Glossary · Invoicing & Pricing
Tax base
In short
The figure the tax rate is applied to. For prime contracting it is 65% of gross, after the statutory deductions come out.
In full
The tax base is the amount the rate is applied to. It is not the contract price and not the profit.
For prime contracting, A.R.S. § 42-5075(B) sets it at sixty-five percent of the gross proceeds of sales or gross income derived from the business. The remaining thirty-five percent is excluded outright, without the contractor having to document anything to obtain it.
The statute then lists amounts deducted from gross before the base is computed. Among them are the sales price of land, which may not exceed fair market value, and a series of specific project and equipment deductions. The order matters: deduct first, then take sixty-five percent of what remains.
Two further exclusions are outside that arithmetic. A.R.S. § 42-5075(L) removes the portion attributable to the actual direct costs of providing architectural or engineering services incorporated in a contract, and § 42-5075(O) removes design phase services and professional services where they are executed before modification begins and separately stated in the contract from construction phase services.
On an MRRA contract there is no prime contracting tax base at all, because the contract is not taxed under this classification. The tax attaches to the materials instead.
A.R.S. § 42-5075(B), (L), (O), (P)