Development fees
In short
Fees a jurisdiction imposes to offset the public cost of a development. Deductible from the contracting tax base, including where they were satisfied by building the infrastructure instead of paying.
In full
Development fees are fees imposed to offset capital costs of providing public infrastructure, public safety or other public services to a development. A.R.S. § 42-5075(B)(19)(c) defines them by reference to their authorizing law — section 9-463.05, section 11-1102 or title 48 — and states that the deduction applies regardless of the jurisdiction to which the fees are paid.
The deduction reaches development fees incurred in relation to a contract for construction, development or improvement of real property and paid by a prime contractor or subcontractor. Deduction code 560 carries it, at state and city level.
The attributable amount has two components. It is the total amount of development fees actually paid, plus the total development fees credited in exchange for constructing, contributing to or dedicating real property for public infrastructure, public safety or other public services necessary to the development.
That second component is the one worth reading twice. Where a jurisdiction waives fees because the developer built the road or dedicated the land instead, the credited amount is deductible even though nothing was paid. The real property must be the subject of the development fees.
One ceiling applies: the attributable amount cannot exceed the value of the development fees actually imposed.
Order of operations matters on the return. Statutory deductions are applied before the thirty-five percent reduction is computed, so a development fee deduction reduces the base the reduction is then taken against.
A.R.S. § 42-5075(B)(19)(a)–(c); ADOR Modification Contracting; ADOR TPT Deduction Codes listing, updated 2026-08-01