percentage determined by dividing the taxpayer's total gross income from United States department of defense contracts apportioned to this state by the taxpayer's total gross income from all sources apportioned to this state.

C.  If the allowable tax credit exceeds the taxes otherwise due under this title on the claimant's income, or if there are no taxes due under this title, the taxpayer may carry the amount of the claim not used to offset the taxes under this title forward until taxable years beginning from and after December 31, 2011 as a credit against subsequent years' income tax liability, regardless of continuing certification as a qualified defense contractor.

D.  The credit allowed by this section is in lieu of a deduction for property taxes under section 43‑1042 with respect to the same taxes paid.

E.  Co‑owners of a business, including partners in a partnership and shareholders of an S corporation, as defined in section 1361 of the internal revenue code, may each claim only the pro rata share of the credit allowed under this section based on the ownership interest.  The total of the credits allowed all such owners may not exceed the amount that would have been allowed for a sole owner of the business. END_STATUTE

Sec. 28.  Section 43-1079, Arizona Revised Statutes, is amended to read:

START_STATUTE43-1079.  Credit for increased employment in military reuse zones; definition

A.  For taxable years through December 31, 2019, unless the legislature, by majority vote, extends this date, a credit is allowed against the taxes imposed by this title for net increases in employment by the taxpayer of full‑time employees working in a military reuse zone, established under title 41, chapter 10, article 3, and who are primarily engaged in providing aviation or aerospace services or in manufacturing, assembling or fabricating aviation or aerospace products.  The amount of the credit is a dollar amount allowed for each new employee, determined as follows:

1.  With respect to each employee other than a dislocated military base employee:

      1st year of employment              $  500

      2nd year of employment              $1,000

      3rd year of employment              $1,500

      4th year of employment              $2,000

      5th year of employment              $2,500

2.  With respect to each dislocated military base employee:

      1st year of employment              $1,000

      2nd year of employment              $1,500

      3rd year of employment              $2,000

      4th year of employment              $2,500

      5th year of employment              $3,000

B.  If the allowable tax credit exceeds the taxes otherwise due under this title on the claimant's income, or if there are no taxes due under this title, the amount of the claim not used to offset the taxes under this title may be carried forward as a credit against subsequent years' income tax liability for the period, not to exceed five taxable years, if the business remains in the military reuse zone.

C.  The net increase in the number of employees for purposes of this section shall be determined by comparing the taxpayer's average employment in the military reuse zone during the taxable year with the taxpayer's previous year's fourth quarter employment in the zone, based on the taxpayer's report to the department of economic security for unemployment insurance purposes but considering only employment in the zone.

D.  Co‑owners of a business, including partners in a partnership and shareholders of an S corporation, as defined in section 1361 of the internal revenue code, may each claim only the pro rata share of the credit allowed under this section based on the ownership interest.  The total of the credits allowed all such owners may not exceed the amount that would have been allowed for a sole owner of the business.

E.  A credit is not allowed under this section with respect to an employee whose place of employment is relocated by the taxpayer from a location in this state to the military reuse zone, unless the employee is engaged in aviation or aerospace services or in manufacturing, assembling or fabricating aviation or aerospace products and the taxpayer maintains at least the same number of employees in this state but outside the zone.

F.  A taxpayer who claims a credit under section 43‑1074, 43‑1077 or 43‑1083.01 may not claim a credit under this section with respect to the same employees.

G.  For the purposes of this section, "dislocated military base employee" means a civilian who previously had permanent full‑time civilian employment on the military facility as of the date the closure of the facility was finally determined under federal law, as certified by the Arizona commerce authority. END_STATUTE

Sec. 29.  Section 43-1079.01, Arizona Revised Statutes, is amended to read:

START_STATUTE43-1079.01.  Credit for employing national guard members

A.  For taxable years beginning from and after December 31, 2005 through December 31, 2019, unless the legislature, by majority vote, extends this date, a credit is allowed against the taxes imposed by this title for a taxpayer whose employee is a member of the Arizona national guard if the employee is placed on active duty.  The amount of the credit is one thousand dollars for each employee who is placed on active duty by the Arizona national guard.

B.  To qualify for the credit:

1.  The employee must be a member of the Arizona national guard who is employed by the taxpayer in a full-time equivalent position when the employee is placed on active duty.

2.  Each member of the Arizona national guard who is employed must have served during the taxable year on active duty for training that exceeds the required annual training period, including any activation for federal or state contingencies or emergencies.

C.  If the allowable credit exceeds the taxes otherwise due under this title on the claimant's income, or if there are no taxes due under this title, the amount of the claim not used to offset taxes under this title may be carried forward for not more than five consecutive taxable years as a credit against subsequent years' income tax liability.

D.  The credit under this section may be claimed only once by the taxpayer in any taxable year with respect to each employee who is placed on active duty by the Arizona national guard, but may be claimed again for that employee in a subsequent taxable year if that employee remains on active duty or is placed again on active duty in a subsequent taxable year.

E.  Co-owners of a business, including partners in a partnership and shareholders of an S corporation as defined in section 1361 of the internal revenue code, may each claim only the pro rata share of the credit allowed under this section based on the ownership interest.  The total of the credits allowed all such owners may not exceed the amount that would have been allowed a sole owner. END_STATUTE

Sec. 30.  Section 43-1081, Arizona Revised Statutes, is amended to read:

START_STATUTE43-1081.  Credit for pollution control equipment

A.  For taxable years through December 31, 2019, unless the legislature, by majority vote, extends this date, a credit is allowed against the taxes imposed by this title for expenses that the taxpayer incurred during the taxable year to purchase real or personal property that is used in the taxpayer's trade or business in this state to control or prevent pollution.  The amount of the credit is equal to ten per cent of the purchase price.

B.  Property that qualifies for the credit under this section includes that portion of a structure, building, installation, excavation, machine, equipment or device and any attachment or addition to or reconstruction, replacement or improvement of that property that is directly used, constructed, or installed in this state for the purpose of meeting or exceeding rules or regulations adopted by the United States environmental protection agency, the department of environmental quality or a political subdivision of this state to prevent, monitor, control or reduce air, water or land pollution that results from the taxpayer's direct operating activities in conducting a trade or business in this state.

C.  The credit allowed pursuant to this section does not apply to:

1.  The purchase of any personal property that is attached to a motor vehicle.

2.  Any property that has a substantial use for a purpose other than the purposes described in subsection B.

3.  Any portion of pollution control property that is included as a standard and integral part of another property.

D.  Amounts that qualify for a credit under this section must be includible in the taxpayer's adjusted basis for the property.  The adjusted basis of any property with respect to which the taxpayer has claimed a credit shall be reduced by the amount of credit claimed with respect to that asset.  This credit does not affect the deductibility for depreciation or amortization of the remaining adjusted basis of the asset.

E.  Co‑owners of a business, including partners in a partnership and shareholders of an S corporation, as defined in section 1361 of the internal revenue code, may each claim only the pro rata share of the credit allowed under this section based on the ownership interest.  The total of the credits allowed all such owners may not exceed the amount that would have been allowed a sole owner.

F.  If the allowable tax credit exceeds the taxes otherwise due under this title on the claimant's income, or if there are no taxes due under this title, the taxpayer may carry the amount of the claim not used to offset the taxes under this title forward for not more than five taxable years' income tax liability.

G.  The maximum credit that a taxpayer may claim under this section is five hundred thousand dollars in a taxable year. END_STATUTE

Sec. 31.  Section 43-1081.01, Arizona Revised Statutes, is amended to read:

START_STATUTE43-1081.01.  Credit for agricultural pollution control equipment

A.  For taxable years through December 31, 2019, unless the legislature, by majority vote, extends this date, a credit is allowed against the taxes imposed by this title for expenses that a taxpayer, involved in the commercial production of livestock, livestock products or agricultural, horticultural, viticultural or floricultural crops or products, incurred during the taxable year to purchase tangible personal property that is primarily used in the taxpayer's trade or business in this state to control or prevent pollution.  The amount of the credit is equal to twenty‑five per cent of the cost of the real or personal property.  The maximum credit that a taxpayer may claim under this section is twenty‑five thousand dollars in a taxable year.

B.  Property that qualifies for the credit under this section includes the portion of a structure, building, installation, excavation, machine, equipment or device and any attachment or addition to or reconstruction, replacement or improvement of that property that is directly used, constructed or installed in this state to prevent, monitor, control or reduce air, water or land pollution.

C.  Amounts that qualify for a credit under this section must be includible in the taxpayer's adjusted basis for the property.  The adjusted basis of any property with respect to which the taxpayer has claimed a credit shall be reduced by the amount of credit claimed with respect to that asset.  This credit does not affect the deductibility for depreciation or amortization of the remaining adjusted basis of the asset.

D.  Co-owners of a business, including partners in a partnership and shareholders of an S corporation, as defined in section 1361 of the internal revenue code, may each claim only the pro rata share of the credit allowed under this section based on the ownership interest.  The total of the credits allowed all such owners may not exceed the amount that would have been allowed a sole owner.

E.  If the allowable tax credit exceeds the taxes otherwise due under this title on the claimant's income, or if there are no taxes due under this title, the amount of the claim not used to offset the taxes under this title may be carried forward to the next five consecutive taxable years as a credit against subsequent years' income tax liability.

F.  A taxpayer who claims a credit for pollution control equipment under this section shall not claim a credit under section 43‑1081 for the same equipment or expense. END_STATUTE

Sec. 32.  Section 43-1083, Arizona Revised Statutes, is amended to read:

START_STATUTE43-1083.  Credit for solar energy devices

A.  For taxable years through December 31, 2019, unless the legislature, by majority vote, extends this date, a credit is allowed against the taxes imposed by this title for each resident who is not a dependent of another taxpayer for installing a solar energy device, as defined in section 42-5001, during the taxable year in the taxpayer's residence located in this state.  The credit is equal to twenty-five per cent of the cost of the device.

B.  The maximum credit in a taxable year may not exceed one thousand dollars.  The person who provides the solar energy device shall furnish the taxpayer with an accounting of the cost to the taxpayer.  A taxpayer may claim the credit under this section only once in a tax year and may not cumulate over different tax years tax credits under this section exceeding, in the aggregate, one thousand dollars for the same residence.

C.  If the allowable tax credit exceeds the taxes otherwise due under this title on the claimant's income, or if there are no taxes due under this title, the amount of the claim not used to offset taxes under this title may be carried forward for not more than five consecutive taxable years as a credit against subsequent years' income tax liability.

D.  A husband and wife who file separate returns for a taxable year in which they could have filed a joint return may each claim only one-half of the tax credit that would have been allowed for a joint return.

E.  The credit allowed under this section is in lieu of any allowance for state tax purposes for exhaustion, wear and tear of the solar energy device under section 167 of the internal revenue code.

F.  To qualify for the credit under this section the solar energy device and its installation shall meet the requirements of title 44, chapter 11, article 11.

G.  A solar hot water heater plumbing stub out that was installed by the builder of a house or dwelling unit before title was conveyed to the taxpayer does not qualify for a credit under this section, but the taxpayer may claim a credit for the device under section 43‑1090 or 43‑1176 under the circumstances, conditions and limitations prescribed by section 43‑1090, subsection C or 43-1176, subsection C, as applicable. END_STATUTE

Sec. 33.  Section 43-1083.02, Arizona Revised Statutes, is amended to read:

START_STATUTE43-1083.02.  Renewable energy production tax credit; definitions

A.  Subject to subsection B of this section, for taxable years through December 31, 2030, unless the legislature, by majority vote, extends this date, a credit is allowed against the taxes imposed by this title for the production of electricity using renewable energy resources.

B.  The taxpayer is eligible for the credit:

1.  If the taxpayer holds title to a qualified energy generator that first produces electricity from and after December 31, 2010 and before January 1, 2021.

2.  For ten consecutive calendar years beginning with the calendar year in which the qualified energy generator begins producing electricity that is transmitted through a transmission facility to a grid connection with a public or private electric transmission or distribution utility system.  That same date applies with respect to that generator until the expiration of the ten‑year period regardless of whether the generator is sold to another taxpayer or goes out of production before the expiration of the ten-year period.

C.  The credit authorized by this section is based on the electricity that is generated by a qualified energy generator during a calendar year.  For a taxpayer that files on a fiscal year basis, the credit shall be claimed on the return for the taxable year in which the calendar year ends.

D.  Subject to subsection G of this section, the amount of the credit is:

1.  One cent per kilowatt-hour of the first two hundred thousand megawatt-hours of electricity produced by a qualified energy generator in the calendar year using a wind or biomass derived qualified energy resource.

2.  The following amounts for electricity produced by a qualified energy generator using a solar light derived or solar heat derived qualified energy resource:

(a)  Four cents per kilowatt-hour in the first calendar year in which the qualified energy generator produces electricity.

(b)  Four cents per kilowatt-hour in the second calendar year in which the qualified energy generator produces electricity.

(c)  Three and one-half cents per kilowatt-hour in the third calendar year in which the qualified energy generator produces electricity.

(d)  Three and one-half cents per kilowatt-hour in the fourth calendar year in which the qualified energy generator produces electricity.

(e)  Three cents per kilowatt-hour in the fifth calendar year in which the qualified energy generator produces electricity.

(f)  Three cents per kilowatt-hour in the sixth calendar year in which the qualified energy generator produces electricity.

(g)  Two cents per kilowatt-hour in the seventh calendar year in which the qualified energy generator produces electricity.

(h)  Two cents per kilowatt-hour in the eighth calendar year in which the qualified energy generator produces electricity.

(i)  One and one-half cents per kilowatt-hour in the ninth calendar year in which the qualified energy generator produces electricity.

(j)  One cent per kilowatt-hour in the tenth calendar year in which the qualified energy generator produces electricity.

E.  To qualify for the purposes of this section, an energy generator may be located within one mile of an existing qualified energy generator only if the owner of the energy generator or the owner's corporate affiliates are not the owner of or the corporate affiliate of the owner of the existing qualified energy generator.

F.  To be eligible for the credit under this section, the taxpayer must apply to the department, on a form prescribed by the department, for certification of the credit.  The department shall only accept applications beginning January 2 through January 31 of the year following the calendar year for which the credit is being requested.  The application shall include:

1.  The name, address and social security number or federal employer identification number of the applicant.

2.  The location of the taxpayer's facility that produces electricity using renewable energy resources for which the credit is claimed.

3.  The amount of the credit that is claimed.

4.  The date the qualified energy generator began producing commercially marketable amounts of electricity.

5.  Any additional information that the department requires.

G.  The department shall review each application under subsection F of this section and certify to the taxpayer the amount of the credit that is authorized.  The amount of the credit for any calendar year shall not exceed two million dollars per facility that produces electricity using renewable energy resources.  Credits are allowed under this section and section 43‑1164.03 on a first come, first served basis.  The department shall not authorize tax credits under this section and section 43-1164.03 that exceed in the aggregate a total of twenty million dollars for any calendar year.  The first time that a taxpayer submits a qualified application for a qualified energy generator under subsection F of this section, the  department shall add the taxpayer's name to a credit authorization list that is maintained in the order in which qualified applications are first received by the department on behalf of the qualified energy generator.  A taxpayer's position on the credit authorization list shall be determined in the first year the taxpayer submits an application under subsection F of this section for the qualified energy generator.  The taxpayer's position on the credit authorization list for a particular qualified energy generator shall remain unchanged for the ten years that are specified in subsection B, paragraph 2 of this section or until a year in which the taxpayer fails to submit a timely application under subsection F of this section or otherwise fails to comply with this section.  If a taxpayer is removed from the credit authorization list for a qualified energy generator, the taxpayer may establish a new position on the credit authorization list in a subsequent year by filing a timely application for a qualified energy generator that qualifies for the credit.  If an application is received that, if authorized, would require the department to exceed the twenty million dollar limit, the department shall grant the applicant only the remaining credit amount that would not exceed the twenty million dollar limit.  After the department authorizes twenty million dollars in tax credits, the department shall deny any subsequent applications that are received for that calendar year.  The department shall not authorize any additional tax credits that exceed the twenty million dollar limit even if the amounts that have been certified to any taxpayer were not claimed or a taxpayer otherwise fails to meet the requirements to claim the additional credit.

H.  Co-owners of a qualified energy generator, including partners in a partnership, members of a limited liability company and shareholders of an S corporation as defined in section 1361 of the internal revenue code, may each claim the pro rata share of the credit allowed under this section based on ownership interest.  The total of the credits allowed all such owners of the qualified energy generator may not exceed the amount that would have been allowed for a sole owner of the generator.

I.  If the allowable tax credit for a taxpayer exceeds the taxes otherwise due under this title on the claimant's income, or if there are no taxes due under this title, the amount of the claim not used to offset taxes under this title may be carried forward for not more than five consecutive taxable years as a credit against subsequent years' income tax liability.

J.  The department shall adopt rules and publish and prescribe forms and procedures as necessary to effectuate the purposes of this section.

K.  For the purposes of this section:

1.  "Biomass" means organic material that is available on a renewable or recurring basis, including:

(a)  Forest-related materials, including mill residues, logging residues, forest thinnings, slash, brush, low-commercial value materials or undesirable species, salt cedar and other phreatophyte or woody vegetation removed from river basins or watersheds and woody material harvested for the purpose of forest fire fuel reduction or forest health and watershed improvement.

(b)  Agricultural-related materials, including orchard trees, vineyard, grain or crop residues, including straws and stover, aquatic plants and agricultural processed coproducts and waste products, including fats, oils, greases, whey and lactose.

(c)  Animal waste, including manure and slaughterhouse and other processing waste.

(d)  Solid woody waste materials, including landscape or right-of-way tree trimmings, rangeland maintenance residues, waste pallets, crates and manufacturing, construction and demolition wood wastes, excluding pressure‑treated, chemically‑treated or painted wood wastes and wood contaminated with plastic.

(e)  Crops and trees planted for the purpose of being used to produce energy.

(f)  Landfill gas, wastewater treatment gas and biosolids, including organic waste byproducts generated during the wastewater treatment process.

2.  "Qualified energy generator" means a facility that has at least five megawatts generating capacity, that is located on land in this state owned or leased by the taxpayer, that produces electricity using a qualified energy resource and that sells that electricity to an unrelated entity, unless the electricity is sold to a public service corporation.

3.  "Qualified energy resource" means a resource that generates electricity through the use of only the following energy sources:

(a)  Solar light.

(b)  Solar heat.

(c)  Wind.

(d)  Biomass. END_STATUTE

Sec. 34.  Section 43-1084, Arizona Revised Statutes, is amended to read:

START_STATUTE43-1084.  Credit for agricultural water conservation system

A.  For taxable years through December 31, 2019, unless the legislature, by majority vote, extends this date, a credit is allowed against the taxes imposed by this title for expenses that the taxpayer incurred during the taxable year to purchase and install an agricultural water conservation system in this state.  The amount of the credit is equal to seventy‑five per cent of the qualifying expenses.

B.  To qualify for the credit under this section:

1.  The agricultural water conservation system must be primarily designed to substantially conserve water on land that is used by the taxpayer or the taxpayer's tenant to:

(a)  Produce crops, fruits or other agricultural products.

(b)  Raise, harvest or grow trees.

(c)  Sustain livestock.

2.  The expense must be consistent with a conservation plan that the taxpayer has filed and that is in effect with the United States department of agriculture soil conservation service.

C.  Co-owners of the land on which the water conservation system is installed, including partners in a partnership and shareholders of an S corporation, as defined in section 1361 of the internal revenue code, may each claim only the pro rata share of the credit allowed under this section based on the ownership interest.  The total of the credits allowed all such owners may not exceed the amount that would have been allowed a sole owner.

D.  If the allowable tax credit exceeds the taxes otherwise due under this title on the claimant's income, or if there are no taxes due under this title, the taxpayer may carry the amount of the claim not used to offset the taxes under this title forward for not more than five taxable years' income tax liability.

E.  The credit allowed by this section is in lieu of any deduction for such expenses allowed by the internal revenue code and included under section 43-1042 in computing taxable income. END_STATUTE

Sec. 35.  Section 43-1087, Arizona Revised Statutes, is amended to read:

START_STATUTE43-1087.  Credit for employment of temporary assistance for needy families recipients

A.  For taxable years through December 31, 2019, unless the legislature, by majority vote, extends this date, a credit is allowed against the taxes imposed by this title for net increases in qualified employment by the taxpayer of recipients of temporary assistance for needy families as defined in section 46‑101 who are residents of this state.  The amount of the credit is equal to the sum of the following:

1.  One‑fourth of the taxable wages paid to each employee in qualified employment positions, not to exceed five hundred dollars per qualified employment position, in the first year or partial year of employment.  Wages that were subsidized as provided by section 46‑299 shall not be included.

2.  One‑third of the taxable wages paid to each employee in qualified employment positions, not to exceed one thousand dollars per qualified employment position, in the second year of continuous employment.  Wages that were subsidized as provided by section 46‑299 shall not be included.

3.  One‑half of the taxable wages paid to each employee in qualified employment positions, not to exceed one thousand five hundred dollars per qualified employment position, in the third year of continuous employment.  Wages that were subsidized as provided by section 46‑299 shall not be included.

B.  The credit allowed in this section is in lieu of any wage expense deduction taken for state tax purposes.

C.  To qualify for a credit under this section:

1.  All of the employees with respect to whom a credit is claimed must reside in this state and must be recipients of temporary assistance for needy families as defined in section 46‑101 at the time the employee is hired.

2.  A qualified employment position must meet all of the following requirements:

(a)  The position must be classified as full‑time employment.

(b)  The employment must include health insurance coverage for the employee if the employer offers this coverage for employees who are not recipients of temporary assistance for needy families.

(c)  The employer must pay compensation at least equal to the minimum wage or a wage comparable to that paid to employees who are not receiving temporary assistance for needy families based on the employee's training, skills and job classification.

(d)  The employee must have been employed for at least ninety days during the first taxable year.  An employee who is hired during the last ninety days of the taxable year shall be considered a new employee during the next taxable year.  Periods for which the employee's wages were subsidized as provided by section 46‑299 shall not be included as periods of employment.

(e)  The employee was not employed by the taxpayer within twelve months before the current date of hire.

(f)  The employee position is not eligible for any other employment credit pursuant to this title based on wages paid.

D.  The net increase in the number of qualified employment positions shall be determined by comparing the average number of qualified employment positions during the taxable year with the immediately preceding taxable year based on the taxpayer's report to the department of economic security for unemployment purposes.

E.  If the allowable tax credit exceeds the income taxes otherwise due on the claimant's income, the amount of the claim not used as an offset against income taxes may be carried forward as a tax credit against subsequent years' income tax liability for the period, not to exceed five consecutive taxable years.

F.  Co‑owners of a business, including partners in a partnership and shareholders of an S corporation as defined in section 1361 of the internal revenue code, may claim only the pro rata share of the credit allowed under this section based on the ownership interest.  The total of the credits allowed all the owners of the business may not exceed the amount that would have been allowed for a sole owner of the business.

G.  The department may adopt rules necessary for the administration of this section. END_STATUTE

Sec. 36.  Section 43-1088, Arizona Revised Statutes, is amended to read:

START_STATUTE43-1088.  Credit for contribution to qualifying charitable organizations; definitions

A.  For taxable years through December 31, 2019, unless the legislature, by majority vote, extends this date, a credit is allowed against the taxes imposed by this title for voluntary cash contributions by the taxpayer or on the taxpayer's behalf pursuant to section 43‑401, subsection I during the taxable year to a qualifying charitable organization not to exceed:

1.  Two hundred dollars in any taxable year for a single individual or a head of household.

2.  Four hundred dollars in any taxable year for a married couple filing a joint return.

B.  A husband and wife who file separate returns for a taxable year in which they could have filed a joint return may each claim only one-half of the tax credit that would have been allowed for a joint return.

C.  If the allowable tax credit exceeds the taxes otherwise due under this title on the claimant's income, or if there are no taxes due under this title, the taxpayer may carry forward the amount of the claim not used to offset the taxes under this title for not more than five consecutive taxable years' income tax liability.

D.  The credit allowed by this section:

1.  Is allowed only if the taxpayer itemizes deductions pursuant to section 43‑1042 for the taxable year.

2.  Is in lieu of a deduction pursuant to section 170 of the internal revenue code and taken for state tax purposes.

E.  Taxpayers taking a credit authorized by this section shall provide the name of the qualifying charitable organization and the amount of the contribution to the department of revenue on forms provided by the department.

F.  A qualifying charitable organization shall provide the department of revenue with a written certification that it meets all criteria to be considered a qualifying charitable organization.  The organization shall also notify the department of any changes that may affect the qualifications under this section.

G.  The charitable organization's written certification must be signed by an officer of the organization under penalty of perjury.  The written certification must include the following:

1.  Verification of the organization's status under section 501(c)(3) of the internal revenue code or verification that the organization is a designated community action agency that receives community services block grant program monies pursuant to 42 United States Code section 9901.

2.  Financial data indicating the organization's budget for the organization's prior operating year and the amount of that budget spent on services to residents of this state who either:

(a)  Receive temporary assistance for needy families benefits.

(b)  Are low income residents of this state.

(c)  Are chronically ill or physically disabled children.

3.  A statement that the organization plans to continue spending at least fifty per cent of its budget on services to residents of this state who receive temporary assistance for needy families benefits, who are low income residents of this state or who are chronically ill or physically disabled children.

4.  A statement that the organization does not provide, pay for, promote, provide coverage of or provide referrals for abortions and does not financially support any other entity that provides, pays for, promotes, provides coverage of or provides referrals for abortions.

H.  The department shall review each written certification and determine whether the organization meets all the criteria to be considered a qualifying charitable organization and notify the organization of its determination.  The department may also periodically request recertification from the organization.  The department shall compile and make available to the public a list of the qualifying charitable organizations.

I.  For the purposes of this section:

1.  "Chronically ill or physically disabled children" has the same meaning prescribed in section 36‑260.

2.  "Low income residents" means persons whose household income is less than one hundred fifty per cent of the federal poverty level.

3.  "Qualifying charitable organization" means a charitable organization that is exempt from federal income taxation under section 501(c)(3) of the internal revenue code or is a designated community action agency that receives community services block grant program monies pursuant to 42 United States Code section 9901.  The organization must spend at least fifty per cent of its budget on services to residents of this state who receive temporary assistance for needy families benefits or low income residents of this state and their households or to chronically ill or physically disabled children who are residents of this state.  Taxpayers choosing to make donations through an umbrella charitable organization that collects donations on behalf of member charities shall designate that the donation be directed to a member charitable organization that would qualify under this section on a stand‑alone basis. Qualifying charitable organization does not include any entity that provides, pays for, promotes, provides coverage of or provides referrals for abortions or that financially supports any other entity that provides, pays for, promotes, provides coverage of or provides referrals for abortions.

4.  "Services" means cash assistance, medical care, child care, food, clothing, shelter, job placement and job training services or any other assistance that is reasonably necessary to meet immediate basic needs and that is provided and used in this state. END_STATUTE

Sec. 37.  Section 43-1089, Arizona Revised Statutes, is amended to read:

START_STATUTE43-1089.  Credit for contributions to school tuition organization; definitions

A.  For TAXABLE years through December 31, 2019, unless the legislature, by majority vote, extends this date, a credit is allowed against the taxes imposed by this title for the amount of voluntary cash contributions by the taxpayer or on the taxpayer's behalf pursuant to section 43‑401, subsection I during the taxable year to a school tuition organization that is certified pursuant to chapter 16 of this title at the time of donation.  Except as provided by subsection C of this section, the amount of the credit shall not exceed:

1.  Five hundred dollars in any taxable year for a single individual or a head of household.

2.  One thousand dollars in any taxable year for a married couple filing a joint return.

B.  A husband and wife who file separate returns for a taxable year in which they could have filed a joint return may each claim only one‑half of the tax credit that would have been allowed for a joint return.

C.  For each taxable year beginning on or after January 1, the department shall adjust the dollar amounts prescribed by subsection A, paragraphs 1 and 2 of this section according to the average annual change in the metropolitan Phoenix consumer price index published by the United States bureau of labor statistics, except that the dollar amounts shall not be revised downward below the amounts allowed in the prior taxable year.  The revised dollar amounts shall be raised to the nearest whole dollar.

D.  If the allowable tax credit exceeds the taxes otherwise due under this title on the claimant's income, or if there are no taxes due under this title, the taxpayer may carry the amount of the claim not used to offset the taxes under this title forward for not more than five consecutive taxable years' income tax liability.

E.  The credit allowed by this section is in lieu of any deduction pursuant to section 170 of the internal revenue code and taken for state tax purposes.

F.  The tax credit is not allowed if the taxpayer designates the taxpayer's contribution to the school tuition organization for the direct benefit of any dependent of the taxpayer or if the taxpayer designates a student beneficiary as a condition of the taxpayer's contribution to the school tuition organization.  The tax credit is not allowed if the taxpayer, with the intent to benefit the taxpayer's dependent, agrees with one or more other taxpayers to designate each taxpayer's contribution to the school tuition organization for the direct benefit of the other taxpayer's dependent.

G.  For the purposes of this section, a contribution, for which a credit is claimed, that is made on or before the fifteenth day of the fourth month following the close of the taxable year may be applied to either the current or preceding taxable year and is considered to have been made on the last day of that taxable year.

H.  For the purposes of this section:

1.  "Handicapped student" means a student who has any of the following conditions:

(a)  Hearing impairment.

(b)  Visual impairment.

(c)  Developmental delay.

(d)  Preschool severe delay.

(e)  Speech/language impairment.

2.  "Qualified school":

(a)  Means a nongovernmental primary school or secondary school or a preschool for handicapped students that is located in this state, that does not discriminate on the basis of race, color, handicap, familial status or national origin and that satisfies the requirements prescribed by law for private schools in this state on January 1, 1997.

(b)  Does not include a charter school or programs operated by charter schools. END_STATUTE

Sec. 38.  Section 43-1089.01, Arizona Revised Statutes, is amended to read:

START_STATUTE43-1089.01.  Tax credit; public school fees and contributions; definitions

A.  For taxable years through December 31, 2019, unless the legislature, by majority vote, extends this date, a credit is allowed against the taxes imposed by this title for the amount of any fees or cash contributions by a taxpayer or on the taxpayer's behalf pursuant to section 43‑401, subsection I during the taxable year to a public school located in this state for the support of extracurricular activities or character education programs of the public school, but not exceeding:

1.  Two hundred dollars for a single individual or a head of household.

2.  Three hundred dollars in taxable year 2005 for a married couple filing a joint return.

3.  Four hundred dollars in taxable year 2006 and any subsequent taxable year for a married couple filing a joint return.

B.  A husband and wife who file separate returns for a taxable year in which they could have filed a joint return may each claim only one‑half of the tax credit that would have been allowed for a joint return.

C.  The credit allowed by this section is in lieu of any deduction pursuant to section 170 of the internal revenue code and taken for state tax purposes.

D.  If the allowable tax credit exceeds the taxes otherwise due under this title on the claimant's income, or if there are no taxes due under this title, the taxpayer may carry the amount of the claim not used to offset the taxes under this title forward for not more than five consecutive taxable years' income tax liability.

E.  The site council of the public school that receives contributions that are not designated for a specific purpose shall determine how the contributions are used at the school site.  If a charter school does not have a site council, the principal, director or chief administrator of the charter school shall determine how the contributions that are not designated for a specific purpose are used at the school site.  If at the end of a fiscal year a public school has unspent contributions that were previously designated for a specific purpose or program and that purpose or program has been discontinued or has not been used for two consecutive fiscal years, these contributions shall be considered undesignated in the following fiscal year for the purposes of this subsection. 

F.  A public school that receives fees or a cash contribution pursuant to subsection A of this section shall report to the department, in a form prescribed by the department, by February 28 of each year the following information:

1.  The total number of fee and cash contribution payments received during the previous calendar year.

2.  The total dollar amount of fees and contributions received during the previous calendar year.

3.  The total dollar amount of fees and contributions spent by the school during the previous calendar year, categorized by specific extracurricular activity or character education program.

G.  For the purposes of this section:

1.  "Character education programs" means a program described in section 15‑719.

2.  "Extracurricular activities" means school sponsored activities that require enrolled students to pay a fee in order to participate, including fees for:

(a)  Band uniforms.

(b)  Equipment or uniforms for varsity athletic activities.

(c)  Scientific laboratory materials.

(d)  In‑state or out‑of‑state trips that are solely for competitive events.  Extracurricular activities do not include any senior trips or events that are recreational, amusement or tourist activities.

3.  "Public school" means a school that is part of a school district, a joint technical education district or a charter school. END_STATUTE

Sec. 39.  Section 43-1089.02, Arizona Revised Statutes, is amended to read:

START_STATUTE43‑1089.02.  Credit for donation of school site

A.  For taxable years through December 31, 2019, unless the legislature, by majority vote, extends this date, a credit is allowed against the taxes imposed by this title in the amount of thirty per cent of the value of real property and improvements donated by the taxpayer to a school district or a charter school for use as a school or as a site for the construction of a school.

B.  To qualify for the credit:

1.  The real property and improvements must be located in this state.

2.  The real property and improvements must be conveyed unencumbered and in fee simple, except that:

(a)  The conveyance must include as a deed restriction and protective covenant running with title to the land the requirement that as long as the donee holds title to the property the property shall only be used as a school or as a site for the construction of a school, subject to subsection I or J of this section.

(b)  In the case of a donation to a charter school, the donor shall record a lien on the property as provided by subsection J, paragraph 3 of this section.

3.  The conveyance shall not violate section 15‑341, subsection D and or section 15‑183, subsection V  U.

C.  For the purposes of this section, the value of the donated property is the property's fair market value as determined in an appraisal as defined in section 32‑3601 that is conducted by an independent party and that is paid for by the donee.

D.  If the property is donated by co-owners, including partners in a partnership and shareholders of an S corporation, as defined in section 1361 of the internal revenue code, each donor may claim only the pro rata share of the allowable credit under this section based on the ownership interest.  If the property is donated by a husband and wife who file separate returns for a taxable year in which they could have filed a joint return, they may determine between them the share of the credit each will claim.  The total of the credits allowed all co-owner donors may not exceed the allowable credit.

E.  If the allowable tax credit exceeds the taxes otherwise due under this title on the claimant's income, or if there are no taxes due under this title, the taxpayer may carry the amount of the claim not used to offset the taxes under this title forward for not more than five consecutive taxable years' income tax liability.

F.  The credit under this section is in lieu of any deduction pursuant to section 170 of the internal revenue code taken for state tax purposes.

G.  On written request by the donee, the donor shall disclose in writing to the donee the amount of the credit allowed pursuant to this section with respect to the property received by the donee.

H.  A school district or charter school may refuse the donation of any property for purposes of this section.

I.  If the donee is a school district:

1.  The district shall notify the school facilities board established by section 15‑2001 and furnish the board with any information the board requests regarding the donation.  A school district shall not accept a donation pursuant to this section unless the school facilities board has reviewed the proposed donation and has issued a written determination that the real property and improvements are suitable as a school site or as a school.  The school facilities board shall issue a determination that the real property and improvements are not suitable as a school site or as a school if the expenses that would be necessary to make the property suitable as a school site or as a school exceed the value of the proposed donation.

2.  The district may sell any donated property pursuant to section 15‑342, but the proceeds from the sale shall only be used for capital projects.  The school facilities board shall withhold an amount that corresponds to the amount of the proceeds from any monies that would otherwise be due the school district from the school facilities board pursuant to section 15-2041.

J.  If the donee is a charter school:

1.  The charter school shall:

(a)  Immediately notify the sponsor of the charter school by certified mail and shall furnish the sponsor with any information requested by the sponsor regarding the donation during the ten year period after the conveyance is recorded.

(b)  Notify the sponsor by certified mail, and the sponsor shall notify the state treasurer, in the event of the charter school's financial failure or if the charter school:

(i)  Fails to establish a charter school on the property within forty‑eight months after the conveyance is recorded.

(ii)  Fails to provide instruction to pupils on the property within forty-eight months after the conveyance is recorded.

(iii)  Establishes a charter school on the property but subsequently ceases to operate the charter school on the property for twenty‑four consecutive months or fails to provide instruction to pupils on the property for twenty-four consecutive months.

2.  The charter school, or a successor in interest, shall pay to the state treasurer the amount of the credit allowed under this section, or if that amount is unknown, the amount of the allowable credit under this section, if any of the circumstances listed in paragraph 1, subdivision (b) of this subsection occur occurs.  If the amount is not paid within one year after the treasurer receives notice under paragraph 1, subdivision (b) of this subsection, a penalty and interest shall be added, determined pursuant to title 42, chapter 1, article 3.

3.  A tax credit under this section constitutes a lien on the property, which the donor must record along with the title to the property to qualify for the credit.  The amount of the lien is the amount of the allowable credit under this section, adjusted according to the average change in the GDP price deflator, as defined in section 41-563, for each calendar year since the donation, but not exceeding twelve and one-half per cent more than the allowable credit.  The lien is subordinate to any liens securing the financing of the school construction.  The lien is extinguished on the earliest of the following:

(a)  Ten years after the lien is recorded.  After that date, the charter school, or a successor in interest, may request the state treasurer to release the lien.

(b)  On payment to the state treasurer by the donee charter school, or by a successor in interest, of the amount of the allowable credit under this section, either voluntarily or as required by paragraph 2 of this subsection.  After the required amount is paid, the charter school or successor in interest may request the state treasurer to release the lien.

(c)  On conveyance of fee simple title to the property to a school district.

(d)  On enforcement and satisfaction of the lien pursuant to paragraph 4 of this subsection.

4.  The state treasurer shall enforce the lien by foreclosure within one year after receiving notice of any of the circumstances described in paragraph 1, subdivision (b) of this subsection.

5.  Subject to paragraphs 3 and 4 of this subsection, the charter school may sell any donated property. END_STATUTE

Sec. 40.  Section 43-1090, Arizona Revised Statutes, is amended to read:

START_STATUTE43-1090.  Credit for solar hot water heater plumbing stub outs and electric vehicle recharge outlets installed in houses constructed by taxpayer

A.  For taxable years through December 31, 2019, unless the legislature, by majority vote, extends this date, a credit is allowed against the taxes imposed by this title for costs incurred during the taxable year of installing or including in one or more houses or dwelling units located in this state and constructed by the taxpayer one or more:

1.  Solar hot water plumbing stub outs.  To qualify for the credit, the stub out must:

(a)  Include two insulated three-fourths inch copper pipes and at least two pairs of wires for monitoring and control purposes that project from the  dwelling roof or other suitable location and that are connected to the domestic hot water transport and storage system.

(b)  Be located and configured to allow sufficient solar access and exposure and to allow ready installation of solar water heating devices without further expense or effort to reach, use or serve the domestic hot water system of the house or dwelling unit.

2.  Electric vehicle recharge outlets.  To qualify for the credit, the outlet must be connected to the utility system by a dedicated line that:

(a)  Is capable of operating at normal secondary voltages.

(b)  Meets applicable local building safety codes.

(c)  Is commensurate and consistent with electric vehicle recharging needs and methods.

B.  The credit shall not exceed seventy-five dollars for each installation for each separate house or dwelling unit.

C.  The taxpayer may elect to transfer a credit under this section to a purchaser or transferee of the house or dwelling unit.  If the taxpayer elects to transfer the credit, the taxpayer shall deliver to the purchaser or transferee a written statement that the taxpayer has elected not to claim the credit and that the purchaser or transferee may claim the credit, subject to the conditions and limitations prescribed by this section.

D.  If the allowable credit exceeds the taxes otherwise due under this title on the claimant's income, or if there are no taxes due under this title, the amount of the credit not used to offset taxes under this title may be carried forward to the next five consecutive taxable years as a credit against subsequent years' income tax liability.

E.  Co-owners of a business, including partners in a partnership and shareholders of an S corporation, as defined in section 1361 of the internal revenue code, may each claim only the pro rata share of the credit allowed under this section based on the ownership interest.  The total of the credits allowed all such owners may not exceed the amount that would have been allowed a sole owner.

F.  The credit allowed under this section is in lieu of any expenses taken for installing solar stub outs or electric vehicle recharge outlets to reach in computing Arizona taxable income. END_STATUTE

Sec. 41.  Section 43-1161, Arizona Revised Statutes, is amended to read:

START_STATUTE43-1161.  Credit for new employment

A.  For taxable years through December 31, 2019, unless the legislature, by majority vote, extends this date, a credit is allowed against the taxes imposed by this title for net increases in full‑time employees hired in qualified employment positions as certified by the Arizona commerce authority pursuant to section 41‑1525.

B.  Subject to subsection E of this section, the amount of the credit is equal to three thousand dollars for each full‑time employee hired for the full taxable year in a qualified employment position in each of the first three years of employment, but not more than four hundred employees in any taxable year.

C.  To qualify for a credit under this section, the taxpayer and the employment positions must meet the requirements prescribed by section 41‑1525.

D.  A credit is allowed for employment in the second and third year only for qualified employment positions for which a credit was claimed and allowed in the first year.

E.  The net increase in the number of qualified employment positions is the lesser of the total number of filled qualified employment positions created during the taxable year or the difference between the average number of full‑time employees in the current tax year and the average number of full‑time employees during the immediately preceding taxable year.  The net increase in the number of qualified employment positions computed under this subsection may not exceed four hundred qualified employment positions per taxpayer each year.

F.  A taxpayer who claims a credit under section 43‑1164.01, 43‑1165 or 43‑1167 shall not claim a credit under this section with respect to the same employment positions.

G.  If the allowable tax credit exceeds the income taxes otherwise due on the claimant's income, or if there are no state income taxes due on the claimant's income, the amount of the claim not used as an offset against the income taxes may be carried forward as a tax credit against subsequent years' income tax liability for a period not exceeding five taxable years.

H.  Co-owners of a business, including corporate partners in a partnership, may each claim only the pro rata share of the credit allowed under this section based on the ownership interest.  The total of the credits allowed all such owners of the business may not exceed the amount that would have been allowed for a sole owner of the business.

I.  If the business is sold or changes ownership through reorganization, stock purchase or merger, the new taxpayer may claim first year credits only for the qualified employment positions that it created and filled with an eligible employee after the purchase or reorganization was complete.  If a person purchases a taxpayer that had qualified for first or second year credits or changes ownership through reorganization, stock purchase or merger, the new taxpayer may claim the second or third year credits if it meets other eligibility requirements of this section.  Credits for which a taxpayer qualified before the changes described in this subsection are terminated and lost at the time the changes are implemented.

J.  A failure to timely report and certify to the Arizona commerce authority the information prescribed by section 41‑1525, subsection D, and in the manner prescribed by section 41‑1525, subsection E disqualifies the taxpayer from the credit under this section.  The department shall require written evidence of the timely report to the Arizona commerce authority.

K.  A tax credit under this section is subject to recovery for a violation described in section 41‑1525, subsection G. END_STATUTE

Sec. 42.  Section 43-1164.03, Arizona Revised Statutes, is amended to read:

START_STATUTE43-1164.03.  Renewable energy production tax credit; definitions

A.  Subject to subsection B of this section, for taxable years through December 31, 2030, unless the legislature, by majority vote, extends this date, a credit is allowed against the taxes imposed by this title for the production of electricity using renewable energy resources.

B.  The taxpayer is eligible for the credit:

1.  If the taxpayer holds title to a qualified energy generator that first produces electricity from and after December 31, 2010 and before January 1, 2021.

2.  For ten consecutive calendar years beginning with the calendar year in which the qualified energy generator begins producing electricity that is transmitted through a transmission facility to a grid connection with a public or private electric transmission or distribution utility system.  That same date applies with respect to that generator until the expiration of the ten-year period regardless of whether the generator is sold to another taxpayer or goes out of production before the expiration of the ten-year period.

C.  The credit authorized by this section is based on the electricity that is generated by a qualified energy generator during a calendar year.  For a taxpayer that files on a fiscal year basis, the credit shall be claimed on the return for the taxable year in which the calendar year ends.

D.  Subject to subsection G of this section, the amount of the credit is:

1.  One cent per kilowatt-hour of the first two hundred thousand megawatt-hours of electricity produced by a qualified energy generator in the calendar year using a wind or biomass derived qualified energy resource.

2.  The following amounts for electricity produced by a qualified energy generator using a solar light derived or solar heat derived qualified energy resource:

(a)  Four cents per kilowatt-hour in the first calendar year in which the qualified energy generator produces electricity.

(b)  Four cents per kilowatt-hour in the second calendar year in which the qualified energy generator produces electricity.

(c)  Three and one-half cents per kilowatt-hour in the third calendar year in which the qualified energy generator produces electricity.

(d)  Three and one-half cents per kilowatt-hour in the fourth calendar year in which the qualified energy generator produces electricity.

(e)  Three cents per kilowatt-hour in the fifth calendar year in which the qualified energy generator produces electricity.

(f)  Three cents per kilowatt-hour in the sixth calendar year in which the qualified energy generator produces electricity.

(g)  Two cents per kilowatt-hour in the seventh calendar year in which the qualified energy generator produces electricity.

(h)  Two cents per kilowatt-hour in the eighth calendar year in which the qualified energy generator produces electricity.

(i)  One and one-half cents per kilowatt-hour in the ninth calendar year in which the qualified energy generator produces electricity.

(j)  One cent per kilowatt-hour in the tenth calendar year in which the qualified energy generator produces electricity.

E.  To qualify for the purposes of this section, an energy generator may be located within one mile of an existing qualified energy generator only if the owner of the energy generator or the owner's corporate affiliates are not the owner of or the corporate affiliate of the owner of the existing qualified energy generator.

F.  To be eligible for the credit under this section, the taxpayer must apply to the department, on a form prescribed by the department, for certification of the credit.  The department shall only accept applications beginning January 2 through January 31 of the year following the calendar year for which the credit is being requested.  The application shall include:

1.  The name, address and social security number or federal employer identification number of the applicant.

2.  The location of the taxpayer's facility that produces electricity using renewable energy resources for which the credit is claimed.

3.  The amount of the credit that is claimed.

4.  The date the qualified energy generator began producing commercially marketable amounts of electricity.

5.  Any additional information that the department requires.

G.  The department shall review each application under subsection F of this section and certify to the taxpayer the amount of the credit that is authorized.  The amount of the credit for any calendar year shall not exceed two million dollars per facility that produces electricity using renewable energy resources.  Credits are allowed under this section and section 43‑1083.02 on a first come, first served basis.  The department shall not authorize tax credits under this section and section 43-1083.02 that exceed in the aggregate a total of twenty million dollars for any calendar year.  The first time that a taxpayer submits a qualified application for a qualified energy generator under subsection F of this section, the  department shall add the taxpayer's name to a credit authorization list that is maintained in the order in which qualified applications are first received by the department on behalf of the qualified energy generator.  A taxpayer's position on the credit authorization list shall be determined in the first year the taxpayer submits an application under subsection F of this section for the qualified energy generator.  The taxpayer's position on the credit authorization list for a particular qualified energy generator shall remain unchanged for the ten years that are specified in subsection B, paragraph 2 of this section or until a year in which the taxpayer fails to submit a timely application under subsection F of this section or otherwise fails to comply with this section.  If a taxpayer is removed from the credit authorization list for a qualified energy generator, the taxpayer may establish a new position on the credit authorization list in a subsequent year by filing a timely application for a qualified energy generator that qualifies for the credit.  If an application is received that, if authorized, would require the department to exceed the twenty million dollar limit, the department shall grant the applicant only the remaining credit amount that would not exceed the twenty million dollar limit.  After the department authorizes twenty million dollars in tax credits, the department shall deny any subsequent applications that are received for that calendar year.  The department shall not authorize any additional tax credits that exceed the twenty million dollar limit even if the amounts that have been certified to any taxpayer were not claimed or a taxpayer otherwise fails to meet the requirements to claim the additional credit.

H.  Co-owners of a qualified energy generator, including corporate partners in a partnership and members of a limited liability company, may each claim the pro rata share of the credit allowed under this section based on ownership interest.  The total of the credits allowed all such owners of the qualified energy generator may not exceed the amount that would have been allowed for a sole owner of the generator.

I.  If the allowable tax credit for a taxpayer exceeds the taxes otherwise due under this title on the claimant's income, or if there are no taxes due under this title, the amount of the claim not used to offset taxes under this title may be carried forward for not more than five consecutive taxable years as a credit against subsequent years' income tax liability.

J.  The department shall adopt rules and publish and prescribe forms and procedures as necessary to effectuate the purposes of this section.

K.  For the purposes of this section:

1.  "Biomass" means organic material that is available on a renewable or recurring basis, including:

(a)  Forest-related materials, including mill residues, logging residues, forest thinnings, slash, brush, low-commercial value materials or undesirable species, salt cedar and other phreatophyte or woody vegetation removed from river basins or watersheds and woody material harvested for the purpose of forest fire fuel reduction or forest health and watershed improvement.

(b)  Agricultural-related materials, including orchard trees, vineyard, grain or crop residues, including straws and stover, aquatic plants and agricultural processed coproducts and waste products, including fats, oils, greases, whey and lactose.

(c)  Animal waste, including manure and slaughterhouse and other processing waste.

(d)  Solid woody waste materials, including landscape or right-of-way tree trimmings, rangeland maintenance residues, waste pallets, crates and manufacturing, construction and demolition wood wastes, excluding pressure‑treated, chemically‑treated or painted wood wastes and wood contaminated with plastic.

(e)  Crops and trees planted for the purpose of being used to produce energy.

(f)  Landfill gas, wastewater treatment gas and biosolids, including organic waste byproducts generated during the wastewater treatment process.

2.  "Qualified energy generator" means a facility that has at least five megawatts generating capacity, that is located on land in this state owned or leased by the taxpayer, that produces electricity using a qualified energy resource and that sells that electricity to an unrelated entity, unless the electricity is sold to a public service corporation.

3.  "Qualified energy resource" means a resource that generates electricity through the use of only the following energy sources:

(a)  Solar light.

(b)  Solar heat.

(c)  Wind.

(d)  Biomass. END_STATUTE

Sec. 43.  Section 43-1165, Arizona Revised Statutes, is amended to read:

START_STATUTE43-1165.  Credit for employment by qualified defense contractor

A.  For taxable years through December 31, 2019, unless the legislature, by majority vote, extends this date, a credit is allowed against the taxes imposed by this title for:

1.  Net increases in employment under United States department of defense contracts during the taxable year, as computed under subsection D of this section, by a qualified defense contractor that is certified by the Arizona commerce authority under section 41‑1508.

2.  Net increases in private commercial employment during the taxable year, as computed under subsection E of this section, by a qualified defense contractor that is certified by the Arizona commerce authority under section 41‑1508 due to full‑time equivalent employee positions transferred during the taxable year by the taxpayer from exclusively defense related activities to employment by the taxpayer in exclusively private commercial activities.

B.  The amount of the credit is a dollar amount allowed for each full‑time equivalent employee position created, determined as follows:

      1st year                            $2,500

      2nd year                            $2,000

      3rd year                            $1,500

      4th year                            $1,000

      5th year                            $  500

C.  If the allowable tax credit exceeds the taxes otherwise due under this title on the claimant's income, or if there are no taxes due under this title, the taxpayer may carry the amount of the claim not used to offset the taxes under this title forward until taxable years beginning from and after December 31, 2011 as a credit against subsequent years' income tax liability, regardless of continuing certification as a qualified defense contractor.

D.  The net increase in employment under defense related contracts shall be determined as follows:

1.  Establish an employment baseline for the taxpayer based on a multiyear forecast of employment on United States department of defense contracts that was submitted to the department of defense before June 1, 1992.  The annual average employment forecast for the first year the taxpayer qualified is the baseline.  If the taxpayer did not make such a forecast before June 1, 1992, the baseline is the average annual employment as reported to the department of economic security during the preceding taxable year.  If a taxpayer qualifies in the same year it relocates into this state, the taxpayer's baseline is zero.

2.  For the first year of the credit, the taxpayer's net increase in average employment is the increase in employment reported to the department of economic security for the taxable year over the employment baseline.

3.  For each succeeding year of the credit, the taxpayer's net increase in average employment is the increase in employment reported to the department of economic security for the taxable year over the preceding taxable year's average employment.

E.  In computing the amount of credit allowed under subsection A, paragraph 2 of this section, the taxpayer shall:

1.  Prorate employment during the taxable year according to the date of transfer from defense to private commercial activities or the date of transfer from private commercial activities to defense.

2.  Compute and subtract an amount pursuant to subsection B of this section for full‑time equivalent employee positions that were transferred during the taxable year by the taxpayer from exclusively private commercial activities to exclusively defense related activities.

F.  The taxpayer shall account for qualifying full‑time equivalent employee positions on a first‑in first‑out basis.  If a decrease in qualifying employment occurs, the taxpayer shall subtract the decrease from the earliest qualifying positions.

G.  A credit is not allowed under both subsection A, paragraphs 1 and 2 of this section with respect to the same employee position.  A full‑time equivalent employee position may be considered for purposes of computing the credit under either subsection A, paragraph 1 or 2 of this section, but not both.

H.  A credit is not allowed under this section with respect to employment that was transferred from an outside contractor in this state to in‑house employment by the taxpayer solely for purposes of qualifying for the credit.

I.  A taxpayer that claims a credit under section 43‑1161, 43‑1164.01 or 43‑1167 may not claim a credit under this section with respect to the same employee positions.

J.  Co‑owners of a business, including corporate partners in a partnership, may each claim only the pro rata share of the credit allowed under this section based on the ownership interest.  The total of the credits allowed all such owners may not exceed the amount that would have been allowed for a sole owner of the business. END_STATUTE

Sec. 44.  Section 43-1166, Arizona Revised Statutes, is amended to read:

START_STATUTE43-1166.  Credit for property taxes paid by qualified defense contractor

A.  For taxable years through December 31, 2019, unless the legislature, by majority vote, extends this date, a credit is allowed against the taxes imposed by this title equal to a portion of the amount paid as taxes during the taxable year by a qualified defense contractor that is certified by the Arizona commerce authority under section 41‑1508 on property in this state that is classified as class one, paragraphs 12 and 13 pursuant to section 42‑12001.

B.  The amount of the credit is determined as follows:

1.  Multiply the amount paid as taxes on property classified as class one, paragraphs 12 and 13 pursuant to section 42‑12001 in this state during the taxable year by a percentage based on net new defense related employment, determined by subtracting the employment baseline determined pursuant to section 43‑1165, subsection D, paragraph 1 from average annual employment as reported to the department of economic security for the taxable year, as follows:

      New employment                Credit percentage

      More than 900                       40%

      601 - 900                           30%

      301 - 600                           20%

        1 - 300                           10%

2.  Multiply the amount determined under paragraph 1 of this subsection by a percentage determined by dividing the taxpayer's total gross income from United States department of defense contracts apportioned to this state by the taxpayer's total gross income from all sources apportioned to this state.

C.  If the allowable tax credit exceeds the taxes otherwise due under this title on the claimant's income, or if there are no taxes due under this title, the taxpayer may carry the amount of the claim not used to offset the taxes under this title forward until taxable years beginning from and after December 31, 2011 as a credit against subsequent years' income tax liability, regardless of continuing certification as a qualified defense contractor.

D.  Co‑owners of a business, including corporate partners in a partnership, may each claim only the pro rata share of the credit allowed under this section based on the ownership interest.  The total of the credits allowed all such owners may not exceed the amount that would have been allowed for a sole owner of the business. END_STATUTE

Sec. 45.  Section 43-1167, Arizona Revised Statutes, is amended to read:

START_STATUTE43-1167.  Credit for increased employment in military reuse zones; definition

A.  For taxable years through December 31, 2019, unless the legislature, by majority vote, extends this date, a credit is allowed against the taxes imposed by this title for net increases in employment by the taxpayer of full‑time employees working in a military reuse zone, established under title 41, chapter 10, article 3, and who are primarily engaged in providing aviation or aerospace services or in manufacturing, assembling or fabricating aviation or aerospace products.  The amount of the credit is a dollar amount allowed for each new employee, determined as follows:

1.  With respect to each employee other than a dislocated military base employee:

      1st year of employment              $  500

      2nd year of employment              $1,000

      3rd year of employment              $1,500

      4th year of employment              $2,000

      5th year of employment              $2,500

2.  With respect to each dislocated military base employee:

      1st year of employment              $1,000

      2nd year of employment              $1,500

      3rd year of employment              $2,000

      4th year of employment              $2,500

      5th year of employment              $3,000

B.  If the allowable tax credit exceeds the taxes otherwise due under this title on the claimant's income, or if there are no taxes due under this title, the amount of the claim not used to offset the taxes under this title may be carried forward as a credit against subsequent years' income tax liability for the period, not to exceed five taxable years, if the business remains in the military reuse zone.

C.  The net increase in the number of employees for purposes of this section shall be determined by comparing the taxpayer's average employment in the military reuse zone during the taxable year with the taxpayer's previous year's fourth quarter employment in the zone, based on the taxpayer's report to the department of economic security for unemployment insurance purposes but considering only employment in the zone.

D.  Co‑owners of a business, including corporate partners in a partnership, may each claim only the pro rata share of the credit allowed under this section based on the ownership interest.  The total of the credits allowed all such owners may not exceed the amount that would have been allowed for a sole owner of the business.

E.  A credit is not allowed under this section with respect to an employee whose place of employment is relocated by the taxpayer from a location in this state to the military reuse zone unless the employee is engaged in aviation or aerospace services or in manufacturing, assembling or fabricating aviation or aerospace products and the taxpayer maintains at least the same number of employees in this state but outside the zone.

F.  A taxpayer who claims a credit under section 43‑1161, 43‑1164.01 or 43‑1165 may not claim a credit under this section with respect to the same employees.

G.  For the purposes of this section, "dislocated military base employee" means a civilian who previously had permanent full‑time civilian employment on the military facility as of the date the closure of the facility was finally determined under federal law, as certified by the Arizona commerce authority. END_STATUTE

Sec. 46.  Section 43-1167.01, Arizona Revised Statutes, is amended to read:

START_STATUTE43-1167.01.  Credit for employing national guard members

A.  For taxable years beginning from and after December 31, 2005 through December 31, 2019, unless the legislature, by majority vote, extends this date, a credit is allowed against the taxes imposed by this title for a taxpayer whose employee is a member of the Arizona national guard if the employee is placed on active duty.  The amount of the credit is one thousand dollars for each employee who is placed on active duty by the Arizona national guard.

B.  To qualify for the credit:

1.  The employee must be a member of the Arizona national guard who is employed by the taxpayer in a full-time equivalent position when the employee is placed on active duty.

2.  Each member of the Arizona national guard who is employed must have served during the taxable year on active duty for training that exceeds the required annual training period, including any activation for federal or state contingencies or emergencies.

C.  If the allowable credit exceeds the taxes otherwise due under this title on the claimant's income, or if there are no taxes due under this title, the amount of the claim not used to offset taxes under this title may be carried forward for not more than five consecutive taxable years as a credit against subsequent years' income tax liability.

D.  The credit under this section may be claimed only once by the taxpayer in any taxable year with respect to each employee who is placed on active duty by the Arizona national guard, but may be claimed again for that employee in a subsequent taxable year if that employee remains on active duty or is placed again on active duty in a subsequent taxable year.

E.  Co‑owners of a business, including corporate partners in a partnership, may each claim only the pro rata share of the credit allowed under this section based on the ownership interest.  The total of the credits allowed all such owners may not exceed the amount that would have been allowed a sole owner. END_STATUTE

Sec. 47.  Section 43-1168, Arizona Revised Statutes, as amended by Laws 2011, second special session, chapter 1, section 113, is amended to read:

START_STATUTE43-1168.  Credit for increased research activities

A.  For taxable years through December 31, 2019, unless the legislature, by majority vote, extends this date, a credit is allowed against the taxes imposed by this title in an amount determined pursuant to section 41 of the internal revenue code, except that:

1.  The amount of the credit is computed as follows:

(a)  Add:

(i)  The excess, if any, of the qualified research expenses for the taxable year over the base amount as defined in section 41(c) of the internal revenue code.

(ii)  The basic research payments determined under section 41(e)(1)(A) of the internal revenue code.

(b)  If the sum computed under subdivision (a) is two million five hundred thousand dollars or less, the credit is equal to twenty-four per cent of that amount.

(c)  If the sum computed under subdivision (a) is over two million five hundred thousand dollars, the credit is equal to six hundred thousand dollars plus fifteen per cent of any amount exceeding two million five hundred thousand dollars, except that:

(i)  For taxable years beginning from and after December 31, 2000 through December 31, 2001, the credit shall not exceed one million five hundred thousand dollars.

(ii)  For taxable years beginning from and after December 31, 2001 through December 31, 2002, the credit shall not exceed two million five hundred thousand dollars.

(d)  For taxable years beginning from and after December 31, 2011, an additional credit amount is allowed if the taxpayer made basic research payments during the taxable year to a university under the jurisdiction of the Arizona board of regents.  The additional credit amount is equal to ten per cent of the basic research payments that constitute excess expenses for the taxable year over the base amount.  The department shall not allow credit amounts under this subdivision and section 43‑1074.01, subsection A, paragraph 1, subdivision (c) that exceed, in the aggregate, a combined total of ten million dollars in any calendar year.  Subject to that limit, on application by the taxpayer, the department shall preapprove credit amounts under this subdivision and section 43‑1074.01, subsection A, paragraph 1, subdivision (c) based on priority placement established by the date that the taxpayer filed the application.  Notwithstanding subsections B and D of this section, any amount of the additional credit under this subdivision that exceeds the taxes otherwise due under this title is not refundable, but may be carried forward to the next five consecutive taxable years.  For the purposes of this subdivision, "basic research payment" has the same meaning prescribed by section 41(e) of the internal revenue code.

2.  Qualified research includes only research conducted in this state including research conducted at a university in this state and paid for by the taxpayer.

3.  If two or more taxpayers, including corporate partners in a partnership, share in the eligible expenses, each taxpayer is eligible to receive a proportionate share of the credit.

4.  The credit under this section applies only to expenses incurred from and after December 31, 1993.

5.  The termination provisions of section 41 of the internal revenue code do not apply.

B.  Except as provided by subsection D of this section, if the allowable credit under this section exceeds the taxes otherwise due under this title on the claimant's income, or if there are no taxes due under this title, the amount of the credit not used to offset taxes may be carried forward to the next fifteen consecutive taxable years.  The amount of credit carryforward from taxable years beginning from and after December 31, 2000 through December 31, 2002 that may be used under this subsection in any taxable year may not exceed the taxpayer's tax liability under this title or five hundred thousand dollars, whichever is less, minus the credit under this section for the current taxable year's qualified research expenses.  The amount of credit carryforward from taxable years beginning from and after December 31, 2002 that may be used under this subsection in any taxable year may not exceed the taxpayer's tax liability under this title minus the credit under this section for the current taxable year's qualified research expenses.  A taxpayer that carries forward any amount of credit under this subsection may not thereafter claim a refund of any amount of the credit under subsection D of this section.

C.  If a taxpayer has qualified research expenses that are carried forward from taxable years beginning before January 1, 2001, the amount of the expenses carried forward shall be converted to a credit carryforward by multiplying the amount of the qualified expenses carried forward by twenty per cent.  A credit carryforward determined under this subsection may be carried forward to not more than fifteen years from the year in which the expenses were incurred.  The amount of credit carryforward from taxable years beginning before January 1, 2001 that may be used under this subsection in any taxable year may not exceed the taxpayer's tax liability under this title or five hundred thousand dollars, whichever is less, minus the credit under this section for the current taxable year's qualified research expenses.  The total amount of credit carryforward from taxable years beginning before January 1, 2003 that may be used in any taxable year under subsection B and this subsection may not exceed the taxpayer's tax liability under this title or five hundred thousand dollars, whichever is less, minus the credit under this section for the current taxable year's qualified research expenses.

D.  For taxable years beginning from and after December 31, 2009, if a taxpayer who claims a credit under this section employs fewer than one hundred fifty persons in the taxpayer's trade or business and if the allowable credit under this section exceeds the taxes otherwise due under this title on the claimant's income, or if there are no taxes due under this title, in lieu of carrying the excess amount of credit forward to subsequent taxable years under subsection B of this section, the taxpayer may elect to receive a refund as follows:

1.  The taxpayer must apply to the department of commerce Arizona commerce authority for qualification for the refund pursuant to section 41‑1507 and submit a copy of the department of commerce's Arizona commerce authority's certificate of qualification to the department of revenue with the taxpayer's income tax return.

2.  The amount of the refund is limited to seventy-five per cent of the amount by which the allowable credit under this section exceeds the taxpayer's tax liability under this title for the taxable year.  The remainder of the excess amount of the credit is waived.

3.  The refund shall be paid in the manner prescribed by section 42‑1118.

4.  The refund is subject to setoff under section 42‑1122.

5.  If the department determines that a credit refunded pursuant to this subsection is incorrect or invalid, the excess credit issued may be treated as a tax deficiency pursuant to section 42‑1108.

E.  A taxpayer that claims a credit for increased research and development activity under this section shall not claim a credit under section 43‑1164.02 for the same expenses. END_STATUTE

Sec. 48.  Section 43-1168, Arizona Revised Statutes, as amended by Laws 2011, second special session, chapter 1, section 114, is amended to read:

START_STATUTE43-1168.  Credit for increased research activity

A.  For taxable years through December 31, 2026, unless the legislature, by majority vote, extends this date,  a credit is allowed against the taxes imposed by this title in an amount determined pursuant to section 41 of the internal revenue code, except that:

1.  The amount of the credit is computed as follows:

(a)  Add:

(i)  The excess, if any, of the qualified research expenses for the taxable year over the base amount as defined in section 41(c) of the internal revenue code.

(ii)  The basic research payments determined under section 41(e)(1)(A) of the internal revenue code.

(b)  If the sum computed under subdivision (a) is two million five hundred thousand dollars or less, the credit is equal to twenty per cent of that amount.

(c)  If the sum computed under subdivision (a) is over two million five hundred thousand dollars, the credit is equal to five hundred thousand dollars plus eleven per cent of any amount exceeding two million five hundred thousand dollars, except that:

(i)  For taxable years beginning from and after December 31, 2000 through December 31, 2001, the credit shall not exceed one million five hundred thousand dollars.

(ii)  For taxable years beginning from and after December 31, 2001 through December 31, 2002, the credit shall not exceed two million five hundred thousand dollars.

(d)  For taxable years beginning from and after December 31, 2011, an additional credit amount is allowed if the taxpayer made basic research payments during the taxable year to a university under the jurisdiction of the Arizona board of regents.  The additional credit amount is equal to ten per cent of the basic research payments that constitute excess expenses for the taxable year over the base amount.  The department shall not allow credit amounts under this subdivision and section 43‑1074.01, subsection A, paragraph 1, subdivision (c) that exceed, in the aggregate, a combined total of ten million dollars in any calendar year.  Subject to that limit, on application by the taxpayer, the department shall preapprove credit amounts under this subdivision and section 43‑1074.01, subsection A, paragraph 1, subdivision (c) based on priority placement established by the date that the taxpayer filed the application.  Notwithstanding subsections B and D of this section, any amount of the additional credit under this subdivision that exceeds the taxes otherwise due under this title is not refundable, but may be carried forward to the next five consecutive taxable years.

2.  Qualified research includes only research conducted in this state including research conducted at a university in this state and paid for by the taxpayer.

3.  If two or more taxpayers, including corporate partners in a partnership, share in the eligible expenses, each taxpayer is eligible to receive a proportionate share of the credit.

4.  The credit under this section applies only to expenses incurred from and after December 31, 1993.

5.  The termination provisions of section 41 of the internal revenue code do not apply.

B.  Except as provided by subsection D of this section, if the allowable credit under this section exceeds the taxes otherwise due under this title on the claimant's income, or if there are no taxes due under this title, the amount of the credit not used to offset taxes may be carried forward to the next fifteen consecutive taxable years.  The amount of credit carryforward from taxable years beginning from and after December 31, 2000 through December 31, 2002 that may be used under this subsection in any taxable year may not exceed the taxpayer's tax liability under this title or five hundred thousand dollars, whichever is less, minus the credit under this section for the current taxable year's qualified research expenses.  The amount of credit carryforward from taxable years beginning from and after December 31, 2002 that may be used under this subsection in any taxable year may not exceed the taxpayer's tax liability under this title minus the credit under this section for the current taxable year's qualified research expenses.  A taxpayer that carries forward any amount of credit under this subsection may not thereafter claim a refund of any amount of the credit under subsection D of this section.

C.  If a taxpayer has qualified research expenses that are carried forward from taxable years beginning before January 1, 2001, the amount of the expenses carried forward shall be converted to a credit carryforward by multiplying the amount of the qualified expenses carried forward by twenty per cent.  A credit carryforward determined under this subsection may be carried forward to not more than fifteen years from the year in which the expenses were incurred.  The amount of credit carryforward from taxable years beginning before January 1, 2001 that may be used under this subsection in any taxable year may not exceed the taxpayer's tax liability under this title or five hundred thousand dollars, whichever is less, minus the credit under this section for the current taxable year's qualified research expenses.  The total amount of credit carryforward from taxable years beginning before January 1, 2003 that may be used in any taxable year under subsection B and this subsection may not exceed the taxpayer's tax liability under this title or five hundred thousand dollars, whichever is less, minus the credit under this section for the current taxable year's qualified research expenses.

D.  For taxable years beginning from and after December 31, 2009, if a taxpayer who claims a credit under this section employs fewer than one hundred fifty persons in the taxpayer's trade or business and if the allowable credit under this section exceeds the taxes otherwise due under this title on the claimant's income, or if there are no taxes due under this title, in lieu of carrying the excess amount of credit forward to subsequent taxable years under subsection B of this section, the taxpayer may elect to receive a refund as follows:

1.  The taxpayer must apply to the department of commerce for qualification for the refund pursuant to section 41‑1507 and submit a copy of the department of commerce's certificate of qualification to the department of revenue with the taxpayer's income tax return.

2.  The amount of the refund is limited to seventy-five per cent of the amount by which the allowable credit under this section exceeds the taxpayer's tax liability under this title for the taxable year.  The remainder of the excess amount of the credit is waived.

3.  The refund shall be paid in the manner prescribed by section 42‑1118.

4.  The refund is subject to setoff under section 42‑1122.

5.  If the department determines that a credit refunded pursuant to this subsection is incorrect or invalid, the excess credit issued may be treated as a tax deficiency pursuant to section 42‑1108.

E.  A taxpayer that claims a credit for increased research and development activity under this section shall not claim a credit under section 43‑1164.02 for the same expenses. END_STATUTE

Sec. 49.  Section 43-1170, Arizona Revised Statutes, is amended to read:

START_STATUTE43-1170.  Credit for pollution control equipment

A.  For taxable years through December 31, 2019, unless the legislature, by majority vote, extends this date, a credit is allowed against the taxes imposed by this title for expenses that the taxpayer incurred during the taxable year to purchase real or personal property that is used in the taxpayer's trade or business in this state to control or prevent pollution.  The amount of the credit is equal to ten per cent of the purchase price.

B.  Property that qualifies for the credit under this section includes that portion of a structure, building, installation, excavation, machine, equipment or device and any attachment or addition to or reconstruction, replacement or improvement of that property that is directly used, constructed or installed in this state for the purpose of meeting or exceeding rules or regulations adopted by the United States environmental protection agency, the department of environmental quality or a political subdivision of this state to prevent, monitor, control or reduce air, water or land pollution that results from the taxpayer's direct operating activities in conducting a trade or business in this state. 

C.  The credit allowed pursuant to this section does not apply to:

1.  The purchase of any personal property that is attached to a motor vehicle.

2.  Any property that has a substantial use for a purpose other than the purposes described in subsection B.

3.  Any portion of pollution control property that is included as a standard and integral part of another property.

D.  Amounts that qualify for a credit under this section must be includible in the taxpayer's adjusted basis for the property.  The adjusted basis of any property with respect to which the taxpayer has claimed a credit shall be reduced by the amount of credit claimed with respect to that asset.  This credit does not affect the deductibility for depreciation or amortization of the remaining adjusted basis of the asset.

E.  Co-owners of a business, including corporate partners in a partnership, may each claim only the pro rata share of the credit allowed under this section based on the ownership interest.  The total of the credits allowed all such owners may not exceed the amount that would have been allowed a sole owner.

F.  If the allowable tax credit exceeds the taxes otherwise due under this title on the claimant's income, or if there are no taxes due under this title, the taxpayer may carry the amount of the claim not used to offset the taxes under this title forward for not more than five taxable years' income tax liability.

G.   The maximum credit that a taxpayer may claim under this section is five hundred thousand dollars in a taxable year. END_STATUTE

Sec. 50.  Section 43-1170.01, Arizona Revised Statutes, is amended to read:

START_STATUTE43-1170.01.  Credit for agricultural pollution control equipment

A.  For taxable years through December 31, 2019, unless the legislature, by majority vote, extends this date, a credit is allowed against the taxes imposed by this title for expenses that a taxpayer, involved in the commercial production of livestock, livestock products or agricultural, horticultural, viticultural or floricultural crops or products, incurred during the taxable year to purchase tangible personal property that is primarily used in the taxpayer's trade or business in this state to control or prevent pollution.  The amount of the credit is equal to twenty‑five per cent of the cost of the real or personal property.  The maximum credit that a taxpayer may claim under this section is twenty‑five thousand dollars in a taxable year.

B.  Property that qualifies for the credit under this section includes the portion of a structure, building, installation, excavation, machine, equipment or device and any attachment or addition to or reconstruction, replacement or improvement of that property that is directly used, constructed or installed in this state to prevent, monitor, control or reduce air, water or land pollution.

C.  Amounts that qualify for a credit under this section must be includible in the taxpayer's adjusted basis for the property.  The adjusted basis of any property with respect to which the taxpayer has claimed a credit shall be reduced by the amount of credit claimed with respect to that asset.  This credit does not affect the deductibility for depreciation or amortization of the remaining adjusted basis of the asset.

D.  Co-owners of a business, including corporate partners in a partnership, may each claim only the pro rata share of the credit allowed under this section based on the ownership interest.  The total of the credits allowed all such owners may not exceed the amount that would have been allowed a sole owner.

E.  If the allowable tax credit exceeds the taxes otherwise due under this title on the claimant's income, or if there are no taxes due under this title, the amount of the claim not used to offset the taxes under this title may be carried forward to the next five consecutive taxable years as a credit against subsequent years' income tax liability.

F.  A taxpayer who claims a credit for pollution control equipment under this section shall not claim a credit under section 43-1170 for the same equipment or expense. END_STATUTE

Sec. 51.  Section 43-1175, Arizona Revised Statutes, is amended to read:

START_STATUTE43-1175.  Credit for employment of temporary assistance for needy families recipients

A.  For taxable years through December 31, 2019, unless the legislature, by majority vote, extends this date, a credit is allowed against the taxes imposed by this title for net increases in qualified employment by the taxpayer of recipients of temporary assistance for needy families as defined in section 46‑101 who are residents of this state.  The amount of the credit is equal to the sum of the following:

1.  One‑fourth of the taxable wages paid to each employee in qualified employment positions, not to exceed five hundred dollars per qualified employment position, in the first year or partial year of employment.  Wages that were subsidized as provided by section 46‑299 shall not be included.

2.  One‑third of the taxable wages paid to each employee in qualified employment positions, not to exceed one thousand dollars per qualified employment position, in the second year of continuous employment.  Wages that were subsidized as provided by section 46‑299 shall not be included.

3.  One‑half of the taxable wages paid to each employee in qualified employment positions, not to exceed one thousand five hundred dollars per qualified employment position, in the third year of continuous employment.  Wages that were subsidized as provided by section 46‑299 shall not be included.

B.  The credit allowed in this section is in lieu of any wage expense deduction taken for state tax purposes.

C.  To qualify for a credit under this section:

1.  All of the employees with respect to whom a credit is claimed must reside in this state and must be recipients of temporary assistance for needy families as defined in section 46‑101 at the time the employee is hired.

2.  A qualified employment position must meet all of the following requirements:

(a)  The position must be classified as full‑time employment.

(b)  The employment must include health insurance coverage for the employee if the employer offers this coverage for employees who are not recipients of temporary assistance for needy families.

(c)  The employer must pay compensation at least equal to the minimum wage or a wage comparable to that paid to employees who are not receiving temporary assistance for needy families based on the employee's training, skills and job classification.

(d)  The employee must have been employed for at least ninety days during the first taxable year.  An employee who is hired during the last ninety days of the taxable year shall be considered a new employee during the next taxable year.  Periods for which the employee's wages were subsidized as provided by section 46‑299 shall not be included as periods of employment.

(e)  The employee was not employed by the taxpayer within twelve months before the current date of hire.

(f)  The employee position is not eligible for any other employment credit pursuant to this title based on wages paid.

D.  The net increase in the number of qualified employment positions shall be determined by comparing the average number of qualified employment positions during the taxable year with the immediately preceding taxable year based on the taxpayer's report to the department of economic security for unemployment purposes.

E.  If the allowable tax credit exceeds the income taxes otherwise due on the claimant's income, the amount of the claim not used as an offset against income taxes may be carried forward as a tax credit against subsequent years' income tax liability for the period, not to exceed five consecutive taxable years.

F.  Co‑owners of a business, including corporate partners in a partnership, may claim only the pro rata share of the credit allowed under this section based on the ownership interest.  The total of the credits allowed all of the owners of the business may not exceed the amount that would have been allowed for a sole owner of the business.

G.  The department may adopt rules necessary for the administration of this section. END_STATUTE

Sec. 52.  Section 43-1176, Arizona Revised Statutes, is amended to read:

START_STATUTE43-1176.  Credit for solar hot water heater plumbing stub outs and electric vehicle recharge outlets installed in houses constructed by taxpayer

A.  For taxable years through December 31, 2019, unless the legislature, by majority vote, extends this date, a credit is allowed against the taxes imposed by this title for costs incurred during the taxable year of installing or including in one or more houses or dwelling units located in this state and constructed by the taxpayer one or more:

1.  Solar hot water plumbing stub outs.  To qualify for the credit the stub out must:

(a)  Include two insulated three-fourths inch copper pipes and at least two pairs of wires for monitoring and control purposes that project from the dwelling roof or other suitable location and that are connected to the domestic hot water transport and storage system.

(b)  Be located and configured to allow sufficient solar access and exposure and to allow ready installation of solar water heating devices without further expense or effort to reach, use or serve the domestic hot water system of the house or dwelling unit.

2.  Electric vehicle recharge outlets.  To qualify for the credit, the outlet must be connected to the utility system by a dedicated line that:

(a)  Is capable of operating at normal secondary voltages.

(b)  Meets applicable local building safety codes.

(c)  Is commensurate and consistent with electric vehicle recharging needs and methods.

B.  The credit shall not exceed seventy‑five dollars for each installation for each separate house or dwelling unit.

C.  The taxpayer may elect to transfer a credit under this section to a purchaser or transferee of the house or dwelling unit.  If the taxpayer elects to transfer the credit, the taxpayer shall deliver to the purchaser or transferee a written statement that the taxpayer has elected not to claim the credit and that the purchaser or transferee may claim the credit, subject to the conditions and limitations prescribed by this section.

D.  If the allowable credit exceeds the taxes otherwise due under this title on the claimant's income or if there are no taxes due under this title, the amount of the credit not used to offset taxes under this title may be carried forward to the next five consecutive taxable years as a credit against subsequent years' income tax liability.

E.  Co-owners of a business, including corporate partners in a partnership, may each claim only the pro rata share of the credit allowed under this section based on the ownership interest.  The total of the credits allowed all such owners may not exceed the amount that would have been allowed a sole owner.

F.  The credit allowed under this section is in lieu of any expenses taken for installing solar stub outs or electric vehicle recharge outlets to reach in computing Arizona taxable income. END_STATUTE

Sec. 53.  Section 43-1178, Arizona Revised Statutes, is amended to read:

START_STATUTE43-1178.  Credit for taxes with respect to coal consumed in generating electrical power

A.  For taxable years through December 31, 2019, unless the legislature, by majority vote, extends this date, a credit is allowed against the taxes imposed by this title for a taxpayer that purchases coal consumed in generating electrical power in this state.  The credit is equal to thirty per cent of the amount paid by the seller or purchaser as transaction privilege or use tax with respect to the coal sold to the taxpayer.

B.  Co-owners of a business, including corporate partners in a partnership, may claim only the pro rata share of the credit allowed under this section based on the ownership interest.  The total of the credits allowed all of the owners of the business may not exceed the amount that would have been allowed for a sole owner of the business.

C.  If the allowable tax credit exceeds the taxes otherwise due under this title on the claimant's income, or if there are no taxes due under this title, the amount of the claim not used as an offset against income taxes may be carried forward to the next five consecutive taxable years as a credit against subsequent years' income tax liability.

D.  The credit under this section is in lieu of any allowance for state tax purposes for a deduction for the expenses allowed by the internal revenue code. END_STATUTE

Sec. 54.  Section 43-1181, Arizona Revised Statutes, is amended to read:

START_STATUTE43-1181.  Credit of donation of school site

A.  for taxable years through December 31, 2019, unless the legislature, by majority vote, extends this date, a credit is allowed against the taxes imposed by this title in the amount of thirty per cent of the value of real property and improvements donated by the taxpayer to a school district or a charter school for use as a school or as a site for the construction of a school.

B.  To qualify for the credit:

1.  The real property and improvements must be located in this state.

2.  The real property and improvements must be conveyed unencumbered and in fee simple except that:

(a)  The conveyance must include as a deed restriction and protective covenant running with title to the land the requirement that as long as the donee holds title to the property the property shall only be used as a school or as a site for the construction of a school, subject to subsection I or J of this section.

(b)  In the case of a donation to a charter school, the donor shall record a lien on the property as provided by subsection J, paragraph 3 of this section.

3.  The conveyance shall not violate section 15‑341, subsection D or section 15‑183, subsection U.

C.  For the purposes of this section, the value of the donated property is the property's fair market value as determined in an appraisal as defined in section 32‑3601 that is conducted by an independent party and that is paid for by the donee.

D.  If the property is donated by co‑owners, including corporate partners in a partnership, each donor may claim only the pro rata share of the allowable credit under this section based on the ownership interest.  The total of the credits allowed all co-owner donors may not exceed the allowable credit.

E.  If the allowable tax credit exceeds the taxes otherwise due under this title on the claimant's income, or if there are no taxes due under this title, the taxpayer may carry the amount of the claim not used to offset the taxes under this title forward for not more than five consecutive taxable years' income tax liability.

F.  The credit under this section is in lieu of any deduction pursuant to section 170 of the internal revenue code taken for state tax purposes.

G.  On written request by the donee, the donor shall disclose in writing to the donee the amount of the credit allowed pursuant to this section with respect to the property received by the donee.

H.  A school district or charter school may refuse the donation of any property for purposes of this section.

I.  If the donee is a school district:

1.  The district shall notify the school facilities board established by section 15‑2001 and furnish the board with any information the board requests regarding the donation.  A school district shall not accept a donation pursuant to this section unless the school facilities board has reviewed the proposed donation and has issued a written determination that the real property and improvements are suitable as a school site or as a school.  The school facilities board shall issue a determination that the real property and improvements are not suitable as a school site or as a school if the expenses that would be necessary to make the property suitable as a school site or as a school exceed the value of the proposed donation.

2.  The district may sell any donated property pursuant to section 15‑342, but the proceeds from the sale shall only be used for capital projects.  The school facilities board shall withhold an amount that corresponds to the amount of the proceeds from any monies that would otherwise be due the school district from the school facilities board pursuant to section 15‑2041.

J.  If the donee is a charter school:

1.  The charter school shall:

(a)  Immediately notify the sponsor of the charter school by certified mail and shall furnish the sponsor with any information requested by the sponsor regarding the donation during the ten year period after the conveyance is recorded.

(b)  Notify the sponsor by certified mail, and the sponsor shall notify the state treasurer, in the event of the charter school's financial failure or if the charter school:

(i)  Fails to establish a charter school on the property within forty‑eight months after the conveyance is recorded.

(ii)  Fails to provide instruction to pupils on the property within forty-eight months after the conveyance is recorded.

(iii)  Establishes a charter school on the property but subsequently ceases to operate the charter school on the property for twenty-four consecutive months or fails to provide instruction to pupils on the property for twenty-four consecutive months.

2.  The charter school, or a successor in interest, shall pay to the state treasurer the amount of the credit allowed under this section, or if that amount is unknown, the amount of the allowable credit under this section, if any of the circumstances listed in paragraph 1, subdivision (b) of this subsection occur occurs.  If the amount is not paid within one year after the treasurer receives notice under paragraph 1, subdivision (b) of this subsection, a penalty and interest shall be added, determined pursuant to title 42, chapter 1, article 3.

3.  A tax credit under this section constitutes a lien on the property, which the donor must record along with the title to the property to qualify for the credit.  The amount of the lien is the amount of the allowable credit under this section, adjusted according to the average change in the GDP price deflator, as defined in section 41‑563, for each calendar year since the donation, but not exceeding twelve and one-half per cent more than the allowable credit.  The lien is subordinate to any liens securing the financing of the school construction.  The lien is extinguished on the earliest of the following:

(a)  Ten years after the lien is recorded.  After that date, the charter school, or a successor in interest, may request the state treasurer to release the lien.

(b)  On payment to the state treasurer by the donee charter school, or by a successor in interest, of the amount of the allowable credit under this section, either voluntarily or as required by paragraph 2 of this subsection.  After the required amount is paid, the charter school or successor in interest may request the state treasurer to release the lien.

(c)  On conveyance of fee simple title to the property to a school district.

(d)  On enforcement and satisfaction of the lien pursuant to paragraph 4 of this subsection.

4.  The state treasurer shall enforce the lien by foreclosure within one year after receiving notice of any of the circumstances described in paragraph 1, subdivision (b) of this subsection.

5.  Subject to paragraphs 3 and 4 of this subsection, the charter school may sell any donated property. END_STATUTE

Sec. 55.  Section 43-1183, Arizona Revised Statutes, is amended to read:

START_STATUTE43-1183.  Credit for contributions to school tuition organization; definition

A.  Beginning from and after June 30, 2006 and for taxable years through December 31, 2019, unless the legislature, by majority vote, extends this date, a credit is allowed against the taxes imposed by this title for the amount of voluntary cash contributions made by the taxpayer during the taxable year to a school tuition organization that is certified pursuant to chapter 15 of this title at the time of donation.

B.  The amount of the credit is the total amount of the taxpayer's contributions for the taxable year under subsection A of this section and is preapproved by the department of revenue pursuant to subsection D of this section.

C.  The department of revenue:

1.  Shall not allow tax credits under this section and section 20‑224.06 that exceed in the aggregate a combined total of ten million dollars in any fiscal year.  Beginning in fiscal year 2007‑2008, the aggregate dollar amount of the tax credit cap from the previous fiscal year shall be annually increased by twenty per cent.

2.  Shall preapprove tax credits under this section and section 20‑224.06 subject to subsection D of this section.

3.  Shall allow the tax credits under this section and section 20‑224.06 on a first come, first served basis.

D.  For the purposes of subsection C, paragraph 2 of this section, before making a contribution to a school tuition organization, the taxpayer under this title or title 20 must notify the school tuition organization of the total amount of contributions that the taxpayer intends to make to the school tuition organization.  Before accepting the contribution, the school tuition organization shall request preapproval from the department of revenue for the taxpayer's intended contribution amount.  The department of revenue shall preapprove or deny the requested amount within twenty days after receiving the request from the school tuition organization.  If the department of revenue preapproves the request, the school tuition organization shall immediately notify the taxpayer, and the department of insurance in the case of a credit under section 20‑224.06, that the requested amount was preapproved by the department of revenue.  In order to receive a tax credit under this subsection, the taxpayer shall make the contribution to the school tuition organization within ten days after receiving notice from the school tuition organization that the requested amount was preapproved.  If the school tuition organization does not receive the preapproved contribution from the taxpayer within the required ten days, the school tuition organization shall immediately notify the department of revenue, and the department of insurance in the case of a credit under section 20‑224.06, and the department of revenue shall no longer include this preapproved contribution amount when calculating the limit prescribed in subsection C, paragraph 1 of this section.

E.  If the allowable tax credit exceeds the taxes otherwise due under this title on the claimant's income, or if there are no taxes due under this title, the taxpayer may carry the amount of the claim not used to offset the taxes under this title forward for not more than five consecutive taxable years' income tax liability.

F.  Co-owners of a business, including corporate partners in a partnership, may each claim only the pro rata share of the credit allowed under this section based on the ownership interest.  The total of the credits allowed all such owners may not exceed the amount that would have been allowed a sole owner.

G.  The credit allowed by this section is in lieu of any deduction pursuant to section 170 of the internal revenue code and taken for state tax purposes.

H.  A taxpayer shall not claim a credit under this section and also under section 43‑1184 with respect to the same contribution.

I.  The tax credit is not allowed if the taxpayer designates the taxpayer's contribution to the school tuition organization for the direct benefit of any specific student.

J.  The department of revenue, with the cooperation of the department of insurance, shall adopt rules and publish and prescribe forms and procedures necessary for the administration of this section.

K.  For the purposes of this section, "qualified school":

1.  Means a nongovernmental primary school or secondary school:

(a)  That is located in this state, that does not discriminate on the basis of race, color, handicap, familial status or national origin and that satisfies the requirements prescribed by law for private schools in this state on January 1, 2005.

(b)  That annually administers and makes available to the public the aggregate test scores of its students on a nationally standardized norm‑referenced achievement test, preferably the Arizona instrument to measure standards test administered pursuant to section 15‑741.

(c)  That requires all teaching staff and any personnel that have unsupervised contact with students to be fingerprinted.

2.  Does not include a charter school or programs operated by charter schools. END_STATUTE

Sec. 56.  Section 43-1184, Arizona Revised Statutes, is amended to read:

START_STATUTE43-1184.  Credit for contributions to school tuition organization; displaced students; students with disabilities; definition

A.  Beginning from and after June 30, 2009 and for taxable years through December 31, 2019, unless the legislature, by majority vote, extends this date, a credit is allowed against the taxes imposed by this title for the amount of voluntary cash contributions made by the taxpayer during the taxable year to a school tuition organization that is certified pursuant to chapter 15 of this title at the time of donation.

B.  The amount of the credit is the total amount of the taxpayer's contributions for the taxable year under subsection A of this section and is preapproved by the department of revenue pursuant to subsection D of this section.

C.  The department of revenue:

1.  Shall not allow tax credits under this section and section 20‑224.07 that exceed in the aggregate a combined total of five million dollars in any fiscal year.

2.  Shall preapprove tax credits under this section and section 20‑224.07 subject to subsection D of this section.

3.  Shall allow the tax credits under this section and section 20‑224.07 on a first come, first served basis.

D.  For the purposes of subsection C, paragraph 2 of this section, before making a contribution to a school tuition organization, the taxpayer under this title or title 20 must notify the school tuition organization of the total amount of contributions that the taxpayer intends to make to the school tuition organization.  Before accepting the contribution, the school tuition organization shall request preapproval from the department of revenue for the taxpayer's intended contribution amount.  The department of revenue shall preapprove or deny the requested amount within twenty days after receiving the request from the school tuition organization.  If the department of revenue preapproves the request, the school tuition organization shall immediately notify the taxpayer that the requested amount was preapproved by the department of revenue.  In order to receive a tax credit under this subsection, the taxpayer shall make the contribution to the school tuition organization within ten days after receiving notice from the school tuition organization that the requested amount was preapproved.  If the school tuition organization does not receive the preapproved contribution from the taxpayer within the required ten days, the school tuition organization shall immediately notify the department of revenue and the department shall no longer include this preapproved contribution amount when calculating the limit prescribed in subsection C, paragraph 1 of this section.

E.  If the allowable tax credit exceeds the taxes otherwise due under this title on the claimant's income, or if there are no taxes due under this title, the taxpayer may carry the amount of the claim not used to offset the taxes under this title forward for not more than five consecutive taxable years' income tax liability.

F.  Co-owners of a business, including corporate partners in a partnership, may each claim only the pro rata share of the credit allowed under this section based on the ownership interest.  The total of the credits allowed all such owners may not exceed the amount that would have been allowed a sole owner.

G.  The credit allowed by this section is in lieu of any deduction pursuant to section 170 of the internal revenue code and taken for state tax purposes.

H.  A taxpayer shall not claim a credit under this section and also under section 43‑1183 with respect to the same contribution.

I.  The tax credit is not allowed if the taxpayer designates the taxpayer's contribution to the school tuition organization for the direct benefit of any specific student.

J.  The department of revenue shall adopt rules necessary for the administration of this section.

K.  For the purposes of this section, "qualified school":

1.  Means a nongovernmental primary school or secondary school or a preschool for handicapped students that is located in this state, that does not discriminate on the basis of race, color, handicap, familial status or national origin and that satisfies the requirements prescribed by law for private schools in this state on January 1, 2009.

2.  Does not include a charter school or programs operated by charter schools. END_STATUTE

Sec. 57.  Effective date

A.  Section 43-1074.01, Arizona Revised Statutes, as amended by Laws 2011, second special session, chapter 1, section 97 and this act, is effective for taxable years beginning from and after December 31, 2017.

B.  Section 43-1168, Arizona Revised Statutes, as amended by Laws 2011, second special session, chapter 1, section 114 and this act, is effective for taxable years beginning from and after December 31, 2017.

2.  The Secretary of State shall submit this proposition to the voters at the next general election as provided by article IV, part 1, section 1, Constitution of Arizona.