Glossary · Change & Conversion
Change order
In short
A modification to an existing contract. Change orders can move a project across the alteration threshold and require the contract to be reevaluated.
In full
A change order is a written instrument issued after execution of a contract for modification work. Arizona defines it in the prime contracting statute, at A.R.S. § 42-5075(O)(1)(c), as providing for all of three things: the scope of a change in the modification work or the contract documents, the amount of any adjustment to the guaranteed maximum price, and the extent of any adjustment to the contract time.
Change orders matter for classification because both tests are run on the contract's figures. A change order that directly relates to the scope of work of the original contract is treated as part of that contract, and the contract amount includes any amount attributable to it. Itemized alteration charges initially below the threshold are therefore recalculated with each change order, so a contract bid below the line can be carried above it by later additions.
The 15% test is recomputed the same way. A scope-related change order is folded into the original contract and the percentage is computed again on the combined total; where the result moves the contract across 15%, the new classification applies from the start of the contract. ADOR Tax Policy stated this in writing on September 30, 2026, reading A.R.S. § 42-5075(P)(2) as deciding only whether a change order belongs to the original contract or is a separate one. In ADOR's example, a $200,000 scope-related change order on a $1,000,000 contract is tested on $1,200,000.
A change order that does not directly relate to the scope of work of the original contract is treated as a new contract, and the treatment of any later change order follows the contract whose scope of work it directly relates to. In ADOR's example, a change order for a new HVAC system on the lot next door, added to a $100,000 contract for replacing pipe in a commercial building, is a separate contract, and the original $100,000 is not recomputed.
Administration or supervision of modification work performed pursuant to a change order is a construction phase service, which a contract cannot exclude from tax as design phase services or professional services.
A.R.S. § 42-5075(O)(1)(c), (P)(2), (S)(1)(e); ADOR Contracting FAQs; ADOR Tax Policy information letter, 2026-09-30