Exempt purchase
In short
Buying materials without paying tax at the register by giving the vendor an exemption certificate. Which certificate depends on whether the contractor holds a TPT license.
In full
An exempt purchase is a materials purchase where the contractor gives the vendor a certificate instead of paying tax at the register. The tax does not disappear — on MRRA work it comes back later as the retail equivalent.
A TPT-licensed contractor uses Form 5000. ADOR states that all licensed contractors may claim exemption on the purchase of materials to be incorporated into real property by providing the vendor with that form.
The statute behind it is narrower than that description. A.R.S. § 42-5061(A)(27)(a) excludes tangible personal property sold to a person subject to tax under the prime contracting classification, or to a subcontractor working under the control of such a person, where the property is incorporated or fabricated into real property, or into a project described in § 42-5075(P), or used in environmental remediation. The test is who the buyer is and what becomes of the property, not what the certificate says.
A contractor without a TPT license cannot use Form 5000, because a vendor cannot accept an incomplete certificate in good faith. Two narrower routes exist. Form 5000M covers limited circumstances where a statutory deduction already exists for the materials and they will be used on an MRRA project. On a modification project, the prime contractor may obtain an approved Form 5009L from the Department and provide it to the unlicensed subcontractor — a route with its own statutory footing at § 42-5061(A)(27)(b), which reaches a person not subject to tax under § 42-5075 who has been provided a certificate under § 42-5009(L).
ADOR recommends buying exempt for contractors who perform both kinds of work, on the ground that they will likely find it beneficial to purchase all materials tax exempt and remit the retail equivalent on the MRRA portion.
The reason that recommendation holds up is the direction of the error. An exempt purchase that turns out to be MRRA is ordinary treatment — remit the retail equivalent. A taxed purchase that turns out to be Modification requires the credit process, which runs on a six-month expectation and a workbook. One path has a routine correction and the other has a procedure.
A.R.S. § 42-5061(A)(27); A.R.S. § 42-5009(L); ADOR MRRA Contracting; ADOR Contracting FAQs