Speculative Builder
In short
An owner who improves real property and sells it. The tax is a city tax on the selling price, and it accrues at close of escrow rather than on any contract.
In full
A Speculative Builder is an owner of real property who improves it — personally or through others — and sells it. The tax is imposed by Arizona cities and towns under Model City Tax Code § 416, not by the state prime contracting classification, and it is measured on the total selling price rather than on a contract amount.
Liability accrues at the close of escrow or the transfer of title, whichever is earlier, and is reported the month following. The selling price includes realtor fees, title transfer fees and the rest of the closing costs built into it.
What counts as improved real property is defined and is broader than a finished building. It reaches property on which a new structure has been substantially completed; land improved without any structure, such as paving or landscaping; reconstructed property; and property where water, power and streets have been constructed to the property line. Once a structure is substantially complete, later improvements do not move the date on which the sale becomes taxable.
A sale is wider than a conveyance. It includes any transfer of title or equitable ownership, and any lease of thirty years or more — the original term and every renewal option counted together — is deemed a sale.
Land is not deductible. Neither the cost nor the fair market value of the land may be excluded, unless the city adopted Local Option #N, which permits the fair market value of land to be excluded and allows twenty percent of the selling price to be used as an estimate of it. All amounts subject to the tax then take a thirty-five percent deduction, and a city tax credit is available for city privilege or use tax already paid on the construction and on materials.
One Speculative Builder may sell partially improved property to another without tax, but only where all three conditions in § 416(b)(4) are met: the purchaser holds a valid municipal privilege tax license as a speculative builder; the purchaser gives the seller a written declaration assuming liability at the time of the transaction; and the seller keeps proper records, retains a copy of that declaration, and is itself properly licensed with the city.
The family residence exception takes a sale outside the tax altogether, and its conditions are strict. Under § 416.1 the property must have been the principal place of family or vacation residence of the seller's immediate family for the six months before the offer for sale; the seller must not have sold more than two such residences in the thirty-six months before the offer for sale; and the seller must not have licensed, leased or rented the premises at any point in the twenty-four months before the offer for sale. All three run from the offer, not the sale. The exception is available only to an individual or a qualified trust — no other entity qualifies, which puts a property held through a company outside it.
Model City Tax Code § 416(a), (b), (c), § 416.1, § 416.2; ADOR Speculative Builder