Fiscal Note
BILL # HB 2447 TITLE: TPT; exemption; motor vehicle manufacturers
SPONSOR: Martinez STATUS: As Introduced
PREPARED BY: Jordan Johnston
Description
Under current law, sales of motor vehicles to non-residents of Arizona are exempt from Transaction Privilege Tax (TPT) if
the dealer ships or delivers the vehicle out of state or if the vehicle, trailer, or semitrailer has a gross vehicle weight of
more than 10,000 pounds and is used to transport property for interstate commerce. The bill would expand the
exemption for sales in which the Arizona-based manufacturer ships or delivers the vehicle out of state or if the vehicle is
sold in Arizona to a non-resident by the manufacturer located in the state and the purchaser has obtained a special 10-
day registration permit.
Estimated Impact
We estimate that the state General Fund revenue reduction resulting from the exemption expansion would be $17.7
million starting in FY 2024 based on the current level of sales. As the Arizona vehicle manufacturing market grows over
time, the revenue loss would be greater. The loss above $17.7 million, however, would be considered foregone revenue
since we are not collecting those monies now.
The Department of Revenue (DOR) has not yet provided an estimate of the bill's impact.
Analysis
Under A.R.S. 42-5061(A)(14), sales of motor vehicles to non-residents of Arizona for use outside of Arizona are exempt
from TPT if the dealer ships or delivers the motor vehicle out of the state. DOR refers to this exemption as part of
deduction 541. This deduction applies to both state and local taxes.
The bill would expand deduction 541, by permitting non-residents purchasing a motor vehicle to receive a TPT deduction
if: 1) the manufacturer ships or delivers the vehicle out of state to a non-resident, or 2) the non-resident purchases the
vehicle directly from a manufacturer located in the state and the non-resident obtained a special 10-day registration
permit. The bill further establishes a new 10-day special registration for a vehicle purchased by a non-resident. Purchases
made by Arizona residents do not qualify for current deduction 541 exemptions nor would they qualify under the bill.
The state of Arizona has a small but growing number of motor vehicle manufacturers based within the state. According to
our research, there are 3 manufacturers based in Arizona that are currently selling vehicles, with another manufacturer
expected to begin sales in the near future. Non-residents purchasing vehicles from these new manufacturers would
qualify for the expanded deduction 541 either by having it shipped to them out-of-state or picking it up in Arizona with a
10-day registration and driving it back to their home state. We believe the non-residents that would be eligible for this
new expansion of deduction 541 are currently unable to receive other qualifying deductions. Therefore, any purchases
made by non-residents of vehicles manufactured in Arizona that received the expanded deduction 541 would represent a
loss of current revenue.
(Continued) - 2 -
Since Arizona car manufacturers have only been selling vehicles on the market for a few years, we have limited data on
sales levels. In CY 2022, based on reported and projected sales, we estimate Arizona car manufacturers generated
approximately $600 million in vehicle sales revenue. Furthermore, we assume that approximately 80% of all vehicle sales
from Arizona car manufacturers are to non-residents who would be eligible for the expanded deduction 541. Under such
assumptions, we estimate that the state General Fund revenue reduction resulting from the exemption expansion would
be $17.7 million starting in FY 2024. The reduction in the 0.6% Education Sales Tax revenues would be an additional $2.9
million.
Local Government Impact
By statute, the state is required to share a certain percentage of state TPT with counties and cities. Under the retail
classification, counties and cities receive 16.2% and 10.0%, respectively, of state TPT. Therefore, under the bill, the
distribution of state TPT to counties and cities would be reduced by $(3.9) million and $(2.4) million, respectively. In
addition, municipalities would lose an estimated $(10.5) million in local sales tax revenues.
2/3/23