Use tax
In short
Arizona's tax on using or consuming property in the state when transaction privilege tax was not paid on it. Related to the retail equivalent but not the same thing.
In full
Use tax is an excise tax on the storage, use or consumption of tangible personal property in Arizona, imposed as a percentage of the sales price under A.R.S. § 42-5155(A). Its purpose is to reach property that was bought without Arizona transaction privilege tax being paid on it.
The rate matches the retail rate for the same type of transaction, so the choice of where to buy does not change what is ultimately owed. Every person storing, using or consuming such property in Arizona is liable, and A.R.S. § 42-5155(F) provides that the liability is not extinguished until the tax is paid to the state. A receipt from a retailer that maintains a place of business in Arizona, or that the Department has authorized to collect, relieves the purchaser of further liability.
It also reaches property bought for resale and then used instead of resold.
For a contractor, the point of contact is materials bought outside Arizona, and the answer depends on which of two taxes applies.
Where use tax is the tax, another state's tax counts. A.R.S. § 42-5159(A)(2) exempts property whose sale or use has already been subjected to an excise tax at a rate equal to or exceeding Arizona's under the laws of another state, and where the other state's rate is lower, the Arizona tax is reduced by the amount already imposed. A contractor who paid another state's sales tax is not taxed twice on the same materials.
Where the retail equivalent is the tax, it does not. A.R.S. § 42-5008.01 imposes an amount equal to retail tax on materials bought under the contractor exclusion and incorporated into an MRRA project, and no provision reduces that amount by tax paid elsewhere. A licensed contractor who bought exempt out of state owes the full amount.
Which tax applies follows from who the contractor is. The exclusion at § 42-5159(A)(13)(g) reaches a person subject to tax under § 42-5075, or a subcontractor under such a person's control — and § 42-5008.01(A) imposes the retail equivalent on that same population. An MRRA-only contractor working directly for a property owner is neither. That contractor cannot buy exempt, never reaches § 42-5008.01, and is within use tax under § 42-5155(F) with the § 42-5159(A)(2) credit available.
ADOR's Contracting FAQs answer the question "does Arizona provide any credits for this purchase?" on an MRRA project with "No. There is no credit for materials purchased out of state for taxes paid to another state," and elsewhere that "there is no statutory allowance for it." That holds for the retail equivalent. It does not hold for the contractor who owes use tax, and § 42-5159(A)(2) is the allowance. Published sources differ; the statute governs.
The contractor exclusion has a use tax counterpart. A.R.S. § 42-5159(A)(13)(g) exempts tangible personal property purchased by a person subject to tax under the prime contracting classification, or by a subcontractor under such a person's control, where the property is incorporated or fabricated into a structure in fulfillment of a contract or into a § 42-5075(P) project — the same test § 42-5061(A)(27) applies on the retail side, so buying out of state does not open a gap.
Use tax is not the retail equivalent, though both arrive at a similar figure by a different route. The retail equivalent is owed under A.R.S. § 42-5008.01 because materials bought under the contractor exclusion were incorporated into an MRRA project. Use tax is owed under § 42-5155 because property is used or consumed in Arizona without transaction privilege tax having been paid. A contractor can meet one and still owe under the other.
One contracting-specific rule appears in the use tax statute itself: a manufactured building purchased outside Arizona and set up in Arizona is taxed on sixty-five percent of the sales price, mirroring the prime contracting base.
A.R.S. § 42-5155(A), (B), (C), (F), (G); A.R.S. § 42-5159(A)(2), (A)(13)(g); A.R.S. § 42-5008.01(A); ADOR Contracting FAQs