Is a capital improvement exempt from sales tax in Arizona?
No. Arizona does not exempt capital improvements to real property the way most states do, because it taxes the contractor's gross receipts rather than running a sales tax on the customer. Work that would be exempt elsewhere is taxable here. A capital improvement is a permanent addition that becomes part of the property; a repair restores something to working order and is treated differently. Source: A.R.S. §42-5075 (prime contracting classification); A.R.S. §42-5074 / MRRA treatment for maintenance, repair, replacement and alteration.
| What | Arizona |
|---|---|
| Capital improvement exempt to the customer | No |
| Certificate required | No state form |
| Repair labor — residential | Not taxable |
| Repair labor — commercial | Not taxable |
Where this gets more complicated
Two regimes with a threshold between them. "Modification" work is taxed on the prime contractor's gross receipts (with a 35% standard deduction); MRRA work is not — the contractor pays tax on materials instead. The split turns on the scope and value of the project and cannot be decided from the line class alone.
Source
A.R.S. §42-5075 (prime contracting classification); A.R.S. §42-5074 / MRRA treatment for maintenance, repair, replacement and alteration. — last checked 2026-09-15.
This is a summary of a state’s published guidance, not tax or legal advice. Rates and rules change, local jurisdictions add their own, and the treatment of a specific job depends on the contract and the work. Check the citation and speak to a CPA or a state tax adviser before relying on it.
How Seayora uses this rule
Seayora resolves this rule on every invoice a contractor raises — per line, from the job site’s own address — and prints the rate, the jurisdiction and this citation on the document itself, so the estimate a customer accepts is the invoice they are billed. Where the rule is more nuanced than a single answer, Seayora refuses to guess a total rather than quoting a confident wrong one.
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