§ 465. Retail sales: exemptions.

Income derived from the following sources is exempt from the tax imposed by Section 460:

(a)

Sales of tangible personal property to a person regularly engaged in the business of selling such property.

(b)

Out-of-City sales or out-of-State sales.

(c)

Charges for delivery, installation, or other direct customer services as prescribed by regulation.

(d)

Charges for repair services as prescribed by regulation, when separately charged and separately maintained in the books and records of the taxpayer.

(e)

Sales of warranty, maintenance, and service contracts, when separately charged and separately maintained in the books and records of the taxpayer.

(f)

Sales of prosthetics.

(g)

Sales of income-producing capital equipment.

(h)

Sales of rental equipment and rental supplies.

(i)

Sales of mining and metallurgical supplies.

(j)

Sales of motor vehicle fuel and use fuel which are subject to a tax imposed under the provisions of Article I or II, Chapter 16, Title 28, Arizona Revised Statutes; or sales of use fuel to a holder of a valid single trip use fuel tax permit issued under A.R.S. Section § 28-5739, or sales of natural gas or liquefied petroleum gas used to propel a motor vehicle.

(k)

Sales of tangible personal property to a construction contractor who holds a valid privilege tax license for engaging or continuing in the business of construction contracting where the tangible personal property sold is incorporated into any structure or improvement to real property as part of construction contracting activity.

(l)

Sales of motor vehicles to nonresidents of this State for use outside this State if the vendor ships or delivers the motor vehicle to a destination outside this State.

(m)

Sales of tangible personal property which directly enters into and becomes an ingredient or component part of a product sold in the regular course of the business of job printing, manufacturing, or publication of newspapers, magazines, or other periodicals. Tangible personal property which is consumed or used up in a manufacturing, job printing, publishing, or production process is not an ingredient nor component part of a product.

(n)

Sales made directly to the Federal Government to the extent of:

(1)

One hundred percent (100%) of the gross income derived from retail sales made by a manufacturer, modifier, assembler, or repairer.

(2)

Fifty percent (50%) of the gross income derived from retail sales made by any other person.

(o)

Sales to hotels, bars, restaurants, dining cars, lunchrooms, boarding houses, or similar establishments of articles consumed as food, drink, or condiment, whether simple, mixed, or compounded, where such articles are customarily prepared or served to patrons for consumption on or off the premises, where the purchaser is properly licensed and paying a tax under Section 455 or the equivalent excise tax upon such income.

(p)

Sales of tangible personal property to a qualifying hospital, qualifying community health center or a qualifying health care organization, except when the property sold is for use in activities resulting in gross income from unrelated business income as that term is defined in 26 U.S.C. Section 512 or sales of tangible personal property purchased in this state by a non-profit charitable organization that has qualified under Section 501(C)(3) of the United States Internal Revenue Code and that engages in and uses such property exclusively for training, job placement or rehabilitation programs or testing for mentally or physically handicapped persons.

(q)

(Reserved)

(r)

Sales of the following to persons engaging or continuing in the business of farming, ranching, or feeding livestock, poultry or ratites:

(1)

Seed, fertilizer, fungicides, seed treating chemicals, and other similar chemicals.

(2)

Feed for livestock, poultry or ratites, including salt, vitamins, and other additives to such feed.

(3)

Livestock, poultry or ratites purchased or raised for slaughter, but not including livestock purchased or raised for production or use, such as milch cows, breeding bulls, laying hens, riding or work horses.

(4)

Neat animals, horses, asses, sheep, swine, or goats for the purpose of becoming breeding or production stock, including sales of breedings or ownership shares in such animals.

This exemption shall not be construed to include machinery, equipment, fuels, lubricants, pharmaceuticals, repair and replacement parts, or other items used or consumed in the running, maintenance, or repair of machinery, equipment, buildings, or structures used or consumed in the business of farming, ranching, or feeding of livestock, poultry or ratites.

(s)

Sales of groundwater measuring devices required by A.R.S. Section § 45-604.

(t)

(Reserved)

(u)

Sales of aircraft acquired for use outside the State, as prescribed by Regulation.

(v)

Sales of food products by producers as provided for by A.R.S. Sections § 3-561, 3-562 and 3-563.

(w)

(Reserved)

(x)

Sales of food and drink to a person who is engaged in business that is classified under the restaurant classification and that provides such food and drink without monetary charge to its employees for their own consumption on the premises during such employees' hours of employment.

(y)

(Reserved)

(z)

(Reserved)

(aa)

The sale of tangible personal property used in remediation contracting as defined in Section 100 and Regulation 100.5.

(bb)

Sales of materials that are purchased by or for publicly funded libraries including school district libraries, charter school libraries, community college libraries, state university libraries or federal, state, county or municipal libraries for use by the public as follows:

(1)

Printed or photographic materials.

(2)

Electronic or digital media materials.

(cc)

Sales of food, beverages, condiments and accessories used for serving food and beverages to a commercial airline, as defined in A.R.S. § 42-5061(A)(49), that serves the food and beverages to its passengers, without additional charge, for consumption in flight. For the purposes of this subsection, "accessories" means paper plates, plastic eating utensils, napkins, paper cups, drinking straws, paper sacks or other disposable containers, or other items which facilitate the consumption of the food.

(dd)

In computing the tax base in the case of the sale or transfer of wireless telecommunication equipment as an inducement to a customer to enter into or continue a contract for telecommunication services that are taxable under Section 470, gross proceeds of sales or gross income does not include any sales commissions or other compensation received by the retailer as a result of the customer entering into or continuing a contract for the telecommunications services.

(ee)

For the purposes of this section, a sale of wireless telecommunication equipment to a person who holds the equipment for sale or transfer to a customer as an inducement to enter into or continue a contract for telecommunication services that are taxable under Section 470 is considered to be a sale for resale in the regular course of business.

(ff)

Sales of alternative fuel as defined in A.R.S. § 1-215, to a used oil fuel burner who has received a Department of Environmental Quality permit to burn used oil or used oil fuel under A.R.S. § 49-426 or § 49-480.

(gg)

Sales of food, beverages, condiments and accessories to a public educational entity pursuant to any of the provisions of Title 15, Arizona Revised Statutes, including a regularly organized private or parochial school that offers an educational program for grade twelve (12) or under which may be attended in substitution for a public school pursuant to A.R.S. § 15-802; to the extent such items are to be prepared or served to individuals for consumption on the premises of a public educational entity during school hours. For the purposes of this subsection, "accessories" means paper plates, plastic eating utensils, napkins, paper cups, drinking straws, paper sacks or other disposable containers, or other items which facilitate the consumption of the food.

(hh)

Sales of personal hygiene items to a person engaged in the business of and subject to tax under Section 444 of this Code if the tangible personal property is furnished without additional charge to and intended to be consumed by the person during his occupancy.

(ii)

For the purposes of this Section, the diversion of gas from a pipeline by a person engaged in the business of operating a natural or artificial gas pipeline for the sole purpose of fueling compressor equipment to pressurize the pipeline, is not a sale of the gas to the operator of the pipeline.

(jj)

Sales of food, beverages, condiments and accessories to a non-profit charitable organization that has qualified as an exempt organization under 26 U.S.C. Section 501(c)(3) and regularly serves meals to the needy and indigent on a continuing basis at no cost. For the purposes of this subsection, "accessories" means paper plates, plastic eating utensils, napkins, paper cups, drinking straws, paper sacks or other disposable containers, or other items which facilitate the consumption of the food.

(kk)

Sales of motor vehicles that use alternative fuel if such vehicle was manufactured as a diesel fuel vehicle and converted to operate on alternative fuel and sales of equipment that is installed in a conventional diesel fuel motor vehicle to convert the vehicle to operate on an alternative fuel, as defined in A.R.S. Section 1-215.

(ll)

Sales of solar energy devices, for taxable periods beginning from and after July 1, 2008. The retailer shall register with the Department of Revenue as a solar energy retailer. By registering, the retailer acknowledges that it will make its books and records relating to sales of solar energy devices available to the Department of Revenue and City, as applicable for examination.

(mm)

Sales or other transfers of renewable energy credits or any other unit created to track energy derived from renewable energy resources. For the purposes of this paragraph, "renewable energy credit" means a unit created administratively by the corporation commission or governing body of a public power utility to track kilowatt hours of electricity derived from a renewable energy resource or the kilowatt hour equivalent of conventional energy resources displaced by distributed renewable energy resources.

(nn)

Sales of magazines or other periodicals or other publications by this state to encourage tourist travel.

(oo)

Sales of paper machine clothing, such as forming fabrics and dryer felts, sold to a paper manufacturer and directly used or consumed in paper manufacturing.

(pp)

Sales of overhead materials or other tangible personal property that is used in performing a contract between the United States Government and a manufacturer, modifier, assembler or repairer, including property used in performing a subcontract with a government contractor who is a manufacturer, modifier, assembler or repairer, to which title passes to the government under the terms of the contract or subcontract.

(qq)

Sales of coal, petroleum, coke, natural gas, virgin fuel oil and electricity sold to a qualified environmental technology manufacturer, producer or processor as defined in A.R.S. § 41-1514.02 and directly used or consumed in the generation or provision of on-site power or energy solely for environmental technology manufacturing, producing or processing or environmental protection. This paragraph shall apply for twenty (20) full consecutive calendar or fiscal years from the date the first paper manufacturing machine is placed in service. In the case of an environmental technology manufacturer, producer or processor who does not manufacture paper, the time period shall begin with the date the first manufacturing, processing or production equipment is placed in service.

(rr)

Sales or gross income derived from sales of machinery, equipment, materials and other tangible personal property used directly and predominantly to construct a qualified environmental technology manufacturing, producing or processing facility as described in A.R.S. § 41-1514.02. This subsection applies for ten (10) full consecutive calendar or fiscal years after the start of initial construction.

(Ord. No. 2728, § 15, 12-19-94; Ord. No. 2967, § 7, 11-18-96; Ord. No. 3091, § 2, 12-1-97; Ord. No. 3140, § 1(9), 5-18-98; Ord. No. 3260, § 1, 10-19-99; Ord. No. 3385, § 2, 5-14-01; Ord. No. 3692, § 1, 11-14-06; Ord. No. 3780, § 1, 4-15-08; Ord. No. 4103, §§ 2—4, 7-1-13; Ord. No. 4104, § 4, 7-1-13)

Editor's note

Section 9 of Ord. No. 4103 provides that the amendment contained in Section 3 is retroactively effective to January 1, 2007.