Out-of-state project
In short
Work performed outside Arizona is not taxed here, but it is reported and then deducted rather than left off the return.
In full
A project entirely outside Arizona's borders produces no Arizona transaction privilege tax. ADOR states the position plainly and identifies the mechanism: deduction code 681 removes the project from gross receipts.
Reported and deducted is not the same as omitted, and the difference shows on the face of the return. A contractor who simply leaves out-of-state work off the return has reported gross receipts that do not reconcile to its books.
A project on both sides of the line is handled the same way at a finer grain. All gross receipts derived from the project are reported, and the portion related to work conducted out of state is deducted under the same code.
This is a sourcing rule and not a nexus rule, and the two are often confused. An out-of-state contractor performing work on Arizona real property is taxable here because the work happens here. An Arizona contractor performing work on land in another state is not taxable here for the same reason, read the other way. Where the business is based decides neither.
Materials follow their own path. A licensed contractor may buy materials from an out-of-state vendor exempt, and what is owed in Arizona depends on where and how they are used rather than on where they were bought.
ADOR Contracting FAQs; ADOR TPT Deduction Codes listing, updated 2026-08-01