Classify a project — Candor Bookkeeping

Who hired you for this project? This does not change how the project is classified. It determines which forms are yours to issue and which you should expect to receive. The answer is the same whether the work is general contracting or a specialty trade — the Registrar license scope has no bearing on it.

Do you have subcontractors on this project? A no here means you are the only contractor on it, which changes which forms are yours to issue.

Does any of this describe the job? Select every one that applies, or None of these — most jobs are none of them. Four situations are settled before the ordinary analysis, because each decides whether the contract is inside the prime contracting section at all. Answer from what you know about the job — the Classifier applies the rule, and where more than one applies, it takes them in the order the statute sets.

None of these — The ordinary case: none of the four situations describes the job, and most jobs are none of them. Tribal land — The job site is on an Indian reservation. Work on an Indian reservation is exempt only where it is for the tribe, a tribally owned business, a tribal entity or an affiliated Indian, so the next question asks who is paying. Landfill — The site is a landfill or solid waste disposal facility. Operating one is outside prime contracting; building roads to one, or cells within it, may not be, so the next question asks what the contract covers. Government — Your customer is a government agency. A public contract that is primarily roads, utilities or earthwork is taxed as prime contracting even where its work would otherwise be MRRA, so the next question asks what most of the contract is. Under $1,000, no license — Casual or minor work, under $1,000 in total, by someone who holds no contractor license. Work that needs no Registrar of Contractors license is outside prime contracting, but the exclusion does not reach work that needed a local building permit, so the next question asks.

Does this contract cover grounds work? Arizona tests the contract, not the line item. Lawn maintenance and landscaping are each defined by list. Leave this alone where the contract covers no grounds work at all. One landscaping item decides it. Lawn maintenance stays outside prime contracting only where the contract contains no landscaping activity at all. One landscaping item written into a lawn maintenance contract takes the whole contract out of that exclusion.

What counts as lawn maintenance, and what counts as landscaping

Lawn maintenance is mowing, edging, weeding, pruning or clipping, refreshing gravel, repairing sprinkler or drip heads, seasonal flowers, dethatching, leaf and debris removal, raking, pesticides and fertilizer.

Landscaping is installing lawns, grading or leveling ground, installing gravel or boulders, planting trees, felling trees, removing or mulching stumps, irrigation berms, railroad ties and underground sprinkler systems.

The lists are close enough to catch a careful reader — refreshing gravel is lawn maintenance, installing gravel is landscaping.

Property type This is the parcel’s property tax class, not what the building looks like. Residential property is the assessor’s classification, and it reaches more than an owner-occupied home: class three, class four — a rented house and an apartment complex are both residential — and nonprofit-owned residential parcels in class two. Anything else takes the flat commercial threshold. The classification decides which alteration threshold applies.

A classification can be appealed

A classification is the assessor’s determination and is appealable — a petition for review goes to the assessor within sixty days after the notice of value is mailed.

Is this existing property, or new/ground-up construction? MRRA can exist only on existing property: real property that already carries prior construction. New or ground-up construction is modification, so the questions about kinds of work are skipped. The line moves with the work. A wall is not existing property while it is being built; stuccoing that same wall a month later is work on existing property.

Which kinds of work does this contract cover? Select every kind that applies. Answer for the whole contract, including work you subcontract out — Arizona classifies the contract as a whole, and one classification covers everything in it. Under a Job Order Contracting arrangement, answer for the single work order rather than for the master agreement. Why the kind of work matters. MRRA — maintenance, repair, replacement and alteration — is contracting work on existing property that is excluded from prime contracting tax: the tax applies to the materials the contractor buys rather than to the contract, and labor is outside the tax base. Modification is taxed under the prime contracting classification, on 65% of the gross receipts from the contract. Work on an existing component or system — keeping it up, fixing it, or taking it out and putting one back — is maintenance, repair, or replacement, at any contract size; replacement still counts when the new one is nicer than the old one. Alteration is only what is left over: a physical change to real property that is none of those three. It is also the only one of the four with a threshold. More than one kind. Where the contract covers more than one, the next questions split its value across them. Alteration charges are tested against their own threshold first; then, where the modification charges come to 15% or less of the contract, they are de minimis and the whole contract is MRRA. More than 15%, and the whole contract is prime contracting.

Job Order Contracting, installed equipment, and demolition

Each work order under a Job Order Contracting arrangement is classified on its own, and one arrangement can produce Modification orders and MRRA orders on the same return.

Something that stays identifiable after installation and comes out in essentially the same form is tangible personal property installed in existing property — a bolted-down machine rather than the wire in the wall — and the statutory definition of replacement reaches it expressly, so swapping one out is replacement at any contract size.

Where goods are sold and installed together, sale-and-installation decides which classification applies: a seller paid to install goods into real property is a contractor on that transaction rather than a retailer.

Demolition that is part of a maintenance, repair, replacement, or alteration project belongs with that work, not with modification.

Maintenance — The upkeep of property or equipment: top off HVAC fluids, re-stain a deck. Maintenance is MRRA at any contract size. Repair — Returning existing property to a usable state from partial or total inoperability: fix a leaky shower, replace hail-damaged roof tiles. Swapping a broken part can be repair rather than replacement, and repair is MRRA at any contract size. Replacement — Taking an existing component or system out of service and putting back the same, similar, or upgraded: re-roof, new HVAC unit, new cabinets. Removal from service is what counts, not physical removal, and the upgrade still counts. Replacement is MRRA at any contract size. Alteration — A physical change to existing property that is none of the other three: adding or expanding square footage. Alteration is the only MRRA activity with a size limit: over its threshold, the work is modification. Modification — Construction, grading and leveling ground, or wreckage and demolition, whether or not anything stood there before. Modification is taxed under the prime contracting classification, on the contract amount rather than on the materials. Demolition that is part of maintenance, repair, replacement or alteration work belongs with that work instead.

Contract amount ($) The amount at the time the contract is bid or entered into, with everything in it: labor, materials, markup, overhead and profit. On a contract that is all alteration, this is the figure tested against the alteration threshold. On a mixed contract only the alteration charges are tested, and the next question splits them out. A change order that relates to the original scope of work is part of the contract it changes, so the test is run again on the revised figures.

Contract value by activity type ($) Divide the contract value across the kinds of work you selected. The parts must add up to the contract amount, and the last figure fills in as the remainder. Every dollar belongs to one of them — labor, materials, markup, overhead, and profit included. Overhead and profit are spread across the buckets in proportion to each bucket’s direct costs — the method ADOR prescribed in writing. The split is available only where each kind of work’s charge is separately identified, in the contract or in the back-end records used to build the bid: that is itemization. Alteration charges over their own threshold join the modification charges, and the combined modification charges are then divided by the contract: more than 15% and the whole contract is prime contracting, 15% or less and it is MRRA.

Maintenance

Repair

Replacement

Alteration

Modification

Entered total

$0

Parcel’s Full Cash Value ($) The higher of its value at bid date and at contract date. This is public record — you can look it up yourself before you bid, without asking the homeowner for anything. Pick the county below and the county assessor’s parcel search opens in a new tab. Use Full Cash Value, not Limited Property Value — the two differ, and the statute specifies the former — and note it is the parcel’s full cash value, which includes the land, not the home alone.

Where the figure comes from

The figure also appears on the annual notice of value.

The value moves with the valuation year, which is why the higher of bid date and contract date is what the statute takes.

County

Assessor lookup Open parcel search

Full Cash Value (FCV)

Do you hold an Arizona TPT license? A TPT license is issued for transaction privilege tax, is held by the business rather than by an individual — the taxpayer is the business — and is separate from the Registrar of Contractors license and from any city business license. Where no license is held yet, Form JT-1 is the application for one.

Nexus, bonding, and the forms behind them

For contracting, physical nexus settles whether Arizona reaches the work and it is rarely in doubt: the property is here, so the income is Arizona income, and an out-of-state contractor taking a single Arizona project is taxable on it and must hold a license. Economic nexus is the test for remote sellers and does not reach contracting.

Bonding follows from A.R.S. § 42-5006(A), which depends on whether the principal place of business is outside Arizona — a facility operated continuously with at least one full-time employee for twelve consecutive months, not a mailing address.

Where it is, a taxpayer bond is required, posted on Form 74-4023; the annual bond exemption is an electronic list the Department gives each city rather than a certificate, a one-time exemption covers a single project for a contractor absent from that list, and Form 10205 is the application. None of that is a performance bond.