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ARIZONA STATE SENATE
Fifty-Seventh Legislature, Second Regular Session
AMENDED
public infrastructure improvements; distribution limit
Purpose
Retroactive to July 1, 2026, increases the aggregate cap to $300 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. Increases the minimum capital investment that a manufacturing facility must make before a city, town or county may qualify for state prime contracting TPT revenue distributions, modifies the public infrastructure funding apportionment and expands the definition of public infrastructure to include wastewater reclamation, recycling, treatment and storage facilities.
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 the
Arizona Department of Revenue (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).
If increasing the aggregate cap on the amount of state prime contracting TPT revenues that must be paid to cities, towns and counties results in the payment of state prime contracting TPT revenues to cities, towns and counties in an amount that would otherwise exceed $200,000,000 and be directed to the state General Fund, there may be a fiscal impact to the state General Fund.
Provisions
1. Adds $100 million to the aggregate cap on the state prime contracting TPT revenues paid to all cities, towns and counties for public infrastructure improvements for the benefit of a manufacturing facility beginning on July 1, 2026.
2. Expands the definition of public infrastructure to include wastewater reclamation, recycling, treatment and storage facilities.
3. Decreases, from 80 percent to 75 percent, the percentage of state prime contracting TPT revenues that must be paid to a city, town or county to fund the cost of public infrastructure improvements for the benefit of a manufacturing facility.
4. Requires a participating city, town or county to provide at least 5 percent of the funding for the cost of public infrastructure improvements for the benefit of a manufacturing facility.
5. Increases the minimum capital investment that a manufacturing facility must make before a city, town or county may qualify for state prime contracting TPT revenue distributions to:
a) $3 billion, rather than $500 million, if the manufacturing facility is located in a county with a population of 800,000 persons or more; or
b) $100 million, rather than, $50 million, if the manufacturing facility is located in a county with a population of fewer than 800,000 persons.
6. 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.
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, retroactive to July 1, 2026.
Amendments Adopted by Committees
1. Reinstates the aggregate cap and increases the cap to $300 million.
2. Increases the minimum capital investment that must be made by each manufacturing facility to qualify for state prime contracting TPT revenue distributions.
3. Decreases, from 80 percent to 75 percent, the percentage of state prime contracting TPT revenues that must be paid to a city, town or county for the benefit of a manufacturing facility to fund the cost of public infrastructure improvements.
4. Requires a participating city, town or county to provide at least 5 percent of the funding for the cost of public infrastructure improvements.
5. Applies the modified cap and investment and funding requirements retroactively to July 1, 2026.
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
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