Glossary · Change & Conversion
Reclassification
In short
An MRRA contract becoming a Modification contract partway through, either because of change orders or because it was categorized incorrectly at the start.
In full
Reclassification is a contract that began as MRRA becoming a Modification contract before it is finished. The classification is not fixed when the contract is signed.
ADOR names two triggers: change orders, and incorrect categorization of the project. Either one can convert a contract, and the consequences are the same in both cases.
What changes is where the tax attaches. On an MRRA contract the tax attaches to the materials the contractor buys and incorporates. On a Modification contract it attaches to the contract amount under the prime contracting classification. Tax already paid on materials for a contract that converts does not disappear — it becomes recoverable through an MRRA Credit Request.
The remediation sequence ADOR publishes: the prime contractor provides each subcontractor a completed Form 5005 and requires back an Affidavit of Retail TPT Equivalent Paid by the Subcontractor; materials purchased from that point forward are purchased exempt; the prime completes the MRRA Credit Summary Workbook and submits it to the Department.
A scope-related change order reaches the 15% test. The percentage is computed again with the change order included, and where the contract crosses 15%, the reclassification applies from the start of the contract, not from the change order forward. The recomputation runs in both directions, so a contract can also move from prime contracting back to MRRA. ADOR Tax Policy stated these points in writing on September 30, 2026.
The Form 5088 already in subcontractors' hands does not survive the conversion. Note Three of that form provides that the contractor must notify the subcontractor by issuing Form 5005 and that the 5088 notice is automatically revoked.
A.R.S. § 42-5075(P), (P)(2); A.R.S. § 42-5008.01(D); ADOR MRRA Credit Request Procedure; ADOR Tax Policy information letter, 2026-09-30