Prime contracting
In short
The state classification Modification work is taxed under, at 65% of gross. A classification, not a person — prime contractor is the role.
In full
Prime contracting is a business classification, not a person. A.R.S. § 42-5075(S)(9) defines it as engaging in business as a prime contractor. What the classification does is set the tax base.
The order of operations is stated in the statute and is easy to reverse. A.R.S. § 42-5075(B) sets the tax base at sixty-five percent of gross proceeds of sales or gross income, then provides that the enumerated amounts "shall be deducted from the gross proceeds of sales or gross income **before computing the tax base**." Statutory deductions come off first; the sixty-five percent is taken on what remains.
The classification covers two businesses rather than one: prime contracting itself, and the business of manufactured building dealer.
Three things are outside it. Work performed by a person who is not required to be licensed by the Registrar of Contractors under A.R.S. § 32-1121. A subcontractor's income, where the subcontractor can demonstrate the project was within the control of a prime contractor liable for the tax. And a contract with the owner of real property for maintenance, repair, replacement or alteration of existing property, provided the contract includes no more than a de minimis amount of modification activity — the 15% test.
One exception runs the other way. A contract that primarily involves surface or subsurface improvements to land and is subject to the public procurement provisions of A.R.S. title 28, chapter 19, 20 or 22 or title 34, chapter 2 or 6 is taxable under prime contracting even where it would otherwise be MRRA, and even if it also includes vertical improvements.
That exception is itself limited. It does not apply to contracts with community facilities districts, fire districts, hospital districts, county jail districts, county stadium districts, revitalization districts or the other special districts listed at (Q)(1), nor to any special taxing district outside that list that does not substantially engage in modification, maintenance, repair, replacement or alteration of surface or subsurface improvements to land.
Reported under business code 015.
A.R.S. § 42-5075(A), (B), (D), (P), (Q), (S)(9)