Taxpayer Bond for Contractors

In short

Security the Department holds against unpaid tax. Two separate requirements exist, and the published sources describe who is caught differently.

In full

A taxpayer bond secures payment of transaction privilege tax to the state and its political subdivisions. It is not a performance bond and has nothing to do with completing the work.

A.R.S. § 42-5006(A) requires the Department to take a surety bond from a taxpayer who must be licensed with the Registrar of Contractors, or who is regulated as a manufactured housing dealer, **where the taxpayer's principal place of business is outside Arizona or the taxpayer has conducted business in Arizona for less than one year**. Once required, the bond is maintained for at least two years.

The amount is not a percentage of anything a contractor does. Section 42-5006(B) sets a floor of $2,000 and sizes the bond to the tax reasonably expected over a hundred and fifty days; the Director may establish classes in five-thousand-dollar increments above that floor, and the published bands are set by classification of work.

A.R.S. § 42-5007 provides a different security, and it is an alternative rather than an addition. It applies **in lieu of** the bond required under § 42-1102 or § 42-5006, to a person in the construction business who does not have a principal place of business in Arizona and who enters a prime construction contract to be performed here. The security is furnished at the time the contract is entered into, and the contractor obtains a certificate from the Director that the section has been met.

The amount is computed on the contract: gross receipts to be paid under the contract, multiplied by the aggregate rates of the applicable taxes imposed by chapter 5. No land deduction and no thirty-five percent reduction enter that computation — those belong to the tax base under § 42-5075(B), not to the security.

Three consequences follow. Where the total to be paid changes by ten percent or more after the security is furnished, the contractor increases or decreases it within fourteen days. The section does not apply at all where total gross receipts under the contract, including any change, are to be less than fifty thousand dollars. And a city, town, county or state agency **shall not issue a building or other construction permit** to a person subject to the section without first being furnished the Director's certificate, which is what makes this a permitting question before it is a tax one.

Non-compliance is enforced rather than penalised: the Director may demand compliance by certified mail and, on failure within ten days, seek an injunction against the business under § 42-1103.

Published sources differ on who must post the first bond. ADOR's Bond for Contractors page states the statutory conditions; Publication 539 states that contractors required to be licensed with the Registrar of Contractors must post a bond unless exempt, without the conditions § 42-5006(A) attaches.

A.R.S. § 42-5006(A), (B), (C); A.R.S. § 42-5007(A)–(F); A.A.C. R15-5-601(B); ADOR Publication 539 (revised August 2025); ADOR Bond for Contractors

Related entries

• Form 74-4023 — Taxpayer Bond for Contractor
• Form 10205 — Transaction Privilege Tax License Application for Bond Exemption
• Annual Bond Exemption
• One-time bond exemption
• Form JT-1 — Joint Tax Application for a TPT License
• Principal place of business

Last verified against source on September 11, 2026. Definitions summarize published guidance and statute; where the two differ, the statute governs. See Sources.