DIVISION 3-05-002
DETERMINATION OF GROSS INCOME
SECTIONS:
3-05-002-0200 DETERMINATION OF GROSS INCOME; IN GENERAL:
3-05-002-0210 DETERMINATION OF GROSS INCOME; TRANSACTIONS BETWEEN AFFILIATED COMPANIES OR PERSONS:
3-05-002-0220 DETERMINATION OF GROSS INCOME; ARTIFICIALLY CONTRIVED TRANSACTIONS:
3-05-002-0230 DETERMINATION OF GROSS INCOME BASED UPON METHOD OF REPORTING:
3-05-002-0240 EXCLUSION OF CASH DISCOUNTS, RETURNS, REFUNDS, TRADE-IN VALUES, VENDOR-ISSUED COUPONS, AND REBATES FROM GROSS INCOME:
3-05-002-0250 EXCLUSION OF COMBINED TAXES FROM GROSS INCOME; ITEMIZATION, NOTICE, LIMITATIONS:
3-05-002-0260 EXCLUSION OF FEES AND TAXES FROM GROSS INCOME; LIMITATIONS:
3-05-002-0265 RESERVED:
3-05-002-0266 EXCLUSION OF MOTOR CARRIER REVENUES FROM GROSS INCOME:
3-05-002-0270 EXCLUSION OF GROSS INCOME OF PERSONS DEEMED NOT ENGAGED IN BUSINESS:
3-05-002-0280 EXCLUSION OF TRANSACTIONS WITH SPECIFIED GOVERNMENTAL AGENCIES:
3-05-002-0285 RESERVED:
3-05-002-0290 RESERVED:
3-05-002-0200 DETERMINATION OF GROSS INCOME; IN GENERAL:
A. Gross income includes:
1. The value proceeding or accruing from the sale of property, the providing of service, or both.
2. The total amount of the sale, lease, license for use, or rental price at the time of such sale, rental, lease, or license.
3. All receipts, cash, credits, barter, exchange, reduction of/or forgiveness of indebtedness, and property of every kind or nature derived from a sale, lease, license for use, rental, or other taxable activity.
4. All other receipts whether payment is advanced prior to, contemporaneous with, or deferred in whole or in part subsequent to the activity or transaction.
B. Barter, exchange, trade-outs, or similar transactions are includable in gross income at the fair market value of the service rendered or property transferred, whichever is higher, as they represent consideration given for consideration received.
C. No deduction or exclusion is allowed from gross income on account of the cost of the property sold, the time value of money, expense of any kind or nature, losses, materials used, labor or service performed, interest paid, or credits granted.
D. For the purposes of this chapter the total amount of gross income, gross receipts or gross proceeds of sales for nuclear fuel shall be deemed to be the value of the purchase price of uranium oxide used in producing the fuel. The tax imposed by this chapter may be imposed only once for any one quantity or batch of nuclear fuel regardless of the number of transactions or financing arrangements which may occur with respect to that nuclear fuel. (Ord. 2013-26, Amended, 01/07/2014)
3-05-002-0210 DETERMINATION OF GROSS INCOME; TRANSACTIONS BETWEEN AFFILIATED COMPANIES OR PERSONS:
In transactions between affiliated companies or persons, or in other circumstances where the relationship between the parties is such that the gross income from the transaction is not indicative of the market value of the subject matter of the transaction, the Tax Collector shall determine the "market value" upon which the City privilege and use taxes shall be levied. "Market value" shall correspond as nearly as possible to the gross income from similar transactions of like quality or character by other taxpayers where no common interest exists between the parties, but otherwise under similar circumstances and conditions.
3-05-002-0220 DETERMINATION OF GROSS INCOME; ARTIFICIALLY CONTRIVED TRANSACTIONS:
The Tax Collector may examine any transaction, reported or unreported, if, in his opinion, there has been or may be an evasion of the taxes imposed by this Chapter and to estimate the amount subject to tax in cases where such evasion has occurred. The Tax Collector shall disregard any transaction which has been undertaken in an artificial manner in order to evade the taxes imposed by this Chapter.
3-05-002-0230 DETERMINATION OF GROSS INCOME BASED UPON METHOD OF REPORTING:
The method of reporting chosen by a taxpayer, as provided in Section 3-05-005-0520, necessitates the following adjustments to gross income for all purposes under this Chapter:
(a) Cash Basis: When a person elects to report and pay taxes on a cash basis, gross income for the reporting period shall include:
(1) The total amounts received on "paid in full" transactions, against which are allowed all applicable deductions and exclusions; and
(2) All amounts received on accounts receivable, conditional sales contract, or other similar transactions, against which no deductions and no exclusions from gross income are allowed. Interest on finance contracts may be deducted if separately itemized on all books and records.
(b) Accrual Basis: When a person elects to report and pay taxes on an accrual basis, gross income shall include all gross income for the applicable period regardless of whether receipts are for cash, credit, conditional, or partially deferred transactions, and regardless of whether or not any security document or instrument is sold, assigned, or otherwise transferred to another. Persons reporting on the accrual basis may deduct bad debts, provided that:
(1) The amount deducted for the bad debt must be deducted from gross income of the month in which the actual charge-off was made, and only to the extent that such amount was actually charged off, and also only to the extent that such amount is or was included as taxable gross income; and
(2) If any amount is subsequently collected on such charged-off account, it shall be included in gross income for the month in which it was collected, without deduction for expense of collection. (Ord. 1924, 01/07/97)
3-05-002-0240 EXCLUSION OF CASH DISCOUNTS, RETURNS, REFUNDS, TRADE-IN VALUES, VENDOR-ISSUED COUPONS, AND REBATES FROM GROSS INCOME:
(a) The following items are not included in gross income:
(1) Cash discounts allowed by the vendor for timely payment, but only discounts allowed against taxable gross income.
(2) The value of property returned by customers to the extent of the amount actually refunded either in cash or by credit and the amount refunded was included in taxable gross income.
(3) The trade-in allowance for tangible personal property accepted as payment, not to exceed the full sales price for any tangible personal property sold, when the full sales price is included in taxable gross income. Trade-in allowances are not allowed for manufactured buildings taxable under Section 3-05-004-0427.
(4) When coupons issued by a vendor are later accepted by the vendor as a discount against the transaction, the discount may be excluded from gross income as a cash discount. Amounts credited or refunded by a vendor for redemption of coupons issued by any person other than the vendor may not be excluded from gross income.
(5) Rebates issued by the vendor to a customer as a discount against the transaction may be excluded from gross income as cash discount. Rebates issued by a person other than the vendor may not be excluded from gross income, even when the vendee assigns his right to the rebate to the vendor.
(6) In computing the tax base, gross proceeds of sales or gross income does not include 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.
(b) If the amount specified in subsection A. above is credited by a vendor subsequent to the reporting period in which the original transaction occurs, such amount may be excluded from the taxable gross income of that subsequent reporting period, but only to the extent that the excludable amount was reported as taxable gross income in that prior reporting period. (Ord. 1924, 01/07/97)
3-05-002-0250 EXCLUSION OF COMBINED TAXES FROM GROSS INCOME; ITEMIZATION, NOTICE, LIMITATIONS:
A. When Tax is Separately Charged and/or Collected: The total amount of gross income shall be exclusive of combined taxes only when the person upon whom the tax is imposed shall establish to the satisfaction of the Tax Collector that such tax has been added to the total price of the transaction. The taxpayer must provide to his customer and also keep a reliable record of the actual tax charged or collected, shown by cash register tapes, sales tickets, or other accurate record, separating net transaction price and combined tax. If at any time the Tax Collector cannot ascertain from the records kept by the taxpayer the total or amounts billed or collected on account of combined taxes, the claimed taxes collected may not be excluded from gross income, unless such records are completed and/or clarified to the satisfaction of the Tax Collector.
1. Remittance of all tax charged and/or collected. When an added charge is made to cover City (or combined) privilege and use taxes, the person upon whom the tax is imposed shall pay the full amount of the City taxes due, whether collected by him or not, and in the event he collects more than the amount due he shall remit the excess to the Tax Collector. In the event the Tax Collector cannot ascertain from the records kept by the taxpayer the total or amounts of taxes collected by him, and the Tax Collector is satisfied that the taxpayer has collected taxes in an amount in excess of the tax assessed under this chapter, the Tax Collector may determine the amount collected and collect the tax so determined in the manner provided in this chapter.
2. Itemization. A taxpayer, in order to be entitled to exclude from his gross income any amounts paid to him by customers for combined taxes passed on to the customer, must prove that he has provided his customer with a written record of the transaction showing at a minimum the price before the tax, the combined taxes, and the total cost. This shall be additional to the record required to be kept under subsection (A) of this section.
B. When Tax Has Been Neither Separately Charged Nor Separately Collected: When the person upon whom the tax is imposed shall establish by means of invoices, sales tickets, or other reliable evidence, that no added charge was made to cover combined taxes, the taxpayer may exclude tax collected from such income by dividing such taxable gross income by one (1.00) plus a decimal figure representing the effective combined tax rate expressed as a fraction of one (1.00).
3-05-002-0260 EXCLUSION OF FEES AND TAXES FROM GROSS INCOME; LIMITATIONS:
A. There shall be excluded from gross income of vendors of motor vehicles those motor vehicle registration fees, license fees and taxes, and lieu taxes imposed pursuant to A.R.S. Title 28 in connection with the initial purchase of a motor vehicle, but only to the extent that such taxes or fees or both have been separately itemized and collected from the purchaser of the motor vehicle by the vendor, actually remitted to the proper registering, licensing, and taxing authorities, and the provisions of Division 3-05-003, regarding recordkeeping, are met. For the purpose of the exclusion provided by this subsection only, the terms vendor and vendee shall also apply to a lessor and lessee respectively, of a motor vehicle if, in addition to all other requirements of this subsection, the lease agreement specifically requires the lessee to pay such fees or taxes, and such amounts are separately itemized in the documentation provided to the lessee.
B. There shall be excluded from gross income of vendors at retail of heavy trucks and trailers, the amount attributable to Federal excise taxes imposed by 26 U.S.C. Section 4051, but only to the extent that the provisions of Division 3-05-003, relating to recordkeeping, have been met.
C. There shall be excluded from gross income the following fees, taxes, and lieu taxes, but only to the extent that such taxes or fees or both have been separately itemized and collected from the purchaser by the vendor, actually remitted to the proper registering, licensing, and taxing authorities, and the provisions of Division 3-05-003, regarding recordkeeping, are met.
1. Emergency telecommunication services excise tax imposed pursuant to A.R.S. Section 42-5252. "Emergency telecommunication services" means telecommunication services or systems that use number 911 or a similarly designated telephone number for emergency calls;
2. The telecommunication devices for the deaf and the severely hearing and speech impaired excise tax imposed pursuant to A.R.S. Section 42-5252;
3. Federal excise taxes on communications services as imposed by 26 U.S.C. Section 4251;
4. Car rental surcharge imposed pursuant to A.R.S. Section 48-4234;
5. Federal excise taxes on passenger vehicles as imposed by 26 U.S.C. Section 4001(.01);
6. Waste tire disposal fees, imposed pursuant to A.R.S. Section 44-1302.
D. There shall be excluded from gross income of vendors of motor vehicles dealer documentation fees, but only to the extent that such fees have been separately itemized and collected from the purchaser of the motor vehicle by the vendor. (Ord. 1924, 01/07/97; Ord. 2004-25, Amended, 01/10/05; Ord. 2007-28, Amended, 05/01/2007)
3-05-002-0265 RESERVED:
3-05-002-0266 EXCLUSION OF MOTOR CARRIER REVENUES FROM GROSS INCOME:
There shall be excluded from gross income the gross proceeds of sale or gross income derived from any of the following:
A. A motor carrier’s use on the public highways in this State if the motor carrier is subject to a fee prescribed in A.R.S. Title 28, Chapter 15, Article 4, or A.R.S. Title 28 Chapter 16, Article 4.
B. Leasing, renting or licensing a motor vehicle subject to and upon which the fee has been paid under A.R.S. Title 28, Chapter 16.
C. 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 A.R.S. Title 28, Chapter 16 and who is engaged in the business of leasing, renting or licensing such property.
D. For the purposes of these exclusions, "motor carrier" includes a motor vehicle weighing 26,000 pounds or more, a lightweight motor vehicle which weighs 12,001 pounds to 26,000 pounds and a light motor vehicle weighing 12,000 pounds or less, which pay the fee prescribed in A.R.S. Title 28, Chapter 15 or A.R.S. Title 28, Chapter 16. (Ord. 1979, Amended, 10/06/98; Ord. 2007-28, Amended, 05/01/2007)
3-05-002-0270 EXCLUSION OF GROSS INCOME OF PERSONS DEEMED NOT ENGAGED IN BUSINESS:
A. For the purposes of this section, the following definitions shall apply:
1. "Federally exempt organization" means an organization which has received a determination of exemption, or qualifies for such exemption, under 26 U.S.C. Section 501(c) and rules and regulations of the Commissioner of Internal Revenue pertaining to same, but not including a "governmental entity," "nonlicensed business," or "public educational entity."
2. "Governmental entity" means the Federal government, the State of Arizona, any other state, or any political subdivision, department, or agency of any of the foregoing; provided further, that persons contracting with such a governmental entity to operate any part of a governmentally adopted and controlled program to provide urban mass transportation shall be deemed a governmental entity in all activities such person performs when engaged in said contract.
3. "Nonlicensed business" means any person conducting any business activity for gain or profit, whether or not actually realized, which person is not required to be licensed for the conduct or transaction of activities subject to the tax imposed under this chapter.
4. "Proprietary club" means any club which has qualified or would otherwise qualify as an exempt club under the provisions of 26 U.S.C. Section 502(c)(7), (8), and (9), notwithstanding the fact that some or all of the members may own a proprietary interest in the property and assets of the club.
5. "Public educational entity" means any educational entity operated pursuant to any provisions of A.R.S. Title 15.
B. Transactions which, if conducted by any other person, would produce gross income subject to tax under this chapter shall not be subject to the imposition of such tax if conducted entirely by a public educational entity; governmental entity, except "proprietary activities" of municipalities as provided by regulation; or nonlicensed business.
C. Transactions which, if conducted by any other person, would produce gross income subject to the tax under this chapter shall not be subject to the tax if conducted entirely by a federally exempt organization or proprietary club with the following exceptions:
1. Transactions involving proprietary clubs and organizations exempt under 26 U.S.C. Section 501(c)(7), (8), and (9), where the gross revenue of the activity received from persons other than members and bona fide guests of members is in an amount in excess of fifteen percent (15%) of total gross revenue, as prescribed by regulation. In the event this fifteen percent (15%) limit is exceeded, the entire gross income of such entity shall be subject to the applicable tax.
2. Gross income from unrelated business income as that term is defined in 26 U.S.C. Section 512, including all statutory definitions and determinations, the rules and regulations of the Commissioner of Internal Revenue, and the administrative interpretations and guidelines.
3. Reserved.
D. Except as may be provided elsewhere in this chapter, transactions where customers are exempt organizations, proprietary clubs, public educational entities, governmental entities, or nonlicensed businesses shall be deemed taxable transactions for the purpose of the imposition of taxes under this chapter, notwithstanding that property so acquired may in fact be resold or leased by the acquiring person to others. In the case of sales, rentals, leases, or licenses to proprietary clubs or exempt organizations, the vendor may be relieved from the responsibility for reporting and paying tax on such income only by obtaining from its vendee a verified statement that includes:
1. A statement that when the property so acquired is resold, rented, leased, or licensed, that the otherwise exempt vendee chooses or is required to pay City privilege tax or an equivalent excise tax on its gross income from such transactions and does in fact file returns on same; and
2. The privilege license number of the otherwise exempt vendee; and
3. Such other information as the Tax Collector may require.
E. Franchisees or concessionaires operating businesses for or on behalf of any exempt organization, governmental entity, public educational entity, proprietary club, or nonlicensed business shall not be considered to be such an exempt organization, club, entity, or nonlicensed business, but shall be deemed to be a taxpayer subject to the provisions of this chapter, except as provided in the definition of governmental entity, regarding urban mass transit.
F. In any case, if a federally exempt organization, proprietary club, or nonlicensed business rents, leases, licenses, or purchases any tangible personal property for its own storage or use, and no City privilege or use tax or equivalent excise tax has been paid on such transaction, said organization, club, or business shall be liable for the use tax upon such acquisitions or use of such property. (Ord. 2014-16, Amended, 07/15/2014)
3-05-002-0280 EXCLUSION OF TRANSACTIONS WITH SPECIFIED GOVERNMENTAL AGENCIES:
Notwithstanding provisions contained elsewhere in this Chapter, "gross income" derived from transactions that would be deemed taxable, if conducted with or for other customers or consumers, shall be deemed exempt from the taxes imposed by this Chapter when the customer or consumer is (effective 07/01/01, Ordinance No. 2001-04):
A. Reserved.
B. Reserved.
C. Reserved.
D. Reserved.
E. Reserved.
(Ord. 2001-04, Amended, 01/16/2001; Ord. 2000-29, Amended, 11/21/2000)