A.R.S. tit. 43 ch. 11 — Arizona Revised Statutes Title 43 Chapter 11 — Corporations

43-1101. Definitions In this chapter, unless the context otherwise requires: 1. "Arizona gross income" of a corporation means its federal taxable income for the taxable year. 2. "Arizona taxable income" of a corporation means its Arizona gross income adjusted by the modifications specified in article 3 of this chapter. 3. "Domestic corporation" means a corporation created or organized in the United States or under the laws of the United States or of any state of the United States or the District of Columbia. 4. "Federal taxable income" means the taxable income of a corporation computed pursuant to the internal revenue code. 5. "Foreign corporation" means any of the following: (a) A corporation which is not a domestic corporation. (b) A domestic corporation with less than twenty per cent of its property, payroll and sales in the United States for the three year period ending with the close of the taxable year of the corporation preceding the current taxable year, or for such part of that period as the corporation has been in existence. (c) A domestic corporation that has derived eighty per cent or more of its federal gross income for the three year period immediately preceding the close of the taxable year, or for such part of that period as the corporation has been in existence, from sources in the Commonwealth of Puerto Rico or any other possession of the United States except the Virgin Islands if sixty per cent, for taxable years beginning in calendar year 1984, or sixty-five per cent, for taxable years beginning after calendar year 1984, or more of the domestic corporation's federal gross income for that period, or part of that period as the corporation has been in existence, was derived from the active conduct of a trade or business in the Commonwealth of Puerto Rico or any other possession of the United States except the Virgin Islands. 6. "Net income" means Arizona taxable income. 7. "Person" and "taxpayer" means a corporation. 43-1111. Tax rates for corporations There shall be levied, collected and paid for each taxable year upon the entire Arizona taxable income of every corporation, unless exempt under section 43-1126 or 43-1201 or as otherwise provided in this title or by law, taxes in an amount of the greater of fifty dollars or: 1. For taxable years beginning through December 31, 2013, 6.968 per cent of net income. 2. For taxable years beginning from and after December 31, 2013 through December 31, 2014, 6.5 per cent of net income. 3. For taxable years beginning from and after December 31, 2014 through December 31, 2015, 6.0 per cent of net income. 4. For taxable years beginning from and after December 31, 2015 through December 31, 2016, 5.5 per cent of net income. 5. For taxable years beginning from and after December 31, 2016, 4.9 per cent of net income. 43-1121. Additions to Arizona gross income; corporations In computing Arizona taxable income for a corporation, the following amounts shall be added to Arizona gross income: 1. The amount of interest income received on obligations of any state, territory or possession of the United States, or any political subdivision thereof, located outside this state, reduced, for taxable years beginning from and after December 31, 1996, by the amount of any interest on indebtedness and other related expenses that were incurred or continued to purchase or carry those obligations and that are not otherwise deducted or subtracted in arriving at Arizona gross income. 2. The excess of a partner's share of partnership taxable income required to be included under chapter 14, article 2 of this title over the income required to be reported under section 702(a)(8) of the internal revenue code. 3. The excess of a partner's share of partnership losses determined pursuant to section 702(a)(8) of the internal revenue code over the losses allowable under chapter 14, article 2 of this title. 4. The amount of any depreciation allowance allowed pursuant to section 167(a) of the internal revenue code to the extent not previously added. 5. The amount of dividend income received from corporations and allowed as a deduction pursuant to sections 243, 245, 245A and 250(a)(1)(B) of the internal revenue code. 6. Taxes that are based on income paid to states, local governments or foreign governments and that were deducted in computing federal taxable income. 7. Expenses and interest relating to tax-exempt income on indebtedness incurred or continued to purchase or carry obligations the interest on which is wholly exempt from the tax imposed by this title. Financial institutions, as defined in section 6-101, shall be governed by section 43-961, paragraph 2. 8. Commissions, rentals and other amounts paid or accrued to a domestic international sales corporation controlled by the payor corporation if the domestic international sales corporation is not required to report its taxable income to this state because its income is not derived from or attributable to sources within this state. If the domestic international sales corporation is subject to article 4 of this chapter, the department shall prescribe by rule the method of determining the portion of the commissions, rentals and other amounts that are paid or accrued to the controlled domestic international sales corporation and that shall be deducted by the payor. For the purposes of this paragraph, "control" means direct or indirect ownership or control of fifty percent or more of the voting stock of the domestic international sales corporation by the payor corporation. 9. The amount of net operating loss taken pursuant to section 172 of the internal revenue code. 10. The amount of exploration expenses determined pursuant to section 617 of the internal revenue code to the extent that they exceed $75,000 and to the extent that the election is made to defer those expenses not in excess of $75,000. 11. Amortization of costs incurred to install pollution control devices and deducted pursuant to the internal revenue code or the amount of deduction for depreciation taken pursuant to the internal revenue code on pollution control devices for which an election is made pursuant to section 43-1129. 12. The amount of depreciation or amortization of costs of child care facilities deducted pursuant to section 167 or 188 of the internal revenue code for which an election is made to amortize pursuant to section 43-1130. 13. The loss of an insurance company that is exempt under section 43-1201 to the extent that it is included in computing Arizona gross income on a consolidated return pursuant to section 43-947. 14. The amount by which the depreciation or amortization computed under the internal revenue code with respect to property that is pollution control equipment for which a credit was taken before taxable year 2026 exceeds the amount of depreciation or amortization computed pursuant to the internal revenue code on the Arizona adjusted basis of the property. 15. The amount by which the adjusted basis computed under the internal revenue code with respect to property that is pollution control equipment for which a credit was taken before taxable year 2026 and that is sold or otherwise disposed of during the taxable year exceeds the adjusted basis of the property computed under the section in which the credit was taken. 16. The deduction referred to in section 1341(a)(4) of the internal revenue code for restoration of a substantial amount held under a claim of right. 17. The amount by which a capital loss carryover allowable pursuant to section 1341(b)(5) of the internal revenue code exceeds the capital loss carryover allowable pursuant to section 43-1130.01, subsection F. 18. Any wage expenses deducted pursuant to the internal revenue code for which a credit is claimed under section 43-1175 and representing net increases in qualified employment positions for employment of temporary assistance for needy families recipients. 19. Any amount of expenses that were deducted pursuant to the internal revenue code and for which a credit is claimed under section 43-1178. 20. Any amount deducted pursuant to section 170 of the internal revenue code representing contributions to a school tuition organization for which a credit is claimed under section 43-1183 or 43-1184. 21. If a subtraction is or has been taken by the taxpayer under section 43-1124, in the current or a prior taxable year for the full amount of eligible access expenditures paid or incurred to comply with the requirements of the Americans with disabilities act of 1990 (P.L. 101-336) or title 41, chapter 9, article 8, any amount of eligible access expenditures that is recognized under the internal revenue code, including any amount that is amortized according to federal amortization schedules, and that is included in computing Arizona taxable income for the current taxable year. 22. For taxable years beginning from and after December 31, 2017, the amount of any net capital loss included in Arizona gross income for the taxable year that is derived from the exchange of one kind of legal tender for another kind of legal tender. For the purposes of this paragraph: (a) "Legal tender" means a medium of exchange, including specie, that is authorized by the United States Constitution or Congress to pay debts, public charges, taxes and dues. (b) "Specie" means coins having precious metal content. 23. The amount of any deduction that is claimed in computing Arizona gross income and that represents a donation of a school site for which a credit is claimed under section 43-1181. 24. The amount of any motion picture production costs that was deducted pursuant to the internal revenue code for which a tax credit is claimed under section 43-1165. 25. For taxable years beginning from and after December 31, 2025, the amount of the special depreciation allowance for qualified production property allowed pursuant to section 168(n) of the internal revenue code for the taxable year to the extent not previously added. 43-1122. Subtractions from Arizona gross income; corporations In computing Arizona taxable income for a corporation, the following amounts shall be subtracted from Arizona gross income: 1. The excess of a partner's share of income required to be included under section 702(a)(8) of the internal revenue code over the income required to be included under chapter 14, article 2 of this title. 2. The excess of a partner's share of partnership losses determined pursuant to chapter 14, article 2 of this title over the losses allowable under section 702(a)(8) of the internal revenue code. 3. The amount allowed by section 43-1025 for contributions during the taxable year of agricultural crops to charitable organizations. 4. The portion of any wages or salaries paid or incurred by the taxpayer for the taxable year that is equal to the amount of the federal work opportunity credit, the empowerment zone employment credit, the credit for employer paid social security taxes on employee cash tips and the Indian employment credit that the taxpayer received under sections 45A, 45B, 51(a) and 1396 of the internal revenue code. 5. With respect to property that is sold or otherwise disposed of during the taxable year by a taxpayer that complied with section 43-1121, paragraph 4 with respect to that property, the amount of depreciation that has been allowed pursuant to section 167(a) of the internal revenue code to the extent that the amount has not already reduced Arizona taxable income in the current taxable year or prior taxable years. 6. With respect to a financial institution as defined in section 6-101, expenses and interest relating to tax-exempt income disallowed pursuant to section 265 of the internal revenue code. 7. Dividends received from another corporation owned or controlled directly or indirectly by a recipient corporation. For the purposes of this paragraph, "control" means direct or indirect ownership or control of fifty percent or more of the voting stock of the payor corporation by the recipient corporation. Dividends shall have the meaning provided in section 316 of the internal revenue code. This subtraction shall apply without regard to section 43-961, paragraph 2 and article 4 of this chapter. 8. Interest income received on obligations of the United States. 9. The amount of dividend income from foreign corporations. For the purposes of this paragraph, gross up income as described in section 78 of the internal revenue code, the income as described in section 951A of the internal revenue code and subpart F income as defined in section 952 of the internal revenue code shall be considered foreign dividends. 10. The amount of net operating loss allowed by section 43-1123. 11. The amount of any state income tax refunds received that were included as income in computing federal taxable income. 12. The amount of expense recapture included in income pursuant to section 617 of the internal revenue code for mine exploration expenses. 13. The amount of deferred exploration expenses allowed by section 43-1127. 14. The amount of exploration expenses related to the exploration of oil, gas or geothermal resources, computed in the same manner and on the same basis as a deduction for mine exploration pursuant to section 617 of the internal revenue code. This computation is subject to the adjustments contained in section 43-1121, paragraph 10 and paragraphs 12 and 13 of this section relating to exploration expenses. 15. The amortization of pollution control devices allowed by section 43-1129. 16. The amount of amortization of the cost of child care facilities pursuant to section 43-1130. 17. The amount of income from a domestic international sales corporation required to be included in the income of its shareholders pursuant to section 995 of the internal revenue code. 18. The income of an insurance company that is exempt under section 43-1201 to the extent that it is included in computing Arizona gross income on a consolidated return pursuant to section 43-947. 19. The amount by which a capital loss carryover allowable pursuant to section 43-1130.01, subsection F exceeds the capital loss carryover allowable pursuant to section 1341(b)(5) of the internal revenue code. 20. An amount equal to the depreciation allowable pursuant to section 167(a) of the internal revenue code for the taxable year computed as if the election described in section 168(k)(7) of the internal revenue code had been made for each applicable class of property in the year the property was placed in service. 21. The amount of eligible access expenditures paid or incurred during the taxable year to comply with the requirements of the Americans with disabilities act of 1990 (P.L. 101-336) or title 41, chapter 9, article 8 as provided by section 43-1124. 22. For taxable years beginning from and after December 31, 2017, the amount of any net capital gain included in Arizona gross income for the taxable year that is derived from the exchange of one kind of legal tender for another kind of legal tender. For the purposes of this paragraph: (a) "Legal tender" means a medium of exchange, including specie, that is authorized by the United States Constitution or Congress to pay debts, public charges, taxes and dues. (b) "Specie" means coins having precious metal content. 23. With respect to a public service corporation operating a water system or sewage disposal facility, the amount of monies or property received as a contribution in aid of construction. For the purposes of this paragraph: (a) "Contribution in aid of construction" means any amount of monies or other property contributed to a public service corporation that provides water or sewage disposal services to the extent that the purpose of the contribution is to provide for expanding, improving or replacing the public service corporation's water system or sewage disposal facilities, including any amount of monies or other property contributed to a public service corporation for a water system or sewage disposal facility subject to a contingent obligation to repay the amount, in whole or in part, to the contributor. (b) "Public service corporation" means a public service corporation as defined in article XV, section 2, Constitution of Arizona, that is regulated by the corporation commission. 43-1123. Net operating loss; definition A. For the purposes of this section, "net operating loss" means: 1. In the case of a taxpayer who has a net operating loss for the taxable year within the meaning of section 172(c) of the internal revenue code, the amount of the net operating loss increased by the subtractions specified in section 43-1122, except the subtraction allowed in section 43-1122, paragraph 10, and reduced by the additions specified in section 43-1121. 2. In the case of a taxpayer not described in paragraph 1 of this subsection, any excess of the subtractions specified in section 43-1122, except the subtraction allowed in section 43-1122, paragraph 10, over the sum of the Arizona gross income plus the additions specified in section 43-1121. B. If for any taxable year the taxpayer has a net operating loss: 1. Such net operating loss shall be a net operating loss carryover for: (a) Each of the five succeeding taxable years for net operating losses arising in taxable periods through December 31, 2011. (b) Each of the twenty succeeding taxable years for net operating losses arising in taxable periods beginning from and after December 31, 2011. 2. The carryover in the case of each such succeeding taxable year, other than the first succeeding taxable year, shall be the excess, if any, of the amount of such net operating loss over the sum of the taxable income for each of the intervening years computed by determining the net operating loss subtraction for each intervening taxable year, without regard to such net operating loss or to the net operating loss for any succeeding taxable year. C. The amount of the net operating loss subtraction shall be the aggregate of the net operating loss carryovers to the taxable year. 43-1124. Americans with disabilities act access expenditures A. For taxable years beginning from and after December 31, 2017, in computing Arizona taxable income, a subtraction is allowed under section 43-1122, paragraph 21 for eligible business access expenditures paid or incurred by the taxpayer during the taxable year in order to comply with the requirements of the Americans with disabilities act of 1990 (P.L. 101-336) or title 41, chapter 9, article 8 by retrofitting developed real property that was originally placed in service at least ten years before the current taxable year. B. For the purposes of this section, eligible business access expenditures include reasonable and necessary amounts paid or incurred to: 1. Remove any barriers that prevent a business from being accessible to or usable by individuals with disabilities. 2. Provide qualified interpreters or other methods of making audio materials available to hearing-impaired individuals. 3. Provide qualified readers, taped texts and other effective methods of making visually delivered materials available to individuals with visual impairments. 4. Acquire or modify equipment or devices for individuals with disabilities. 5. Provide other similar services, modifications, materials or equipment. C. A taxpayer that has been cited for noncompliance with the Americans with disabilities act of 1990 or title 41, chapter 9, article 8 by either federal or state enforcement officials is ineligible for a subtraction under this section for any expenditure required to cure the cited violation. 43-1125. Domestic international sales corporation A domestic international sales corporation, commonly referred to as "disc", as defined in section 992 of the internal revenue code shall be taxed pursuant to the provisions of this chapter without regard to the provisions of sections 991 through 996 of the internal revenue code. 43-1126. Small business corporation; election as to taxable status; return; termination A. A small business corporation which makes an election for a taxable year pursuant to subtitle A, chapter 1, subchapter S of the internal revenue code is not subject to the taxes imposed by this chapter for such year but only to the extent such corporation is not subject to federal income taxes. B. An electing small business corporation shall file with the department an annual return, in a form prescribed by the department, on or before the fifteenth day of the third month following the close of the taxable year. The return shall show the name and address of each stockholder of the corporation and their respective pro rata share of income or loss. The allocation and apportionment of income of a small business corporation which has nonresident stockholders shall be made pursuant to article 4 of this chapter. C. An election under this section is effective for the taxable year for which it is made and for all succeeding taxable years unless the corporation terminates its election pursuant to section 1372 of the internal revenue code. 43-1127. Deferred exploration expenses The amount of exploration expenses added to Arizona gross income pursuant to section 43-1121, paragraph 10 may be subtracted on a ratable basis as the units of produced ores or minerals discovered or explored by reason of such expenditures are sold. An election made for any taxable year shall be binding for that year. 43-1129. Amortization of expenses incurred in acquisition of pollution control devices; depreciation A. Any taxpayer may elect to amortize the adjusted basis of any device, machinery or equipment for the collection and control at the source of atmospheric and water pollutants and contaminants based upon a period of sixty months. In computing Arizona taxable income, such amortization shall be allowed as a subtraction ratably over the period allowed under this subsection beginning with the month in which such device, machinery or equipment is completed or acquired and is placed in service by the taxpayer. This election shall be indicated by the taxpayer in an appropriate statement in the taxpayer's income tax return for the taxable year of the acquisition or completion and placement in service of such devices, machinery or equipment. An election to discontinue amortization with respect to the remainder of the amortization period is permitted and shall be indicated by an appropriate statement in the taxpayer's income tax return for the taxable year of discontinuance. B. If the taxpayer does not elect to amortize pursuant to subsection A, there shall be allowed a deduction for normal exhaustion, wear and tear of property. The amount of such deduction shall be computed pursuant to the provisions of section 167 of the internal revenue code. C. In determining the adjusted basis for the purposes of subsection A, such device, machinery or equipment upon certification by the department of environmental quality as a device, machinery or equipment for the collection and control at the source of atmospheric and water pollutants and contaminants shall include only an amount that is properly attributable to the construction, reconstruction, remodeling, installation or acquisition of such device, machinery or equipment as certified by the department of environmental quality. 43-1130. Amortization of the cost of child care facilities A. At the election of any corporate taxpayer operating a child care facility for the purpose of making profit, any expenditure made to purchase, construct, renovate or remodel child care facilities or equipment shall be allowable as a subtraction ratably over a period of sixty months, beginning with the month in which the property is placed in service. B. At the election of a taxpayer operating a child care facility within this state primarily for the children of employees of the taxpayer, any expenditure made to acquire, construct, renovate or remodel the child care facility or equipment is allowable as a subtraction ratably over a period of twenty-four months beginning with the month in which the property is placed in service. C. The subtraction provided by this section shall be in lieu of any allowance for the exhaustion, wear and tear of such property used in a trade or business or of property held for the production of income, including a reasonable allowance for obsolescence pursuant to section 167 or 188 of the internal revenue code. D. In the case of a partnership, joint venture or other pooled investment or joint ownership of child care property each participating corporate owner may claim the pro rata share of the subtraction based on the corporate ownership interest in the property. The total of the subtractions allowed all such owners of the property shall not exceed the amount that would have been allowed for a sole owner of the property. 43-1130.01. Restoration of a substantial amount held under claim of right; computation of tax A. This section applies if: 1. An item of income was included in gross income for a prior taxable year or years because it appeared that the taxpayer had an unrestricted right to the item. 2. A deduction would be allowable under the internal revenue code or this title for the taxable year, without application of section 1341(b)(3) of the internal revenue code or section 43-1121, paragraph 16, because after the close of the prior taxable year or years it was established that the taxpayer did not have an unrestricted right to all or part of the item. 3. The amount of the deduction exceeds $3,000. B. If all of the conditions in subsection A of this section apply, the tax imposed by this chapter for the taxable year is an amount equal to the tax for the taxable year computed without the deduction, minus the decrease in tax under this chapter for the prior taxable year or years that would result solely from excluding the item or portion of the item from gross income for the prior taxable year or years. C. If the decrease in tax exceeds the tax imposed by this chapter for the taxable year, computed without the deduction, the excess is considered to be a payment of tax on the last day prescribed by law for the payment of tax for the taxable year and shall be refunded or credited in the same manner as if it were an overpayment for the taxable year. D. Subsection B of this section does not apply to any deduction that is allowable with respect to an item that was included in gross income by reason of the sale or other disposition of stock in trade of the taxpayer, or other property of a kind that would properly have been included in the inventory of the taxpayer on hand at the close of the prior taxable year, or property that is held by the taxpayer primarily for sale to customers in the ordinary course of the taxpayer's trade or business. This subsection does not apply if the deduction arises out of refunds or repayments with respect to rates made by a regulated public utility that is listed in section 7701(a)(33)(A) through (H) of the internal revenue code, if the refunds or repayments are: 1. Required to be made by the government, political subdivision, agency or instrumentality referred to in that section. 2. Required to be made by an order of a court. 3. Made in settlement of litigation or under threat or imminence of litigation. E. If the exclusion under subsection B of this section results in: 1. A net operating loss for the prior taxable year or years for purposes of computing the decrease in tax for the prior year or years under subsection B of this section: (a) The loss shall be carried over under this chapter to the same extent and in the same manner as provided under section 43-1123, and under prior law. (b) A carryover beyond the taxable year may not be taken into account. 2. A capital loss for the prior taxable year or years, for purposes of computing the decrease in tax for the prior taxable year or years under subsection B of this section: (a) The loss shall be: (i) Carried over under this chapter to the same extent and in the same manner as was provided under prior law for taxable years beginning on or before December 31, 1987. (ii) Carried back and carried over to the same extent and in the same manner as provided under section 1212 of the internal revenue code for taxable years beginning from and after December 31, 1987. (b) A carryover beyond the taxable year may not be taken into account. F. In computing Arizona taxable income for taxable years subsequent to the current taxable year, the net operating loss or capital loss determined in subsection E of this section shall be taken into account to the same extent and in the same manner as a net operating loss or capital loss sustained for prior taxable years. 43-1131. Definitions As used in this article, unless the context otherwise requires: 1. "Business income" means income arising from transactions and activity in the regular course of the taxpayer's trade or business and includes income from tangible and intangible property if the acquisition, management and disposition of the property constitute integral parts of the taxpayer's regular trade or business operations. 2. "Commercial domicile" means the principal place from which the trade or business of the taxpayer is directed or managed. 3. "Compensation" means wages, salaries, commissions and any other form of remuneration paid to employees for personal services. 4. "Nonbusiness income" means all income other than business income. 5. "Sales" means all gross receipts of the taxpayer not allocated under this article. 6. "State" means any state of the United States, the District of Columbia, the Commonwealth of Puerto Rico, any territory or possession of the United States and any foreign country or political subdivision thereof. 7. "Taxpayer" means any person subject to the tax imposed by this title. 43-1132. Taxpayers liable; exceptions to allocation and apportionment; examination of evidence of income and expenses A. Any taxpayer having income from business activity which is taxable both within and without this state shall allocate and apportion net income as provided in this article, but net income of a foreign corporation which is not itself subject to the tax imposed by this title shall not be allocated or apportioned to this state. B. For the purposes of computing Arizona taxable income under this title, expenses which are attributable to income of a foreign corporation which is not itself subject to the tax imposed by this title shall not be allocated or apportioned to this state. C. In the case of an audit performed on a taxpayer by the department, the department may examine any books, papers, records or memoranda of the taxpayer relating to income and expenses of the taxpayer both within and without the United States. The information provided by the taxpayer is subject to title 42, chapter 2, article 1. D. Subsections A and B of this section do not apply to a taxpayer that has elected to file a consolidated return pursuant to section 43-947. An Arizona affiliated group, as defined in section 43-947, that has income from business activity that is taxable both in and outside this state shall allocate and apportion its net income as provided by this article. E. The net income of a taxpayer that would otherwise meet the requirements of 15 United States Code sections 381 through 384 but that is subject to the tax imposed by this title solely because of the presence of consignment inventory in this state shall not be allocated or apportioned to this state if all of the following conditions are met: 1. The presence of the consignment inventory is a requirement of the taxpayer's contract with its customer. 2. The consignment inventory is located on the customer's property. 43-1133. Taxability in other state For purposes of allocation and apportionment of income under this article, a taxpayer is taxable in another state if either of the following applies: 1. In that state he is subject to a net income tax, a franchise tax measured by net income, a franchise tax for the privilege of doing business or a corporate stock tax. 2. That state has jurisdiction to subject the taxpayer to a net income tax regardless of whether, in fact, the state does or does not. 43-1134. Allocation of nonbusiness income Rents and royalties from real or tangible personal property, capital gains, interest, dividends or patent or copyright royalties, to the extent that they constitute nonbusiness income, shall be allocated as provided in sections 43-1135 through 43-1138. 43-1135. Net rents and royalties A. Net rents and royalties from real property located in this state are allocable to this state. B. Net rents and royalties from tangible personal property are allocable to this state either: 1. If and to the extent that the property is utilized in this state. 2. In their entirety if the taxpayer's commercial domicile is in this state and the taxpayer is not organized under the laws of or taxable in the state in which the property is utilized. C. The extent of utilization of tangible personal property in a state is determined by multiplying the rents and royalties by a fraction, the numerator of which is the number of days of physical location of the property in the state during the rental or royalty period in the taxable year and the denominator of which is the number of days of physical location of the property everywhere during all rental or royalty periods in the taxable year. If the physical location of the property during the rental or royalty period is unknown or unascertainable by the taxpayer, tangible personal property is utilized in the state in which the property was located at the time the rental or royalty payer obtained possession. 43-1136. Capital gains and losses A. Capital gains and losses from sales of real property located in this state are allocable to this state. B. Capital gains and losses from the sales of tangible personal property are allocable to this state if either: 1. The property had a situs in this state at the time of the sale. 2. The taxpayer's commercial domicile is in this state and the taxpayer is not taxable in the state in which the property had a situs. C. Capital gains and losses from sales of intangible personal property are allocable to this state if the taxpayer's commercial domicile is in this state. 43-1137. Interest and dividends Interest and dividends are allocable to this state if the taxpayer's commercial domicile is in this state unless the interest or dividend constitutes business income. 43-1138. Patent and copyright royalties A. Patent and copyright royalties are allocable to this state either: 1. If and to the extent that the patent or copyright is utilized by the payer in this state. 2. If and to the extent that the patent or copyright is utilized by the payer in a state in which the taxpayer is not taxable and the taxpayer's commercial domicile is in this state. B. A patent is utilized in a state to the extent that it is employed in production, fabrication, manufacturing or other processing in the state or to the extent that a patented product is produced in the state. If the basis of receipts from patent royalties does not permit allocation to states or if the accounting procedures do not reflect states of utilization, the patent is utilized in the state in which the taxpayer's commercial domicile is located. C. A copyright is utilized in a state to the extent that printing or other publication originates in the state. If the basis of receipts from copyright royalties does not permit allocation to states or if the accounting procedures do not reflect states of utilization, the copyright is utilized in the state in which the taxpayer's commercial domicile is located. 43-1139. Allocation of business income A. Except as provided in subsection B of this section, the taxpayer shall elect to apportion all business income to this state for taxable years beginning from and after: 1. December 31, 2006 through December 31, 2007 by either: (a) Multiplying the income by a fraction, the numerator of which is the property factor plus the payroll factor plus two times the sales factor, and the denominator of which is four. (b) Multiplying the income by a fraction, the numerator of which is two times the property factor plus two times the payroll factor plus six times the sales factor, and the denominator of which is ten. 2. December 31, 2007 through December 31, 2008 by either: (a) Multiplying the income by a fraction, the numerator of which is the property factor plus the payroll factor plus two times the sales factor, and the denominator of which is four. (b) Multiplying the income by a fraction, the numerator of which is one and one-half times the property factor plus one and one-half times the payroll factor plus seven times the sales factor, and the denominator of which is ten. 3. December 31, 2008 through December 31, 2013 by either: (a) Multiplying the income by a fraction, the numerator of which is the property factor plus the payroll factor plus two times the sales factor, and the denominator of which is four. (b) Multiplying the income by a fraction, the numerator of which is the property factor plus the payroll factor plus eight times the sales factor, and the denominator of which is ten. 4. December 31, 2013 through December 31, 2014 by either: (a) Multiplying the income by a fraction, the numerator of which is the property factor plus the payroll factor plus two times the sales factor, and the denominator of which is four. (b) Multiplying the income by a fraction, the numerator of which is seven and one-half times the property factor plus seven and one-half times the payroll factor plus eighty-five times the sales factor, and the denominator of which is one hundred. 5. December 31, 2014 through December 31, 2015 by either: (a) Multiplying the income by a fraction, the numerator of which is the property factor plus the payroll factor plus two times the sales factor, and the denominator of which is four. (b) Multiplying the income by a fraction, the numerator of which is five times the property factor plus five times the payroll factor plus ninety times the sales factor, and the denominator of which is one hundred. 6. December 31, 2015 through December 31, 2016 by either: (a) Multiplying the income by a fraction, the numerator of which is the property factor plus the payroll factor plus two times the sales factor, and the denominator of which is four. (b) Multiplying the income by a fraction, the numerator of which is two and one-half times the property factor plus two and one-half times the payroll factor plus ninety-five times the sales factor, and the denominator of which is one hundred. 7. December 31, 2016 by either: (a) Multiplying the income by a fraction, the numerator of which is the property factor plus the payroll factor plus two times the sales factor, and the denominator of which is four. (b) Multiplying the income by the sales factor. B. All business income of a taxpayer engaged in air commerce shall be apportioned to this state by multiplying the income by a fraction, the numerator of which is the revenue aircraft miles flown within this state for flights beginning or ending in this state and the denominator of which is the total revenue aircraft miles flown by the taxpayer's aircraft everywhere. This subsection applies to each taxpayer, including a combined group filing a combined return or an affiliated group electing to file a consolidated return under section 43-947, if fifty per cent or more of that taxpayer's gross income is derived from air commerce. For the purposes of this subsection: 1. "Air commerce" means transporting persons or property for hire by aircraft in interstate, intrastate or international transportation. 2. "Revenue aircraft miles flown" has the same meaning prescribed by the United States department of transportation uniform system of accounts and reports for large certificated air carriers (14 Code of Federal Regulations part 241). 43-1140. Property factor The property factor is a fraction, the numerator of which is the average value of the taxpayer's real and tangible personal property owned or rented and used in this state during the tax period and the denominator of which is the average value of all the taxpayer's real and tangible personal property owned or rented and used during the tax period other than real and tangible personal property used by either: 1. A foreign corporation which is not itself subject to the tax imposed by this title, unless the corporation is subject to the tax as a member of an Arizona affiliated group, as defined in section 43-947. 2. An insurance company that is exempt from tax under section 43-1201. 43-1141. Valuation of property Property owned by the taxpayer is valued at its original cost. Property rented by the taxpayer is valued at eight times the net annual rental rate. Net annual rental rate is the annual rental rate paid by the taxpayer less any annual rental rate received by the taxpayer from subrentals. 43-1142. Average value of property The average value of property shall be determined by averaging the values at the beginning and ending of the tax period, but the department may require the averaging of monthly values during the tax period if reasonably required to reflect properly the average value of the taxpayer's property. 43-1143. Payroll factor The payroll factor is a fraction, the numerator of which is the total amount paid in this state during the tax period by the taxpayer for compensation, and the denominator of which is the total compensation paid everywhere during the tax period other than compensation paid by either: 1. A foreign corporation which is not itself subject to the tax imposed by this title, unless the corporation is subject to the tax as a member of an Arizona affiliated group, as defined in section 43-947. 2. An insurance company that is exempt from tax under section 43-1201. 43-1144. Compensation paid in state Compensation is paid in this state if any of the following apply: 1. The individual's service is performed entirely within this state. 2. The individual's service is performed both within and without the state, but the service performed without the state is incidental to the individual's service within the state. 3. Some of the service is performed in the state and the base of operations or, if there is no base of operations, the place from which the service is directed or controlled is in the state, or the base of operations or the place from which the service is directed or controlled is not in any state in which some part of the service is performed, but the individual's residence is in this state. 43-1145. Sales factor The sales factor is a fraction, the numerator of which is the total sales of the taxpayer in this state during the tax period, and the denominator of which is the total sales of the taxpayer everywhere during the tax period other than sales of either: 1. A foreign corporation which is not itself subject to the tax imposed by this title, unless the corporation is subject to the tax as a member of an Arizona affiliated group, as defined in section 43-947. 2. An insurance company that is exempt from tax under section 43-1201. 43-1146. Situs of sales of tangible personal property Sales of tangible personal property are considered to be in this state if the property is delivered or shipped to a purchaser, other than the United States government, within this state regardless of the F.O.B. point or other conditions of the sale. 43-1147. Situs of sales of other than tangible personal property; definitions A. Except as provided by subsection B of this section, sales, other than sales of tangible personal property, are in this state if either of the following applies: 1. The income-producing activity is performed in this state. 2. The income-producing activity is performed both in and outside this state and a greater proportion of the income-producing activity is performed in this state than in any other state, based on costs of performance. B. For taxable years beginning from and after December 31, 2013, a multistate service provider may elect to treat sales from services as being in this state based on a combination of income-producing activity sales and market sales. If the election under this subsection is made pursuant to subsection C of this section, the sales of services that are in this state shall be determined for taxable years beginning from and after: 1. December 31, 2013 through December 31, 2014, by the sum of the following: (a) Eighty-five percent of the market sales. (b) Fifteen percent of the income-producing activity sales. 2. December 31, 2014 through December 31, 2015, by the sum of the following: (a) Ninety percent of the market sales. (b) Ten percent of the income-producing activity sales. 3. December 31, 2015 through December 31, 2016, by the sum of the following: (a) Ninety-five percent of the market sales. (b) Five percent of the income-producing activity sales. 4. December 31, 2016, by one hundred percent of the market sales. C. A multistate service provider may elect to treat sales from services as being in this state under subsection B of this section as follows: 1. The election must be made on the taxpayer's timely filed original income tax return. The election is: (a) Effective retroactively for the full taxable year of the income tax return on which the election is made. (b) Binding on the taxpayer for at least five consecutive taxable years, regardless of whether the taxpayer no longer meets the percentage threshold of a multistate service provider during that time period, except as provided by paragraph 2 of this subsection. To continue with the election after five consecutive taxable years, the taxpayer must meet the qualifications to be considered a multistate service provider and renew the election for another five consecutive taxable years. 2. During the election period, the election may be terminated as follows: (a) Without the permission of the department on the acquisition or merger of the taxpayer. (b) With the permission of the department before the expiration of five consecutive taxable years. D. For a multistate service provider under subsection E, paragraph 3, subdivision (b) of this section, an election under subsection B of this section is limited to the treatment of sales for educational services. For a multistate service provider under subsection E, paragraph 3, subdivision (c) of this section, an election under subsection B of this section is limited to the treatment of sales for support services, the payment for which is a percentage of the sales for educational services generated by a regionally accredited institution of higher education. E. For the purposes of this section: 1. "Income-producing activity sales" means the total sales from services that are sales in this state under subsection A of this section. 2. "Market sales" means the total sales from services and sales of intangibles, as defined in paragraph 3, subdivision (a) of this subsection, for which the purchaser received the benefit of the service or intangibles in this state. 3. "Multistate service provider" means any of the following: (a) A taxpayer that derives more than eighty-five percent of its sales from services or sales from intangibles provided to purchasers who receive the benefit of the service or intangibles outside this state in the taxable year of election, and includes all taxpayers required to file a combined report pursuant to section 43-942 and all members of an affiliated group included in a consolidated return pursuant to section 43-947. In calculating the eighty-five percent, sales to students receiving educational services at campuses physically located in this state shall be excluded from the calculation. For the purposes of this subdivision, "sales from intangibles" means sales derived from credit and charge card receivables, including fees, merchant discounts, interchanges, interest and related revenue. (b) A taxpayer that is a regionally accredited institution of higher education with at least one university campus in this state that has more than two thousand students residing on the campus, and includes all taxpayers required to file a combined report pursuant to section 43-942 and all members of an affiliated group included in a consolidated return pursuant to section 43-947. (c) A taxpayer that has more than two thousand employees in this state and that derives more than eighty-five percent of its sales from support services provided to a regionally accredited institution of higher education, and includes all taxpayers required to file a combined report pursuant to section 43-942 and all members of an affiliated group included in a consolidated return pursuant to section 43-947. 4. "Received the benefit of the service in this state" means the services are received by the purchaser in this state. If the state where the services are received cannot be readily determined, the services are considered to be received at the home of the customer or, in the case of a business, the office of the customer from which the services were ordered in the regular course of the customer's trade or business. If the ordering location cannot be determined, the services are considered to be received at the home or office of the customer to which the services were billed. In the case of a multistate service provider under paragraph 3, subdivision (c) of this subsection, the benefit of support services shall be deemed received at the billing address of the student to which the services relate. 5. "Sales for educational services" means tuition and fees required for enrollment and fees required for courses of instruction, transcripts and graduation. 43-1148. Apportionment by department A. If the allocation and apportionment provisions of this article do not fairly represent the extent of the taxpayer's business activity in this state, the taxpayer may petition for or the department may require, in respect to all or any part of the taxpayer's business activity, if reasonable, any of the following: 1. Separate accounting, except with respect to an Arizona affiliated group, as defined in section 43-947. 2. The exclusion of any one or more of the factors. 3. The inclusion of one or more additional factors which will fairly represent the taxpayer's business activity in this state. 4. The employment of any other method to effectuate an equitable allocation and apportionment of the taxpayer's income, other than disallowing a properly elected consolidated return. B. If the department, in the exercise of its discretion, determines that an adjustment is necessary pursuant to subsection A of this section, it may, in its discretion, authorize such an adjustment for a period of not less than one taxable year. 43-1149. Interpretation This article shall be so construed as to effectuate its general purpose to make uniform the law of those states which enact it. 43-1150. Short title This article may be cited as the uniform division of income for tax purposes act. 43-1151. Tax clearance upon cessation of corporate activities A. No decree of involuntary dissolution shall be made, entered or filed by any court or court clerk nor shall the corporation commission file any such decree or any document by which the term of existence of any corporation shall be voluntarily reduced or terminated or any certificate of the surrender by a foreign corporation as defined in section 10-140 of its right to do business in this state unless the taxpayer obtains from the department and files with the court, clerk or corporation commission a certificate to the effect that the department is satisfied from the available evidence that all taxes imposed by this title have been paid or are secured by bond, deposit or otherwise. B. Within thirty days after receiving a request for a certificate, the department shall either issue the certificate or notify the person requesting the certificate of the amount of tax that must be paid or the amount of bond, deposit or other security that must be furnished as a condition of issuing the certificate. C. The issuance of the certificate shall not relieve the corporation or any individual from liability for any taxes, penalties or interest imposed by this title. 43-1152. Powers of corporation suspended for nonpayment of tax Except for the purpose of amending the articles of incorporation to set forth a new name, the corporate powers, rights and privileges of a domestic corporation as defined in section 10-140 shall be suspended, and the exercise of the corporate powers, rights and privileges of a foreign corporation as defined in section 10-140 in this state shall be forfeited, if any of the following conditions occurs: 1. If any tax, penalty or interest, or any portion thereof, which is due and payable either at the time the return is required to be filed, or on or before the fifteenth day of the ninth month following the close of the income year, is not paid on or before 5:00 p.m. on the last day of the twelfth month after the close of the income year. 2. If any tax, penalty or interest, or any portion thereof, other than jeopardy or fraud assessments, due and payable upon notice and demand from the department, is not paid on or before 5:00 p.m. on the last day of the eleventh month following the due date of such tax. 3. If any jeopardy or fraud assessment, or any interest or penalty thereon, is not paid within forty days from the date of such tax, penalty and interest are due and payable upon notice and demand from the department, unless the bond permitted by section 42-1111, subsection B is filed to stay the collection of the tax, interest or penalty, and such tax, interest or penalty is paid within sixty days after notice by the department on the taxpayer's petition for reassessment. 43-1153. Certificate of suspension of a corporation The department shall transmit the name of any corporation delinquent pursuant to section 43-1152 to the corporation commission, and the prescribed suspension or forfeiture shall become effective immediately and the certificate of the corporation commission shall be prima facie evidence of such suspension or forfeiture. 43-1154. Penalty for exercising powers after suspension Any person who attempts or purports to exercise any of the rights, privileges or powers of any corporation suspended pursuant to section 43-1152 except as permitted by this article, or who transacts any intrastate business in the state in behalf of any such foreign corporation, shall be guilty of a class 1 misdemeanor. The jurisdiction of such offense shall be held to be in any county in which such transaction of business occurred and the county attorney of the county shall prosecute such offense. In addition to the penal provisions in this section, any taxpayer which transacts business during the period of suspension or forfeiture shall be subject to tax under the provisions of this title. 43-1155. Voidable contracts by corporations Every contract made in violation of this article is voidable at the instance of any party other than the taxpayer. 43-1156. Application for revival of corporate powers A. Any taxpayer which has suffered the suspension or forfeiture provided for in section 43-1152 may be relieved therefrom upon making application in writing to the department and upon payment of the tax and the interest and penalties for nonpayment of which the suspension or forfeiture occurred, together with all other taxes, deficiencies, interest and penalties due under this title. B. Application for such certificate on behalf of any domestic corporation as defined in section 10-140 which has suffered such suspension may be made by any stockholder or creditor or by a majority of the surviving trustees or directors thereof. C. Application for such certificate may be made by any foreign corporation as defined in section 10-140 which has suffered such forfeiture or by any stockholder or creditor thereof. 43-1157. Clearance of revivor by corporation commission A. Before any certificate of revivor is issued by the department it shall obtain from the corporation commission an endorsement upon such application of the fact that such corporation then qualifies for revival of corporate powers, rights and privileges. B. Upon the issuance of such certificate by the department, the taxpayer therein named shall become reinstated. Such reinstatement shall be without prejudice to any action, defense or right which has accrued by reason of the original suspension or forfeiture. C. The certificate of revivor shall be prima facie evidence of such reinstatement and such certificate may be recorded in the office of the county recorder of any county of this state. D. A copy of such certificate shall be forwarded to the corporation commission for its files. 43-1158. Treatment of installment obligations on cessation of corporate activities If a corporation has elected to report income from the sale or other disposition of property on the installment method, and the entire income from the sale has not been reported before the year the corporation ceases to be subject to the tax imposed by this title, the corporation shall report the unreported income in the last year in which the corporation is subject to the tax. This section does not apply if the installment obligation is transferred pursuant to a reorganization to another taxpayer subject to tax under this title as the transferee, but capital losses of the transferee may not be used to offset income from the installment obligation transferred from a corporation which has ceased to be subject to the tax. 43-1162. Healthy forest production tax credit; definitions A. For taxable years beginning from and after December 31, 2020, a credit is allowed against the taxes imposed by this title for processing qualifying forest products. B. The taxpayer is eligible for the credit if all of the following apply: 1. The taxpayer has a current healthy forest enterprise incentive certification and memorandum of understanding with the Arizona commerce authority pursuant to section 41-1516. 2. The taxpayer processes qualifying forest products from a qualifying project from and after December 31, 2020 and before January 1, 2031. 3. The facility that processes qualifying forest products is located within this state. C. The taxpayer is eligible for the credit for the calendar year in which the qualifying project processes qualifying forest products pursuant to subsection B of this section. D. If the allowable credit under this section exceeds the taxes otherwise due under this title on the claimant's income, or if there are no taxes due under this title, the taxpayer may carry forward the amount of the claim not used to offset the taxes under this title for not more than five consecutive taxable years' income tax liability. E. The credit authorized by this section is based on the number of tons of qualifying forest products that a taxpayer processes during a calendar year. For a taxpayer that files on a fiscal year basis, the credit shall be claimed on the return for the taxable year in which the calendar year ends. F. Subject to subsection H of this section, the amount of the credit is $10,000 for the first twenty thousand tons and $5,000 for every ten thousand tons thereafter of qualifying forest products the taxpayer processes in the calendar year. G. To be eligible for the credit under this section, the taxpayer must apply to the department, on a form prescrib