The Arizona Department of Revenue has reversed its position on how the 1% sales and use tax rate reduction that takes effect June 1, 2013 applies to prime contractors reporting tax on the accrual method.

  • Previously, the Department published guidance taking the position that for prime contractors reporting tax using an accrual method the tax rate in effect on the date a contact for construction services is signed determines the rate in effect for the duration of the contract – even for work done after the June 1, 2013 effective date of the rate reduction. 
  • In response to industry criticism, the Department issued revised guidance on May 22, 2013.  In its revised notice, the Department reversed its previous position and adopted a new policy, as follows: “or accrual taxpayers, the date the contracting activity required under the contract is performed is the determining date for the rate.”

See Transaction Privilege Tax Changes and News: Revised Notice (Ariz. Dep’t of Revenue Effective June 1, 2013) a copy of which can be accessed on the Arizona Department of Revenue’s website, www.azdor.gov, or by clicking here.