Glossary · Invoicing & Pricing
Separate line item
In short
Whether tax is shown as its own line on the customer's invoice. The rule reverses between MRRA and prime contracting, and published sources differ on the prime contracting side.
In full
Whether to show tax as its own line on a customer's invoice has opposite answers depending on how the contract is classified. Same act, different consequence.
On an MRRA contract, ADOR's position is that the contractor should not include tax as a separate line item on the invoice to the customer. The tax paid on materials is treated instead as a cost of doing business, the same way any other input cost is. That follows from where the tax attaches on MRRA work: to the materials the contractor buys, not to what the customer pays.
Listing it anyway has a consequence. ADOR's MRRA Contracting page states that if tax is included as a line item on the invoice, it must be remitted to the Department. A contractor who shows tax on an MRRA invoice as a courtesy, or out of habit carried over from modification work, owes what the line says — on top of the tax already paid on the materials.
On a prime contracting contract, A.R.S. § 42-5075(F) is written as a requirement. Every person engaging in the business of prime contracting shall present to the purchaser a written receipt of the gross income or gross proceeds of sales from that activity, and shall separately state the taxes to be paid.
Published sources differ on that second point. ADOR's Contracting FAQ states that a licensed contractor may, but need not, show tax as a separate line item, because contractors are permitted to factor taxes. ADOR's Tax Factoring page states the same in passing, describing separate charging as an option. The statute says shall; two ADOR pages describe it as optional. The glossary follows the statute and states the divergence rather than resolving it.
A.R.S. § 42-5075(F); ADOR MRRA Contracting; ADOR Contracting FAQs, Prime Contracting and MRRA; ADOR Tax Factoring