United States

Arizona governor signs law providing new sales tax exemption

Electricity and natural gas purchases exempt for manufacturing or smelting operations


On April 11, 2014, Arizona Governor Jan Brewer signed into law Senate Bill 1413 (SB 1413), which provides a sales and use tax exemption for a qualifying business' purchase of electricity and natural gas. To qualify for the exemption (1) at least 51 percent of the business must be manufacturing or smelting operations, and (2) the business must use at least 51 percent of the electricity or natural gas in the manufacturing or smelting operations. The exemption applies to a qualifying business' entire purchase price of electricity or natural gas as long as the exemption qualifications are met.

This new sales tax exemption creates significant sales tax savings for qualifying businesses beginning after the close of the legislative session in 2014. Businesses that are unsure whether they qualify for the exemption should analyze their operations prior to Dec. 31, 2014 to determine whether this exemption is applicable to them. Those businesses that plan to claim the exemption should begin compiling documents to substantiate that they meet the exemption requirements.

For purposes of the exemption, manufacturing means "the performance as a business of an integrated series of operations that place tangible personal property in a form, composition or character different from that in which it was acquired and transforms it into a different product with a distinctive name, character or use." Smelting means "to melt or fuse a metalliferous mineral often with an accompanying chemical change usually to separate the metal."

SB 1413 clarifies that the exemption does not apply to the services of transporting natural gas to a natural gas customer or to a natural gas distribution facility if the natural gas was purchased from a supplier other than a utility. Additionally, the exemption does not apply to processing, fabricating, job printing, mining, generating electricity, or operating a restaurant.

Governor Brewer, who specifically asked for the tax exemption in her State of the State address, believes the exemption will increase Arizona's competitive edge for new and expanding manufacturers and smelters. The new exemption is expected to cost the state $17 million a year.

RSM LLP is an Iowa limited liability partnership and the U.S. member firm of RSM International, a global network of independent accounting, tax and consulting firms. The member firms of RSM International collaborate to provide services to global clients, but are separate and distinct legal entities that cannot obligate each other. Each member firm is responsible only for its own acts and omissions, and not those of any other party.

RSM®, the RSM logo, the RSM Classic logo, The power of being understood®, Power comes from being understood®, and Experience the power of being understood® are registered trademarks of RSM LLP.

© 2014 RSM LLP. All Rights Reserved.

This publication represents the views of the author(s), and does not necessarily represent the views of RSM LLP.  This publication does not constitute professional advice.