Legal Alert: Arizona Legislature and Governor Enact Legislation Exempting Certain Pre-Construction Services from State Prime Contracting Transaction Privilege (Sales) Tax

Under new legislation enacted last month, and effective retroactive to tax years beginning after December 31, 2000, the gross income derived by a contractor from "design phase services" and "professional services" is not subject to the prime contracting classification of the Arizona transaction privilege (sales) tax if these services are included in a written contract that is separate from any construction contract and executed before any actual on-site work begins. This exemption applies regardless of whether the services are provided at the same time as taxable construction services under a separate construction contract. This exemption does not apply to any "construction phase services." Although the legislative change is retroactive, a taxpayer cannot claim a refund for past periods.

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