Glossary · Thresholds & Valuation
The 25% cushion
In short
An overrun allowance that keeps a project an alteration when it finishes above the threshold. The statute grants it for any reason; ADOR's guidance grants it more narrowly.
In full
A project priced under the alteration threshold can finish above it. The cushion keeps that project an alteration anyway, within a limit.
The statutory rule has two conditions and one measure. The owner and the person performing the work must both have reasonably believed, at the inception of the contract, that the work would be treated as an alteration. On completion the project must have exceeded the applicable threshold by not more than 25% of that threshold. Where both hold, the work performed under the contract qualifies as an alteration.
The arithmetic is a percentage of the threshold, not of the contract. Commercial: $750,000 plus a $187,500 cushion allows completion at $937,500. Residential, on a parcel with a full cash value of $200,000: a $50,000 threshold plus a $12,500 cushion allows completion at $62,500. Because the residential threshold varies by parcel, so does the cushion, and each has to be computed for the specific property.
The statute grants the cushion where the threshold is exceeded "for any reason." ADOR's guidance is narrower, in two ways the statute does not state. The Evaluating Mixed Construction Contracts worksheet presents the cushion as available where the overrun arose "due to the change orders." The MRRA Contracting page states that a project remains an alteration contract as long as it does not contain maintenance, repair, or replacement elements at the time the contract is bid or entered into.
That second restriction is less settled than it reads. A further paragraph on the same page sends a mixed contract whose alteration portion exceeds the threshold by more than 25% back to the worksheet for reevaluation — an overrun already outside the cushion. Between the two paragraphs the page never addresses a mixed contract that overruns by 25% or less, which is exactly the case the statute grants. Neither restriction appears in A.R.S. § 42-5075(S)(1)(d), and the statute governs where they diverge.
The reasonable-belief condition is bilateral and is tested at the inception of the contract, not at completion.
A.R.S. § 42-5075(S)(1)(d); ADOR Evaluating Mixed Construction Contracts worksheet, section 5; ADOR MRRA Contracting page