Be it enacted by the Legislature of the State of Arizona:
Section 1. Repeal
Sections 28-5605 and 28-5606, Arizona Revised Statutes, are repealed.
Sec. 2. Title 28, chapter 16, article 1, Arizona Revised Statutes, is amended by adding new sections 28‑5605 and 28-5606, to read:
28-5605. Road usage charge
The department shall:
1. Study a road usage charge mileage-based revenue system, including a potential demonstration program as an alternative to the motor fuel tax imposed by this chapter.
2. Make recommendations to the legislature and other policymaking bodies on the potential use and future implementation of a road usage charge within this state.
28-5606. Motor fuel taxes; definition
A. Beginning on january 1, 2017, a tax is imposed at the rate of twelve percent of the statewide average rack price of a gallon of motor fuel per gallon on all motor fuel that is sold, used or received for sale or use in this state.
B. Until december 31, 2019 and subject to subsection C of this section, the statewide average rack price of a gallon of motor fuel is determined by calculating the previous fiscal year's statewide average rack price of a gallon of regular unleaded motor fuel, excluding federal and state excise taxes, for the twelve months ending on the previous june 30 as published by an oil pricing service.
C. Beginning on january 1, 2020 and subject to subsection E of this section, the statewide average rack price of a gallon of motor fuel is determined by calculating the previous three fiscal years' statewide average rack price of a gallon of regular unleaded motor fuel, excluding federal and state excise taxes, for the thirty-six months ending on the previous june 30 as published by an oil pricing service.
D. Subject to subsection E of this section, the statewide average rack price of a gallon of motor fuel determined under subsection B of this section may not be less than two dollars forty-five cents per gallon.
E. Beginning on a calendar year following the year that the actual statewide average rack price of a gallon of motor fuel reaches two dollars forty-five cents before applying the minimum under subsection D of this section, the department, on january 1, shall annually adjust the minimum statewide average rack price of a gallon of motor fuel described in subsection D of this section by taking the minimum statewide average rack price of a gallon of motor fuel for the previous calendar year and adding an amount equal to the greater of either of the following:
1. An amount calculated by multiplying the minimum average rack price of a gallon of motor fuel for the previous calendar year by the actual percentage change during the previous fiscal year in the consumer price index.
2. Zero.
F. The statewide average rack price of a gallon of motor fuel determined by the department under subsection B of this section may not exceed three dollars thirty-three cents per gallon. the department shall do all of the following annually:
1. determine the statewide average rack price of a gallon of motor fuel pursuant to subsection B of this section.
2. Adjust the fuel tax rate imposed under subsection A of this section, rounded to the nearest one-tenth of one cent, based on the determination under subsection B of this section.
3. Publish the adjusted fuel tax as a cents per gallon rate.
4. Post or otherwise make public the adjusted fuel tax rate as determined in paragraph 2 of this subsection within sixty days before the annual effective date under subsection G of this section.
G. The tax rate imposed under subsection A of this section and adjusted as required under subsection F of this section takes effect on january 1 of each year.
H. in lieu of the tax imposed under subsection A of this section and subject to this section, a tax is imposed at the rate of three‑nineteenths of the rate imposed under subsection A of this section, rounded up to the nearest penny, on all motor fuels that are alternative fuels and that are sold, used or received for sale or use in this state.
I. any increase or decrease in tax rate applies to motor fuel that is imported into this state or sold at refineries in this state on or after the effective date of the rate change.
J. The department may either collect no tax on motor fuel exported from this state or, on application, refund the tax paid.
K. A county by ordinance may levy a tax on wholesale motor fuel sold in that county of not more than three percent of the total sale of motor vehicle fuel. this subsection applies only to wholesale motor vehicle fuel that is to be resold at retail.
L. For the purposes of this section, "oil pricing service" means an entity that does all of the following:
1. Publishes wholesale petroleum prices within the United States.
2. Publishes at least twenty-five thousand rack prices on a daily basis.
3. Receives daily gasoline and diesel prices from at least one hundred thousand retail outlets in the United States and Canada.
Sec. 3. Section 28-5610, Arizona Revised Statutes, is amended to read:
28-5610. Exemptions
A. The following are exempt from motor vehicle fuel and use fuel taxes imposed by section 28‑5606 and aviation fuel taxes imposed by section 28‑8344:
1. Motor fuel for which proof of export is available in the form of a terminal‑issued destination state shipping paper or bill of lading and that is either:
(a) Exported by a supplier who is licensed in the destination state.
(b) Sold by a supplier to a distributor for immediate export.
2. Motor fuel that was acquired by a distributor, as to which the tax imposed by this article or section 28‑8344 has previously been paid or accrued and that was subsequently exported by transport truck by or on behalf of the distributor in a diversion across state boundaries properly reported to the department. If diverted by a distributor, the distributor shall perfect the exemption by filing a refund application with the department within six months after the diversion.
3. Motor vehicle fuel or use fuel that is sold within an Indian reservation to an enrolled member of the Indian tribe who is living on the Indian reservation established for the benefit of that Indian tribe and that is used by the enrolled member for the enrolled member's own benefit. This exemption does not apply to sales within an Indian reservation by an Indian or Indian tribe to non‑Indian consumers or to Indian consumers who are not members of the Indian tribe for which the Indian reservation was established or to use fuel used to operate motor vehicles for a commercial purpose outside of the reservation on highways in this state. For the purposes of this paragraph, "Indian" means an individual who is registered on the tribal rolls of the Indian tribe for whose benefit the Indian reservation was created.
4. Motor vehicle fuel or use fuel used solely and exclusively as fuel to operate a motor vehicle on highways in this state if the motor vehicle is leased to or owned by and is being operated for the sole benefit of an Indian tribe for governmental purposes only.
5. Motor fuel that is moving in interstate or foreign commerce and that is not destined or diverted to a point in this state.
6. Motor vehicle or aviation fuel that is sold to the United States or an instrumentality or agency of the United States.
7. Taxable use fuel that has been accidentally contaminated so as to be unsalable as highway fuel as proved by proper documentation.
8. Dyed diesel fuel, including fuel used by either of the following:
(a) A farm tractor or implement of husbandry designed primarily for or used in agricultural operations and only incidentally operated or moved on a highway.
(b) A road roller or vehicle that is all of the following:
(i) Designed and used primarily for grading, paving, earthmoving or other construction work on a highway.
(ii) Not designed or used primarily for transportation of persons or property.
(iii) Incidentally operated or moved over the highway.
B. A use class vehicle shall pay the use fuel tax for light class motor vehicles prescribed by section 28-5606, subsection B, paragraph 1 if the vehicle is a truck and satisfies all of the following:
1. Is at least twenty-five years old.
2. Has been issued a historic vehicle license plate pursuant to section 28-2484.
3. Is not used as a commercial vehicle.
C. B. Notwithstanding subsection A, paragraph 8 of this section, the following are not exempt from use motor fuel taxes imposed by section 28‑5606:
1. A vehicle that was originally designed for the transportation of persons or property and to which machinery is attached or on which machinery or other property may be transported.
2. A dump truck.
3. A truck mounted transit mixer.
4. A truck or trailer mounted crane.
5. A truck or trailer mounted shovel.
D. C. Except as provided in subsection E D of this section, a person who claims an exemption pursuant to this section shall perfect the exemption by claiming a refund pursuant to section 28‑5612.
E. D. Subject to sections 28‑5645 through 28‑5649, dyed diesel fuel is exempt from use fuel taxes at the time of sale.
Sec. 4. Repeal
Sections 28-5614 and 28-5623, Arizona Revised Statutes, are repealed.
Sec. 5. Title 28, chapter 18, article 2, Arizona Revised Statutes, is amended by adding section 28-6535, to read:
28-6535. Arizona highway user revenue fund distribution; county fuel tax; counties; council of governments
By june 15 of each fiscal year, the department shall allocate and transfer monies that are deposited in the Arizona highway user revenue fund as a result of a county-imposed fuel tax to the county in which the tax was collected. The county shall transfer the monies to the council of governments for that county. The council of governments shall distribute the monies.
Sec. 6. Section 42-6004, Arizona Revised Statutes, is amended to read:
42-6004. Exemption from municipal tax; definitions
A. A city, town or special taxing district shall not levy a transaction privilege, sales, use or other similar tax on:
1. Exhibition events in this state sponsored, conducted or operated by a nonprofit organization that is exempt from taxation under section 501(c)(3), 501(c)(4) or 501(c)(6) of the internal revenue code if the organization is associated with a major league baseball team or a national touring professional golfing association and no part of the organization's net earnings inures to the benefit of any private shareholder or individual.
2. Interstate telecommunications services, which include that portion of telecommunications services, such as subscriber line service, allocable by federal law to interstate telecommunications service.
3. Sales of warranty or service contracts.
4. Sales of motor vehicles to nonresidents of this state for use outside this state if the motor vehicle dealer ships or delivers the motor vehicle to a destination outside this state.
5. Interest on finance contracts.
6. Dealer documentation fees on the sales of motor vehicles.
7. Sales of food or other items purchased with United States department of agriculture food stamp coupons issued under the food stamp act of 1977 (P.L. 95‑113; 91 Stat. 958) or food instruments issued under section 17 of the child nutrition act (P.L. 95‑627; 92 Stat. 3603; P.L. 99‑661, section 4302; 42 United States Code section 1786) but may impose such a tax on other sales of food. If a city, town or special taxing district exempts sales of food from its tax or imposes a different transaction privilege rate on the gross proceeds of sales or gross income from sales of food and nonfood items, it shall use the definition of food prescribed by rule adopted by the department pursuant to section 42‑5106.
8. Orthodontic devices dispensed by a dental professional who is licensed under title 32, chapter 11 to a patient as part of the practice of dentistry.
9. Sales of internet access services to the person's subscribers and customers. For the purposes of this paragraph:
(a) "Internet" means the computer and telecommunications facilities that comprise the interconnected worldwide network of networks that employ the transmission control protocol or internet protocol, or any predecessor or successor protocol, to communicate information of all kinds by wire or radio.
(b) "Internet access" means a service that enables users to access content, information, electronic mail or other services over the internet. Internet access does not include telecommunication services provided by a common carrier.
10. The gross proceeds of sales or gross income retained by the Arizona exposition and state fair board from ride ticket sales at the annual Arizona state fair.
11. Through August 31, 2014, sales of Arizona centennial medallions by the historical advisory commission.
12. 11. Leasing real property between affiliated companies, businesses, persons or reciprocal insurers. For the purposes of this paragraph:
(a) "Affiliated companies, businesses, persons or reciprocal insurers" means the lessor holds a controlling interest in the lessee, the lessee holds a controlling interest in the lessor, affiliated persons hold a controlling interest in both the lessor and the lessee, or an unrelated person holds a controlling interest in both the lessor and lessee.
(b) "Affiliated persons" means members of the individual's family or persons who have ownership or control of a business entity.
(c) "Controlling interest" means direct or indirect ownership of at least eighty percent of the voting shares of a corporation or of the interests in a company, business or person other than a corporation.
(d) "Members of the individual's family" means the individual's spouse and brothers and sisters, whether by whole or half blood, including adopted persons, ancestors and lineal descendants.
(e) "Reciprocal insurer" has the same meaning prescribed in section 20‑762.
13. 12. The gross proceeds of sales or gross income derived from a contract for the installation, assembly, repair or maintenance of machinery, equipment or other tangible personal property that is described in section 42‑5061, subsection B and that has independent functional utility, pursuant to the following provisions:
(a) The deduction provided in this paragraph includes the gross proceeds of sales or gross income derived from all of the following:
(i) Any activity performed on machinery, equipment or other tangible personal property with independent functional utility.
(ii) Any activity performed on any tangible personal property relating to machinery, equipment or other tangible personal property with independent functional utility in furtherance of any of the purposes provided for under subdivision (d) of this paragraph.
(iii) Any activity that is related to the activities described in items (i) and (ii) of this subdivision, including inspecting the installation of or testing the machinery, equipment or other tangible personal property.
(b) The deduction provided in this paragraph does not include gross proceeds of sales or gross income from the portion of any contracting activity that consists of the development of, or modification to, real property in order to facilitate the installation, assembly, repair, maintenance or removal of machinery, equipment or other tangible personal property described in section 42‑5061, subsection B.
(c) The deduction provided in this paragraph shall be determined without regard to the size or useful life of the machinery, equipment or other tangible personal property.
(d) For the purposes of this paragraph, "independent functional utility" means that the machinery, equipment or other tangible personal property can independently perform its function without attachment to real property, other than attachment for any of the following purposes:
(i) Assembling the machinery, equipment or other tangible personal property.
(ii) Connecting items of machinery, equipment or other tangible personal property to each other.
(iii) Connecting the machinery, equipment or other tangible personal property, whether as an individual item or as a system of items, to water, power, gas, communication or other services.
(iv) Stabilizing or protecting the machinery, equipment or other tangible personal property during operation by bolting, burying or performing other dissimilar nonpermanent connections to either real property or real property improvements.
14. 13. The leasing or renting of certified ignition interlock devices installed pursuant to the requirements prescribed by section 28‑1461. For the purposes of this paragraph, "certified ignition interlock device" has the same meaning prescribed in section 28‑1301.
15. 14. Computer data
center equipment purchased by the owner, operator or qualified colocation
tenant of the computer data center or an authorized agent of the owner,
operator or qualified colocation tenant during the qualification period for use
in a computer data center that is certified by the Arizona commerce authority
under section 41‑1519. To qualify for this deduction, at the time of
purchase, the owner, operator or qualified colocation tenant must present to
the retailer its certificate that is issued pursuant to section 41‑1519
and that establishes its qualification for the deduction. For the
purposes of this paragraph, "computer data center", "computer
data center equipment", "qualification period" and
"qualified colocation tenant" have the same meanings prescribed in
section 41‑1519.
16. 15. The gross proceeds of sales or gross income derived from a contract with the owner of real property or improvements to real property for the maintenance, repair, replacement or alteration of existing property, except as specified in this paragraph. The gross proceeds of sales or gross income derived from a de minimis amount of modification activity does not subject the contract or any part of the contract to tax. For the purposes of this paragraph:
(a) Each contract is independent of another contract, except that any change order that directly relates to the scope of work of the original contract shall be treated the same as the original contract under this chapter paragraph, regardless of the amount of modification activities included in the change order. If a change order does not directly relate to the scope of work of the original contract, the change order shall be treated as a new contract, with the tax treatment of any subsequent change order to follow the tax treatment of the contract to which the scope of work of the subsequent change order directly relates.
(b) Any term not defined in this paragraph that is defined in section 42‑5075 has the same meaning prescribed in section 42‑5075.
(c) This paragraph does not apply to a contract that primarily involves surface or subsurface improvements to land and that is subject to title 28, chapter 19, 20 or 22 or title 34, chapter 2 or 6 even if the contract also includes vertical improvements. If a city or town imposes a tax on contracts that are subject to procurement processes under those provisions, the city or town shall include in the request for proposals a notice to bidders when those projects are subject to the tax. This subdivision does not apply to contracts with:
(i) Community facilities districts, fire districts, county television improvement districts, community park maintenance districts, cotton pest control districts, hospital districts, pest abatement districts, health service districts, agricultural improvement districts, county free library districts, county jail districts, county stadium districts, special health care districts, public health services districts, theme park districts, regional attraction districts or revitalization districts.
(ii) Any special taxing district not specified in item (i) of this subdivision if the district does not substantially engage in the modification, maintenance, repair, replacement or alteration of surface or subsurface improvements to land.
17. 16. Monitoring services relating to an alarm system as defined in section 32‑101.
18. 17. Tangible personal property, job printing or publications sold to or purchased by, or tangible personal property leased, rented or licensed for use to or by, a qualifying health sciences educational institution as defined in section 42‑5001.
19. 18. The transfer of title or possession of coal back and forth between an owner or operator of a power plant and a person who is responsible for refining coal if both of the following apply:
(a) The transfer of title or possession of the coal is for the purpose of refining the coal.
(b) The title or possession of the coal is transferred back to the owner or operator of the power plant after completion of the coal refining process. For the purposes of this subdivision, "coal refining process" means the application of a coal additive system that aids the reduction of power plant emissions during the combustion of coal and the treatment of flue gas.
20. 19. The gross proceeds of sales or gross income from sales of low or reduced cost articles of food or drink to eligible elderly or homeless persons or persons with a disability by a business subject to tax under section 42‑5074 that contracts with the department of economic security and that is approved by the food and nutrition service of the United States department of agriculture pursuant to the supplemental nutrition assistance program established by the food and nutrition act of 2008 (P.L. 110-246; 122 Stat. 1651; 7 United States Code sections 2011 through 2036a), if the purchases are made with the benefits issued pursuant to the supplemental nutrition assistance program.
21. 20. Tangible personal property incorporated or fabricated into a project described in paragraph 16 15 of this subsection, that is located within the exterior boundaries of an Indian reservation for which the owner, as defined in section 42‑5075, of the project is an Indian tribe or an affiliated Indian. For the purposes of this paragraph:
(a) "Affiliated Indian" means an individual native American Indian who is duly registered on the tribal rolls of the Indian tribe for whose benefit the Indian reservation was established.
(b) "Indian reservation" means all lands that are within the limits of areas set aside by the United States for the exclusive use and occupancy of an Indian tribe by treaty, law or executive order and that are recognized as Indian reservations by the United States department of the interior.
(c) "Indian tribe" means any organized nation, tribe, band or community that is recognized as an Indian tribe by the United States department of the interior and includes any entity formed under the laws of that Indian tribe.
22. 21. The charges for the leasing or renting of space to make attachments to utility poles as follows:
(a) By a person that is engaged in the business of providing or furnishing electrical services or telecommunication services or that is a cable operator.
(b) To a person that is engaged in the business of providing or furnishing electrical services or telecommunication services or that is a cable operator.
B. Except as provided in section 28-5606, a city, town or other taxing jurisdiction shall not levy a transaction privilege, sales, use, franchise or other similar tax or fee, however denominated, on natural gas or liquefied petroleum gas used to propel a motor vehicle.
C. A city, town or other taxing jurisdiction shall not levy a transaction privilege, sales, gross receipts, use, franchise or other similar tax or fee, however denominated, on gross proceeds of sales or gross income derived from any of the following:
1. A motor carrier's use on the public highways in this state if the motor carrier is subject to a fee prescribed in title 28, chapter 16, article 4.
2. Leasing, renting or licensing a motor vehicle subject to and on which the fee has been paid under title 28, chapter 16, article 4.
3. The sale of a motor vehicle and any repair and replacement parts and tangible personal property becoming a part of such motor vehicle to a motor carrier who is subject to a fee prescribed in title 28, chapter 16, article 4 and who is engaged in the business of leasing, renting or licensing such property.
4. Incarcerating or detaining in a privately operated prison, jail or detention facility prisoners who are under the jurisdiction of the United States, this state or any other state or a political subdivision of this state or of any other state.
5. Transporting for hire persons, freight or property by light motor vehicles subject to a fee under title 28, chapter 15, article 4.
6. Any amount attributable to development fees that are incurred in relation to the construction, development or improvement of real property and paid by the taxpayer as defined in the model city tax code or by a contractor providing services to the taxpayer. For the purposes of this paragraph:
(a) The attributable amount shall not exceed the value of the development fees actually imposed.
(b) The attributable amount is equal to the total amount of development fees paid by the taxpayer or by a contractor providing services to the taxpayer and the total development fees credited in exchange for the construction of, contribution to or dedication of real property for providing public infrastructure, public safety or other public services necessary to the development. The real property must be the subject of the development fees.
(c) "Development fees" means fees imposed to offset capital costs of providing public infrastructure, public safety or other public services to a development and authorized pursuant to section 9‑463.05, section 11‑1102 or title 48 regardless of the jurisdiction to which the fees are paid.
D. A city, town or other taxing jurisdiction shall not levy a transaction privilege, sales, use, franchise or other similar tax or fee, however denominated, in excess of one-tenth of one percent of the value of the entire product mined, smelted, extracted, refined, produced or prepared for sale, profit or commercial use, on persons engaged in the business of mineral processing, except to the extent that the tax is computed on the gross proceeds or gross income from sales at retail.
E. In computing the tax base, any city, town or other taxing jurisdiction shall not include in the gross proceeds of sales or gross income:
1. A manufacturer's cash rebate on the sales price of a motor vehicle if the buyer assigns the buyer's right in the rebate to the retailer.
2. The waste tire disposal fee imposed pursuant to section 44‑1302.
F. A city or town shall not levy a use tax on the storage, use or consumption of tangible personal property in the city or town by a school district or charter school.
G. For the purposes of this section:
1. "Cable operator" has the same meaning prescribed by section 9‑505.
2. "Electrical services" means transmitting or distributing electricity, electric lights, current or power over lines, wires or cables.
3. "Telecommunication services" means transmitting or relaying sound, visual image, data, information, images or material over lines, wires or cables by radio signal, light beam, telephone, telegraph or any other electromagnetic means.
4. "Utility pole" means any wooden, metal or other pole used for utility purposes and the pole's appurtenances that are attached or authorized for attachment by the person controlling the pole.
Sec. 7. Effective date
This act is effective from and after December 31, 2016.