Independent functional utility
In short
A statutory test for whether equipment is its own thing or part of the building. Equipment that passes it takes its installation contract out of the prime contracting tax base.
In full
Independent functional utility is the test that decides whether installing a piece of equipment is contracting income or something deducted from it.
A.R.S. § 42-5075(B)(7) allows a deduction for gross income from a contract for the installation, assembly, repair or maintenance of machinery, equipment or other tangible personal property that is either deducted from the retail tax base under § 42-5061(B) or exempt from use tax under § 42-5159(B), and that has independent functional utility.
The statute defines the term at (B)(7)(d): the property can independently perform its function without attachment to real property, other than attachment for assembling it, connecting items to each other, connecting it to water, power, gas, communication or other services, or stabilizing or protecting it during operation by bolting, burying or other similar nonpermanent connections.
So the connections a working installation obviously needs do not defeat the test. Bolting a machine to a slab and running power to it is expressly allowed for.
The deduction reaches related work as well: any activity performed on the qualifying property, activity on other tangible personal property in furtherance of the listed purposes, and related activity including inspecting the installation or testing it.
Two limits matter. The deduction does not include the portion of contracting activity that consists of developing or modifying real property in order to facilitate the installation, assembly, repair, maintenance or removal — so preparing the building for the machine is still contracting. And the test is applied without regard to the size or useful life of the property, which forecloses the intuition that something large or permanent-looking must be part of the building.
A.R.S. § 42-5075(B)(7)(a)–(d); A.R.S. § 42-5061(B); A.R.S. § 42-5159(B)