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ARIZONA STATE SENATE
Fifty-Seventh Legislature, Second Regular Session
public infrastructure improvements; distribution limit
Purpose
Replaces the $200 million aggregate cap with an annual cap of $75 million on the amount of state prime contracting transaction privilege tax (TPT) revenues that must be paid to cities, towns and counties for public infrastructure improvements for the benefit of a manufacturing facility. Expands the definition of public infrastructure to include wastewater reclamation, recycling, treatment and storage facilities. Requires the agreement between the Arizona Department of Revenue (ADOR) and the city, town or county where the manufacturing facility is located to provide for an analysis of the anticipated direct and indirect revenues the state will receive as a result of constructing the manufacturing facility.
Background
TPT is imposed on the gross receipts of taxable businesses, with the exception of prime contractors. The tax base for the prime contracting classification is 65 percent of the gross proceeds of sales or gross income derived from the business and certain amounts must be deducted before computing the tax base. The TPT rate for prime contracting is 5.6 percent of the tax base (A.R.S. §§ 42-5010; 42-5010.01; and 42-5075).
From October 1, 2013, through September 30, 2033, the State Treasurer must pay a city, town or county the total amount of state prime contracting TPT revenues derived from contracts to construct buildings and associated improvements for the benefit of a manufacturing facility for the purpose of funding up to 80 percent of the cost of the public infrastructure improvements. Public infrastructure means: 1) water production, delivery and disposal facilities; 2) wastewater production, delivery and disposal facilities; and 3) roads that are necessary to support the activities of the manufacturing facility. The aggregate amount of state prime contracting TPT revenues paid to all cities, towns and counties for public infrastructure improvements may not exceed $200 million. For a city, town or county to qualify for state prime contracting TPT revenue distributions, the manufacturing facility must agree to make a capital investment of at least: 1) $500 million in a county with a population of more than 800,000 persons; or 2) $50 million in a county with a population of fewer than 800,000 persons.
After receiving a manufacturing facility's sworn certification of the initial investment, the city, town or county must enter into an agreement with ADOR that includes specified public infrastructure project and funding information. On notification by ADOR, the State Treasurer must cease paying state prime contacting TPT revenues to the city, town or county if: 1) the city, town or county has received 80 percent of the cost of the public infrastructure improvements; or 2) the $200 million aggregate cap has been met (A.R.S. § 42-5032.02).
The Joint Legislative Budget Committee fiscal note estimates that H.B. 4026 would result in an ongoing state General Fund revenue loss of $17.8 million and an ongoing local government revenue loss of $2.6 million (JLBC fiscal note).
Provisions
1. Replaces the $200 million aggregate cap with an annual cap of $75 million on the amount of state prime contracting TPT revenues that must be paid to cities, towns and counties for public infrastructure improvements for the benefit of a manufacturing facility.
2. Expands the definition of public infrastructure to include wastewater reclamation, recycling, treatment and storage facilities.
3. Requires the agreement between ADOR and the city, town or county where the manufacturing facility is located to provide for an analysis to the Arizona Commerce Authority of the anticipated direct and indirect revenues the state will receive as a result of constructing the manufacturing facility.
4. Requires the State Treasurer to cease paying state prime contracting TPT revenues to the city, town or county if the $75 million annual cap has been met as of June 30 each year.
5. Requires ADOR, if there are monies above the annual cap for the fiscal year, to retain those monies and direct the State Treasurer to resume payments to the city, town or county the following fiscal year.
6. Requires the State Treasurer to make payment to cities, towns and counties in the order in which the expense is submitted for reimbursement.
7. Requires ADOR to post development agreements and intergovernmental agreements entered into with a city, town or county on ADOR's website.
8. Makes conforming changes.
9. Becomes effective on the general effective date.
House Action
COM 2/17/26 DP 8-3-0-0
3rd Read 3/3/26 38-17-4-0-1
Prepared by Senate Research
March 18, 2026
MG/hk