In 2015, changes will be put in place that impact the transaction privilege tax, commonly called sales tax, paid by contractors here in Arizona. Effective January 1, 2015, contractors that conduct “maintenance,” “repairs,” “replacements,” and “alterations” (which includes all rental property repairs and maintenance) will begin paying sales taxes when they buy materials, at the point of sale. This is in contrast to what has been the case up to this point, which is they did not pay sales tax at the point of sale. Nearly all contractors passed along the sales tax to the consumer by collecting it through their invoices, then after collecting the taxes, they paid them to the government. The new system should be a win-win for all involved. It greatly simplifies the processes for the contractors and at the same time is expected to increase tax revenue for the government. So how does this impact rental repairs you ask? Going forward into 2015, you should not see a contractor invoice that includes tax as a separate line item they may have in the past. However, you may notice a slight change in the materials costs. This is because going forward the tax will be in that materials cost since it will be included at the point of sale. If you are paying unit prices on items that include materials, you may notice that the unit price increases slightly. But in 2015 if you receive an invoice that calls out sales tax as a separate line item, you’ll want to touch base with your contractor to make sure they are aware of the new law and that their invoicing practices are aligned with the new law.
If you are interested in all the details, check out this link to the State of Arizona Department of Revenue website to the Transaction Privilege Tax Notice, TPN 14-1, dated November 18, 2014, http://www.azdor.gov/Business/TransactionPrivilegeTax/Notices.aspx.