Design phase services
In short
Work that develops the design rather than executing it. Excluded from the tax base only where three contract conditions are met first.
In full
Design phase services are, in the statute's words, services for developing and completing a design for a project that are not construction phase services.
A.R.S. § 42-5075(O) excludes the gross income attributable to a written contract for design phase services or professional services from the prime contracting tax base — but only where three conditions are all satisfied. The contract must be written. It must be executed before modification begins. And the terms, conditions and pricing of those services must be separately stated in the contract from those for construction phase services.
Pricing is part of the condition, not an afterthought. A contract that describes design work in its own article but carries a single undifferentiated price does not meet the test.
Timing is the condition most often lost. Executed before modification begins means the document has to exist before the work starts; a separation written afterwards does not reach back.
Where the conditions are met, the exclusion applies regardless of whether the services are provided before or alongside taxable prime contracting activity.
The statute enumerates what counts at (O)(2): evaluating surveys, reports, test results and site conditions; evaluating criteria or programming objectives; preparing drawings and specifications; preparing an initial schedule, expressly excluding updates to the master schedule after modification work has begun; preparing preliminary cost estimates before the final design is complete; reviewing and evaluating cost estimates and project documents; and preparing the plan and procedures for selecting subcontractors, including prequalification.
Deduction code 690 carries design phase and professional services. It is available at state level and is not available to cities.
A.R.S. § 42-5075(O), (O)(2); ADOR TPT Deduction Codes listing, updated 2026-08-01