Materials incorporated into real property
In short
Materials that become part of the real property when installed. The whole materials-tax scheme depends on this phrase.
In full
Materials incorporated into real property are materials that become part of the property itself once installed — the concrete, lumber, wiring and roofing that stop being separate items and become the building.
The phrase carries more weight than it looks like it does. A.R.S. § 42-5061(A)(27) excludes it from the retail classification, which is what lets a contractor buy without paying tax at the register, and A.R.S. § 42-5159(A)(13)(g) excludes the same property from use tax in matching terms. A.R.S. § 42-5008.01(A) then makes the contractor liable for an amount equal to that tax where the same property is incorporated or fabricated into a project described in § 42-5075(P).
The statutory wording is worth reading rather than paraphrasing. ADOR labels § 42-5061(A)(27) as materials incorporated into real property and sold to a contractor, but the statute sets two conditions: the buyer is a person subject to tax under the prime contracting classification or a subcontractor under such a person's control, and the property is incorporated or fabricated into real property, into a § 42-5075(P) project, or used in environmental remediation. "Sold to a contractor" is a shorthand for the first condition, not the condition itself.
So the same phrase opens the exemption at purchase and triggers the liability at use. Both halves depend on the materials being incorporated rather than merely supplied.
It is distinct from tangible personal property installed in existing property, which keeps its own identity after installation and can be removed in essentially the same form. Machinery bolted to a floor is installed; the concrete of the floor is incorporated. The distinction does not limit what can be replaced: the statute's replacement reaches a component or a system as well as tangible personal property installed in existing property.
What the phrase does not do is determine classification. Materials are incorporated on Modification contracts and MRRA contracts alike; what changes is whether the tax attaches to those materials or to the contract amount.
A.R.S. § 42-5061(A)(27); A.R.S. § 42-5159(A)(13)(g); A.R.S. § 42-5008.01(A); A.R.S. § 42-5075(S)(11)