Assigned to FIN AS PASSED BY HOUSE
ARIZONA STATE SENATE
Fifty-Fifth Legislature, Second Regular Session
AMENDED
FACT SHEET FOR S.B. 1322
charitable organization tax credit; inflation
(NOW: TPT; use tax; hydrogen; exemption)
As passed by the Senate, S.B. 1322 required, for taxable years beginning January 1, 2023,
the amount of the Credit for Contribution to Qualifying Charitable Organizations and the Credit
for Contribution to Qualifying Foster Care Charitable Organizations to be annually adjusted for
inflation.
The House of Representatives adopted a strike-everything amendment that does the
following:
Purpose
Exempts, from use tax and the transaction privilege tax (TPT) imposed on the retail
classification, the sale or storage, use or consumption of hydrogen used to propel a motor vehicle
and hydrogen sold to a qualified environmental technology manufacturer producer or processor,
subject to statutory requirements. Requires the gross proceeds of sales and gross income derived
from the sales of certain machinery and equipment used to transport hydrogen or employed in
connection with hydrogen pipelines to be deducted from the tax base for the retail classification of
TPT.
Background
The gross proceeds of sales or gross income derived from sales of certain tangible personal
property is exempt from the retail classification of TPT and the storage, use or consumption of the
tangible personal property is exempt from use tax, including: 1) the sale of natural gas used to
propel a motor vehicle; and 2) coal, petroleum, coke, natural gas, virgin fuel oil and electricity sold
to a qualified environmental technology manufacturer, producer or processor and directly used or
consumed in generating or providing on-site power or energy for outlined purposes.
The gross proceeds of sales or gross income derived from sales of certain tangible personal
property must be deducted from the retail classification of TPT and the storage, use or consumption
of the tangible personal property is exempt from use tax, including: 1) pipes or valves four inches
in diameter or larger used to transport oil, natural gas, artificial gas, water or coal slurry; and 2)
machinery and equipment that is employed in connection with mining, natural gas pipelines,
producing or transmitting electricity or research and development and that is used directly to meet
or exceed outlined federal and state rules and (A.R.S §§ 42-5061 and 42-5159).
Use tax does not apply to the purchase price of electricity, natural gas or liquefied
petroleum gas by: 1) a qualified manufacturing or smelting business, including gas transportation
services; or 2) a business that operates a certified international operations center in Arizona. Gas
transportation services is the service 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 the
utility (A.R.S. § 42-5159). FACT SHEET – Amended
S.B. 1322
Page 2
The Joint Legislative Budget Committee issued a fiscal note on S.B. 1599, an identical
measure, which estimates that the legislation would not result in a revenue loss to the state General
Fund but if the hydrogen industry in Arizona is developed, the state General Fund would forego
future tax collections (JLBC fiscal note).
Provisions
1. Exempts, from the TPT imposed on the retail classification:
a) sales of hydrogen used to propel a motor vehicle; and
b) hydrogen sold to a qualified environmental technology manufacturer producer or processor
that is directly used or consumed in generating or providing on-site power or energy solely
for environmental technology manufacturing, producing or processing or environmental
protection.
2. Requires, to be deducted from the tax base for the retail classification of TPT, the gross
proceeds of sales and gross income derived from sales of:
a) pipes or valve four inches in diameter or larger used to transport hydrogen; and
b) machinery or equipment employed in connection with hydrogen pipelines that is used
directly to meet or exceed outlined federal and state rules and regulations.
3. Exempts, from use tax, the storage, use or consumption of:
a) hydrogen used to propel a motor vehicle;
b) hydrogen purchased by a qualified environmental technology manufacturer producer or
processor that is directly used or consumed in generating or providing on-site power or
energy solely for environmental technology manufacturing, producing or processing or
environmental protection;
c) pipes or valve four inches in diameter or larger used to transport hydrogen; and
d) machinery or equipment employed in connection with hydrogen pipelines that is used
directly to meet or exceed outlined federal and state rules and regulations.
4. Exempts, from use tax, gas diverted from a pipeline by a person engaged in the business of:
a) operating a hydrogen pipeline, and used or consumed for the sole purpose of fueling
compressor equipment that pressurizes the pipeline; and
b) converting hydrogen into liquefied hydrogen, and used or consumed for the sole purpose
of fueling compressor equipment used in the conversion process.
5. Expands the definition of gas transportation services to include the transportation of hydrogen
to a hydrogen customer or to a hydrogen distribution facility if the hydrogen was purchased
from a supplier other than a utility.
6. Classifies, as not a sale of hydrogen to the operator of a pipeline, gas diverted from a pipeline
by a person engaged in the business of:
a) operating a hydrogen pipeline for the sole purpose of fueling compressor equipment to
pressurize the pipeline; or
b) converting hydrogen into liquefied hydrogen for the sole purpose of fueling compressor
equipment used in the conversion process. FACT SHEET – Amended
S.B. 1322
Page 3
7. Excludes, from the application of use tax, the purchase price of hydrogen by a qualified
manufacturing or smelting business.
8. Applies the modified exemption and deduction to taxable periods beginning on or after the
first day of the month following the general effective date.
9. Contains a technical conditional enactment.
10. Makes technical and conforming changes.
11. Becomes effective on the general effective date or later, subject to the provisions of the
conditional enactment.
Amendments Adopted by the House of Representatives
• Adopted the strike-everything amendment relating to a hydrogen TPT exemption.
House Action
WM 3/23/22 DPA/SE 6-4-0-0
3
rd
Read 6/22/22 34-25-1
Prepared by Senate Research
June 23, 2022
MG/AN/slp