Combined modification charges
In short
The numerator of the 15% test: every modification charge in the contract, added together.
In full
Combined modification charges is the total of every charge in a contract that belongs to the modification bucket, added together before the 15% test is applied.
It includes alteration charges that are over the applicable threshold, since over-threshold alteration joins the modification bucket rather than staying with the MRRA work. On a contract that mixes alteration with maintenance, repair or replacement, the alteration charges alone are compared with the threshold, as ADOR Tax Policy stated in writing on September 30, 2026.
The figure is not a sum of bare direct costs. Overhead and profit are allocated into each bucket before the buckets are summed, pro rata by direct costs — ADOR Tax Policy confirmed that method in writing on August 25, 2026. Summing direct costs alone produces a smaller numerator, a different percentage, and potentially a different classification of the whole contract.
This total is divided by the total contract amount to produce the percentage the 15% test evaluates. At 15% or less the entire contract is MRRA; above 15% it is prime contracting.
A.R.S. § 42-5075(P); ADOR Evaluating Mixed Construction Contracts worksheet; ADOR Tax Policy information letter, 2026-08-25; ADOR Tax Policy information letter, 2026-09-30