When it comes to Arizona sales tax, contractors have historically faced incredible complexities and challenges. Recently however, the laws changed to simplify these rules by separating contractors into two groups; prime contractors and MAAR (Maintenance, Repair, Replacement and Alteration) contractors.
Now that the law has been around for a couple of years, things have simmered down a bit. The Arizona Department of Revenue has clarified the position AND most of us (tax professionals) seem to understand it now.
Here are some sales tax facts to help you better understand MAAR contractor requirements in Arizona:
1. Definition: If you are doing any of the following tasks on your contract/job (not new construction) you are (most likely) a MAAR:
a) Maintenance - The upkeep of property or equipment such as HVAC systems
b) Repair – Any activity restoring, repairing from inoperable state to a usable state such as recharging your A/C unit, clearing pipes, or making adjustments
c) Replacement – You're just replacing or upgrading the system such as HVAC, bathroom cabinets, carpets
d) Alteration– Activity causing direct physical change to real property such as refinishing hardwood floors, enlarging a patio
2. Collecting and Paying Sales Taxes: As a MAAR contractor, you do NOT collect or pay sales taxes to the AZDOR. However, you DO pay sales taxes on all purchases of supplies and materials.
3. Your Contractor Status Can Vary By Contract/Job: Always, always, always - make sure you understand your position in a contract. There may be times you are working on new construction but you are still considered a MAAR contractor. Your receipts must be 15% or less of the total receipts on a taxable project which falls within the de minimis rules for MAAR compliance.
Basically - if you are a MAAR contractor, your life just became so much easier in Arizona.
For more information on MAAR contractor tax issues, please read ARIZONA TRANSACTION PRIVILEGE TAX NOTICE TPN 14‐1 November 18, 2014.
If you are contracting in other states, remember that each state (and location) has different sales tax rules by which you must abide. If you need some help figuring out what you need to do - please contact us. We work with contractors in Arizona - as well as other states.
Other recent “Arizona (AZ)” posts by Gabrielle Luoma, CPA, CGMA:
- 3 Sales Tax Mistakes To Avoid in Arizona
- Arizona Business: Sales Tax Nexus Considerations
- Arizona MAAR Contractors: Simplified Sales Tax Facts
- Should Arizona Service-Based Businesses - Charge Sales Tax?