Arizona Department of Revenue 2002 annual report |
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ARIZONA DEPARTMENT OF REVENUE 1600 WEST MONROE - PHOENIX, ARIZONA 85007-2650 JANE DEE HULL MARK W. KILLIAN GOVERNOR DIRECTOR November 15, 2002 Governor Jane Dee Hull Office of the Governor 1700 W. Washington Street State Capitol, 9 th Floor Phoenix, Arizona 85007 The Honorable Governor Hull and the Taxpayers of Arizona: "…Fair administration, firm enforcement, and prompt and courteous service…." This brief quote from our mission statement accurately reflects the collective character of the Arizona Department of Revenue. With this annual report, we hope to illustrate how those simple tenets are continually exemplified within the Department. This last year, the Department redoubled its efforts to make our mission a reality. Technological advancements and reorganization have culminated in a more responsible and satisfied staff. By supplying personnel with better tools and with a departmental structure more conducive to an empowered workforce, we have dismantled barriers to communication, efficiency, and speed of response. I credit the entire staff of DOR with these enhancements. Most of the substantive progress of the Department over the last fiscal year has been a result of employee suggestions or direct involvement. It has been a truly rewarding experience observing a staff so intent on participating in shaping their agency and in serving the taxpayers. And the more I see the agency becoming a team of responsible individuals who are truly aware of their duty to the public trust, the more I'm sure the Department is in good hands. We hope you enjoy reading our Annual Report. If you have any questions, concerns, or comments, please feel free to contact me. Sincerely, Mark W. Killian OTHER LOCATIONS: Tucson Government Mall – 400 W. CONGRESS - TUCSON East Valley – 3191 N. WASHINGTON STREET - CHANDLER North Valley – 2902 W. AGUA FRIA FREEWAY - PHOENIX 1 DEPARTMENT OF REVENUE 2002 ANNUAL REPORT TABLE OF CONTENTS A Message from the Director, Page Two DEPARTMENT ORGANIZATION Directory, Page Three Organization Chart, Page Four The Year In Review, Page Five OVERVIEW OF THE DEPARTMENT Collections, Page Seven Customer Service, Page Eight Director's Office, Page Ten Income Audit, Page Thirteen Information Technology, Page Fifteen Process Administration, Page Sixteen Property Tax, Page Nineteen Transaction Privilege Tax, Page Twenty One ARIZONA'S TAXES Revenue Summary (Table 1), Page Twenty Three Net Revenue to State General Fund (Table 2), Page Twenty Four Gross Collections of Audit Assessments and Delinquent Tax (Table 3), Page Twenty Five Transaction Privilege, Use and Severance Tax, Page Twenty Six Income Tax, Page Fifty One Property Tax, Page Sixty Three OTHER SOURCES OF REVENUE Bingo, Page Seventy One Estate Tax, Page Seventy Three Luxury tax, Page Seventy Five Unclaimed Property, Page Seventy Seven Escheated Estates, Page Seventy Seven Waste Tire Fee, Page Seventy Nine Legislative Summary Bills & Tax Related Resolutions, Page Eighty One ARIZONA DEPARTMENT OF REVENUE 2002 ANNUAL REPORT ARIZONA DEPARTMENT OF REVENUE 2002 ANNUAL REPORT 3 DIRECTOR MARK W. KILLIAN (602) 542-3572 1600 West Monroe, Phoenix 2902 West Agua Fria Freeway, Phoenix 3191 North Washington, Chandler 400 West Congress, Tucson Internet Address: www.revenue.state.az.us COLLECTIONS TEAM LEADERS JEFF CAVINESS BOB HOMMEL RENEE JORDAN (602) 542-5673 CUSTOMER SERVICE MARQUETTA WHITE (602) 542-2076 INCOME AUDIT TEAM LEADERS TOM WATERS DONNA MCCUIN (602) 542-3345 TRANSACTION PRIVILEGE TAX VINCENT PEREZ (602) 542-4656 PROPERTY TAX TEAM LEADERS ED LEYBA CHERYL MURRAY��LEYBA (602) 542-3529 HEARING OFFICE JONATHAN HADLEY (602) 542-4641 INFORMATION TECHNOLOGY JANE F. HUFF (602) 542-3141 LEGAL SERVICES SHARON SEEDALL STEPHEN SHIFFRIN (602) 542-3572 LEGISLATIVE SERVICES JEFF KROS (602) 542-3572 GEORGANNA MEYER (602) 542-4641 PROCESS ADMINISTRATION TEAM LEADERS WILLIAM M. AVERY SALLY ESCARCEGA LORI GASPER TOM MACCONNEL BETTY A. MARTZ MARY K. MCGRADY TOM E. PINER TAMMY L. PHELAN (602) 542-4643 / (602) 542-3141 STRATEGIC MANAGEMENT LYNETTE STATES (602) 542-3141 Deputy Director Cindy Kappler (520) 628-6359 Deputy Director Jeffrey Grant (602) 542-3572 DEPARTMENT ORGANIZATION ARIZONA DEPARTMENT OF REVENUE 2002 ANNUAL REPORT 4 DIRECTOR DIRECTOR’S OFFICE OF TAX POLICY & LEGAL SUPPORT DEPUTY DIRECTOR ♦Information Technology Function ♦Process Administration Function ♦Budget Office ♦Human Resources ♦Legislative Liaison ♦Economic Research & Analysis ♦Quality Executive ♦Staff & Organizational Development ♦Change Management ♦Hearing Office DEPUTY DIRECTOR ♦Criminal & Civil Investigations ♦Office of Tax Policy & Legal Support ♦Collections Function ♦Customer Service Function ♦Income Audit Function ♦Property Tax Function ♦Transaction Privilege Tax DIRECTOR’S EXECUTIVE STAFF ♦Executive Assistant to the Director ♦General Counsel ♦Internal Auditor ♦Taxpayer Assistance Office/ Problem Resolution Officer COLLECTIONS PROPERTY TAXATION INCOME AUDIT TRANSACTION PRIVILEGE TAX CUSTOMER SERVICE SELF MANAGED TEAM SELF MANAGED TEAM SELF MANAGED TEAM FUNCTION EXECUTIVE FUNCTION EXECUTIVE DEBT SETOFF FIELD COLLECTIONS OFFICE COLLECTIONS TECHNICAL COMPLIANCE SERVICES BANKRUPTCY ASSESSMENT STANDARDS & EQUALIZATION CORPORATE INCOME TAX AUDIT TPT AUDIT TPT CITY AUDIT PROGRAM SUPPORT SERVICES COMMUNITY OUTREACH & EDUCATION PROCESSING ADMINISTRATION INFORMATION TECHNOLOGY SELF MANAGED TEAM FUNCTION EXECUTIVE/ CIO COMPTROLLER’S OFFICE PURCHASING FACILITIES/ WAREHOUSE ELECTRONIC FILINGS BUSINESS TAX PROCESSING APPLICATION SERVICES COMPUTER OPERATIONS CUSTOMER SYSTEM SUPPORT NEW TECHNOLOGY TECHNICAL SERVICES INCOME TAX PROCESSING SPECIAL LICENSE & SERVICES REGISTRATION AND COMPLIANCE LEGAL SUPPORT UNCLAIMED PROPERTY SPECIAL TAXES BINGO ESTATE TAX TOBACCO TAXPAYER INFORMATION & ASSISTANCE INDIVIDUAL INCOME TAX AUDIT ALTERNATIVE FUELS PROPERTY VALUATION OFFICE OF THE CHIEF TAX ADVOCATE ♦Contested Audit Resolution ♦Corporate Appeals ♦Individual Income Appeals ♦Legal Support ARIZONA DEPARTMENT OF REVENUE 2002 ANNUAL REPORT 5 FY 2002 HIGHLIGHTS COLLECTIONS SECTION REMAINS PRODUCTIVE ! In spite of continued high vacancy rates, the Collections Function succeeded in collecting a combined $247,170,014 which was 6% more than they collected in FY 2001. ! In addition, the call center in Office Collections maintained excellent customer service levels for all incoming calls by answering 98% of them within 30 seconds. Customer Service Levels Continued to Improve ! The completion of AZ-Taxes for Small Business marked a milestone in electronic services. This is an interactive program available both on our Web Site and on CD that educates businesses and guides owners through preparation of a variety of tax returns. ! Participation in Outreach and Taxpayer Education events increased by 39%. ! License Compliance automated the state fair process by using laptops and printers to complete a fillable TPT-1 form. Revenue collected from the 2001 State Fair increased 22% over the 2000 State Fair. Millions of Dollars and Returns Processed ! During the 2001 tax-filing season, more than two million (2,276,537) individual income tax returns were processed, generating in excess of 1.5 million refunds. More than 620,995 documents required the reconciliation of data based on the Department’s computer generated information. ! The Incoming Mail Unit processed nearly 3.7 million letters and flats during the fiscal year plus the 4.2 million Personal Income, Withholding, and Transaction Privilege Tax returns produced. During the peak season, this unit ran two shifts with over 95 temporary and 17 permanent employees. With the help of three mail-opening machines, they opened approximately 60,000 pieces of mail daily. Teamwork also played an important part during peak time. The Incoming Mail staff worked with volunteers from other sections of the Department towards a common goal of opening and processing mail to get refunds to taxpayers quicker and improve the Department’s overall customer service. ! The Remittance Processing Unit deposited more than $3.8 billion dollars and processed 2.9 million documents. Due to the teamwork of all sections in the function and additional resources such as updating the J&B Software in our TMSimage program, working overtime and utilizing temporary employees, the FY 2002 year-end closed smoothly. ! The Data Input Unit keyed over 2.1 million documents this year. The unit kept its primary emphasis on keying business tax returns this year by outsourcing the bulk of the Individual Income Tax documents. The implementation of 2D bar code technology on the Arizona Form 140 reduced the burden of keying the balance of the income returns. This technology allows an average batch of 75 returns to be scanned in 11 minutes, vs. 1.5 hours of keying time. We were able to scan approximately 110,000 returns this season. This successful program will be expanded in the coming year. ! The Out Going Mail Team processed over 3.5 million pieces of mail, not including the county property tax forms. During the last year, postage costs were reduced through elimination of withholding A1QRT, A1WP and reduction in the number of TPT mail outs. E-Government Services Expanded ! During FY 2002, 486,514 Arizona Individual Income returns were filed electronically. This represents an 18.5% increase over the prior year. In FY 2002, more than 205,000 taxpayers received their refund via direct deposit. This is the second year we offered this convenience. The number of tax professionals participating in the e-file program exceeded 1,650. ! The Electronic Funds Transfer Unit electronically processed approximately $4.641 billion during FY 2002. This is an increase of $192.6 million more than in FY 2001 or 4.3 %. The unit also processed 321,393 payments in FY 2002, an increase of 10.4% from the prior year. In FY 2002 the unit processed 57.8% of business tax dollars received at the DOR and 13.1 % of the business tax transactions. The Comptroller's Office returned 10,603 warrants to taxpayers that had been returned to the Department for a better address. Transaction Privilege Tax Productivity Improved ! Fiscal year 2002 was a very productive year for the Transaction Privilege Tax section as shown by the 2,754 audits that were completed for a total of $26,453,913.64. ! The Audit section realized total revenues of $ 14,030,611 The shining accomplishment for the Section was the fact that 1,888 new taxpayers were licensed. This was a record high for the Section and constitutes a 100% increase over the prior year. ARIZONA DEPARTMENT OF REVENUE 2002 ANNUAL REPORT 6 FY 2001 HIGHLIGHTS CONTINUED ARIZONA DEPARTMENT OF REVENUE 2002 ANNUAL REPORT 7 COLLECTIONS FUNCTION OFFICE COLLECTIONS After the Accounts Receivable system has completed the prescribed billing cycle, cases are referred to Office Collections. Delinquents (business accounts with returns that have not been filed) are also worked in this section. Here, collectors attempt to reach account resolution via the telephone and with targeted mailings. The section uses a Predictive Dialer System (PDS) to dial the phone on accounts prioritized for work. This system automatically brings up computer screens of the account on calls made and routes them to the first available collector. Office Collections also uses an Automatic Call Distribution (ACD) system to process and handle incoming calls. This system has an Interactive Voice Response (IVR) module that provides automated responses for some basic collections questions such as account balances. The section operates from 8:00 a.m. to 6:00 p.m. Monday through Thursday and from 8:00 a.m. to 5:00 p.m. on Fridays. Office Collectors can request liens and levies be filed and can negotiate installment payment plans. If they are not able to resolve a case, it is referred to Field Collections or Bankruptcy / Litigation for further action. FIELD COLLECTIONS If an Office Collector determines that a case cannot be resolved by phone and that a field (on-site) approach is warranted, the case is referred to the Field Collections section. Field collectors are assigned a territory (by ZIP code) and are responsible for all types of tax cases (income, business, withholding, etc.) in their territory. Field collectors use a combination of telephone and field visits to effect closure. In addition to recommending lien and levy action, field collectors may subpoena records, work Offers in Compromise, recommend seizures and write off cases if they are determined to be uncollectible. The objective in Field Collections is to reach closure in the least intrusive manner. Seizure actions are only used as a last resort after all other more reasonable actions have failed. The Collections Function Liaison section is responsible for all other non-mainstream collection activities. These include cases referred to an outside collection agency in addition to handling disputed audit accounts, insufficient funds check collections, lien processing, case adjustments, Letters of Good Standing, levies on Department of Administration vendors, levies on contractor and insurance bonds and internal systems training. The Department uses an outside collection agency to work the smaller dollar accounts in state and to work out-of-state accounts that cannot be resolved in the other collections sections. BANKRUPTCY AND LITIGATION Bankruptcy and Litigation services a growing population of individual and business tax accounts that have filed for protection under the bankruptcy code. Cases are routed here at any time during the collection process when a case is identified as having filed bankruptcy. This section is responsible for identifying all cases which involve bankruptcy filings, seeing that appropriate claims are filed and following up on actions being taken by the bankruptcy court relative to these accounts. In addition to processing bankruptcies, the section refers cases to the Attorney General’s Office that may require legal action to effect closure as well as processing Offers in Compromise. OVERVIEW OF THE DEPARTMENT FUNCTION ACTIVITIES DEBT SET-OFF Debt Set-Off serves other state agencies by offsetting tax refunds to reduce debts to other state agencies and the courts. This program includes: qualifying agencies and courts for program participation, notifying agency participants and taxpayers when matches are made, monitoring status of and validating claims, finalizing matches, resolving discrepancies and generating payments to agencies and/or releases to taxpayers. REVENUES FOR THE THREE COLLECTIONS FUNCTION UNITS(FY 2002) Office Collections………...……..$ 88,820,707 Field Collections…...……………$ 39,704,958 Bankruptcy/Litigation…….….…$ 18,011,195 Debt Setoff......………………….$ 108,664 Unassigned……………………...$100,524,490 (TCS figures are included in Bankruptcy and Litigation figures. The Unassigned figures are dollars collected that are not associated with a Collector ID.) HIGHLIGHTS IN FY 2002 ♦ In spite of continued high vacancy rates, the Collections Function succeeded in collecting a combined $247,170,014 which was 6% more than they collected in FY 2001-2002. ♦ At the same time, they worked to reduce the turn around time for processing Offers in Compromise to at or below 60 days. A total of 269 Offers were reviewed this year with 78% of them completed within 60 days of receipt. ♦ In addition, the call center in Office Collections maintained excellent customer service levels for all incoming calls by answering 98% of them within 30 seconds. CUSTOMER SERVICE FUNCTION COMMUNITY OUTREACH AND EDUCATION Community Out Reach and Education (CORE) provides the Department’s outreach and educational programs for taxpayers and practitioners. CORE’s primary goal is to promote voluntary compliance with tax laws through taxpayer education. The staff develops and presents workshops and seminars, as well as participating in trade shows throughout the state. The programs focus on support for the small business community, but services and assistance are also directed toward personal income tax. Many projects are developed in partnership with the IRS, other federal, state, and local agencies and organizations as well as the Small Business Administration and related associations. LEGAL SUPPORT This group is responsible for providing consultation on legal issues for operating units and technical legal correspondence. They are also responsible for form design for the Department, and for creating and maintaining informational publications on a wide variety of tax issues, the TaxNews (tax practitioner newsletter) and the ReveNews (employee newsletter). LICENSE AND REGISTRATION The License and Registration section processes applications for transaction privilege tax, use tax, severance tax, and withholding tax. The unit issues transaction privilege tax licenses for contract cities that participate in the state tax collection program. They also administer the contractor-bonding program which affects some new contracting businesses and delinquent taxpayers. The section oversees a database of licenses and continually collects and updates taxpayer records. They provide assistance to the public through dissemination of general license information. The section handles distribution of tax forms, the sale of tobacco stamps and cashiering services for customers at each of the agency’s offices. The License Compliance group within the section performs research to identify non-complying businesses and brings them into 8 ARIZONA DEPARTMENT OF REVENUE 2002 ANNUAL REPORT compliance. They provide education on licensing statutes and regulations to assist taxpayers in complying with the tax laws. SPECIAL TAXES This group is made up of Estate Tax, Luxury Taxes, and the Bingo section. The Bingo section issues licenses and conducts audit examinations of Bingo operators. The staff investigates complaints and violations of Bingo laws, as well as conducting workshops and consultations with licensees. The Estate Tax unit conducts audits and processes all estate tax returns. The Luxury Tax staff administers tax for liquor and tobacco, including licensing for tobacco wholesalers and processing of associated tax returns. The unit also supports the Office of the Attorney General in administration of the Tobacco Master Settlement Agreement. UNCLAIMED PROPERTY The Unclaimed Property program is administered for the purpose of returning to rightful owners abandoned property in the form of goods and money such as the contents of safe deposit boxes, insurance policy premiums, deposits in banks and security deposits, unclaimed gift certificates or layaways, and uncashed checks. The staff attempts to locate the property owner and processes claims in order to return the property to owners. They also facilitate the submission of property from businesses that hold the property. HIGHLIGHTS IN FY 2002 ♦ The completion of AZ-Taxes for Small Business marked a milestone in electronic services. This is an interactive program available both on our Web Site and on CD that educates businesses and guides owners through preparation of a variety of tax returns. ♦ Participation in Outreach and Taxpayer Education events was increased by 39%. ♦ Partnered with a wide range of entities including the Internal Revenue Service, Maricopa County, Cities of Phoenix, Surprise, Avondale, Flagstaff, Tucson, Mesa and Yuma. CORE expanded outreach services for the public and educational opportunities for businesses. ♦ Answered over 900 technical tax letters with 90% answered within 30 calendar days. ♦ Created a new brochure, The Law and Your Taxes, to address misconceptions regarding the tax system in AZ. ♦ Redesigned the Informational Publications & TaxNews homepages on the Internet. ♦ Worked with twenty-nine software vendors to provide AZ forms to their customers with over 90 forms offered. ♦ Upgrading our cashiering system resulted in faster processing time of payments made at satellite offices and has eliminated hundreds of staff hours previously required. For the year, cashiering over 92,000 documents and $190 million in payments were handled in our walk-in offices. ♦ License Compliance automated the state fair process by using laptops and printers to complete a fillable TPT-1 form. Revenue collected from the 2001 State Fair increased 22% over the 2000 State Fair. ♦ As a result of visiting the local bonding authorities, the monthly average of taxpayer bonds increased from 308 for FY01 to 335 for FY02. ♦ The Bingo group visited 94% of all Class B & C licensees, well over their goal of 90%. Increased oversight has provided support to ARIZONA DEPARTMENT OF REVENUE 2002 ANNUAL REPORT 9 bingo operations and assists the non-profit organizations that are funded by bingo games and has improved the accuracy of filing. ♦ The Bingo section pursued investigations that have resulted in two successful criminal prosecutions. ♦ The number of Luxury Tax audits doubled over the previous year with six completed in FY02. Assessments during this period decreased from $318,820 in FY01 to $123,283 in FY02. ♦ The estate tax unit improved operations by reducing the processing days from a high of 102 days to 20 days during the year. ♦ By using the DOR website to notify the public about the elimination of the Form 74 (Report of Personal Representative of Decedent) we increased awareness and reduced the number of telephone calls regarding the form. ��� Staff training was advanced with the establishment of regular consultation from Tax Analysts in our Legal Support team. This has been successful in keeping phone agents up to date on matters of taxability and legislative issues. ♦ Cross training of staff was initiated to expand knowledge and productivity among phone agents and those employees who handle taxpayer correspondence. ♦ FAQ’s (Frequently Asked Questions) database was developed for fiduciary tax issues. More FAQ’s are in development. ♦ New on-line forms were developed to improve the transmission of information between phone agents and others within the agency. ♦ Service on Unclaimed Property claims improved with an average turnaround of 49 days, compared to 51 days in FY01. ♦ Unclaimed property collections increased by $10.7 million to a total of $48.7 million. ♦ The number of audits completed increased by 16% over FY01. DIRECTOR'S FUNCTION DIRECTOR’S OFFICE The Director, responsible for the operation and control of the entire Department, ensures that the administration and collection of taxes are performed effectively, efficiently and in a fair manner. Additionally, the Director ensures that the Department provides the best possible customer service. The Director has several direct reports including two Deputy Directors who assist in the day-to-day operations of the agency and serve as Acting Director when the Director is absent. The responsibilities of the Deputy Directors are divided into the Tax Administration Team and the Planning and Support Team. The Tax Administration Team is responsible for the day-to-day operations of the basic tax administration functions of Customer Service, Collections, Property Tax Administration, Income Audit and Transaction Privilege Tax. The Planning and Support Team is responsible for support services such as Information Technology and Process Administration functions, Change Management, Human Resources, Hearing Office, Staff Organization and Development, Budget, Legislative Services and Office of Economic Research and Analysis. The Deputy Directors also serve on the Leadership Team with the function executives and administrators to oversee resource allocation and policy determination and planning. Other direct-reports to the Director include: 10 ARIZONA DEPARTMENT OF REVENUE 2002 ANNUAL REPORT Other direct-reports to the Director include: ! the Problem Resolution Officer who acts as an advocate for taxpayers and expedites resolution of complex problems and situations; ! the Internal Auditor who reviews internal processes and procedures used by the Department to ensure that they are secure and effective; ! the Chief Tax Policy Officer who oversees the legal support of the Department; ! the Chief Tax Advocate who provides legal support to the Director and representation to audit and property tax functions, and ! General Counsel who provides the Director with legal advice on tax and administrative matters, reviews appeals to the Director from Hearing Office decisions and writes Final Orders of the Director regarding appeals, and drafts and reviews proposed legislation, contracts and intergovernmental agreements. TAX POLICY AND LEGAL SUPPORT The Chief Tax Policy Officer oversees the Director's Office of Tax Policy & Legal Support, consisting of Criminal & Civil Investigations and the Office of Tax Policy, and provides coordinated policy and legal support for the Department. Criminal & Civil Investigations is comprised of the Tobacco Enforcement, Criminal Investigations & Internal Investigations units of the Department. The Tobacco Enforcement unit enforces the tobacco luxury taxes by educating retailers and wholesale operations, inspecting premises for compliance with stamping requirements and monitoring compliance with tax laws. It also seizes luxury tax contraband and auctions seized products to properly licensed businesses to recover tax revenues. The Criminal Investigations unit handles criminal investigations of tax evasion, improper or fraudulent tax activity and other related issues. Internal Investigations investigates allegations of misconduct by Department employees and vendors. The Office of Tax Policy reviews, analyzes, develops and disseminates information regarding the Department’s interpretation of state tax laws. The unit responds to technical and complex tax inquiries, issues private taxpayer rulings, reviews and analyzes legislation, develops and promulgates administrative rules, and assists the Department in tax law administration. OFFICE OF TAX ADVOCACY The Chief Tax Advocate oversees the Office of Tax Advocacy, which provides legal and interpretative support, and case resolution and advocacy for the audit and property tax functions in the Department. The office also acts as liaison to the Attorney General’s Tax Section and coordinates the defense of tax litigation with the Attorney General. The Office of Tax Advocacy provides additional support to the Director on an as-needed basis, including services in the area of protecting taxpayer confidentiality and privacy. The Office consists of Contested Audit Resolution, the Corporate Income Tax Appeals, the Individual Income Tax Appeals and the Legal and Interpretative Support Team. The Contested Audit Resolution unit is headed by the Deputy Chief Tax Advocate and assists the Transaction Privilege Tax Audit Function with case refinement and resolution services as well as advocating the TPT Function positions in cases before the State Office of Administrative Hearings, the Department’s Hearing Office and the Director. The unit, primarily through the Chief Transaction Privilege Tax Counsel, also provides interpretative advice to the TPT Function. The Deputy Chief Tax Advocate also acts as the Disclosure Officer for the Department. ARIZONA DEPARTMENT OF REVENUE 2002 ANNUAL REPORT 11 Department. The Corporate and Individual Income Tax Appeals unit’s review cases from the income audit sections and provide case refinement, resolution and advocacy services for those cases including representation before the Department’s Hearing Office and the Director. The unit also provides interpretive advice to the income audit staff. The Legal and Interpretative Support Team is headed by the Chief Income Tax Counsel and provides legal and interpretative advice to both the Corporate and Individual Income Tax Audit units. The team also provides advocacy support and services to the Income Tax audit units. The Chief Income Tax Counsel also acts as the leader of the privacy team and as e-commerce counsel. OFFICE OF ECONOMIC RESEARCH AND ANALYSIS The Office of Economic Research & Analysis provides technical services to the Department, the legislature and the executive offices, evaluating proposals regarding changes to any of the taxes administered by the Department. The unit provides staff support to the Economic Estimates Commission, Debt Oversight Commission and Property Tax Oversight Commission. It maintains the income tax simulation models and prepares annual and ad hoc reports on tax revenue expenditures, bonding capacities and other tax revenue issues. CHANGE MANAGEMENT This unit is responsible for coordinating the Department's efforts for change management. It includes staff that functions as the Department's project managers for the Business Reengineering and Integrated Tax System (BRITS) project. For the BRITS project, the Change Management unit has drafted subject matter experts from across the Department to implement the BRITS project. The unit will continue to draft expert employees to work with the selected vendor in the implementation phase over the next five years. The Budget Resource & Planning unit is responsible for monitoring current year expenditures against the approved budget, coordinating preparation of the Department's biennial budget and providing staff and operating budget information and analysis to the Leadership Team. The Office for Quality unit coordinates the strategic planning efforts of the Department and an agency-wide quality program patterned after the Malcomb Baldrige self-assessment process. The Staff & Organizational Development unit (SODS) provides the centralized training for the Department. It is supplemented by specialized training within functional areas and on-the-job-training (OJT). The unit has a self-managed team of trainers whose role is to develop in-house training for key activities such as using tax systems, ethics, supervisory training and confidentiality. The unit offers both self-study classes and classroom training and coordinates with the Department of Administration training program. HIGHLIGHTS IN FY 2002 ♦ The biggest single activity of the Director’s Function was the on-going effort to select a vendor for our BRITS project. ♦ The Director’s Office for Quality oversaw our continued efforts to coordinate the objectives, goals and performance measures. The Quality Office provided training to 60 facilitators who then worked with their colleagues in all the sections and units to develop annual goals and performance measures. ♦ In late August of 2001, the Arizona Supreme 12 ARIZONA DEPARTMENT OF REVENUE 2002 ANNUAL REPORT Court established a new precedent when it authorized a class action lawsuit against the State for refund of taxes paid under a statute that violated the U.S. Constitution. This decision authorized the creation of a class of potential refund recipients estimated to amount to 600,000 to 700,000 persons who may be entitled to refunds for up to four years each. The Chief Tax Advocate has been designated to lead the Department’s efforts to develop a program to respond to this decision. Since that time considerable effort has been devoted, to designing a refund program that would be consistent with the Court’s decision and to working with the Attorney General’s Chief Tax Counsel and the attorneys for the class in trying to structure a settlement of this complex lawsuit. As of the end of the fiscal year, those negotiations had brought the parties close to a settlement. INCOME AUDIT FUNCTION The Income Tax Audit Function continues to be managed by 2 Administrators, one each from Individual Audit and Corporate Audit. This team is responsible for management of personnel and other resources in the function as well as participation on the Leadership Team. In order that scarce resources are wisely used, a team was established to determine what efficiencies could be found by consolidating some activities and eliminating redundancies. These endeavors became even more important because of the effect that the Ladewig case and budget cuts had on staffing levels. The Function continued to support BRITS, the Department’s reengineering project, during the latest fiscal year. The function provided any needed personnel or material to assist the Change Management Team with preparations for the implementation of the project. As required by the project, IA stands ready to provide subject matter experts to the BRITS process to insure that our business partner has the best available talent for this important work. This fiscal year saw increasing involvement of employees in the Strategic Planning process. Using Department wide objectives, employee groups developed strategies that supported these objectives. In-house trained facilitators assisted these employee groups in developing the strategies and keeping the groups focused on what needed to be measured and metrics for evaluating performance. Monthly meetings were held to discuss progress and evaluate the effectiveness of the strategies in support of the objectives. Because agency management views the Strategic Plan as a living document needing continuous improvement, plans are already under way to make next years Plan even better, with more employee involvement and more precise metrics. Customer service continues to be an essential component of the Function’s goals and customer surveys are a vital source of customer information. Service delivery is so important that it is one of the things measured by both Individual and Corporate Audit as indicators of effectiveness. Ratings and comments by our taxpayers are also used in the employee evaluation process. During the Fiscal Year, both Sections sent out a total of 20,224 surveys. On a scale of 1 to 5 (5 being excellent), scores averaged 4.47 (weighted), a 2% improvement over FY01. Improved survey scores is one indicator of the effectiveness of decentralizing the management structure of Individual Audit. Pushing decision making down to the lowest level possible has improved the speed and effectiveness of service. Empowering employees in this way increases staff productivity and employee During this year of serious budget constraints we were required to look for ways to streamline ARIZONA DEPARTMENT OF REVENUE 2002 ANNUAL REPORT 13 satisfaction. processes and eliminate duplication of efforts. We took the opportunity to centralize the process whereby data was accumulated and input into the strategic plan document. We worked together to develop a PowerPoint presentation so that we could fulfill our goal of presenting to our employees monthly updates of the goal. HIGHLIGHTS IN FY 2002 CORPORATE AUDIT ♦ CITA experienced a ripple effect from the September 11 terrorist attacks. Management and auditors were extremely cognizant of the need to insure the safety of our travelers and a number of trips were postponed until the second half of the fiscal year or the next fiscal year. We worked delicately and compassionately with those taxpayers affected by the attacks until such a time that we were all ready to resume business as usual. The end of the fiscal year was filled with some of those rescheduled field appointments with business activities returning to some degree of normalcy. ♦ Working in partnership with Transaction Privilege Tax, we added to the Department’s Internet site the ability for entities to come forward in our voluntary disclosure program. The voluntary disclosure program allows companies to come forward by providing a detailed written description of their past activities. The site provides all the information necessary to make it easier for taxpayers to come forward. INDIVIDUAL INCOME AUDIT ♦ The computer generated audit (CGA) project was completed during the fiscal year and testing is underway. This project scans taxpayer returns, looking for errors using algorithms designed by the audit development team. The program then initiates the assessment process. Our taxpayer surveys indicated a desire for timelier and more accurate assessments and this program improves audits in both of these areas. A related project called computer-assisted audits (CAA) is on the drawing board. This program assists the auditor in decision making by using pre-programmed coding to automatically enter data into the assessment system. This saves auditor time and allows increased analysis time by audit staff. It also insures that the correct codes and amounts are keyed into the system. A new audit program, started in the East Valley Office, involves the review of Schedule C’s from the federal return. Preliminary work shows that this could be a very productive program as well. ITA also asked for and received training from the IRS on auditing Schedule A’s. This training not only improved auditor expertise in this area but also improved the development team’s ability to program for audit select. ITA is also moving forward with the on-line audit procedure manual that allows auditors to quickly access reference and procedural material. This on-line manual is very popular with staff and we are continuing to put material into it. ♦ The ITA pass-through entity program passed the $1 million mark during the Fiscal Year in assessments. With nearly $725,000 collected, this is by far the most efficient audit program in ITA. This audit program looks at Partnership, Sub-S, and LLC returns to identify areas of non-compliance both at the entity level and at the individual level. To further increase the success of this program, ITA recently requested an enhancement to the information we get from IRS to include K-1 data for payers and payees with Arizona addresses. In cooperation with the Information Technology function, ITA will process downloads that will identify those not filing on pass-through income that is attributable to Arizona. This program has been very successful in other states in 14 ARIZONA DEPARTMENT OF REVENUE 2002 ANNUAL REPORT identifying income not being reported or paid. ITA expects a similar result in Arizona. ♦ ITA auditor productivity continued to increase during the fiscal year. Despite hardships associated with hiring freezes and productive personnel going to the Alt Fuel and Ladewig projects, audit assessment dollars remained at the same level as FY01. Because of the fewer number of auditors though, assessments dollars per auditor increased nearly 40% to $460,438. The number of audits per auditor increased by 8% to nearly 2,000 per auditor. Both of these increases can be attributed to better audit select, improved inventory management, and just plain hard work. Overall, the audit production goal was exceed by 239 units. INFORMATION TECHNOLOGY FUNCTION STRATEGIC MANAGEMENT SERVICES Strategic Management Services (SMS), working with the Government Information Technology Agency (GITA), conducts research to create/ update policies, procedures, and standards, which will improve services to the individual Functions of DOR. In the past year the unit has participated in preparing Governor’s Shared Technology White Paper. SMS has completed the mapping of the core business processes of the function, Disaster Recovery/Business Continuity Plans, and the 3-Year IT Strategic Plan. At the senior management level, the unit tracks and reports on all major projects throughout the agency. SMS is assisting in the development of Enterprise Architecture Projects as well as preparing for the BRITS Project. APPLICATION DEVELOPMENT TEAM (ADT) Traditionally, application development was staffed and operated out of Information Technology (IT). As projects were developed, appropriate additional staff was added to project teams out of the user areas. But the focal point was IT. This focus occurred because the technical application development skills were within IT. Today, the technical application skills are not only in IT, but also in our user areas. To take advantage of these expanded skill sets, the Application Development Team (ADT) was created. The Application Development Team (ADT) is a virtual team utilizing resources from both the Information Technology and user areas to make modifications and enhancements to our applications. CUSTOMER SUPPORT Customer Support is part of the Applications Development Team (ADT). The Customer Support section reviews and monitors all Information Technology Requests (ITR) related to mainframe operations, tests changes and performs quality control functions on selected system output. Customer Support interacts with users to perform system and business function analysis related to changes in DOR's systems. Customer Support also coordinates between various user groups in the DOR and Information Technology support staff to maintain the mainframe security access system for all users. APPLICATION SERVICES Applications Services is part of the Applications Development Team (ADT). Application Services plans, designs, develops, implements, maintains, supports and enhances mainframe and client server applications. The section also provides 24/7 on call support. Future Department direction includes the re-engineering of legacy tax systems to support new technologies. DATA CENTER SUPPORT Data Center Support is comprised of Computer Operations, Production Control, Technical Support and Data Base Management. This team functions as the liaison to ADOA for mainframe processing. All processing relating to ADOR is scheduled and monitored by the Computer ARIZONA DEPARTMENT OF REVENUE 2002 ANNUAL REPORT 15 Operations staff. The Production Control group is responsible for tape management and offsite storage of disaster recovery data. The Technical Support section provides the first line of support for all mainframe related issues. This group also leads projects that require joint communications between ADOA and ADOR and the mainframe security systems. The Data Base management group supports and maintains the client server data bases and the mainframe data bases. This section is responsible for all data base system software on the mainframe. They provide the first line of support for all data base issues. ENTERPRISE NETWORK SUPPORT Enterprise Network Support is responsible for the research, analysis and implementations of new technologies as they apply to business needs. The goal of this section is to include the support and management of the LAN/Wan to ensure 99.80% of system availability to internal and external customers. The Server, Communication, and Customer Support groups are responsible for supporting four remote sites, and 1200 LAN customers. In addition, this staff is responsible for implementing all new hardware and software. HIGHLIGHTS IN FY 2002 ♦ Implemented significant portions of our Ready The Organization projects. These projects are intended to enhance our internal practices as well as our external customer relationships so that we will be in a strong position to support future efforts to reengineer our legacy systems. ♦ Updated Cashier System to scan technology. ♦ Implemented SAN (Storage Area Network) ♦ Expanded help desk staff hours to improve customer service ♦ Reorganized process Administration Division ♦ Implemented the IT Ambassador Program to enhance our customer service. IT Staff members regularly visit user areas to provide in person customer support. ♦ Completed 201 ITRs (Information Technology Requests) to implement enhancements to our applications. ♦ Implemented a Strategic Plan Database Application. ♦ Developed and implemented a new Debt Setoff application (with the Courts coming online). ♦ Developed and implemented 2D Bar Code application. ♦ Implemented Year-end Income and corporate tax changes. ♦ Report Elimination of unnecessary reports ♦ Mapped the core business processes of the function ♦ Disaster Recovery/Business Continuity Plan ♦ Completed the 3-Year IT Strategic Plan ♦ Implemented UPS system on LAN ♦ Implemented Virtual Private Network ♦ Redesigned the Intranet to GITA standards 16 ARIZONA DEPARTMENT OF REVENUE 2002 ANNUAL REPORT PROCESS ADMINISTRATION FUNCTION ORGANIZATION The mission of the Process Administration Function is to provide quality service and perform timely and accurate processing of taxes for Arizona taxpayers. The function consists of the following sections: COMPTROLLER The Comptroller is responsible for providing financial services for the Department. This includes the reconciliation and reporting of tax dollars deposited to the State’s financial institution, the processing of accounts payable invoices, travel services including employee reimbursement, fixed asset inventory services and refund warrant management. The Accounts Receivable Unit is responsible for processing new receivable and adjustment transactions for the four major tax types, the timely reconciliation of the system, NSF check processing, and credit balance management. The Remittance Processing Unit is responsible for recording and depositing tax payments that are not processed through the Cashier system. ELECTRONIC FUNDS TRANSFER UNIT The Electronic Funds Transfer Unit is responsible for the management of the program for receiving taxpayer payments electronically for the business tax types (TPT, Withholding and Corporate). FACILITIES/RECORDS MANAGEMENT Facilities Management is responsible for coordinating DOR facility maintenance and remodeling at the Department's five locations; receiving all goods and supplies purchased by DOR; security system maintenance and repairs; and issuance of DOR identification cards and building access. Central Supply is also part of the Facilities Management section with distribution of office supplies and internal forms. Records Management maintains and provides access to tax returns and License applications with the Department. The Micro-graphics section microfilms income tax, corporate tax and other miscellaneous documents. They also duplicate the information for distribution to different Department sites. PURCHASING Purchasing is responsible for contracting and purchasing all goods and services required by DOR. This includes furniture and supplies, and printing of tax forms, tax booklets, business cards and envelopes. Purchasing is also responsible for contract management, vendor performance and compliance. MAIL SERVICES Mail Services is divided into two units: Incoming Mail is responsible for the receipt, sorting and delivery of all tax documents, payments and correspondence received by the agency. Outgoing Mail is responsible for mailing all tax documents, billing, correspondence, and tax change notices, audit and collection notices to taxpayers. INDIVIDUAL INCOME TAX PROCESSING Individual Income Tax Processing is divided into four units: Refund/Research, Document Processing, Data Entry and Error Resolution. These units are responsible for issuing income tax refunds, preparing documents and revenue to be keyed and resolving discrepancies between the taxpayer’s calculations and the Department’s computerized calculations. Data Input is responsible for keying all tax returns and documents into the agency’s various computer systems. BUSINESS TAX PROCESSING Business Tax Processing is divided into three units: Transaction Privilege Tax, Withholding Tax and Corporate Income Tax. Each of these units is responsible for the preparation of documents and revenue, issuing credits/refunds as appropriate and resolving discrepancies between the taxpayer’s calculations and the Department’s calculations. ARIZONA DEPARTMENT OF REVENUE 2002 ANNUAL REPORT 17 Highlights In FY 2002 ♦ During the 2001 tax-filing season, more than two million (2,276,537) individual income tax returns were processed, generating in excess of 1.5 million refunds. More than 620,995 documents required the reconciliation of data based on the Department’s computer generated information. ♦ Refund turn-around time averaged 18.01 days. ♦ The total number of Corporate Income Tax documents processed was 216,739 of which 109,196 were returns. The Corporate Income Tax refunds issued exceeded $165 million. ♦ The total number of Transaction Privilege, Use and Severance Tax documents processed exceeded 1.39 million, of which 1.26 million were returns. The Electronic Funds Transfer (EFT) system for Transaction Privilege Tax (started in early 1998) has exceeded our expectations. The $2.7 billion received is 55% of all TPT revenues collected. ♦ The total number of Withholding Tax Documents processed exceeded 1.9 million, of which 370,884 were returns. This year 3,416 employers filed Withholding returns annually and we expect this number to grow as the tax practitioners and small businesses take advantage of this annual program. ♦ The Accounts Receivable Unit continued its high level of service in processing maintenance items in less than 24 hours of receipt on items of maintenance with only a 3/10 of 1% error rate. ♦ The Records Management unit continues to improved production while maintaining quality. The Records Maintenance Section has received approximately 25,000 new license applications and has had 42,000 requests for taxpayer documents. The Micro-graphics Section received 4.0 million individual documents for microfilming. ♦ The Incoming Mail Unit processed nearly 3.7 million letters and flats during the fiscal year plus the 4.2 million Personal Income, Withholding, and Transaction Privilege Tax returns this mail produced. During the peak season, this unit ran two shifts with over 95 temporary and 17 permanent employees. With the help of three mail-opening machines, they opened approx. 60,000 pieces of mail daily. Teamwork also plays an important part during peak time. Incoming Mail staff worked with volunteers from other sections of the Department towards a common goal of opening and processing mail to get refunds to taxpayers quicker and improve the Department’s overall customer service. ♦ The Remittance Processing Unit deposited more than $3.8 billion and processed 2.9 million documents. Due to the teamwork of all sections in the function and additional resources such as updating the J&B Software in our TMSimage program, working overtime and utilizing temporary employees, the FY02 year-end closed smoothly. ♦ The Data Input unit keyed over 2.1 million documents this year. The unit kept its primary emphasis on keying business tax returns this year by outsourcing the bulk of the Individual Income Tax documents. The burden of keying the balance of the Income returns was reduced by the implementation of 2D bar code technology on the Arizona Form 140. This technology allows an average batch of 75 returns to be scanned in 11 minutes, vs. 1.5 hours of keying time. We were able to scan approximately 110,000 returns this season. This successful program will be expanded in the coming year. ♦ The Out Going Mail Team processed over 3.5 million pieces of mail, not including the 18 ARIZONA DEPARTMENT OF REVENUE 2002 ANNUAL REPORT county property tax forms. During the last year, postage costs were reduced through elimination of withholding A1QRT, A1WP and reduction in the number of TPT mail outs. ♦ Fiscal year 2000 – 2001, we purchased a CAD program that would assist the facilities staff in updating building floor plans as well as allowing us to develop new floor plans. Before the CAD program, the staff members would draw each new modular office then forward the drawing to a vendor to have the existing floor plans modified. Since the CAD program has been purchased and installed the Facilities staff have saved over 1000 work hours and $45,000 in design fees. In fiscal year 2001 – 2002 the Facilities staff purchased a printer that would accommodate the printing of building floor plans. This printer has saved over 100 work hours of going from one area to another to print a floor plan that was not easily read. Now we can print floor plans to 1/8 scale that allow ease of readability. We will have 1 additional staff member trained on the operation of the CAD system by the end of fiscal year 2003. With the additional staff trained, we will be able to work more efficiently. ♦ 486,514 Arizona Individual Income returns were filed electronically in FY02. This represents an 18.5% increase over the prior year. More than 205,923 taxpayers received their refund via direct deposit. This is the second year we offered this convenience. The number of tax professionals participating in the e-file program exceeded 1,650. ♦ The Electronic Funds Transfer Unit electronically processed approximately $4.641 billion during FY02. This is an increase of $192.6 million more than in FY01 or 4.3 %. The unit also processed 321,393 payments in FY02 an increase of 10.4% from the prior year. In FY02 the unit electronicly processed 57.8% of business tax dollars received and 13.1% of the business tax transactions. The Comptroller's Office returned 10,603 warrants to taxpayers that had been returned to the Department for a better address. ♦ The Purchasing Unit issued 2,256 purchase orders with an average order time of 1.54 days. PROPERTY TAX FUNCTION VALUATION SECTION The Valuation Section consists of four teams: the Centrally Valued Properties Unit, the Locally Assessed Properties Unit, the Personal Property Group and the Construction Cost Group. The Centrally Valued Properties Unit annually determines the full cash value of all utilities, railroads, mines and other complex or geographically-dispersed properties (see page 65 for a list of the industries valued by the Department). Values determined by this unit for such properties are transmitted to the appropriate county assessors for the county tax roll. The Locally Assessed Properties Unit oversees and ensures the application of uniform appraisal methods and techniques used by the county assessors to determine the value of property. The unit also presents technical workshops to county assessors and provides an appraiser/ assessor certification program for appraisal staff. The Personal Property Group oversees the development and application of personal property procedures and manuals and provides technical workshops to county personnel. The Construction Cost Group maintains existing component costs for the computerized construction cost system and annually reviews market and location adjustments in each county. The group also provides training for county appraisers on the use of the construction cost system. ARIZONA DEPARTMENT OF REVENUE 2002 ANNUAL REPORT 19 20 ARIZONA DEPARTMENT OF REVENUE 2002 ANNUAL REPORT TECHNICAL SYSTEMS AND SUPPORT SECTION The Technical Systems and Support Section consists of three teams: the CIS and Valuation Review Unit, the CAMA/GIS Unit and the Manuals and Forms Group. The CIS & Valuation Review unit consists of two groups: the Central Information Services group (CIS) and the Valuation Review group. The CIS group develops and coordinates the information processing services necessary to support property tax administration for 13 Arizona Counties. The support services provided to the client counties include management of automated systems used in the maintenance of assessment and tax rolls, the preparation of valuation abstracts, property tax notices of value and statements of taxes due. The group is also responsible for the statewide administration of the additional state aid to education homeowner rebate program for Arizona school districts and levy limit calculations for client counties, cities/ towns and community college districts. The Valuation Review group is responsible for annually measuring county assessors' performance for compliance with established full cash/market value standards. The group conducts sales ratio studies throughout the yearly valuation cycle to assist counties in complying with valuation standards. COMPUTER ASSISSTED MASS APPRAISAL/ GEOGRAPHIC INFORMATION SYSTEMS The CAMA/GIS unit assists the county assessors with maintaining and updating a standardized cadastral mapping system (CAD). The unit prepares tax area code maps that depict boundaries of taxing jurisdictions authorized to levy property taxes. In addition, they develop sales-based models for residential properties and maintain and assist County Assessors with the Land Valuation System and the Sales Tracking System. The Manuals and Forms group responsibilities include the annual compilation and updating of manuals and guidelines; annual review of forms prescribed for use in the administration of the property tax system; annual review of legislative enactments and changes to existing property tax statutes; and annual preparation of the "Title 42 Extract of Property Tax Statutes". This extract includes all property tax statutes and related statutes from other titles affecting the property tax system. HIGHLIGHTS IN FY 2002 ♦ The CAMA Unit assisted the Navajo County Assessor’s office with a valuation review of properties affected by the Rodeo-Chediski fire. ♦ The CIS Unit in conjunction with the Information Technology Function completed the communication portion of the Client County Virtual Private Network. The VPN system has increased response time and laid the foundation for the implementation of the Client County Information System. Significant progress was also made towards completion of the PT50+ Real Time Update Project which will take many of the secured property system updates currently done at night and put them on-line, in real-time. ♦ The Valuation Review Unit automated the method of incorporating property sales affidavit information into the sales database eliminating the need to key over 100,000 documents a year. ♦ The Construction Cost Unit developed a new Shopping Center Economic Obsolescence and Depreciation Table for qualifying shopping centers valued under ARV 42- 13201-06. ♦ The Locally Assessed Property Unit is conducting research in preparation for issuing two new guidelines for use by the County Assessors. The guidelines pertain to timeshare properties and commercial industrial properties located in enterprise zones. ♦ The Training and Certification Team taught 24 appraisal courses with an average attendance of 18 students per course. The Team also administered five certification examinations. Forty-one Level One and 10 Level Two students were certified. TRANSACTION PRIVILEGE TAX FUNCTION FIELD AUDIT SECTION Without losing emphasis on customer service, the Field Audit Section exceeded their goals and objectives. Based on audit surveys, over 97% of the audits were completed in a fair, accurate, timely and expeditious manner. Furthermore, the surveys indicated that the Field Auditors were thorough in explaining their audit approach and theory, in part due to the use of opening and closing interviews. Very importantly the survey responses also showed that more than 96% of the time the Field Auditors were courteous and professional. REFUND SECTION The Refund Section is responsible for analyzing and processing taxpayer refund requests. While responding to a changing environment, and law changes, the refund section re-engineered its processes by developing better monitoring and tracking systems and streamlined procedures. The Section continued to excel in good customer service while processing twice as many claims this year than in any previous year. DESK AUDIT SECTION This past fiscal year was a year of rebuilding for the Desk Audit crew. Half of the staff were recent hires and had minimum experience. Despite this lack of experience, and with on-the-job training emphasized, the results were very positive. There is still additional training to be accomplished, but the Section looks forward to having a seasoned crew for the upcoming fiscal year. PROGRAM INFORMATION GROUP The Program Information Group had many accomplishments this year and continues to excel by ensuring minimal downtime in the various operations and programs of the TPT Function. The Group has also continued to maintain and upgrade the ATC program used by the Field Auditors. The main upgrades include faster program processing and the ability to automatically import reporting histories. The group continues to provide support to the TPT staff in maintaining critical programs necessary to continue with existing projects. AUDIT SELECT SECTION The Audit Select Section’s primary focus is audit research and selection. The Section continues towards this through the staff’s hard work and dedication to the job. The Audit Select Section has also been working with the Program Information Group on a data warehouse project. The Section also assists in the conversion of SIC codes to NAICS codes and continues to provide assistance to the 12 non-program cities in coordinating joint audits with the Department of Revenue. ADMINISTRATIVE SUPPORT UNIT Fiscal year 2002 was a banner year for the Administrative Support Unit. With fewer employees than the preceding fiscal year, the Unit is also responsible for retrieving and delivering incoming mail and reports to the Function’s employees. When asked or needed the staff also assists others to ensure all daily duties are completed. ARIZONA DEPARTMENT OF REVENUE 2002 ANNUAL REPORT 21 22 ARIZONA DEPARTMENT OF REVENUE 2002 ANNUAL REPORT HIGHLIGHTS IN FY2002 ♦ In fiscal year 2002, 2,754 audits that were completed for a total of $26,453,913.64. ♦ The Refund Section processed 2,254 refund claims granting $33 million and denying over $9 million ♦ The Desk Audit section realized total revenues of $14,030,611. The shining accomplishment for the Section was the fact that 1,888 new taxpayers were licensed. This was a record high for the Section and constitutes a 100% increase over the prior year. ♦ The Program Information Group developed: a new audit protest database and successfully converted all existing records; new letter templates for both the Field and Desk Auditors that are more readily accessible; a database to handle the volumes of information for Audit Select; and, a new SQL database consisting of approximately 60 million historical records. ♦ The Administrative Support Unit timely and accurately processed the 2,754 audits, which includes manually writing the necessary maintenance reports to put the information into DOR’s system. The Unit also manually wrote up approximately 572 pieces of amended maintenance to correct billings. ARIZONA'S TAXES The Department collected $8.9 billion in revenue For fiscal year 2002 96% of collections Were attributable to the Income Tax and Transaction Privilege Tax. TABLE 1 REVENUE SUMMARY GROSS REVENUE COLLECTED FISCAL YEAR 1997-98 THOUGH FISCAL YEAR 2001-02 SOURCE FY1997-98 FY1998-99 FY1999-00 FY2000-01 FY2001-02 TRANSACTION PRIVILEGE USE AND SEVERANCE TAX Distribution Base $1,015,306,840 $1,089,625,165 (4) $1,195,140,016 $1,248,485,639 $1,246,773,262 Nonshared Portion 1,875,579,736 2,042,232,511 (4) 2,230,332,220 2,356,788,664 2,379,509,616 Use Tax 136,868,591 148,043,174 (4) 176,566,264 196,887,927 162,751,987 Education Tax ----- ----- ----- 100,682 (5) 439,004,543 Undistributed Estimated Transaction Privilege Tax 5,262,078 11,668,636 12,392,607 1,894,841 28,766,081 Other State Revenue 17,094,298 18,352,045 18,254,373 21,123,487 32,971,582 County and City Collections 510,665,036 541,562,578 654,131,327 721,459,433 766,018,836 Subtotal $3,560,776,579 $3,851,484,109 $4,286,816,807 $4,546,740,674 $5,055,795,907 INCOME TAX Withholding 1,863,292,013 2,072,018,474 2,259,201,907 2,363,693,852 2,309,340,885 Individual 669,323,279 765,853,606 826,789,215 858,775,963 705,843,394 Corporate 630,836,596 643,230,321 637,765,231 678,002,658 512,257,476 Subtotal $3,163,451,888 $3,481,102,401 $3,723,756,353 $3,900,472,473 $3,527,441,755 LUXURY TAX Spirituous Liquor 18,787,775 19,648,670 20,587,605 21,327,540 21,574,744 Vinous Liquor 7,893,100 7,969,428 9,026,326 8,477,493 9,035,156 Malt Liquor 19,463,378 20,534,013 21,309,231 21,602,321 22,031,467 Tobacco - All Types (1) 169,316,629 166,288,764 162,896,049 160,694,260 161,754,302 Licensing 7,100 7,175 7,175 8,600 5,250 Subtotal $215,467,982 $214,448,050 $213,826,386 $212,110,214 $214,400,920 ESTATE TAX Estate 64,490,574 89,087,575 85,238,335 76,921,666 81,892,657 Unclaimed Property 20,770,144 21,315,542 31,415,063 38,020,547 48,681,438 Escheated Estate and Unclaimed Dividends 124,335 309,305 201,612 654,400 252,786 Subtotal $85,385,053 $110,712,421 $116,855,010 $115,596,613 $130,826,881 OTHER REVENUES Bingo 750,970 717,830 677,036 634,384 629,680 Flight Property Tax 15,165,878 14,856,910 13,418,771 13,387,179 13,056,694 Private Car Tax 1,494,821 1,441,440 1,476,728 1,349,685 1,509,625 Nuclear Plan Assessment 880,824 926,814 945,935 924,778 940,611 Waste Tire 5,125,561 5,476,881 5,674,452 6,346,629 6,392,637 Subtotal $23,418,054 $23,419,875 $22,192,921 $22,642,655 $22,529,247 DEPARTMENT TOTAL $7,048,499,556 $7,681,166,856 $8,363,447,477 $8,797,562,629 $8,950,994,710 State Property Tax (2) 37,957,273 10,069,191 24,686,866 22,552,932 18,454,625 TOTAL (3) $7,086,456,829 $7,691,236,047 $8,388,134,343 $8,820,115,561 $8,969,449,335 (1) Figures represent gross tobacco revenue less administrative expenses. (2) Property Tax is collected and deposited in the state general fund by counties. This figure includes deposits to the General Fund derived from the minimum Qualifying Tax Rate and taxes collected within Unorganized School Districts. (3) All revenues collected by the Department of Revenue, including those which are refunded or distributed, and State Property Tax. (4) Corrected figures. (5) Education tax became effective on June 1, 2001. For additional detail on the current year revenue, please refer to the appropriate section within this Annual Report. Figures may not add to total due to rounding. TABLE 2 NET REVENUE TO STATE GENERAL FUND FISCAL YEAR 1997-98 THROUGH FISCAL YEAR 2001-02 FY1997-98 FY1998-99 FY1999-00 FY2000-01 FY2001-02 SOURCE Transaction Privilege, $2,362,627,656 $2,566,087,404 (3) $2,817,525,828 $2,982,824,755 $2,972,274,262 Use, and Severance Tax Undistributed Estimated 5,262,078 11,668,636 12,392,607 1,894,841 28,766,081 Transaction Privilege Tax Income Tax 2,099,332,295 2,302,706,944 2,434,799,495 2,445,472,944 2,011,052,550 Luxury Tax 64,429,625 64,770,498 65,436,145 65,568,793 66,069,587 Estate Tax/ 65,269,787 89,334,610 84,725,503 78,961,539 88,298,138 Unclaimed Property Bingo 750,970 717,830 677,036 634,384 629,680 Private Car Tax 1,494,821 1,441,440 1,476,728 1,349,685 1,509,625 Nuclear Plan 880,824 926,814 945,935 924,778 940,611 Assessment Flight Property Tax (2) 7,582,939 7,367,078 6,709,385 6,693,590 6,528,347 Department Total $4,607,630,996 $5,045,021,253 $5,424,688,662 $5,584,325,308 $5,176,068,883 State Property Tax (1) 37,957,273 10,069,191 24,686,866 22,552,932 18,454,625 TOTAL $4,645,588,269 $5,055,090,444 $5,449,375,528 $5,606,878,240 $5,194,523,508 (1) Property Tax is not collected by the Department of Revenue and, therefore, is not reflected in this chart. It is collected by the Counties for distribution to local taxing authories. The "state property tax" referenced above is the only portion of the property tax that is deposited in the state general fund. It is derived from the minimum qualifying tax rate. (2) Beginning with FY98, 50% of all Flight Property Tax revenues were deposited into the General Fund. (3) Corrected figure. Figures may not add to total due to rounding. TABLE 3 GROSS COLLECTIONS OF AUDIT ASSESSMENTS AND DELINQUENT TAX FISCAL YEAR 2000-01 AND FISCAL YEAR 2001-02 % AUDIT COLLECTIONS FY2000-01 FY2001-02 CHANGE Assessment Collections (Gross) $90,281,036 $59,929,966 -33.6% Miscellaneous Taxes (Net of Credit) $6,176,200 $1,360,262 -78.0% TOTAL AUDIT UNIT COLLECTIONS $96,457,236 (3) $61,290,228 -36.5% TOTAL BILLINGS $181,828,894 (3) $147,046,075 -19.1% TOTAL DELINQUENT TAX COLLECTIONS $169,126,938 $272,698,314 61.2% TOTAL UNADJUSTED ENFORCEMENT COLLECTIONS $447,413,068 (3) $481,034,617 7.5% ADJUSTMENTS (1) Duplication, Credit Audits and Other Adjustments As Reported ($88,491,768) ($67,733,729) 23.5% TOTAL ADJUSTED ENFORCEMENT COLLECTIONS (2) $358,921,300 $413,300,888 15.2% REFUND DENIALS $19,271,321 $18,991,988 -1.4% (1) Audits resulting in credit adjustments are subtracted to produce an actual figure representing the net gain to the state from the Taxation and Transaction Privilege Tax Divisions' efforts. (2) Actual amounts resulting from the Department's enforcement effort. (3) Corrected figures TRANSACTION PRIVILEGE, USE AND SEVERANCE TAX MAJOR FEATURES Arizona’s transaction privilege, use and severance taxes are imposed on the privilege of transacting business in the state. The rates range from 1% (cities) to 5.6% depending on the type of business, with most rates at 5.6% (Refer to Table 5). Approximately 178,000 accounts collectively remitted gross revenues exceeding $4.5 billion during the 2002 fiscal year for transaction privilege, use and severance tax revenues (Refer to Table 4). SEVERANCE TAX A severance tax is imposed in lieu of a transaction privilege tax on the businesses of mining metalliferous mineral and severing timber. The severance rates are 2.5% on mining metalliferous minerals, $2.13 per thousand board feet (Ponderosa) and $1.51 per thousand board feet (other) on timbering, (Refer to Table 5). DISTRIBUTION The total of transaction privilege and rental occupancy taxes creates a tax base that is divided into two parts, distribution base and non-shared. The distribution base portion is divided among municipalities (25%), counties (40.51%), and the state general fund (34.49%). The non-shared portion is deposited directly to the state general fund (Refer to Tables 7 and 8). Beginning with November 1999 returns, mining severance collections are fully distributed to municipalities (38.16%) and counties (61.84%). Mining severance returns for prior periods are distributed in the same manner as transaction privilege tax. Use tax is deposited only to the state general fund. USE TAX A 5% use tax is imposed on the purchase price of tangible personal property when a transaction privilege or sales tax equal to or greater than the Arizona rate was not paid. A use tax collection responsibility is imposed on retailers whose activities in the state are insufficient to require them to pay transaction privilege tax but are nonetheless substantial enough to fall outside the protective umbrella of the United States Constitutional provision governing interstate commerce. Firms without nexus may also voluntarily collect use tax for the benefit of their customers. MUNICIPAL PRIVILEGE AND USE TAX DOR collects transaction privilege and use tax for 75 Arizona cities and towns at no charge to the municipalities. This is a service to the cities and to the taxpaying community who are therefore able to combine their reporting requirements on a single form and payment to a single governmental entity. Weekly distribution checks are processed after the Department collects the local taxes (Refer to Tables 26 and 27). Effective with the enactment of Laws 2000, Chapter 297, DOR also conducts multi-jurisdictional audits with and for all other cities in Arizona. COUNTY TAX AND SURCHARGE COLLECTION Of the 15 counties in Arizona, 14 levy some type of county tax or surcharge (Refer to Table 4). These taxes or surcharges are collected by the DOR. The rental car surcharge is imposed only in Maricopa and Pima Counties. A tax on hotels located in unincorporated areas of the county is levied in Pima county. Of the 14 counties with statutory authority to impose an excise tax, all 14 do so. By statute, Maricopa County may not impose an excise tax. Although subject to voter approval, any county may levy a transportation excise tax or road tax. Only three counties, Gila, Maricopa, and Pinal, do so. The three other types of county excise tax options are a hospital tax, a jail tax, and a stadium tax. Currently, no county imposes a hospital tax, although Gila County had one in the past. La Paz, Yuma, Coconino, and Maricopa counties have a jail tax. ARIZONA DEPARTMENT OF REVENUE 2002 ANNUAL REPORT TABLE 4 GROSS TRANSACTION PRIVILEGE, USE AND SEVERANCE TAX COLLECTIONS FISCAL YEAR 1997-98 THROUGH FISCAL YEAR 2001-02 SOURCE FY1997-98 FY1998-99 FY1999-00 FY2000-01 FY2001-02 Distribution Base $1,015,306,840 $1,089,625,165 (5) $1,195,140,016 $1,248,485,639 $1,246,773,262 Nonshared 1,875,579,736 2,042,232,511 (5) 2,230,332,220 2,356,788,664 2,379,509,616 Use Tax 136,868,591 148,043,174 (5) 176,566,264 196,887,927 162,751,987 SUBTOTAL $3,027,755,167 $3,279,900,850 $3,602,038,500 $3,802,162,230 $3,789,034,865 Education Tax (9) ----- ----- ----- 100,682 (1) 439,004,543 Undistributed Estimated 5,262,078 11,668,636 12,392,607 1,894,841 28,766,081 911 Wireline/Excise Tax 7,652,326 8,084,729 7,846,057 9,201,049 14,998,348 Telecommunications Devices 4,908,914 5,158,289 4,960,224 5,514,542 6,395,057 Poison Control Fund 1,815,626 1,907,860 1,834,603 2,039,625 2,365,295 911 Wireless Service 722,736 (1) 1,181,481 1,507,573 2,136,015 6,928,990 Municipal Water 1,891,072 1,957,725 2,081,879 2,120,483 2,213,435 Environmentally Hazardous Products (2) 784 536 980 5,909 14 Waste Tire Accounts Receivable Collections 105,094 62,946 25,739 109,948 71,330 Less Collection Fees (2,255) (1,521) (2,682) (4,084) (888) GROSS STATE COLLECTIONS $3,050,111,543 $3,309,921,530 $3,632,685,479 $3,825,281,241 $4,289,777,071 Municipal Privilege Tax 180,932,433 202,218,016 230,976,587 257,706,985 280,950,442 Pima County Hotel Tax 2,378,163 2,437,787 2,625,508 2,823,410 2,495,830 Maricopa County Rental Car Surcharge 5,376,877 5,405,493 5,734,678 5,636,907 5,396,445 Pima County Rental Car Surcharge 1,384,659 1,388,744 1,476,750 1,557,354 1,377,083 Pima County R.V. Surcharge 182,205 (1) 218,359 212,849 197,598 189,838 Apache County Excise Tax 582,718 638,649 1,862,479 1,130,977 903,381 Cochise County Excise Tax 4,058,429 4,311,066 4,853,891 5,123,754 5,698,660 Coconino County Excise Tax 7,742,012 8,085,596 8,876,866 9,054,404 8,793,909 Coconino County Jail Tax 4,121,136 4,793,744 5,261,397 5,358,317 5,486,442 Gila County Excise Tax 2,357,618 2,350,334 2,311,624 2,596,028 2,617,971 Gila County Hospital Tax (3) 3,054 7,003 92 38,499 509 Gila County Transportation 2,396,123 2,423,201 2,377,944 2,612,288 2,718,050 Graham County Excise Tax 1,128,771 1,172,236 1,188,238 1,206,320 1,192,075 Greenlee County Excise Tax 632,440 546,749 563,020 645,168 562,389 La Paz County Excise Tax 691,178 777,423 806,441 820,780 885,465 La Paz County Jail Tax 692,383 776,444 807,563 821,969 885,694 Maricopa County Road Tax 209,263,453 229,470,201 248,595,990 264,722,440 267,563,343 Maricopa County Stadium Tax (4) 50,550,929 437,677 150,336 280,370 145,148 Maricopa County Jail Tax ----- 34,290,683 (1) 91,054,451 97,603,200 98,372,053 Mohave County Excise Tax ----- ----- 1,608,620 (1) 4,114,594 4,446,472 Navajo County Excise Tax 3,964,486 4,372,839 4,655,169 4,831,327 4,993,912 Pinal County Excise Tax 5,076,787 5,698,428 6,149,485 6,492,013 6,763,454 Pinal County Road Tax 5,232,966 6,072,244 6,575,202 6,750,294 6,965,671 Santa Cruz County Excise Tax 1,725,137 1,847,305 1,918,653 2,092,940 2,114,505 Yavapai County Excise Tax 7,696,746 8,565,735 9,571,900 10,054,989 10,799,358 Yavapai County Jail Tax (6) ----- ----- ----- 3,627,698 4,294,368 Yuma County Excise Tax 6,252,408 6,638,969 6,965,025 7,417,302 7,665,873 Yuma County Jail Tax 6,241,927 6,617,655 6,950,571 7,412,145 7,653,390 Yuma County Capitol Projects Tax (7) ----- ----- ----- 3,150,273 (1) 7,582,374 Tourism/Sports Authority (8) ----- ----- ----- 5,579,087 (1) 16,504,732 COUNTY AND CITY COLLECTIONS 510,665,036 541,562,578 654,131,327 721,459,433 766,018,836 TOTAL DEPARTMENT OF REVENUE RECEIPTS $3,560,776,579 $3,851,484,108 $4,286,816,806 $4,546,740,674 $5,055,795,907 (1) The tax was in place for only a portion of the first fiscal year. This figure does not represent a full year's collection. (2) Environmentally Hazardous Products was repealed September 1, 1992. All amounts received are for prior tax periods. (3) Gila County Hospital Tax ended effective March 31, 1993. (4) Maricopa County Stadium Tax ended effective December 1, 1997. (5) Corrected Figure. (6) Yavapai County Jail Tax began on July 1, 2000 (7) Yuma County Capitol Projects Tax Began on January 1, 2001 (8) Tourism/Sports Authority Tax became effective March 1, 2001. (9) Education Tax became effective on June, 1, 2001. TABLE 5 STATE TRANSACTION PRIVILEGE, USE AND SEVERANCE TAX RATES FISCAL YEAR 2001-02 DISTRIBUTION TOTAL TAXABLE ACTIVITIES BASE NONSHARED EDUCATION TAX 1. Transporting and Towing 1.0% 4.0% 0.6% 5.6% 2. Nonmetalliferous Mining, Oil and Gas Production 1.0% 2.125% 0.0% 3.125% 4. Utilities 1.0% 4.0% 0.6% 5.6% 5. Communications 1.0% 4.0% 0.6% 5.6% 6. Railroads and Aircraft 1.0% 4.0% 0.6% 5.6% 7/8. Private Car/Pipelines 1.0% 4.0% 0.6% 5.6% 9. Publishing 1.0% 4.0% 0.6% 5.6% 10. Printing 1.0% 4.0% 0.6% 5.6% 11. Restaurants and Bars 2.0% 3.0% 0.6% 5.6% 12. Amusements 2.0% 3.0% 0.6% 5.6% 14. Personal Property Rentals 2.0% 3.0% 0.6% 5.6% 15. Contracting (1) 1.0% 4.0% 0.6% 5.6% 17. Retail 2.0% 3.0% 0.6% 5.6% 19. Mining Severance 2.5% 0.0% 0.0% 2.5% 21. Timbering Severance - Ponderosa $1.704 $0.426 $0 $2.13 (per thousand board feet) 22. Timbering Severance - Other $1.208 $0.302 $0 $1.51 (per thousand board feet) 25. Hotel/Motel Tax 2.75% 2.75% 0.0% 5.5% 28. Rental Occupancy Tax 2.0% 1.0% 0.0% 3.0% 29/30. Use and Use Inventory Tax 0.0% 5.0% 0.6% 5.6% 47. Membership Camping 2.0% 3.0% 0.6% 5.6% 49. Jet Fuel (per gallon) $0.0122 $0.0183 $0 $0.0305 51. Jet Fuel Use ( per gallon) $0 $0.0305 $0 $0.0305 (1) Most Contracting activity is covered under class 15, at a 5.6% total tax rate. Other classes at lower rates exist. TABLE 6 NET TAXABLE SALES BY TRANSACTION PRIVILEGE, USE AND SEVERANCE TAX CLASSIFICATIONS (1) FISCAL YEAR 1997-98 THROUGH FISCAL YEAR 2001-02 % OF % OF % OF % OF % OF CLASSIFICATION FY1997-98 TOTAL FY1998-99 TOTAL FY1999-00 TOTAL FY2000-01 TOTAL FY2001-02 TOTAL Transportation and Towing $64,281,736 0.11 $58,302,201 0.09 $56,620,330 0.08 $85,910,143 0.11 $57,567,191 0.08 Mining, Oil & Gas 190,472,916 0.31 204,730,724 0.31 193,933,697 0.27 224,834,096 0.30 208,310,010 0.28 Mining Severance 1,082,898,418 1.77 749,256,686 1.14 481,582,634 0.66 168,695,209 0.22 (4,263,622) (0.01) Timber Severance (4) (781) (0.00) (6) (439) (0.00) (6) 0 0.00 (6) 0 0.00 (6) 766,360 0.00 (6) Utilities 4,923,557,931 8.05 5,066,644,493 7.72 5,268,207,981 7.27 5,814,282,521 7.65 5,919,273,137 7.83 Communications 1,919,236,806 3.14 2,153,027,806 3.28 2,453,093,781 3.39 2,870,088,870 3.78 2,945,681,407 3.90 Railroads and Aircraft 36,688,382 0.06 36,057,579 0.05 32,885,789 0.05 52,745,618 0.07 38,788,894 0.05 Private Car and Pipelines 12,773,763 0.02 15,556,192 0.02 5,612,007 0.01 15,485,669 0.02 7,134,188 0.01 Publishing 110,592,575 0.18 119,042,396 0.18 112,357,871 0.16 124,462,488 0.16 82,843,214 0.11 Job Printing 405,093,470 0.66 418,739,698 0.64 418,677,603 0.58 402,933,841 0.53 351,141,961 0.46 Local Advertising (2) 0 0.00 (1,614) (0.00) (6) 27,476 0.00 (6) 0 0.00 (6) 0 0.00 (6) Restaurants and Bars 5,095,503,749 8.33 5,476,712,938 8.34 5,976,371,272 8.25 6,300,820,165 8.29 6,428,712,331 8.51 Amusements 672,756,982 1.10 680,140,832 1.04 758,823,163 1.05 760,837,607 1.00 743,800,365 0.98 Commercial Lease (5) 386,199,867 0.63 (133,063,779) (0.20) 659,198,999 0.91 182,691,438 0.24 36,912,605 0.05 Personal Property Rentals 2,909,345,629 4.76 3,170,337,708 4.83 3,412,995,935 4.71 3,658,549,237 4.81 3,607,518,815 4.77 Contracting 8,568,022,267 14.00 10,021,561,060 15.27 10,847,157,383 14.98 11,250,537,683 14.80 11,820,596,498 15.64 Feed Wholesale (3) (6,707,034) (0.01) 269,821 0.00 (6) 382,271 0.00 (6) (41,648) (0.00) (6) (1,806,235) (0.00) (6) Retail 30,469,141,007 49.80 32,964,475,378 50.22 36,403,861,655 50.27 38,282,337,115 50.37 38,432,859,974 50.85 Hotel/Motel 1,609,506,373 2.63 1,679,514,834 2.56 1,818,473,902 2.51 1,871,008,576 2.46 1,659,760,985 2.20 Rental Occupancy Tax 4,211,147 0.01 3,930,929 0.01 3,733,808 0.01 4,896,781 0.01 5,967,630 0.01 Use Tax 2,729,476,046 4.46 2,951,224,001 4.50 3,514,612,988 4.85 3,922,952,933 5.16 3,240,459,960 4.29 Membership Camping 1,621,718 0.00 (6) 1,682,321 0.00 (6) 1,411,253 0.00 (6) 2,420,361 0.00 (6) 2,741,146 0.00 (6) Agriculture Equipment (7) ----- ----- ----- 1,212,738 0.00 (6) 2,106,425 0.00 (6) TOTAL $61,184,672,966 100.00 $65,638,141,764 100.00 $72,420,021,798 100.00 $75,997,661,442 100.00 $75,586,873,240 100.00 (1) Net taxable sales are based upon tax receipts. (2) Local advertising was phased out on January 1, 1986. (3) Feed Wholesale dropped to 0% effective July 17, 1994 and was repealed effective October 1, 1994. (4) Effective July 13, 1995 the tax rate on Timber Severance was changed to a dollar amount per 1,000 board feet. Timber Severance includes only sales subject to the repealed rate. (5) Commercial Lease rate dropped to 0% effective July 1, 1997. (6) Percent of total is less than 0.01%. (7) Agriculture Equipment was phased out July 1, 1988 and is not a current business classification. Figures may not add to total due to rounding. TABLE 7 TRANSACTION PRIVILEGE, USE AND SEVERANCE TAX COLLECTIONS BY CLASS (1) FISCAL YEAR 2001-02 DISTRIBUTION TOTAL CLASSIFICATION BASE NONSHARED COLLECTIONS Transporting and Towing $575,672 $2,302,688 $2,878,360 Nonmetal Mining, Oil and Gas 2,083,100 4,426,588 6,509,688 Mining Severance (85,598) (20,993) (106,591) Timbering Severance 9,196 2,299 11,495 Timbering Severance - Ponderosa 718 180 897 Timbering Severance - Other 1,114 278 1,392 Utilities 59,192,731 236,770,926 295,963,657 Communications 29,456,814 117,827,256 147,284,070 Railroads and Aircraft 387,889 1,551,556 1,939,445 Private Car and Pipelines 71,342 285,368 356,709 Publishing 828,432 3,313,728 4,142,161 Printing 3,511,419 14,045,679 17,557,098 Restaurants and Bars 128,574,246 192,861,370 321,435,616 Amusements 14,876,008 22,314,011 37,190,018 Commercial Lease (3) 303,101 271,413 574,514 Rentals of Personal Property 72,150,374 108,225,567 180,375,941 Contracting 118,205,962 472,823,862 591,029,823 Feed Wholesale (2) (4,518) (3,954) (8,471) Retail 768,614,485 1,153,028,514 1,921,642,999 Hotel/Motel 45,643,489 45,643,365 91,286,854 Rental Occupancy Tax 119,358 59,670 179,029 Use Tax 0 162,022,998 162,022,998 License Fees 0 475,424 475,424 Membership Camping 54,823 82,234 137,057 Jet Fuel Tax 2,259,054 3,388,581 5,647,634 Jet Fuel Use Tax 0 728,989 728,989 Non Sufficient Funds 0 36,558 36,558 Telecommunications Service Assistance (55,948) (223,793) (279,742) Miscellaneous Fees 0 20 20 Agriculture Equipment (4) 0 21,064 21,064 Utility Credit/Reimbursement 0 157 157 TOTAL $1,246,773,262 $2,542,261,603 $3,789,034,865 (1) Does not reflect the balance of undistributed estimated payments at the end of FY02. (2) Feed Wholesale dropped to 0% effective July 17, 1994 and was repealed effective October 1, 1994. (3) Commercial Lease rate dropped to 0% effective July 1, 1997. (4) Agriculture Equipment was phased out July 1, 1988 and is not a current business classification. Figures may not add to total due to rounding. TABLE 8 DISTRIBUTION OF TRANSACTION PRIVILEGE, USE AND SEVERANCE TAX COLLECTIONS FISCAL YEAR 2001-02 Net Regular to State General Fund $2,972,274,262 Net Estimated Payments to General Fund 28,766,081 Net to Cities 311,693,101 Net to Counties 505,067,501 Net to Education Fund 439,004,543 911 Wireline/Excise, 911 Wireless, Telecommunications Devices, Poison Control Fund, Municipal 32,972,469 Water and Environmentally Hazardous Products, and Waste Tire Accounts Receivable Collections Less Collection Fees (888) TOTAL GROSS COLLECTIONS $4,289,777,071 ADDITIONAL DISTRIBUTION FROM TRANSACTION PRIVILEGE, USE AND SEVERANCE TAX COLLECTIONS FISCAL YEAR 2001-02 Office of Tourism $10,739,453 Phoenix International Raceway $416,667 School Facilities Board $382,000,000 Tourism and Sports Authority $694,080 Tribal Community Colleges $1,750,000 Urban In-Lieu $645,322 Figures may not add total due to rounding. TABLE 9 TRANSACTION PRIVILEGE, USE AND SEVERANCE TAX COLLECTIONS (1) IN APACHE COUNTY FOR THE PERIOD BEGINNING JULY 1, 2001 AND ENDING JUNE 30, 2002 TAXABLE ACTIVITIES AND CALCULATED NET % CHANGE BUSINESS CLASSIFICATIONS TAXABLE INCOME FROM FY2000-01 COLLECTIONS Utilities $9,625,070 -20.0% $481,254 Communications 12,147,459 -1.6% 607,373 Publishing 453,177 1.7% 22,659 Restaurants and Bars 8,865,661 -6.6% 443,283 Amusements 397,249 50.6% 19,862 Rentals of Personal Property 3,269,901 6.1% 163,495 Contracting (All) 73,088,110 28.4% 3,654,406 Retail 57,726,056 -23.1% 2,886,303 Hotel/Motel 10,298,568 -15.1% 566,421 Other Taxable Activities 35,859,777 -79.9% 1,730,942 TOTAL $211,731,029 -41.2% $10,575,998 NUMBER OF ACCOUNTS FISCAL YEAR 1999-00 THROUGH FISCAL YEAR 2001-02 TAXABLE ACTIVITIES AND BUSINESS CLASSIFICATIONS FY1999-00 FY2000-01 FY2001-02 Utilities 25 27 25 Communications 85 94 111 Publishing 13 15 14 Restaurants and Bars 70 67 63 Amusements 11 10 12 Rentals of Personal Property 179 195 182 Contracting (All) 279 307 321 Retail 1,027 1,010 987 Hotel/Motel 54 57 63 Other Taxable Activities 489 530 488 TOTAL 2,232 2,312 2,266 (1) License fees, Jet Fuel, Jet Fuel Use, Timber Severance Ponderosa/Other, NSF, Seizure/Sales Fees, Telecommunications Service Assistance, Subpoena Fees and Utilities Credit are not included. Figures may not add to total due to rounding. TABLE 10 TRANSACTION PRIVILEGE, USE AND SEVERANCE TAX COLLECTIONS (1) IN COCHISE COUNTY FOR THE PERIOD BEGINNING JULY 1, 2001 AND ENDING JUNE 30, 2002 TAXABLE ACTIVITIES AND CALCULATED NET % CHANGE BUSINESS CLASSIFICATIONS TAXABLE INCOME FROM FY2000-01 COLLECTIONS Utilities $117,280,077 1.1% $5,864,004 Communications 50,464,932 0.4% 2,523,247 Publishing 1,883,882 12.1% 94,194 Printing/Advertising 1,884,218 16.4% 94,211 Restaurants and Bars 89,315,314 6.7% 4,465,766 Amusements 5,992,093 -2.1% 299,605 Rentals of Personal Property 21,251,331 1.7% 1,062,567 Contracting (All) 147,696,531 5.1% 7,384,827 Retail 597,497,254 5.3% 29,874,863 Hotel/Motel 24,601,914 -3.1% 1,353,105 Other Taxable Activities 68,342,989 -10.7% 3,387,901 TOTAL $1,126,210,536 3.3% $56,404,288 NUMBER OF ACCOUNTS FISCAL YEAR 1999-00 THROUGH FISCAL YEAR 2001-02 TAXABLE ACTIVITIES AND BUSINESS CLASSIFICATIONS FY1999-00 FY2000-01 FY2001-02 Utilities 48 49 48 Communications 133 166 181 Publishing 21 18 19 Printing/Advertising 27 27 25 Restaurants and Bars 341 347 346 Amusements 79 69 70 Rentals of Personal Property 418 439 421 Contracting (All) 753 804 796 Retail 3,238 3,193 3,107 Hotel/Motel 138 141 140 Other Taxable Activities 845 862 886 TOTAL 6,041 6,115 6,039 (1) License fees, Jet Fuel, Jet Fuel Use, Timber Severance Ponderosa/Other, NSF, Seizure/Sales Fees, Telecommunications Service Assistance, Subpoena Fees and Utilities Credit are not included. Figures may not add to total due to rounding. TABLE 11 TRANSACTION PRIVILEGE, USE AND SEVERANCE TAX COLLECTIONS (1) IN COCONINO COUNTY FOR THE PERIOD BEGINNING JULY 1, 2001 AND ENDING JUNE 30, 2002 TAXABLE ACTIVITIES AND CALCULATED NET % CHANGE BUSINESS CLASSIFICATIONS TAXABLE INCOME FROM FY2000-01 COLLECTIONS Non Metal Mining/Mining Severance $3,816,104 51.7% (2) $119,253 Utilities 120,664,563 5.5% 6,033,228 Communications 65,516,782 -0.2% 3,275,839 Publishing 3,356,620 5.0% 167,831 Printing/Advertising 2,967,240 -13.3% 148,362 Restaurants and Bars 242,195,096 -0.2% 12,109,755 Amusements (11,511,220) N/A (575,561) Rentals of Personal Property 54,290,507 0.3% 2,714,525 Contracting (All) 256,042,190 1.6% 12,802,109 Retail 853,357,687 3.1% 42,667,884 Hotel/Motel 164,159,208 -6.8% 9,028,756 Other Taxable Activities 76,075,862 -7.2% 3,793,982 TOTAL $1,830,930,638 -1.3% $92,285,964 NUMBER OF ACCOUNTS FISCAL YEAR 1999-00 THROUGH FISCAL YEAR 2001-02 TAXABLE ACTIVITIES AND BUSINESS CLASSIFICATIONS FY1999-00 FY2000-01 FY2001-02 Non Metal Mining/Mining Severance 15 16 17 Utilities 39 47 40 Communications 169 184 215 Publishing 39 32 32 Printing/Advertising 41 36 33 Restaurants and Bars 426 423 426 Amusements 95 93 98 Rentals of Personal Property 550 531 542 Contracting (All) 1,350 1,354 1,459 Retail 3,810 3,828 3,771 Hotel/Motel 239 248 251 Other Taxable Activities 1,128 1,152 1,172 TOTAL 7,901 7,944 8,056 (1) License fees, Jet Fuel, Jet Fuel Use, Timber Severance Ponderosa/Other, NSF, Seizure/Sales Fees, Telecommunications, Service Assistance, Subpoena Fees and Utilities Credit are not included. (2) Increase due to unusual activity. Figures may not add to total due to rounding. TABLE 12 TRANSACTION PRIVILEGE, USE AND SEVERANCE TAX COLLECTIONS (1) IN GILA COUNTY FOR THE PERIOD BEGINNING JULY 1, 2001 AND ENDING JUNE 30, 2002 TAXABLE ACTIVITIES AND CALCULATED NET % CHANGE BUSINESS CLASSIFICATIONS TAXABLE INCOME FROM FY2000-01 COLLECTIONS Utilities $83,601,380 -4.0% $4,180,069 Communications 34,324,266 34.6% 1,716,213 Publishing 1,051,605 3.3% 52,580 Printing/Advertising 707,358 20.5% 35,368 Restaurants and Bars 46,500,034 4.1% 2,325,002 Amusements 1,897,577 16.0% 94,879 Rentals of Personal Property 12,560,184 -5.1% 628,009 Contracting (All) 90,717,870 2.3% 4,535,894 Retail 236,377,403 3.4% 11,818,870 Hotel/Motel 10,459,151 -11.7% 575,253 Other Taxable Activities 23,637,793 13.7% 1,054,901 TOTAL $541,834,622 3.4% $27,017,038 NUMBER OF ACCOUNTS FISCAL YEAR 1999-00 THROUGH FISCAL YEAR 2001-02 TAXABLE ACTIVITIES AND BUSINESS CLASSIFICATIONS FY1999-00 FY2000-01 FY2001-02 Utilities 33 36 36 Communications 124 135 164 Publishing 15 19 14 Printing/Advertising 16 15 14 Restaurants and Bars 165 164 167 Amusements 43 40 37 Rentals of Personal Property 289 286 280 Contracting (All) 711 696 710 Retail 1,809 1,818 1,812 Hotel/Motel 68 66 67 Other Taxable Activities 576 572 598 TOTAL 3,849 3,847 3,899 (1) License fees, Jet Fuel, Jet Fuel Use, Timber Severance Ponderosa/Other, NSF, Seizure/Sales Fees, Telecommunications Service Assistance, Subpoena Fees and Utilities Credit are not included. Figures may not add to total due to rounding. TABLE 13 TRANSACTION PRIVILEGE, USE AND SEVERANCE TAX COLLECTIONS (1) IN GRAHAM COUNTY FOR THE PERIOD BEGINNING JULY 1, 2001 AND ENDING JUNE 30, 2002 TAXABLE ACTIVITIES AND CALCULATED NET % CHANGE BUSINESS CLASSIFICATIONS TAXABLE INCOME FROM FY2000-01 COLLECTIONS Communications $10,964,074 -7.5% $548,204 Restaurants and Bars 16,214,002 -4.2% 810,700 Rentals of Personal Property 6,941,527 1.2% 347,076 Contracting (All) 40,468,223 46.6% 2,023,411 Retail 132,562,336 -5.7% 6,628,117 Other Taxable Activities 37,808,767 -23.9% 1,904,159 TOTAL $244,958,929 -3.4% $12,261,667 NUMBER OF ACCOUNTS FISCAL YEAR 1999-00 THROUGH FISCAL YEAR 2001-02 TAXABLE ACTIVITIES AND BUSINESS CLASSIFICATIONS FY1999-00 FY2000-01 FY2002-03 Communications 87 103 110 Restaurants and Bars 71 74 67 Rentals of Personal Property 182 177 170 Contracting (All) 228 215 197 Retail 996 999 974 Other Taxable Activities 443 453 491 TOTAL 2,007 2,021 2,009 (1) License fees, Jet Fuel, Jet Fuel Use, Timber Severance Ponderosa/Other, NSF, Seizure/Sales Fees, Telecommunications Service Assistance, Subpoena Fees and Utilities Credit are not included. Figures may not add to total due to rounding. TABLE 14 TRANSACTION PRIVILEGE, USE AND SEVERANCE TAX COLLECTIONS (1) IN GREENLEE COUNTY FOR THE PERIOD BEGINNING JULY 1, 2001 AND ENDING JUNE 30, 2002 TAXABLE ACTIVITIES AND CALCULATED NET % CHANGE BUSINESS CLASSIFICATIONS TAXABLE INCOME FROM FY2000-01 COLLECTIONS Communications $3,427,170 -14.0% $171,358 Restaurants and Bars 2,735,862 -18.8% 136,793 Rentals of Personal Property 663,721 -29.0% 33,186 Contracting (All) 12,074,225 29.8% 603,711 Retail 54,854,616 -8.4% 2,742,731 Other Taxable Activities 62,154,515 -62.9% 2,659,585 TOTAL $135,910,108 -44.6% $6,347,365 NUMBER OF ACCOUNTS FISCAL YEAR 1999-00 THROUGH FISCAL YEAR 2001-02 TAXABLE ACTIVITIES AND BUSINESS CLASSIFICATIONS FY1999-00 FY2000-01 FY2001-02 Communications 52 69 69 Restaurants and Bars 23 22 23 Rentals of Personal Property 82 88 79 Contracting (All) 68 82 78 Retail 373 375 363 Other Taxable Activities 193 230 203 TOTAL 791 866 815 (1) License fees, Jet Fuel, Jet Fuel Use, Timber Severance Ponderosa/Other, NSF, Seizure/Sales Fees, Telecommunications Service Assistance, Subpoena Fees and Utilities Credit are not included. Figures may not add to total due to rounding. TABLE 15 TRANSACTION PRIVILEGE, USE AND SEVERANCE TAX COLLECTIONS (1) IN LA PAZ COUNTY FOR THE PERIOD BEGINNING JULY 1, 2001 AND ENDING JUNE 30, 2002 TAXABLE ACTIVITIES AND CALCULATED NET % CHANGE BUSINESS CLASSIFICATIONS TAXABLE INCOME FROM FY2000-01 COLLECTIONS Utilities $17,576,249 13.8% $878,812 Communications 5,462,360 31.1% 273,118 Publishing 485,309 7.2% 24,265 Restaurants and Bars 22,035,866 -6.2% 1,101,793 Amusements 316,772 -41.4% 15,839 Rentals of Personal Property 4,978,099 22.5% 248,905 Contracting (All) 21,111,760 1.6% 1,055,588 Retail 95,076,962 8.4% 4,753,848 Hotel/Motel 5,310,296 5.8% 292,066 Other Taxable Activities 17,708,790 358.1% (2) 883,093 TOTAL $190,062,464 14.8% $9,527,328 NUMBER OF ACCOUNTS FISCAL YEAR 1999-00 THROUGH FISCAL YEAR 2001-02 TAXABLE ACTIVITIES AND BUSINESS CLASSIFICATIONS FY1999-00 FY2000-01 FY2001-02 Utilities 18 21 22 Communications 91 94 100 Publishing 13 12 11 Restaurants and Bars 102 91 97 Amusements 15 17 13 Rentals of Personal Property 200 191 174 Contracting (All) 212 217 225 Retail 1,865 1,806 1,787 Hotel/Motel 55 59 58 Other Taxable Activities 447 394 387 TOTAL 3,018 2,902 2,874 (1) License fees, Jet Fuel, Jet Fuel Use, Timber Severance Ponderosa/Other, NSF, Seizure/Sales Fees, Telecommunications Service Assistance, Subpoena Fees and Utilities Credit are not included. (2) Increase due to unusual activity in FY 02. Figures may not add to total due to rounding. TABLE 16 TRANSACTION PRIVILEGE,USE AND SEVERANCE TAX COLLECTIONS (1) IN MARICOPA COUNTY FOR THE PERIOD BEGINNING JULY 1, 2001 AND ENDING JUNE 30, 2002 TAXABLE ACTIVITIES AND CALCULATED NET % CHANGE BUSINESS CLASSIFICATIONS TAXABLE INCOME FROM FY2000-01 COLLECTIONS Non Metal Mining/Mining Severance $40,423,852 -18.8% $1,262,663 Utilities 3,684,640,251 3.2% 184,232,013 Communications 1,979,154,446 -0.5% 98,957,722 Publishing 45,136,947 -47.5% 2,256,847 Printing/Advertising 280,788,123 -14.4% 14,039,406 Restaurants and Bars 4,327,397,867 1.5% 216,369,893 Amusements 594,851,658 4.6% 29,742,583 Rentals of Personal Property 2,819,301,684 -2.3% 140,965,084 Contracting (All) 8,163,380,357 5.5% 408,169,018 Retail 26,168,729,464 -0.5% 1,308,436,473 Hotel/Motel 986,195,425 -13.5% 54,240,748 Other Taxable Activities 2,526,220,932 -22.6% 125,126,682 TOTAL $51,616,221,006 -1.1% $2,583,799,133 NUMBER OF ACCOUNTS FISCAL YEAR 1999-00 THROUGH FISCAL YEAR 2001-02 TAXABLE ACTIVITIES AND BUSINESS CLASSIFICATIONS FY1999-00 FY2000-01 FY2001-02 Non Metal Mining/Mining Severance 57 55 52 Utilities 146 136 157 Communications 589 624 640 Publishing 360 322 295 Printing/Advertising 1,022 956 970 Restaurants and Bars 5,213 5,239 5,443 Amusements 740 706 695 Rentals of Personal Property 2,950 2,925 2,913 Contracting (All) 11,576 11,773 12,177 Retail 43,693 43,250 43,087 Hotel/Motel 606 619 625 Other Taxable Activities 10,910 10,938 10,713 TOTAL 77,862 77,543 77,767 (1) License fees, Jet Fuel, Jet Fuel Use, Timber Severance Ponderosa/Other, NSF, Seizure/Sales Fees, Telecommunications Service Assistance, Subpoena Fees and Utilities Credit are not included. Figures may not add to total due to rounding. TABLE 17 TRANSACTION PRIVILEGE, USE AND SEVERANCE TAX COLLECTIONS (1) IN MOHAVE COUNTY FOR THE PERIOD BEGINNING JULY 1, 2001 AND ENDING JUNE 30, 2002 TAXABLE ACTIVITIES AND CALCULATED NET % CHANGE BUSINESS CLASSIFICATIONS TAXABLE INCOME FROM FY2000-01 COLLECTIONS Utilities $175,433,261 10.3% $8,771,663 Communications 59,353,778 13.8% 2,967,689 Publishing 2,367,141 2.6% 118,357 Printing/Advertising 4,289,293 1.2% 214,465 Restaurants and Bars 148,589,696 10.0% 7,429,485 Amusements 14,189,288 -1.0% 709,464 Rentals of Personal Property 58,606,400 7.0% 2,930,320 Contracting (All) 319,798,891 5.2% 15,989,945 Retail 974,535,306 8.1% 48,726,765 Hotel/Motel 35,340,194 1.4% 1,943,711 Other Taxable Activities 114,768,948 94.8% (2) 5,687,072 TOTAL $1,907,272,197 10.8% $95,488,935 NUMBER OF ACCOUNTS FISCAL YEAR 1999-00 THROUGH FISCAL YEAR 2001-02 TAXABLE ACTIVITIES AND BUSINESS CLASSIFICATIONS FY1999-00 FY2000-01 FY2001-02 Utilities 49 51 53 Communications 112 136 159 Publishing 29 27 26 Printing/Advertising 42 36 36 Restaurants and Bars 403 404 407 Amusements 64 64 68 Rentals of Personal Property 535 549 541 Contracting (All) 1,259 1,277 1,286 Retail 4,203 4,151 4,225 Hotel/Motel 145 148 145 Other Taxable Activities 1,140 1,140 1,144 TOTAL 7,981 7,983 8,090 (1) License fees, Jet Fuel, Jet Fuel Use, Timber Severance Ponderosa/Other, NSF, Seizure/Sales Fees, Telecommunications Service Assistance, Subpoena Fees and Utilities Credit are not included. (2) Increase due to unusual activity in FY 02. Figures may not add to total due to rounding. TABLE 18 TRANSACTION PRIVILEGE, USE AND SEVERANCE TAX COLLECTIONS (1) IN NAVAJO COUNTY FOR THE PERIOD BEGINNING JULY 1, 2001 AND ENDING JUNE 30, 2002 TAXABLE ACTIVITIES AND CALCULATED NET % CHANGE BUSINESS CLASSIFICATIONS TAXABLE INCOME FROM FY2000-01 COLLECTIONS Utilities $58,996,112 0.6% $2,949,806 Communications 41,317,358 -9.8% 2,065,868 Publishing 1,341,433 0.9% 67,072 Restaurants and Bars 64,135,553 3.5% 3,206,778 Amusements 4,363,746 29.8% 218,187 Rentals of Personal Property 17,468,897 -6.7% 873,445 Contracting (All) 138,607,290 15.9% 6,930,364 Retail 578,071,060 3.6% 28,903,553 Hotel/Motel 28,465,826 -10.9% 1,565,620 Other Taxable Activities 119,192,858 -5.4% 4,307,347 TOTAL $1,051,960,132 2.6% $51,088,040 NUMBER OF ACCOUNTS FISCAL YEAR 1999-00 THROUGH FISCAL YEAR 2001-02 TAXABLE ACTIVITIES AND BUSINESS CLASSIFICATIONS FY1999-00 FY2000-01 FY2001-02 Utilities 39 40 46 Communications 131 134 154 Publishing 20 18 17 Restaurants and Bars 201 199 198 Amusements 44 38 37 Rentals of Personal Property 342 337 340 Contracting (All) 770 802 850 Retail 2,243 2,272 2,205 Hotel/Motel 144 136 149 Other Taxable Activities 689 732 769 TOTAL 4,623 4,708 4,765 (1) License fees, Jet Fuel, Jet Fuel Use, Timber Severance Ponderosa/Other, NSF, Seizure/Sales Fees, Telecommunications Service Assistance, Subpoena Fees and Utilities Credit are not included. Figures may not add to total due to rounding. TABLE 19 TRANSACTION PRIVILEGE, USE AND SEVERANCE TAX COLLECTIONS (1) IN PIMA COUNTY FOR THE PERIOD BEGINNING JULY 1, 2001 AND ENDING JUNE 30, 2002 TAXABLE ACTIVITIES AND CALCULATED NET % CHANGE BUSINESS CLASSIFICATIONS TAXABLE INCOME FROM FY2000-01 COLLECTIONS Non Metal Mining/Mining Severance $12,287,098 -70.3% (2) $378,523 Utilities 1,029,276,491 -2.2% 51,463,825 Communications 443,208,480 15.8% 22,160,424 Publishing 15,724,754 -6.3% 786,238 Printing/Advertising 47,473,259 -9.3% 2,373,663 Restaurants and Bars 1,015,497,369 2.9% 50,774,868 Amusements 83,031,941 -3.0% 4,151,597 Rentals of Personal Property 445,587,851 4.0% 22,279,393 Contracting (All) 1,519,119,188 -0.2% 75,955,958 Retail 5,952,745,532 0.5% 297,637,277 Hotel/Motel 265,848,719 -11.3% 14,621,680 Other Taxable Activities 331,327,201 -4.5% 16,460,532 TOTAL $11,161,127,882 0.2% $559,043,976 NUMBER OF ACCOUNTS FISCAL YEAR 1999-00 THROUGH FISCAL YEAR 2001-02 TAXABLE ACTIVITIES AND BUSINESS CLASSIFICATIONS FY1999-00 FY2000-01 FY2001-02 Non Metal Mining/Mining Severance 24 20 21 Utilities 68 75 76 Communications 196 250 319 Publishing 98 94 113 Printing/Advertising 201 187 178 Restaurants and Bars 1,574 1,535 1,527 Amusements 223 224 222 Rentals of Personal Property 1,257 1,227 1,210 Contracting (All) 4,232 4,330 4,371 Retail 14,567 14,179 13,982 Hotel/Motel 266 258 252 Other Taxable Activities 2,513 2,575 2,569 TOTAL 25,219 24,954 24,840 (1) License fees, Jet Fuel, Jet Fuel Use, Timber Severance Ponderosa/Other, NSF, Seizure/Sales Fees, Telecommunications Service Assistance, Subpoena Fees and Utilities Credit are not included. (2) Decrease due to unusual activity. Figures may not add to total due to rounding. TABLE 20 TRANSACTION PRIVILEGE, USE AND SEVERANCE TAX COLLECTIONS (1) IN PINAL COUNTY FOR THE PERIOD BEGINNING JULY 1, 2001 AND ENDING JUNE 30, 2002 TAXABLE ACTIVITIES AND CALCULATED NET % CHANGE BUSINESS CLASSIFICATIONS TAXABLE INCOME FROM FY2000-01 COLLECTIONS Non Metal Mining/Mining Severance ($3,693,511) -105.3% (2) $56,889 Utilities 184,739,118 3.1% 9,236,956 Communications 87,023,969 9.3% 4,351,198 Publishing 3,326,901 4.3% 166,345 Printing/Advertising 1,473,306 -31.3% 73,665 Restaurants and Bars 98,961,584 2.6% 4,948,079 Amusements 16,979,606 -13.3% 848,980 Rentals of Personal Property 38,037,442 8.5% 1,901,872 Contracting (All) 333,959,177 2.9% 16,697,959 Retail 540,035,225 6.4% 27,001,761 Hotel/Motel 15,875,133 -7.3% 873,132 Other Taxable Activities 61,516,560 10.3% 3,053,170 TOTAL $1,378,234,509 -0.8% $69,210,007 NUMBER OF ACCOUNTS FISCAL YEAR 1999-00 THROUGH FISCAL YEAR 2001-02 TAXABLE ACTIVITIES AND BUSINESS CLASSIFICATIONS FY1999-00 FY2000-01 FY2001-02 Non Metal Mining/Mining Severance 34 28 26 Utilities 48 50 60 Communications 157 171 218 Publishing 26 23 23 Printing/Advertising 25 21 22 Restaurants and Bars 328 294 314 Amusements 80 87 83 Rentals of Personal Property 426 423 433 Contracting (All) 1,452 1,546 1,645 Retail 3,398 3,288 3,265 Hotel/Motel 94 98 102 Other Taxable Activities 912 954 990 TOTAL 6,980 6,983 7,181 (1) License fees, Jet Fuel, Jet Fuel Use, Timber Severance Ponderosa/Other, NSF, Seizure/Sales Fees, Telecommunications Service Assistance, Subpoena Fees and Utilities Credit are not included. (2) Decrease due unusual activity. Figures may not add to total due to rounding. TABLE 21 TRANSACTION PRIVILEGE, USE AND SEVERANCE TAX COLLECTIONS (1) IN SANTA CRUZ COUNTY FOR THE PERIOD BEGINNING JULY 1, 2001 AND ENDING JUNE 30, 2002 TAXABLE ACTIVITIES AND CALCULATED NET % CHANGE BUSINESS CLASSIFICATIONS TAXABLE INCOME FROM FY2000-01 COLLECTIONS Utilities $27,563,837 3.7% $1,378,192 Communications 19,986,205 -9.3% 999,310 Publishing 181,274 -16.5% 9,064 Restaurants and Bars 32,842,522 -2.8% 1,642,126 Amusements 1,396,098 -2.9% 69,805 Rentals of Personal Property 12,995,882 -16.8% 649,794 Contracting (All) 46,785,030 2.4% 2,339,251 Retail 266,013,176 3.6% 13,300,659 Hotel/Motel 9,416,481 -7.1% 517,906 Other Taxable Activities 10,341,956 -20.6% 516,863 TOTAL $427,522,460 0.5% $21,422,971 NUMBER OF ACCOUNTS FISCAL YEAR 1999-00 THROUGH FISCAL YEAR 2001-02 TAXABLE ACTIVITIES AND BUSINESS CLASSIFICATIONS FY1999-00 FY2000-01 FY2001-02 Utilities 18 19 19 Communications 110 124 133 Publishing 12 14 11 Restaurants and Bars 124 121 131 Amusements 24 24 16 Rentals of Personal Property 284 271 264 Contracting (All) 410 416 392 Retail 1,528 1,535 1,518 Hotel/Motel 28 26 29 Other Taxable Activities 529 516 506 TOTAL 3,067 3,066 3,019 (1) License fees, Jet Fuel, Jet Fuel Use, Timber Severance Ponderosa/Other, NSF, Seizure/Sales Fees, Telecommunications Service Assistance, Subpoena Fees and Utilities Credit are not included. Figures may not add to total due to rounding. TABLE 22 TRANSACTION PRIVILEGE, USE AND SEVERANCE TAX COLLECTIONS (1) IN YAVAPAI COUNTY FOR THE PERIOD BEGINNING JULY 1, 2001 AND ENDING JUNE 30, 2002 TAXABLE ACTIVITIES AND CALCULATED NET % CHANGE BUSINESS CLASSIFICATIONS TAXABLE INCOME FROM FY2000-01 COLLECTIONS Non Metal Mining/Mining Severance $34,036,656 -32.9% (2) $1,063,567 Utilities 195,530,843 7.7% 9,776,542 Communications 81,954,766 11.1% 4,097,738 Publishing 4,470,033 -2.6% 223,502 Printing/Advertising 5,406,515 13.6% 270,326 Restaurants and Bars 191,730,204 4.6% 9,586,510 Amusements 19,769,057 9.2% 988,453 Rentals of Personal Property 54,005,954 3.8% 2,700,298 Contracting (All) 436,873,952 9.8% 21,843,698 Retail 1,058,305,666 7.5% 52,915,283 Hotel/Motel 72,717,900 -2.1% 3,999,485 Other Taxable Activities 47,880,134 -3.4% 2,371,240 TOTAL $2,202,681,680 6.2% $109,836,641 NUMBER OF ACCOUNTS FISCAL YEAR 1999-00 THROUGH FISCAL YEAR 2001-02 TAXABLE ACTIVITIES AND BUSINESS CLASSIFICATIONS FY1999-00 FY2000-01 FY2001-02 Non Metal Mining/Mining Severance 28 24 31 Utilities 63 72 73 Communications 166 200 222 Publishing 53 54 52 Printing/Advertising 70 65 61 Restaurants and Bars 553 536 545 Amusements 86 85 94 Rentals of Personal Property 541 560 529 Contracting (All) 2,046 2,092 2,235 Retail 5,373 5,309 5,333 Hotel/Motel 185 189 174 Other Taxable Activities 1,103 1,179 1,218 TOTAL 10,267 10,365 10,567 (1) License fees, Jet Fuel, Jet Fuel Use, Timber Severance Ponderosa/Other, NSF, Seizure/Sales Fees, Telecommunications Service Assistance, Subpoena Fees and Utilities Credit are not included. (2) Decrease due to unuaual activity. Figures may not add to total due to rounding. TABLE 23 TRANSACTION PRIVILEGE, USE AND SEVERANCE TAX COLLECTIONS (1) IN YUMA COUNTY FOR THE PERIOD BEGINNING JULY 1, 2001 AND ENDING JUNE 30, 2002 TAXABLE ACTIVITIES AND CALCULATED NET % CHANGE BUSINESS CLASSIFICATIONS TAXABLE INCOME FROM FY2000-01 COLLECTIONS Utilities $153,178,418 -3.9% $7,658,921 Communications 51,375,362 1.0% 2,568,768 Publishing 2,699,789 -7.5% 134,989 Restaurants and Bars 121,695,701 7.2% 6,084,785 Amusements 9,431,947 1.4% 471,597 Rentals of Personal Property 57,559,434 -10.4% 2,877,972 Contracting (All) 220,873,703 9.0% 11,043,685 Retail 866,972,231 1.3% 43,348,612 Hotel/Motel 26,871,573 -3.6% 1,477,937 Other Taxable Activities 49,556,892 -1.6% 2,446,918 TOTAL $1,560,215,050 1.5% $78,114,184 NUMBER OF ACCOUNTS FISCAL YEAR 1999-00 THROUGH FISCAL YEAR 2001-02 TAXABLE ACTIVITIES AND BUSINESS CLASSIFICATIONS FY1999-00 FY2000-01 FY2001-02 Utilities 34 40 44 Communications 122 144 187 Publishing 15 15 13 Restaurants and Bars 278 277 292 Amusements 49 46 41 Rentals of Personal Property 487 491 462 Contracting (All) 618 672 693 Retail 3,265 3,229 3,246 Hotel/Motel 91 109 92 Other Taxable Activities 900 963 925 TOTAL 5,859 5,986 5,995 (1) License fees, Jet Fuel, Jet Fuel Use, Timber Severance Ponderosa/Other, NSF, Seizure/Sales Fees, Telecommunications Service Assistance, Subpoena Fees and Utilities Credit are not included. Figures may not add to total due to rounding. TABLE 24 STATE TRANSACTION PRIVILEGE AND SEVERANCE TAX DISTRIBUTION TO COUNTIES FISCAL YEAR 1997-98 THROUGH FISCAL YEAR 2001-02 % CHANGE COUNTY FY1997-98 FY1998-99 FY1999-00 FY2000-01 FY2001-02 FROM FY2000/01 Apache $3,384,940 $3,565,934 $5,473,442 $4,445,431 $3,808,535 -14.3% Cochise 7,886,873 8,390,958 9,229,981 9,594,853 9,111,850 -5.0% Coconino 12,183,683 12,695,530 13,841,588 13,978,278 13,695,680 -2.0% Gila 4,156,713 4,067,599 3,882,098 4,443,907 4,087,916 -8.0% Graham 2,139,621 2,247,541 2,412,735 2,462,318 2,366,529 -3.9% Greenlee 3,813,256 3,226,878 3,098,540 3,003,365 1,794,359 -40.3% La Paz 1,316,162 1,421,105 1,486,269 1,495,379 1,525,956 2.0% Maricopa 256,008,018 277,695,556 306,464,900 322,426,596 325,710,325 1.0% Mohave 11,639,836 12,194,408 12,938,817 13,012,998 13,293,460 2.2% Navajo 6,690,773 7,136,959 7,748,173 7,932,049 7,990,618 0.7% Pima 65,670,660 70,057,426 76,273,737 79,516,015 76,759,008 -3.5% Pinal 10,457,557 11,018,980 11,582,587 12,511,593 12,467,448 -0.4% Santa Cruz 2,793,965 2,968,377 3,180,054 3,346,986 3,275,822 -2.1% Yavapai 13,324,088 14,218,059 16,154,370 16,629,440 16,504,368 -0.8% Yuma 9,834,655 10,495,286 11,358,869 11,861,866 12,675,627 6.9% $411,300,801 $441,400,596 $485,126,158 $506,661,075 $505,067,501 -0.3% Figures may not add to totals due to rounding. TABLE 25 STATE TRANSACTION PRIVILEGE AND SEVERANCE TAX DISTRIBUTION TO MUNICIPALITIES FISCAL YEAR 2001-02 CITIES AMOUNT COUNTY TOTAL CITIES AMOUNT COUNTY TOTAL APACHE Queen Creek $332,593 Eagar $310,785 Scottsdale 15,620,534 St. Johns 243,343 Surprise 2,377,160 Springerville 160,531 $714,658 Tempe 12,223,711 COCHISE Tolleson 383,299 Benson 363,032 Wickenburg 391,621 Bisbee 469,298 Youngtown 231,952 $220,616,766 Douglas 1,102,889 MOHAVE Huachuca City 134,933 Bullhead City 2,602,254 Sierra Vista 2,910,958 Colorado City 256,919 Tombstone 115,899 Kingman 1,546,526 Willcox 287,667 5,384,675 Lake Havasu City 3,231,760 7,637,459 COCONINO NAVAJO Flagstaff 4,076,034 Holbrook 378,906 Fredonia 79,835 Pinetop-Lakeside 276,030 Page 524,704 Show Low 592,980 Williams 219,006 4,899,579 Snowflake 343,690 GILA Taylor 244,744 Globe 576,874 Winslow 733,615 2,569,965 Hayden 68,738 PIMA Miami 149,189 Marana 1,044,631 Payson 1,049,563 Oro Valley 2,288,695 Winkelman 34,138 1,878,502 Sahuarita 249,830 GRAHAM South Tucson 423,062 Pima 153,273 Tucson 37,505,234 41,511,452 Safford 711,422 PINAL Thatcher 309,937 1,174,632 Apache Junction 2,451,601 GREENLEE Casa Grande 1,943,772 Clifton 200,049 Coolidge 599,993 Duncan 62,573 262,622 Eloy 799,502 LA PAZ Florence 1,113,215 Parker 241,970 Kearny 173,309 Quartzsite 258,461 500,430 Mammoth 135,780 MARICOPA Superior 250,755 7,467,926 Avondale 2,765,159 SANTA CRUZ Buckeye 654,782 Nogales 1,608,868 Carefree 225,556 Patagonia 67,890 1,676,758 Cave Creek 287,281 YAVAPAI Chandler 13,607,407 Camp Verde 728,298 El Mirage 586,353 Chino Valley 603,768 Fountain Hills 1,559,318 Clarkdale 263,701 Gila Bend 152,580 Cottonwood 707,338 Gilbert 8,453,298 Jerome 25,353 Glendale 16,861,747 Prescott 2,615,277 Goodyear 1,457,290 Prescott Valley 1,813,617 Guadalupe 402,872 Sedona 785,400 7,542,752 Litchfield Park 293,600 YUMA Mesa 30,544,828 San Luis 1,180,720 Paradise Valley 1,052,954 Somerton 559,921 Peoria 8,350,576 Wellton 140,944 Phoenix 101,800,295 Yuma 5,973,339 7,854,924 TOTAL $311,693,101 $311,693,101 City Distributions are based on relative population. Figures may not add to total due to rounding. TABLE 26 MUNICIPAL PRIVILEGE TAX COLLECTION PROGRAM COLLECTIONS BY CITY FISCAL YEAR 2001-02 RATE (1) RATE (1) CITY (PERCENT) COLLECTIONS CITY (PERCENT) COLLECTIONS Apache Junction 2.2* $7,976,373 Marana 2.0* $14,842,812 Benson 2.5* 1,729,091 Miami 1.5 116,348 Bisbee 2.5* 1,210,933 Oro Valley 2.0* 6,333,076 Buckeye 2.0* 1,676,502 Page 2.0* 3,371,939 Bullhead City 2.0* 7,750,817 Paradise Valley 1.4* 7,297,814 Camp Verde 2.0* 1,367,995 Parker 2.0* 977,970 Carefree 2.0* 1,833,020 Patagonia 3.0* 161,750 Casa Grande 1.8* 9,887,404 Payson 2.0* 5,166,169 Cave Creek 2.5* 2,370,960 Pima 2.0* 141,215 Chino Valley 2.0* 2,055,626 Pinetop-Lakeside 2.5* 2,428,102 Clarkdale 2.25* 399,591 Prescott Valley 2.0* 5,828,323 Clifton 2.0 301,558 Quartzsite 2.5* 941,117 Colorado City 2.0* 216,132 Queen Creek 1.0* 1,100,691 Coolidge 2.0* 2,205,133 Safford 2.0* 2,623,302 Cottonwood 2.2 6,603,951 Sahuarita 2.0* 2,723,008 Douglas 2.5* 4,090,781 St. Johns 2.0* 460,509 Duncan 2.0 117,115 San Luis 2.5* 2,068,532 Eagar 3.0* 372,379 Sedona 3.0* 10,651,562 El Mirage 3.0* 6,649,544 Show Low 2.0 6,617,258 Eloy 3.0* 2,437,413 Sierra Vista 1.5* 9,741,663 Florence 2.0* 902,407 Snowflake 2.0* 1,010,994 Fountain Hills 1.6* 4,268,848 Somerton 2.5* 528,863 Fredonia 2.0 81,536 South Tucson 2.5* 2,217,163 Gila Bend 3.0* 868,966 Springerville 3.0* 1,215,617 Gilbert 1.5* 29,194,285 Superior 2.0* 172,045 Glendale N/A 101 (2) Surprise 2.0* 16,090,834 Globe 1.5* 1,770,347 Taylor 2.0 490,662 Goodyear 2.0* 12,305,079 Thatcher 2.0* 1,844,013 Guadalupe 2.0 660,014 Tolleson 2.0* 3,276,405 Hayden 1.0* 359,654 Tombstone 2.5* 505,351 Holbrook 3.0* 2,105,617 Wellton 2.5 350,130 Huachuca City 1.0 120,004 Wickenburg 1.0 1,149,538 Jerome 3.0 338,647 Willcox 2.0 1,226,634 Kearny 2.0* 245,706 Williams 3.0* 2,660,117 Kingman 2.0* 8,458,447 Winkelman 3.5* 79,960 Lake Havasu City 2.0* 14,705,906 Winslow 3.0* 2,973,359 Litchfield Park 2.0* 1,342,656 Youngtown 2.0* 463,644 Mammoth 2.0* 79,620 Yuma 1.7 22,041,801 TOTAL $280,950,442 * Jurisdiction levied at more than one rate during the fiscal year. Rate shown is the rate charged on most transactions. (1) Rate shown is effective January 1, 2002 and may have changed during the remainder of FY02. (2) Glendale is not part of the Department's Collection program. These figures do not represent a full years collections. Figures may not add to total due to rounding. TABLE 27 MUNICIPAL PRIVILEGE TAX COLLECTION PROGRAM FISCAL YEAR 1997-98 THROUGH FISCAL YEAR 2001-02 FISCAL TOTAL NUMBER OF CITIES YEAR COLLECTIONS IN PROGRAM 1997-98 $180,932,433 74 1998-99 $202,218,016 75 1999-00 $230,976,587 75 2000-01 $257,706,985 75 2001-02 $280,950,442 75 Income Tax The State of Arizona imposes two types of income tax: corporate, which applies to incorporated businesses and certain other entities operating in this state; and individual, which is levied upon those persons who reside in or earn income in the state (Refer to Table 28). CORPORATE INCOME TAX MAJOR FEATURES Every corporation doing business in Arizona is required to file a corporate income tax return. Corporations filed returns with the state and made payments of $512 million during FY02 (Refer to Table 28). Tax Rate Reduction. Laws 1999, Ch. 318 amended ARS § 43-1111 to reduced the corporate tax rate from 8 percent on taxable income or $50, whichever is greater, to 7.968 percent of taxable income or $50, whichever is greater. The tax reduction is effective for taxable years beginning from and after December 31, 1999. Corporations that expect an Arizona income tax liability of at least $1,000 for the taxable year are required to make estimated tax payments. Any corporate taxpayer whose Arizona income tax liability for the preceding taxable year was $20,000 or more is required to make estimated tax payments via the electronic funds transfer program. Repeal of Several Corporate Tax Credits. Laws 1999, Ch. 318 repealed ARS § 43-1162 (correction industries tax credit); § 43-1164 (recycling equipment tax credit); § 43-1171 (construction materials tax credit); and § 43-1172 (agricultural water conservation system tax credit). The tax credits are repealed effective for taxable years beginning from and after December 31,1999. Taxpayers may claim carryovers of unused tax credits from taxable years beginning prior to January 1, 2000, for taxable years beginning on or before December 31, 2005, consistent with the provisions of the repealed credits. INDIVIDUAL INCOME TAX MAJOR FEATURES For tax year 2000 filed in 2001, approximately two million individual filers reported Arizona gross income (defined as federal adjusted gross income) totaling more than $ 95.6 billion. Individuals with Arizona gross income of more than $75,000, in the preceding or current year, are required to file Arizona estimated tax payments. An individual can apply any portion of an income tax refund toward the following year's income tax as an estimated payment. The graduated rate structure for the 2001 tax year ranged from 2.87 percent to a maximum of 5.04 percent on an individual's income over $150,000 (or joint income over $300,000). New Subtraction for World War II Victims: Starting with 2000 taxable year, taxpayers may subtract distributions made to them for their persecution or their ancestors by Nazi Germany or any other Axis regime for racial, religious or political reasons. Taxpayers may also subtract items of income that are attributable to, derived from or related to assets that were stolen or hidden from or lost to them if they were persecuted by Nazi Germany or any other Axis regime for racial, religious or political reasons before, during or immediately after World War II. DISTRIBUTION State income tax collections are shared with Arizona municipalities in an Urban Revenue Sharing Program. During FY 2002 an amount equal to 15 percent of net income tax collections from two years prior was distributed to cities and towns. In FY 2001 the percentage was 15 percent. The distribution is based on population and is given only to incorporated cities and towns. The remainder is deposited in the state general fund after amounts sufficient to pay refunds are allocated (Refer to Tables 28 and 29 ). Voluntary taxpayer contributions to Aid to Education Fund, Citizens Clean Elections Fund, Domestic Violence Shelter Fund, Child Abuse Prevention Fund, Arizona Wildlife Fund, Special Olympics Fund, Neighbors Helping Neighbors Fund, and political parties are distributed to the appropriate agency, political party or organization (Refer to Table 29). ARIZONA DEPARTMENT OF REVENUE 2002 ANNUAL REPORT 51 CORPORATE AND INDIVIDUAL INCOME TAX CREDITS In addition to the new (expanded) provisions listed above, the following are non-refundable corporate and individual income tax credits. (Refer to Table 29). CREDIT AVAILABLE TO Agricultural Water Taxpayers that incur expenses to purchase and install an Conservation System agricultural water conservation system in Arizona. This credit was repealed for corporations for taxable years beginning from and after December 1, 1999. Taxes paid for Coal Corporate taxpayers, a credit equal to 30 percent of the amount Consumed in Generating paid by the seller or purchaser as transaction privilege tax or use Electrical Power tax for coal sold to the taxpayer that is consumed in the generation of electrical power in Arizona. Construction Materials Taxpayers that purchase construction materials, in excess of five million dollars, for a building used predominantly for mining, manufacturing, fabricating, refining, metallurgical operations, or research and development as defined in ARS 43-1168. This credit was repealed for corporations for taxable years beginning from and after December 1, 1999. Contributions to Individual taxpayers that make cash contributions to certain Charities that Provide charities that provide help to the working poor. The maximum Assistance to the amount of this credit is $200. Working Poor Contributions to Individual taxpayers that made contributions to a school tuition School Tuition organization that provides scholarships or grants to qualified Organizations schools. Taxpayers filing single or head of household can take a maximum credit of $500. Taxpayers that file married filing joint can take a maximum credit of $625, taxpayers that are married filing separately can each take one-half of the required credit up to the maximum credit of $625. Correctional Industries Corporate taxpayers for the investment in qualified property on the grounds of an Arizona correctional facility, or for the employment of inmates in the Arizona correctional facility, or for the employment of inmates in prison construction (for an Arizona correctional facility). This credit was repealed for taxable years beginning from and after December 1, 1999. Defense Contracting Taxpayers certified by the Arizona Department of Commerce as a qualified defense contractor for qualified increases in employment. Employment of Taxpayers that employ recipients of Temporary Assistance for TANF Recipients Needy Families (TANF). 52 ARIZONA DEPARTMENT OF REVENUE 2002 ANNUAL REPORT CREDIT AVAILABLE TO Enterprise Zone Taxpayers whose business is located in an Arizona enterprise zone that have a net increase in qualified employment positions. Environmental Technology Taxpayers that incur expenses in constructing a qualified Facility environmental technology manufacturing, producing, or processing facility as described in ARS 41-1514.02. The qualified environmental technology manufacturer, producer, or processor must have been certified by Commerce before July 1, 1996. Fees Paid to Individual taxpayers that paid certain fees to public schools in Public Schools Arizona. Taxpayers filing single or head of household can take a maximum credit of $200. Taxpayers that file married filing joint can take a maximum credit of $250, taxpayers that are married filing separately can each take one-half of the required credit up to the maximum credit of $250. Increased Excise Taxes This credit is for Arizona residents whose federal adjusted gross income is beneath a certain threshold ($25,000 or less for Married Filing Joint or Head of Household, or $12,500 for Married Filing Separately or Single) and who cannot be claimed as a dependent by any other taxpayer. Military Reuse Zone Taxpayers with a net increase in employment of full-time employees working in a military reuse zone. Pollution Control Taxpayers that purchase real or personal property that is used within Arizona in the taxpayer's trade or business to control or prevent pollution. Recycling Equipment Taxpayers who acquire and place in service recycling equipment in Arizona. This credit was repealed for corporations not individuals. Research and Development Corporate taxpayers with an increase in qualifying research and Expenses development expenses conducted in Arizona. Individuals must use Form 308-I effective for taxable years beginning January 1, 2002. School Site Donation This tax credit is for the donation of real property and improvements to an Arizona school district or Arizona charter school for use as a school or as a site for the construction of a school. The credit applies to taxable years beginning from and after December 31, 2000. Solar Energy Individual taxpayers who install a solar energy device in his or her residence located in Arizona. Credit for Taxes Paid to (INDIVIDUALS ONLY) Taxpayers that paid a net income tax to Another State or Country Arizona and another qualified state or foreign country, on the same income. ARIZONA DEPARTMENT OF REVENUE 2002 ANNUAL REPORT 53 54 ARIZONA DEPARTMENT OF REVENUE 2002 ANNUAL REPORT CREDIT AVAILABLE TO Underground Storage Tanks Taxpayers that incurred expenses for corrective actions taken with respect to the release of a regulated substance from an underground storage tank. To qualify for this credit, the taxpayer must not have been liable or responsible for the corrective action as an owner or operator of the underground storage tank. Solar Hot Water Taxpayers for the installation of solar hot water heater plumbing Heater Plumbing Stub stub outs and electric vehicle recharge outlets in houses or dwelling Outs and Electric Vehicle units constructed by the taxpayer. The houses or dwelling units Recharge Outlets must be located in Arizona. Wheels to Work Donation This tax credit is for the fair market value of any motor vehicle donated by the taxpayer to the Wheels to Work program established by ARS §46-142. The credit applies to taxable years beginning from and after December 31, 1998. TABLE 28 INCOME TAX COLLECTIONS FISCAL YEAR 1997-98 THROUGH FISCAL YEAR 2001-02 PERCENT OF NET COLLECTIONS SOURCE FY1997-98 FY1998-99 FY1999-00 FY2000-01 FY2001-02 IN FY2001-02 Withheld from Wages Gross Revenue $1,863,292,013 $2,072,018,474 $2,259,201,907 $2,363,693,852 $2,309,340,885 Refunds and Charge-offs (11,947,994) (18,463,322) (10,053,362) (7,032,321) (9,047,839) NET $1,851,344,019 $2,053,555,152 $2,249,148,545 $2,356,661,531 $2,300,293,045 94.4% Individuals & Fiduciaries Gross Revenue 669,323,279 765,853,606 826,789,215 858,775,963 705,843,394 Refunds and Charge-offs (657,470,764) (721,059,420) (784,055,322) (911,549,899) (915,490,638) NET $11,852,514 $44,794,187 $42,733,894 ($52,773,936) ($209,647,244) -8.6% Corporations Gross Revenue 630,836,596 643,230,321 637,765,231 678,002,658 512,257,476 Refunds and Charge-offs (102,775,471) (97,842,182) (114,583,545) (136,828,789) (165,976,997) NET $528,061,125 $545,388,138 $523,181,687 $541,173,869 $346,280,480 14.2% Subtotal Net Collections $2,391,257,658 $2,643,737,477 $2,815,064,125 $2,845,061,464 $2,436,926,281 100.0% Less distributions for: Urban Revenue Sharing 291,243,578 340,310,656 377,710,988 396,452,640 421,876,573 Contracted Collection Agency 82,890 39,610 58,016 60,989 20,922 Wildlife Contributions 190,715 146,278 177,079 194,201 177,886 Child Abuse Prevention 223,435 210,355 185,666 222,325 210,223 Special Olympics 95,487 74,471 83,854 88,051 83,873 Neighbors Helping 61,562 32,374 46,610 38,800 37,696 Neighbors State Aid to Public Schools (1) *** 48,503 7,411 26,884 33,955 Domestic Violence Shelter (1) *** 137,524 139,208 152,928 150,954 Democratic Party 12,091 14,401 11,127 15,130 15,984 Green Party 0 0 0 2,667 2,559 Libertarian Party 3,004 3,077 3,210 2,422 2,090 New Alliance Party 5 0 0 0 0 Republican Party 11,623 12,077 13,650 15,474 14,127 Reform Party 973 869 194 36 92 Natural Law Party 0 0 0 142 200 Clean Elections (1) *** 340 1,827,616 2,315,832 3,246,597 Subtotal Distributions $291,925,363 $341,030,534 $380,264,630 $399,588,520 $425,873,731 NET REVENUE TO STATE GENERAL FUND $2,099,332,295 $2,302,706,944 $2,434,799,495 $2,445,472,944 $2,011,052,550 WQARF DISTRIBUTION (2) *** *** $15,000,000 $15,000,000 $15,000,000 (1) Individual and corporate income tax checkoffs and donations established in tax year 1998. (2) Beginning July 1, 1999, a transfer is made to the Water Quality Assurance Revolving Fund from corporate income tax collections. Figures may not add to total due to rounding. TABLE 29 EXEMPTIONS, DEDUCTIONS AND CREDITS TAX YEAR 1997 THROUGH TAX YEAR 2001 AGE 65 STANDARD MAXIMUM MAXIMUM TAX PERSONAL BLIND AND OVER DEPENDENT DEDUCTION PROPERTY FAMILY YEAR EXEMPTION EXEMPTION EXEMPTION EXEMPTION LIMIT (1) TAX CREDIT TAX CREDIT 1997 2,100 (2) 1,500 2,100 2,300 3,600/7,200 502 120 1998 2,100 (2) 1,500 2,100 2,300 3,600/7,200 502 240 1999 2,100 (2) 1,
Object Description
TITLE | Annual report / Arizona Department of Revenue |
CREATOR | Arizona. Dept. of Revenue. |
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Publisher | Arizona. Dept. of Revenue. |
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TITLE | Arizona Department of Revenue 2002 annual report |
DESCRIPTION | 100 pages (PDF version). File size: 402626 Bytes. |
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DATE ORIGINAL | 2002-11-15 |
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Full Text | ARIZONA DEPARTMENT OF REVENUE 1600 WEST MONROE - PHOENIX, ARIZONA 85007-2650 JANE DEE HULL MARK W. KILLIAN GOVERNOR DIRECTOR November 15, 2002 Governor Jane Dee Hull Office of the Governor 1700 W. Washington Street State Capitol, 9 th Floor Phoenix, Arizona 85007 The Honorable Governor Hull and the Taxpayers of Arizona: "…Fair administration, firm enforcement, and prompt and courteous service…." This brief quote from our mission statement accurately reflects the collective character of the Arizona Department of Revenue. With this annual report, we hope to illustrate how those simple tenets are continually exemplified within the Department. This last year, the Department redoubled its efforts to make our mission a reality. Technological advancements and reorganization have culminated in a more responsible and satisfied staff. By supplying personnel with better tools and with a departmental structure more conducive to an empowered workforce, we have dismantled barriers to communication, efficiency, and speed of response. I credit the entire staff of DOR with these enhancements. Most of the substantive progress of the Department over the last fiscal year has been a result of employee suggestions or direct involvement. It has been a truly rewarding experience observing a staff so intent on participating in shaping their agency and in serving the taxpayers. And the more I see the agency becoming a team of responsible individuals who are truly aware of their duty to the public trust, the more I'm sure the Department is in good hands. We hope you enjoy reading our Annual Report. If you have any questions, concerns, or comments, please feel free to contact me. Sincerely, Mark W. Killian OTHER LOCATIONS: Tucson Government Mall – 400 W. CONGRESS - TUCSON East Valley – 3191 N. WASHINGTON STREET - CHANDLER North Valley – 2902 W. AGUA FRIA FREEWAY - PHOENIX 1 DEPARTMENT OF REVENUE 2002 ANNUAL REPORT TABLE OF CONTENTS A Message from the Director, Page Two DEPARTMENT ORGANIZATION Directory, Page Three Organization Chart, Page Four The Year In Review, Page Five OVERVIEW OF THE DEPARTMENT Collections, Page Seven Customer Service, Page Eight Director's Office, Page Ten Income Audit, Page Thirteen Information Technology, Page Fifteen Process Administration, Page Sixteen Property Tax, Page Nineteen Transaction Privilege Tax, Page Twenty One ARIZONA'S TAXES Revenue Summary (Table 1), Page Twenty Three Net Revenue to State General Fund (Table 2), Page Twenty Four Gross Collections of Audit Assessments and Delinquent Tax (Table 3), Page Twenty Five Transaction Privilege, Use and Severance Tax, Page Twenty Six Income Tax, Page Fifty One Property Tax, Page Sixty Three OTHER SOURCES OF REVENUE Bingo, Page Seventy One Estate Tax, Page Seventy Three Luxury tax, Page Seventy Five Unclaimed Property, Page Seventy Seven Escheated Estates, Page Seventy Seven Waste Tire Fee, Page Seventy Nine Legislative Summary Bills & Tax Related Resolutions, Page Eighty One ARIZONA DEPARTMENT OF REVENUE 2002 ANNUAL REPORT ARIZONA DEPARTMENT OF REVENUE 2002 ANNUAL REPORT 3 DIRECTOR MARK W. KILLIAN (602) 542-3572 1600 West Monroe, Phoenix 2902 West Agua Fria Freeway, Phoenix 3191 North Washington, Chandler 400 West Congress, Tucson Internet Address: www.revenue.state.az.us COLLECTIONS TEAM LEADERS JEFF CAVINESS BOB HOMMEL RENEE JORDAN (602) 542-5673 CUSTOMER SERVICE MARQUETTA WHITE (602) 542-2076 INCOME AUDIT TEAM LEADERS TOM WATERS DONNA MCCUIN (602) 542-3345 TRANSACTION PRIVILEGE TAX VINCENT PEREZ (602) 542-4656 PROPERTY TAX TEAM LEADERS ED LEYBA CHERYL MURRAY��LEYBA (602) 542-3529 HEARING OFFICE JONATHAN HADLEY (602) 542-4641 INFORMATION TECHNOLOGY JANE F. HUFF (602) 542-3141 LEGAL SERVICES SHARON SEEDALL STEPHEN SHIFFRIN (602) 542-3572 LEGISLATIVE SERVICES JEFF KROS (602) 542-3572 GEORGANNA MEYER (602) 542-4641 PROCESS ADMINISTRATION TEAM LEADERS WILLIAM M. AVERY SALLY ESCARCEGA LORI GASPER TOM MACCONNEL BETTY A. MARTZ MARY K. MCGRADY TOM E. PINER TAMMY L. PHELAN (602) 542-4643 / (602) 542-3141 STRATEGIC MANAGEMENT LYNETTE STATES (602) 542-3141 Deputy Director Cindy Kappler (520) 628-6359 Deputy Director Jeffrey Grant (602) 542-3572 DEPARTMENT ORGANIZATION ARIZONA DEPARTMENT OF REVENUE 2002 ANNUAL REPORT 4 DIRECTOR DIRECTOR’S OFFICE OF TAX POLICY & LEGAL SUPPORT DEPUTY DIRECTOR ♦Information Technology Function ♦Process Administration Function ♦Budget Office ♦Human Resources ♦Legislative Liaison ♦Economic Research & Analysis ♦Quality Executive ♦Staff & Organizational Development ♦Change Management ♦Hearing Office DEPUTY DIRECTOR ♦Criminal & Civil Investigations ♦Office of Tax Policy & Legal Support ♦Collections Function ♦Customer Service Function ♦Income Audit Function ♦Property Tax Function ♦Transaction Privilege Tax DIRECTOR’S EXECUTIVE STAFF ♦Executive Assistant to the Director ♦General Counsel ♦Internal Auditor ♦Taxpayer Assistance Office/ Problem Resolution Officer COLLECTIONS PROPERTY TAXATION INCOME AUDIT TRANSACTION PRIVILEGE TAX CUSTOMER SERVICE SELF MANAGED TEAM SELF MANAGED TEAM SELF MANAGED TEAM FUNCTION EXECUTIVE FUNCTION EXECUTIVE DEBT SETOFF FIELD COLLECTIONS OFFICE COLLECTIONS TECHNICAL COMPLIANCE SERVICES BANKRUPTCY ASSESSMENT STANDARDS & EQUALIZATION CORPORATE INCOME TAX AUDIT TPT AUDIT TPT CITY AUDIT PROGRAM SUPPORT SERVICES COMMUNITY OUTREACH & EDUCATION PROCESSING ADMINISTRATION INFORMATION TECHNOLOGY SELF MANAGED TEAM FUNCTION EXECUTIVE/ CIO COMPTROLLER’S OFFICE PURCHASING FACILITIES/ WAREHOUSE ELECTRONIC FILINGS BUSINESS TAX PROCESSING APPLICATION SERVICES COMPUTER OPERATIONS CUSTOMER SYSTEM SUPPORT NEW TECHNOLOGY TECHNICAL SERVICES INCOME TAX PROCESSING SPECIAL LICENSE & SERVICES REGISTRATION AND COMPLIANCE LEGAL SUPPORT UNCLAIMED PROPERTY SPECIAL TAXES BINGO ESTATE TAX TOBACCO TAXPAYER INFORMATION & ASSISTANCE INDIVIDUAL INCOME TAX AUDIT ALTERNATIVE FUELS PROPERTY VALUATION OFFICE OF THE CHIEF TAX ADVOCATE ♦Contested Audit Resolution ♦Corporate Appeals ♦Individual Income Appeals ♦Legal Support ARIZONA DEPARTMENT OF REVENUE 2002 ANNUAL REPORT 5 FY 2002 HIGHLIGHTS COLLECTIONS SECTION REMAINS PRODUCTIVE ! In spite of continued high vacancy rates, the Collections Function succeeded in collecting a combined $247,170,014 which was 6% more than they collected in FY 2001. ! In addition, the call center in Office Collections maintained excellent customer service levels for all incoming calls by answering 98% of them within 30 seconds. Customer Service Levels Continued to Improve ! The completion of AZ-Taxes for Small Business marked a milestone in electronic services. This is an interactive program available both on our Web Site and on CD that educates businesses and guides owners through preparation of a variety of tax returns. ! Participation in Outreach and Taxpayer Education events increased by 39%. ! License Compliance automated the state fair process by using laptops and printers to complete a fillable TPT-1 form. Revenue collected from the 2001 State Fair increased 22% over the 2000 State Fair. Millions of Dollars and Returns Processed ! During the 2001 tax-filing season, more than two million (2,276,537) individual income tax returns were processed, generating in excess of 1.5 million refunds. More than 620,995 documents required the reconciliation of data based on the Department’s computer generated information. ! The Incoming Mail Unit processed nearly 3.7 million letters and flats during the fiscal year plus the 4.2 million Personal Income, Withholding, and Transaction Privilege Tax returns produced. During the peak season, this unit ran two shifts with over 95 temporary and 17 permanent employees. With the help of three mail-opening machines, they opened approximately 60,000 pieces of mail daily. Teamwork also played an important part during peak time. The Incoming Mail staff worked with volunteers from other sections of the Department towards a common goal of opening and processing mail to get refunds to taxpayers quicker and improve the Department’s overall customer service. ! The Remittance Processing Unit deposited more than $3.8 billion dollars and processed 2.9 million documents. Due to the teamwork of all sections in the function and additional resources such as updating the J&B Software in our TMSimage program, working overtime and utilizing temporary employees, the FY 2002 year-end closed smoothly. ! The Data Input Unit keyed over 2.1 million documents this year. The unit kept its primary emphasis on keying business tax returns this year by outsourcing the bulk of the Individual Income Tax documents. The implementation of 2D bar code technology on the Arizona Form 140 reduced the burden of keying the balance of the income returns. This technology allows an average batch of 75 returns to be scanned in 11 minutes, vs. 1.5 hours of keying time. We were able to scan approximately 110,000 returns this season. This successful program will be expanded in the coming year. ! The Out Going Mail Team processed over 3.5 million pieces of mail, not including the county property tax forms. During the last year, postage costs were reduced through elimination of withholding A1QRT, A1WP and reduction in the number of TPT mail outs. E-Government Services Expanded ! During FY 2002, 486,514 Arizona Individual Income returns were filed electronically. This represents an 18.5% increase over the prior year. In FY 2002, more than 205,000 taxpayers received their refund via direct deposit. This is the second year we offered this convenience. The number of tax professionals participating in the e-file program exceeded 1,650. ! The Electronic Funds Transfer Unit electronically processed approximately $4.641 billion during FY 2002. This is an increase of $192.6 million more than in FY 2001 or 4.3 %. The unit also processed 321,393 payments in FY 2002, an increase of 10.4% from the prior year. In FY 2002 the unit processed 57.8% of business tax dollars received at the DOR and 13.1 % of the business tax transactions. The Comptroller's Office returned 10,603 warrants to taxpayers that had been returned to the Department for a better address. Transaction Privilege Tax Productivity Improved ! Fiscal year 2002 was a very productive year for the Transaction Privilege Tax section as shown by the 2,754 audits that were completed for a total of $26,453,913.64. ! The Audit section realized total revenues of $ 14,030,611 The shining accomplishment for the Section was the fact that 1,888 new taxpayers were licensed. This was a record high for the Section and constitutes a 100% increase over the prior year. ARIZONA DEPARTMENT OF REVENUE 2002 ANNUAL REPORT 6 FY 2001 HIGHLIGHTS CONTINUED ARIZONA DEPARTMENT OF REVENUE 2002 ANNUAL REPORT 7 COLLECTIONS FUNCTION OFFICE COLLECTIONS After the Accounts Receivable system has completed the prescribed billing cycle, cases are referred to Office Collections. Delinquents (business accounts with returns that have not been filed) are also worked in this section. Here, collectors attempt to reach account resolution via the telephone and with targeted mailings. The section uses a Predictive Dialer System (PDS) to dial the phone on accounts prioritized for work. This system automatically brings up computer screens of the account on calls made and routes them to the first available collector. Office Collections also uses an Automatic Call Distribution (ACD) system to process and handle incoming calls. This system has an Interactive Voice Response (IVR) module that provides automated responses for some basic collections questions such as account balances. The section operates from 8:00 a.m. to 6:00 p.m. Monday through Thursday and from 8:00 a.m. to 5:00 p.m. on Fridays. Office Collectors can request liens and levies be filed and can negotiate installment payment plans. If they are not able to resolve a case, it is referred to Field Collections or Bankruptcy / Litigation for further action. FIELD COLLECTIONS If an Office Collector determines that a case cannot be resolved by phone and that a field (on-site) approach is warranted, the case is referred to the Field Collections section. Field collectors are assigned a territory (by ZIP code) and are responsible for all types of tax cases (income, business, withholding, etc.) in their territory. Field collectors use a combination of telephone and field visits to effect closure. In addition to recommending lien and levy action, field collectors may subpoena records, work Offers in Compromise, recommend seizures and write off cases if they are determined to be uncollectible. The objective in Field Collections is to reach closure in the least intrusive manner. Seizure actions are only used as a last resort after all other more reasonable actions have failed. The Collections Function Liaison section is responsible for all other non-mainstream collection activities. These include cases referred to an outside collection agency in addition to handling disputed audit accounts, insufficient funds check collections, lien processing, case adjustments, Letters of Good Standing, levies on Department of Administration vendors, levies on contractor and insurance bonds and internal systems training. The Department uses an outside collection agency to work the smaller dollar accounts in state and to work out-of-state accounts that cannot be resolved in the other collections sections. BANKRUPTCY AND LITIGATION Bankruptcy and Litigation services a growing population of individual and business tax accounts that have filed for protection under the bankruptcy code. Cases are routed here at any time during the collection process when a case is identified as having filed bankruptcy. This section is responsible for identifying all cases which involve bankruptcy filings, seeing that appropriate claims are filed and following up on actions being taken by the bankruptcy court relative to these accounts. In addition to processing bankruptcies, the section refers cases to the Attorney General’s Office that may require legal action to effect closure as well as processing Offers in Compromise. OVERVIEW OF THE DEPARTMENT FUNCTION ACTIVITIES DEBT SET-OFF Debt Set-Off serves other state agencies by offsetting tax refunds to reduce debts to other state agencies and the courts. This program includes: qualifying agencies and courts for program participation, notifying agency participants and taxpayers when matches are made, monitoring status of and validating claims, finalizing matches, resolving discrepancies and generating payments to agencies and/or releases to taxpayers. REVENUES FOR THE THREE COLLECTIONS FUNCTION UNITS(FY 2002) Office Collections………...……..$ 88,820,707 Field Collections…...……………$ 39,704,958 Bankruptcy/Litigation…….….…$ 18,011,195 Debt Setoff......………………….$ 108,664 Unassigned……………………...$100,524,490 (TCS figures are included in Bankruptcy and Litigation figures. The Unassigned figures are dollars collected that are not associated with a Collector ID.) HIGHLIGHTS IN FY 2002 ♦ In spite of continued high vacancy rates, the Collections Function succeeded in collecting a combined $247,170,014 which was 6% more than they collected in FY 2001-2002. ♦ At the same time, they worked to reduce the turn around time for processing Offers in Compromise to at or below 60 days. A total of 269 Offers were reviewed this year with 78% of them completed within 60 days of receipt. ♦ In addition, the call center in Office Collections maintained excellent customer service levels for all incoming calls by answering 98% of them within 30 seconds. CUSTOMER SERVICE FUNCTION COMMUNITY OUTREACH AND EDUCATION Community Out Reach and Education (CORE) provides the Department’s outreach and educational programs for taxpayers and practitioners. CORE’s primary goal is to promote voluntary compliance with tax laws through taxpayer education. The staff develops and presents workshops and seminars, as well as participating in trade shows throughout the state. The programs focus on support for the small business community, but services and assistance are also directed toward personal income tax. Many projects are developed in partnership with the IRS, other federal, state, and local agencies and organizations as well as the Small Business Administration and related associations. LEGAL SUPPORT This group is responsible for providing consultation on legal issues for operating units and technical legal correspondence. They are also responsible for form design for the Department, and for creating and maintaining informational publications on a wide variety of tax issues, the TaxNews (tax practitioner newsletter) and the ReveNews (employee newsletter). LICENSE AND REGISTRATION The License and Registration section processes applications for transaction privilege tax, use tax, severance tax, and withholding tax. The unit issues transaction privilege tax licenses for contract cities that participate in the state tax collection program. They also administer the contractor-bonding program which affects some new contracting businesses and delinquent taxpayers. The section oversees a database of licenses and continually collects and updates taxpayer records. They provide assistance to the public through dissemination of general license information. The section handles distribution of tax forms, the sale of tobacco stamps and cashiering services for customers at each of the agency’s offices. The License Compliance group within the section performs research to identify non-complying businesses and brings them into 8 ARIZONA DEPARTMENT OF REVENUE 2002 ANNUAL REPORT compliance. They provide education on licensing statutes and regulations to assist taxpayers in complying with the tax laws. SPECIAL TAXES This group is made up of Estate Tax, Luxury Taxes, and the Bingo section. The Bingo section issues licenses and conducts audit examinations of Bingo operators. The staff investigates complaints and violations of Bingo laws, as well as conducting workshops and consultations with licensees. The Estate Tax unit conducts audits and processes all estate tax returns. The Luxury Tax staff administers tax for liquor and tobacco, including licensing for tobacco wholesalers and processing of associated tax returns. The unit also supports the Office of the Attorney General in administration of the Tobacco Master Settlement Agreement. UNCLAIMED PROPERTY The Unclaimed Property program is administered for the purpose of returning to rightful owners abandoned property in the form of goods and money such as the contents of safe deposit boxes, insurance policy premiums, deposits in banks and security deposits, unclaimed gift certificates or layaways, and uncashed checks. The staff attempts to locate the property owner and processes claims in order to return the property to owners. They also facilitate the submission of property from businesses that hold the property. HIGHLIGHTS IN FY 2002 ♦ The completion of AZ-Taxes for Small Business marked a milestone in electronic services. This is an interactive program available both on our Web Site and on CD that educates businesses and guides owners through preparation of a variety of tax returns. ♦ Participation in Outreach and Taxpayer Education events was increased by 39%. ♦ Partnered with a wide range of entities including the Internal Revenue Service, Maricopa County, Cities of Phoenix, Surprise, Avondale, Flagstaff, Tucson, Mesa and Yuma. CORE expanded outreach services for the public and educational opportunities for businesses. ♦ Answered over 900 technical tax letters with 90% answered within 30 calendar days. ♦ Created a new brochure, The Law and Your Taxes, to address misconceptions regarding the tax system in AZ. ♦ Redesigned the Informational Publications & TaxNews homepages on the Internet. ♦ Worked with twenty-nine software vendors to provide AZ forms to their customers with over 90 forms offered. ♦ Upgrading our cashiering system resulted in faster processing time of payments made at satellite offices and has eliminated hundreds of staff hours previously required. For the year, cashiering over 92,000 documents and $190 million in payments were handled in our walk-in offices. ♦ License Compliance automated the state fair process by using laptops and printers to complete a fillable TPT-1 form. Revenue collected from the 2001 State Fair increased 22% over the 2000 State Fair. ♦ As a result of visiting the local bonding authorities, the monthly average of taxpayer bonds increased from 308 for FY01 to 335 for FY02. ♦ The Bingo group visited 94% of all Class B & C licensees, well over their goal of 90%. Increased oversight has provided support to ARIZONA DEPARTMENT OF REVENUE 2002 ANNUAL REPORT 9 bingo operations and assists the non-profit organizations that are funded by bingo games and has improved the accuracy of filing. ♦ The Bingo section pursued investigations that have resulted in two successful criminal prosecutions. ♦ The number of Luxury Tax audits doubled over the previous year with six completed in FY02. Assessments during this period decreased from $318,820 in FY01 to $123,283 in FY02. ♦ The estate tax unit improved operations by reducing the processing days from a high of 102 days to 20 days during the year. ♦ By using the DOR website to notify the public about the elimination of the Form 74 (Report of Personal Representative of Decedent) we increased awareness and reduced the number of telephone calls regarding the form. ��� Staff training was advanced with the establishment of regular consultation from Tax Analysts in our Legal Support team. This has been successful in keeping phone agents up to date on matters of taxability and legislative issues. ♦ Cross training of staff was initiated to expand knowledge and productivity among phone agents and those employees who handle taxpayer correspondence. ♦ FAQ’s (Frequently Asked Questions) database was developed for fiduciary tax issues. More FAQ’s are in development. ♦ New on-line forms were developed to improve the transmission of information between phone agents and others within the agency. ♦ Service on Unclaimed Property claims improved with an average turnaround of 49 days, compared to 51 days in FY01. ♦ Unclaimed property collections increased by $10.7 million to a total of $48.7 million. ♦ The number of audits completed increased by 16% over FY01. DIRECTOR'S FUNCTION DIRECTOR’S OFFICE The Director, responsible for the operation and control of the entire Department, ensures that the administration and collection of taxes are performed effectively, efficiently and in a fair manner. Additionally, the Director ensures that the Department provides the best possible customer service. The Director has several direct reports including two Deputy Directors who assist in the day-to-day operations of the agency and serve as Acting Director when the Director is absent. The responsibilities of the Deputy Directors are divided into the Tax Administration Team and the Planning and Support Team. The Tax Administration Team is responsible for the day-to-day operations of the basic tax administration functions of Customer Service, Collections, Property Tax Administration, Income Audit and Transaction Privilege Tax. The Planning and Support Team is responsible for support services such as Information Technology and Process Administration functions, Change Management, Human Resources, Hearing Office, Staff Organization and Development, Budget, Legislative Services and Office of Economic Research and Analysis. The Deputy Directors also serve on the Leadership Team with the function executives and administrators to oversee resource allocation and policy determination and planning. Other direct-reports to the Director include: 10 ARIZONA DEPARTMENT OF REVENUE 2002 ANNUAL REPORT Other direct-reports to the Director include: ! the Problem Resolution Officer who acts as an advocate for taxpayers and expedites resolution of complex problems and situations; ! the Internal Auditor who reviews internal processes and procedures used by the Department to ensure that they are secure and effective; ! the Chief Tax Policy Officer who oversees the legal support of the Department; ! the Chief Tax Advocate who provides legal support to the Director and representation to audit and property tax functions, and ! General Counsel who provides the Director with legal advice on tax and administrative matters, reviews appeals to the Director from Hearing Office decisions and writes Final Orders of the Director regarding appeals, and drafts and reviews proposed legislation, contracts and intergovernmental agreements. TAX POLICY AND LEGAL SUPPORT The Chief Tax Policy Officer oversees the Director's Office of Tax Policy & Legal Support, consisting of Criminal & Civil Investigations and the Office of Tax Policy, and provides coordinated policy and legal support for the Department. Criminal & Civil Investigations is comprised of the Tobacco Enforcement, Criminal Investigations & Internal Investigations units of the Department. The Tobacco Enforcement unit enforces the tobacco luxury taxes by educating retailers and wholesale operations, inspecting premises for compliance with stamping requirements and monitoring compliance with tax laws. It also seizes luxury tax contraband and auctions seized products to properly licensed businesses to recover tax revenues. The Criminal Investigations unit handles criminal investigations of tax evasion, improper or fraudulent tax activity and other related issues. Internal Investigations investigates allegations of misconduct by Department employees and vendors. The Office of Tax Policy reviews, analyzes, develops and disseminates information regarding the Department’s interpretation of state tax laws. The unit responds to technical and complex tax inquiries, issues private taxpayer rulings, reviews and analyzes legislation, develops and promulgates administrative rules, and assists the Department in tax law administration. OFFICE OF TAX ADVOCACY The Chief Tax Advocate oversees the Office of Tax Advocacy, which provides legal and interpretative support, and case resolution and advocacy for the audit and property tax functions in the Department. The office also acts as liaison to the Attorney General’s Tax Section and coordinates the defense of tax litigation with the Attorney General. The Office of Tax Advocacy provides additional support to the Director on an as-needed basis, including services in the area of protecting taxpayer confidentiality and privacy. The Office consists of Contested Audit Resolution, the Corporate Income Tax Appeals, the Individual Income Tax Appeals and the Legal and Interpretative Support Team. The Contested Audit Resolution unit is headed by the Deputy Chief Tax Advocate and assists the Transaction Privilege Tax Audit Function with case refinement and resolution services as well as advocating the TPT Function positions in cases before the State Office of Administrative Hearings, the Department’s Hearing Office and the Director. The unit, primarily through the Chief Transaction Privilege Tax Counsel, also provides interpretative advice to the TPT Function. The Deputy Chief Tax Advocate also acts as the Disclosure Officer for the Department. ARIZONA DEPARTMENT OF REVENUE 2002 ANNUAL REPORT 11 Department. The Corporate and Individual Income Tax Appeals unit’s review cases from the income audit sections and provide case refinement, resolution and advocacy services for those cases including representation before the Department’s Hearing Office and the Director. The unit also provides interpretive advice to the income audit staff. The Legal and Interpretative Support Team is headed by the Chief Income Tax Counsel and provides legal and interpretative advice to both the Corporate and Individual Income Tax Audit units. The team also provides advocacy support and services to the Income Tax audit units. The Chief Income Tax Counsel also acts as the leader of the privacy team and as e-commerce counsel. OFFICE OF ECONOMIC RESEARCH AND ANALYSIS The Office of Economic Research & Analysis provides technical services to the Department, the legislature and the executive offices, evaluating proposals regarding changes to any of the taxes administered by the Department. The unit provides staff support to the Economic Estimates Commission, Debt Oversight Commission and Property Tax Oversight Commission. It maintains the income tax simulation models and prepares annual and ad hoc reports on tax revenue expenditures, bonding capacities and other tax revenue issues. CHANGE MANAGEMENT This unit is responsible for coordinating the Department's efforts for change management. It includes staff that functions as the Department's project managers for the Business Reengineering and Integrated Tax System (BRITS) project. For the BRITS project, the Change Management unit has drafted subject matter experts from across the Department to implement the BRITS project. The unit will continue to draft expert employees to work with the selected vendor in the implementation phase over the next five years. The Budget Resource & Planning unit is responsible for monitoring current year expenditures against the approved budget, coordinating preparation of the Department's biennial budget and providing staff and operating budget information and analysis to the Leadership Team. The Office for Quality unit coordinates the strategic planning efforts of the Department and an agency-wide quality program patterned after the Malcomb Baldrige self-assessment process. The Staff & Organizational Development unit (SODS) provides the centralized training for the Department. It is supplemented by specialized training within functional areas and on-the-job-training (OJT). The unit has a self-managed team of trainers whose role is to develop in-house training for key activities such as using tax systems, ethics, supervisory training and confidentiality. The unit offers both self-study classes and classroom training and coordinates with the Department of Administration training program. HIGHLIGHTS IN FY 2002 ♦ The biggest single activity of the Director’s Function was the on-going effort to select a vendor for our BRITS project. ♦ The Director’s Office for Quality oversaw our continued efforts to coordinate the objectives, goals and performance measures. The Quality Office provided training to 60 facilitators who then worked with their colleagues in all the sections and units to develop annual goals and performance measures. ♦ In late August of 2001, the Arizona Supreme 12 ARIZONA DEPARTMENT OF REVENUE 2002 ANNUAL REPORT Court established a new precedent when it authorized a class action lawsuit against the State for refund of taxes paid under a statute that violated the U.S. Constitution. This decision authorized the creation of a class of potential refund recipients estimated to amount to 600,000 to 700,000 persons who may be entitled to refunds for up to four years each. The Chief Tax Advocate has been designated to lead the Department’s efforts to develop a program to respond to this decision. Since that time considerable effort has been devoted, to designing a refund program that would be consistent with the Court’s decision and to working with the Attorney General’s Chief Tax Counsel and the attorneys for the class in trying to structure a settlement of this complex lawsuit. As of the end of the fiscal year, those negotiations had brought the parties close to a settlement. INCOME AUDIT FUNCTION The Income Tax Audit Function continues to be managed by 2 Administrators, one each from Individual Audit and Corporate Audit. This team is responsible for management of personnel and other resources in the function as well as participation on the Leadership Team. In order that scarce resources are wisely used, a team was established to determine what efficiencies could be found by consolidating some activities and eliminating redundancies. These endeavors became even more important because of the effect that the Ladewig case and budget cuts had on staffing levels. The Function continued to support BRITS, the Department’s reengineering project, during the latest fiscal year. The function provided any needed personnel or material to assist the Change Management Team with preparations for the implementation of the project. As required by the project, IA stands ready to provide subject matter experts to the BRITS process to insure that our business partner has the best available talent for this important work. This fiscal year saw increasing involvement of employees in the Strategic Planning process. Using Department wide objectives, employee groups developed strategies that supported these objectives. In-house trained facilitators assisted these employee groups in developing the strategies and keeping the groups focused on what needed to be measured and metrics for evaluating performance. Monthly meetings were held to discuss progress and evaluate the effectiveness of the strategies in support of the objectives. Because agency management views the Strategic Plan as a living document needing continuous improvement, plans are already under way to make next years Plan even better, with more employee involvement and more precise metrics. Customer service continues to be an essential component of the Function’s goals and customer surveys are a vital source of customer information. Service delivery is so important that it is one of the things measured by both Individual and Corporate Audit as indicators of effectiveness. Ratings and comments by our taxpayers are also used in the employee evaluation process. During the Fiscal Year, both Sections sent out a total of 20,224 surveys. On a scale of 1 to 5 (5 being excellent), scores averaged 4.47 (weighted), a 2% improvement over FY01. Improved survey scores is one indicator of the effectiveness of decentralizing the management structure of Individual Audit. Pushing decision making down to the lowest level possible has improved the speed and effectiveness of service. Empowering employees in this way increases staff productivity and employee During this year of serious budget constraints we were required to look for ways to streamline ARIZONA DEPARTMENT OF REVENUE 2002 ANNUAL REPORT 13 satisfaction. processes and eliminate duplication of efforts. We took the opportunity to centralize the process whereby data was accumulated and input into the strategic plan document. We worked together to develop a PowerPoint presentation so that we could fulfill our goal of presenting to our employees monthly updates of the goal. HIGHLIGHTS IN FY 2002 CORPORATE AUDIT ♦ CITA experienced a ripple effect from the September 11 terrorist attacks. Management and auditors were extremely cognizant of the need to insure the safety of our travelers and a number of trips were postponed until the second half of the fiscal year or the next fiscal year. We worked delicately and compassionately with those taxpayers affected by the attacks until such a time that we were all ready to resume business as usual. The end of the fiscal year was filled with some of those rescheduled field appointments with business activities returning to some degree of normalcy. ♦ Working in partnership with Transaction Privilege Tax, we added to the Department’s Internet site the ability for entities to come forward in our voluntary disclosure program. The voluntary disclosure program allows companies to come forward by providing a detailed written description of their past activities. The site provides all the information necessary to make it easier for taxpayers to come forward. INDIVIDUAL INCOME AUDIT ♦ The computer generated audit (CGA) project was completed during the fiscal year and testing is underway. This project scans taxpayer returns, looking for errors using algorithms designed by the audit development team. The program then initiates the assessment process. Our taxpayer surveys indicated a desire for timelier and more accurate assessments and this program improves audits in both of these areas. A related project called computer-assisted audits (CAA) is on the drawing board. This program assists the auditor in decision making by using pre-programmed coding to automatically enter data into the assessment system. This saves auditor time and allows increased analysis time by audit staff. It also insures that the correct codes and amounts are keyed into the system. A new audit program, started in the East Valley Office, involves the review of Schedule C’s from the federal return. Preliminary work shows that this could be a very productive program as well. ITA also asked for and received training from the IRS on auditing Schedule A’s. This training not only improved auditor expertise in this area but also improved the development team’s ability to program for audit select. ITA is also moving forward with the on-line audit procedure manual that allows auditors to quickly access reference and procedural material. This on-line manual is very popular with staff and we are continuing to put material into it. ♦ The ITA pass-through entity program passed the $1 million mark during the Fiscal Year in assessments. With nearly $725,000 collected, this is by far the most efficient audit program in ITA. This audit program looks at Partnership, Sub-S, and LLC returns to identify areas of non-compliance both at the entity level and at the individual level. To further increase the success of this program, ITA recently requested an enhancement to the information we get from IRS to include K-1 data for payers and payees with Arizona addresses. In cooperation with the Information Technology function, ITA will process downloads that will identify those not filing on pass-through income that is attributable to Arizona. This program has been very successful in other states in 14 ARIZONA DEPARTMENT OF REVENUE 2002 ANNUAL REPORT identifying income not being reported or paid. ITA expects a similar result in Arizona. ♦ ITA auditor productivity continued to increase during the fiscal year. Despite hardships associated with hiring freezes and productive personnel going to the Alt Fuel and Ladewig projects, audit assessment dollars remained at the same level as FY01. Because of the fewer number of auditors though, assessments dollars per auditor increased nearly 40% to $460,438. The number of audits per auditor increased by 8% to nearly 2,000 per auditor. Both of these increases can be attributed to better audit select, improved inventory management, and just plain hard work. Overall, the audit production goal was exceed by 239 units. INFORMATION TECHNOLOGY FUNCTION STRATEGIC MANAGEMENT SERVICES Strategic Management Services (SMS), working with the Government Information Technology Agency (GITA), conducts research to create/ update policies, procedures, and standards, which will improve services to the individual Functions of DOR. In the past year the unit has participated in preparing Governor’s Shared Technology White Paper. SMS has completed the mapping of the core business processes of the function, Disaster Recovery/Business Continuity Plans, and the 3-Year IT Strategic Plan. At the senior management level, the unit tracks and reports on all major projects throughout the agency. SMS is assisting in the development of Enterprise Architecture Projects as well as preparing for the BRITS Project. APPLICATION DEVELOPMENT TEAM (ADT) Traditionally, application development was staffed and operated out of Information Technology (IT). As projects were developed, appropriate additional staff was added to project teams out of the user areas. But the focal point was IT. This focus occurred because the technical application development skills were within IT. Today, the technical application skills are not only in IT, but also in our user areas. To take advantage of these expanded skill sets, the Application Development Team (ADT) was created. The Application Development Team (ADT) is a virtual team utilizing resources from both the Information Technology and user areas to make modifications and enhancements to our applications. CUSTOMER SUPPORT Customer Support is part of the Applications Development Team (ADT). The Customer Support section reviews and monitors all Information Technology Requests (ITR) related to mainframe operations, tests changes and performs quality control functions on selected system output. Customer Support interacts with users to perform system and business function analysis related to changes in DOR's systems. Customer Support also coordinates between various user groups in the DOR and Information Technology support staff to maintain the mainframe security access system for all users. APPLICATION SERVICES Applications Services is part of the Applications Development Team (ADT). Application Services plans, designs, develops, implements, maintains, supports and enhances mainframe and client server applications. The section also provides 24/7 on call support. Future Department direction includes the re-engineering of legacy tax systems to support new technologies. DATA CENTER SUPPORT Data Center Support is comprised of Computer Operations, Production Control, Technical Support and Data Base Management. This team functions as the liaison to ADOA for mainframe processing. All processing relating to ADOR is scheduled and monitored by the Computer ARIZONA DEPARTMENT OF REVENUE 2002 ANNUAL REPORT 15 Operations staff. The Production Control group is responsible for tape management and offsite storage of disaster recovery data. The Technical Support section provides the first line of support for all mainframe related issues. This group also leads projects that require joint communications between ADOA and ADOR and the mainframe security systems. The Data Base management group supports and maintains the client server data bases and the mainframe data bases. This section is responsible for all data base system software on the mainframe. They provide the first line of support for all data base issues. ENTERPRISE NETWORK SUPPORT Enterprise Network Support is responsible for the research, analysis and implementations of new technologies as they apply to business needs. The goal of this section is to include the support and management of the LAN/Wan to ensure 99.80% of system availability to internal and external customers. The Server, Communication, and Customer Support groups are responsible for supporting four remote sites, and 1200 LAN customers. In addition, this staff is responsible for implementing all new hardware and software. HIGHLIGHTS IN FY 2002 ♦ Implemented significant portions of our Ready The Organization projects. These projects are intended to enhance our internal practices as well as our external customer relationships so that we will be in a strong position to support future efforts to reengineer our legacy systems. ♦ Updated Cashier System to scan technology. ♦ Implemented SAN (Storage Area Network) ♦ Expanded help desk staff hours to improve customer service ♦ Reorganized process Administration Division ♦ Implemented the IT Ambassador Program to enhance our customer service. IT Staff members regularly visit user areas to provide in person customer support. ♦ Completed 201 ITRs (Information Technology Requests) to implement enhancements to our applications. ♦ Implemented a Strategic Plan Database Application. ♦ Developed and implemented a new Debt Setoff application (with the Courts coming online). ♦ Developed and implemented 2D Bar Code application. ♦ Implemented Year-end Income and corporate tax changes. ♦ Report Elimination of unnecessary reports ♦ Mapped the core business processes of the function ♦ Disaster Recovery/Business Continuity Plan ♦ Completed the 3-Year IT Strategic Plan ♦ Implemented UPS system on LAN ♦ Implemented Virtual Private Network ♦ Redesigned the Intranet to GITA standards 16 ARIZONA DEPARTMENT OF REVENUE 2002 ANNUAL REPORT PROCESS ADMINISTRATION FUNCTION ORGANIZATION The mission of the Process Administration Function is to provide quality service and perform timely and accurate processing of taxes for Arizona taxpayers. The function consists of the following sections: COMPTROLLER The Comptroller is responsible for providing financial services for the Department. This includes the reconciliation and reporting of tax dollars deposited to the State’s financial institution, the processing of accounts payable invoices, travel services including employee reimbursement, fixed asset inventory services and refund warrant management. The Accounts Receivable Unit is responsible for processing new receivable and adjustment transactions for the four major tax types, the timely reconciliation of the system, NSF check processing, and credit balance management. The Remittance Processing Unit is responsible for recording and depositing tax payments that are not processed through the Cashier system. ELECTRONIC FUNDS TRANSFER UNIT The Electronic Funds Transfer Unit is responsible for the management of the program for receiving taxpayer payments electronically for the business tax types (TPT, Withholding and Corporate). FACILITIES/RECORDS MANAGEMENT Facilities Management is responsible for coordinating DOR facility maintenance and remodeling at the Department's five locations; receiving all goods and supplies purchased by DOR; security system maintenance and repairs; and issuance of DOR identification cards and building access. Central Supply is also part of the Facilities Management section with distribution of office supplies and internal forms. Records Management maintains and provides access to tax returns and License applications with the Department. The Micro-graphics section microfilms income tax, corporate tax and other miscellaneous documents. They also duplicate the information for distribution to different Department sites. PURCHASING Purchasing is responsible for contracting and purchasing all goods and services required by DOR. This includes furniture and supplies, and printing of tax forms, tax booklets, business cards and envelopes. Purchasing is also responsible for contract management, vendor performance and compliance. MAIL SERVICES Mail Services is divided into two units: Incoming Mail is responsible for the receipt, sorting and delivery of all tax documents, payments and correspondence received by the agency. Outgoing Mail is responsible for mailing all tax documents, billing, correspondence, and tax change notices, audit and collection notices to taxpayers. INDIVIDUAL INCOME TAX PROCESSING Individual Income Tax Processing is divided into four units: Refund/Research, Document Processing, Data Entry and Error Resolution. These units are responsible for issuing income tax refunds, preparing documents and revenue to be keyed and resolving discrepancies between the taxpayer’s calculations and the Department’s computerized calculations. Data Input is responsible for keying all tax returns and documents into the agency’s various computer systems. BUSINESS TAX PROCESSING Business Tax Processing is divided into three units: Transaction Privilege Tax, Withholding Tax and Corporate Income Tax. Each of these units is responsible for the preparation of documents and revenue, issuing credits/refunds as appropriate and resolving discrepancies between the taxpayer’s calculations and the Department’s calculations. ARIZONA DEPARTMENT OF REVENUE 2002 ANNUAL REPORT 17 Highlights In FY 2002 ♦ During the 2001 tax-filing season, more than two million (2,276,537) individual income tax returns were processed, generating in excess of 1.5 million refunds. More than 620,995 documents required the reconciliation of data based on the Department’s computer generated information. ♦ Refund turn-around time averaged 18.01 days. ♦ The total number of Corporate Income Tax documents processed was 216,739 of which 109,196 were returns. The Corporate Income Tax refunds issued exceeded $165 million. ♦ The total number of Transaction Privilege, Use and Severance Tax documents processed exceeded 1.39 million, of which 1.26 million were returns. The Electronic Funds Transfer (EFT) system for Transaction Privilege Tax (started in early 1998) has exceeded our expectations. The $2.7 billion received is 55% of all TPT revenues collected. ♦ The total number of Withholding Tax Documents processed exceeded 1.9 million, of which 370,884 were returns. This year 3,416 employers filed Withholding returns annually and we expect this number to grow as the tax practitioners and small businesses take advantage of this annual program. ♦ The Accounts Receivable Unit continued its high level of service in processing maintenance items in less than 24 hours of receipt on items of maintenance with only a 3/10 of 1% error rate. ♦ The Records Management unit continues to improved production while maintaining quality. The Records Maintenance Section has received approximately 25,000 new license applications and has had 42,000 requests for taxpayer documents. The Micro-graphics Section received 4.0 million individual documents for microfilming. ♦ The Incoming Mail Unit processed nearly 3.7 million letters and flats during the fiscal year plus the 4.2 million Personal Income, Withholding, and Transaction Privilege Tax returns this mail produced. During the peak season, this unit ran two shifts with over 95 temporary and 17 permanent employees. With the help of three mail-opening machines, they opened approx. 60,000 pieces of mail daily. Teamwork also plays an important part during peak time. Incoming Mail staff worked with volunteers from other sections of the Department towards a common goal of opening and processing mail to get refunds to taxpayers quicker and improve the Department’s overall customer service. ♦ The Remittance Processing Unit deposited more than $3.8 billion and processed 2.9 million documents. Due to the teamwork of all sections in the function and additional resources such as updating the J&B Software in our TMSimage program, working overtime and utilizing temporary employees, the FY02 year-end closed smoothly. ♦ The Data Input unit keyed over 2.1 million documents this year. The unit kept its primary emphasis on keying business tax returns this year by outsourcing the bulk of the Individual Income Tax documents. The burden of keying the balance of the Income returns was reduced by the implementation of 2D bar code technology on the Arizona Form 140. This technology allows an average batch of 75 returns to be scanned in 11 minutes, vs. 1.5 hours of keying time. We were able to scan approximately 110,000 returns this season. This successful program will be expanded in the coming year. ♦ The Out Going Mail Team processed over 3.5 million pieces of mail, not including the 18 ARIZONA DEPARTMENT OF REVENUE 2002 ANNUAL REPORT county property tax forms. During the last year, postage costs were reduced through elimination of withholding A1QRT, A1WP and reduction in the number of TPT mail outs. ♦ Fiscal year 2000 – 2001, we purchased a CAD program that would assist the facilities staff in updating building floor plans as well as allowing us to develop new floor plans. Before the CAD program, the staff members would draw each new modular office then forward the drawing to a vendor to have the existing floor plans modified. Since the CAD program has been purchased and installed the Facilities staff have saved over 1000 work hours and $45,000 in design fees. In fiscal year 2001 – 2002 the Facilities staff purchased a printer that would accommodate the printing of building floor plans. This printer has saved over 100 work hours of going from one area to another to print a floor plan that was not easily read. Now we can print floor plans to 1/8 scale that allow ease of readability. We will have 1 additional staff member trained on the operation of the CAD system by the end of fiscal year 2003. With the additional staff trained, we will be able to work more efficiently. ♦ 486,514 Arizona Individual Income returns were filed electronically in FY02. This represents an 18.5% increase over the prior year. More than 205,923 taxpayers received their refund via direct deposit. This is the second year we offered this convenience. The number of tax professionals participating in the e-file program exceeded 1,650. ♦ The Electronic Funds Transfer Unit electronically processed approximately $4.641 billion during FY02. This is an increase of $192.6 million more than in FY01 or 4.3 %. The unit also processed 321,393 payments in FY02 an increase of 10.4% from the prior year. In FY02 the unit electronicly processed 57.8% of business tax dollars received and 13.1% of the business tax transactions. The Comptroller's Office returned 10,603 warrants to taxpayers that had been returned to the Department for a better address. ♦ The Purchasing Unit issued 2,256 purchase orders with an average order time of 1.54 days. PROPERTY TAX FUNCTION VALUATION SECTION The Valuation Section consists of four teams: the Centrally Valued Properties Unit, the Locally Assessed Properties Unit, the Personal Property Group and the Construction Cost Group. The Centrally Valued Properties Unit annually determines the full cash value of all utilities, railroads, mines and other complex or geographically-dispersed properties (see page 65 for a list of the industries valued by the Department). Values determined by this unit for such properties are transmitted to the appropriate county assessors for the county tax roll. The Locally Assessed Properties Unit oversees and ensures the application of uniform appraisal methods and techniques used by the county assessors to determine the value of property. The unit also presents technical workshops to county assessors and provides an appraiser/ assessor certification program for appraisal staff. The Personal Property Group oversees the development and application of personal property procedures and manuals and provides technical workshops to county personnel. The Construction Cost Group maintains existing component costs for the computerized construction cost system and annually reviews market and location adjustments in each county. The group also provides training for county appraisers on the use of the construction cost system. ARIZONA DEPARTMENT OF REVENUE 2002 ANNUAL REPORT 19 20 ARIZONA DEPARTMENT OF REVENUE 2002 ANNUAL REPORT TECHNICAL SYSTEMS AND SUPPORT SECTION The Technical Systems and Support Section consists of three teams: the CIS and Valuation Review Unit, the CAMA/GIS Unit and the Manuals and Forms Group. The CIS & Valuation Review unit consists of two groups: the Central Information Services group (CIS) and the Valuation Review group. The CIS group develops and coordinates the information processing services necessary to support property tax administration for 13 Arizona Counties. The support services provided to the client counties include management of automated systems used in the maintenance of assessment and tax rolls, the preparation of valuation abstracts, property tax notices of value and statements of taxes due. The group is also responsible for the statewide administration of the additional state aid to education homeowner rebate program for Arizona school districts and levy limit calculations for client counties, cities/ towns and community college districts. The Valuation Review group is responsible for annually measuring county assessors' performance for compliance with established full cash/market value standards. The group conducts sales ratio studies throughout the yearly valuation cycle to assist counties in complying with valuation standards. COMPUTER ASSISSTED MASS APPRAISAL/ GEOGRAPHIC INFORMATION SYSTEMS The CAMA/GIS unit assists the county assessors with maintaining and updating a standardized cadastral mapping system (CAD). The unit prepares tax area code maps that depict boundaries of taxing jurisdictions authorized to levy property taxes. In addition, they develop sales-based models for residential properties and maintain and assist County Assessors with the Land Valuation System and the Sales Tracking System. The Manuals and Forms group responsibilities include the annual compilation and updating of manuals and guidelines; annual review of forms prescribed for use in the administration of the property tax system; annual review of legislative enactments and changes to existing property tax statutes; and annual preparation of the "Title 42 Extract of Property Tax Statutes". This extract includes all property tax statutes and related statutes from other titles affecting the property tax system. HIGHLIGHTS IN FY 2002 ♦ The CAMA Unit assisted the Navajo County Assessor’s office with a valuation review of properties affected by the Rodeo-Chediski fire. ♦ The CIS Unit in conjunction with the Information Technology Function completed the communication portion of the Client County Virtual Private Network. The VPN system has increased response time and laid the foundation for the implementation of the Client County Information System. Significant progress was also made towards completion of the PT50+ Real Time Update Project which will take many of the secured property system updates currently done at night and put them on-line, in real-time. ♦ The Valuation Review Unit automated the method of incorporating property sales affidavit information into the sales database eliminating the need to key over 100,000 documents a year. ♦ The Construction Cost Unit developed a new Shopping Center Economic Obsolescence and Depreciation Table for qualifying shopping centers valued under ARV 42- 13201-06. ♦ The Locally Assessed Property Unit is conducting research in preparation for issuing two new guidelines for use by the County Assessors. The guidelines pertain to timeshare properties and commercial industrial properties located in enterprise zones. ♦ The Training and Certification Team taught 24 appraisal courses with an average attendance of 18 students per course. The Team also administered five certification examinations. Forty-one Level One and 10 Level Two students were certified. TRANSACTION PRIVILEGE TAX FUNCTION FIELD AUDIT SECTION Without losing emphasis on customer service, the Field Audit Section exceeded their goals and objectives. Based on audit surveys, over 97% of the audits were completed in a fair, accurate, timely and expeditious manner. Furthermore, the surveys indicated that the Field Auditors were thorough in explaining their audit approach and theory, in part due to the use of opening and closing interviews. Very importantly the survey responses also showed that more than 96% of the time the Field Auditors were courteous and professional. REFUND SECTION The Refund Section is responsible for analyzing and processing taxpayer refund requests. While responding to a changing environment, and law changes, the refund section re-engineered its processes by developing better monitoring and tracking systems and streamlined procedures. The Section continued to excel in good customer service while processing twice as many claims this year than in any previous year. DESK AUDIT SECTION This past fiscal year was a year of rebuilding for the Desk Audit crew. Half of the staff were recent hires and had minimum experience. Despite this lack of experience, and with on-the-job training emphasized, the results were very positive. There is still additional training to be accomplished, but the Section looks forward to having a seasoned crew for the upcoming fiscal year. PROGRAM INFORMATION GROUP The Program Information Group had many accomplishments this year and continues to excel by ensuring minimal downtime in the various operations and programs of the TPT Function. The Group has also continued to maintain and upgrade the ATC program used by the Field Auditors. The main upgrades include faster program processing and the ability to automatically import reporting histories. The group continues to provide support to the TPT staff in maintaining critical programs necessary to continue with existing projects. AUDIT SELECT SECTION The Audit Select Section’s primary focus is audit research and selection. The Section continues towards this through the staff’s hard work and dedication to the job. The Audit Select Section has also been working with the Program Information Group on a data warehouse project. The Section also assists in the conversion of SIC codes to NAICS codes and continues to provide assistance to the 12 non-program cities in coordinating joint audits with the Department of Revenue. ADMINISTRATIVE SUPPORT UNIT Fiscal year 2002 was a banner year for the Administrative Support Unit. With fewer employees than the preceding fiscal year, the Unit is also responsible for retrieving and delivering incoming mail and reports to the Function’s employees. When asked or needed the staff also assists others to ensure all daily duties are completed. ARIZONA DEPARTMENT OF REVENUE 2002 ANNUAL REPORT 21 22 ARIZONA DEPARTMENT OF REVENUE 2002 ANNUAL REPORT HIGHLIGHTS IN FY2002 ♦ In fiscal year 2002, 2,754 audits that were completed for a total of $26,453,913.64. ♦ The Refund Section processed 2,254 refund claims granting $33 million and denying over $9 million ♦ The Desk Audit section realized total revenues of $14,030,611. The shining accomplishment for the Section was the fact that 1,888 new taxpayers were licensed. This was a record high for the Section and constitutes a 100% increase over the prior year. ♦ The Program Information Group developed: a new audit protest database and successfully converted all existing records; new letter templates for both the Field and Desk Auditors that are more readily accessible; a database to handle the volumes of information for Audit Select; and, a new SQL database consisting of approximately 60 million historical records. ♦ The Administrative Support Unit timely and accurately processed the 2,754 audits, which includes manually writing the necessary maintenance reports to put the information into DOR’s system. The Unit also manually wrote up approximately 572 pieces of amended maintenance to correct billings. ARIZONA'S TAXES The Department collected $8.9 billion in revenue For fiscal year 2002 96% of collections Were attributable to the Income Tax and Transaction Privilege Tax. TABLE 1 REVENUE SUMMARY GROSS REVENUE COLLECTED FISCAL YEAR 1997-98 THOUGH FISCAL YEAR 2001-02 SOURCE FY1997-98 FY1998-99 FY1999-00 FY2000-01 FY2001-02 TRANSACTION PRIVILEGE USE AND SEVERANCE TAX Distribution Base $1,015,306,840 $1,089,625,165 (4) $1,195,140,016 $1,248,485,639 $1,246,773,262 Nonshared Portion 1,875,579,736 2,042,232,511 (4) 2,230,332,220 2,356,788,664 2,379,509,616 Use Tax 136,868,591 148,043,174 (4) 176,566,264 196,887,927 162,751,987 Education Tax ----- ----- ----- 100,682 (5) 439,004,543 Undistributed Estimated Transaction Privilege Tax 5,262,078 11,668,636 12,392,607 1,894,841 28,766,081 Other State Revenue 17,094,298 18,352,045 18,254,373 21,123,487 32,971,582 County and City Collections 510,665,036 541,562,578 654,131,327 721,459,433 766,018,836 Subtotal $3,560,776,579 $3,851,484,109 $4,286,816,807 $4,546,740,674 $5,055,795,907 INCOME TAX Withholding 1,863,292,013 2,072,018,474 2,259,201,907 2,363,693,852 2,309,340,885 Individual 669,323,279 765,853,606 826,789,215 858,775,963 705,843,394 Corporate 630,836,596 643,230,321 637,765,231 678,002,658 512,257,476 Subtotal $3,163,451,888 $3,481,102,401 $3,723,756,353 $3,900,472,473 $3,527,441,755 LUXURY TAX Spirituous Liquor 18,787,775 19,648,670 20,587,605 21,327,540 21,574,744 Vinous Liquor 7,893,100 7,969,428 9,026,326 8,477,493 9,035,156 Malt Liquor 19,463,378 20,534,013 21,309,231 21,602,321 22,031,467 Tobacco - All Types (1) 169,316,629 166,288,764 162,896,049 160,694,260 161,754,302 Licensing 7,100 7,175 7,175 8,600 5,250 Subtotal $215,467,982 $214,448,050 $213,826,386 $212,110,214 $214,400,920 ESTATE TAX Estate 64,490,574 89,087,575 85,238,335 76,921,666 81,892,657 Unclaimed Property 20,770,144 21,315,542 31,415,063 38,020,547 48,681,438 Escheated Estate and Unclaimed Dividends 124,335 309,305 201,612 654,400 252,786 Subtotal $85,385,053 $110,712,421 $116,855,010 $115,596,613 $130,826,881 OTHER REVENUES Bingo 750,970 717,830 677,036 634,384 629,680 Flight Property Tax 15,165,878 14,856,910 13,418,771 13,387,179 13,056,694 Private Car Tax 1,494,821 1,441,440 1,476,728 1,349,685 1,509,625 Nuclear Plan Assessment 880,824 926,814 945,935 924,778 940,611 Waste Tire 5,125,561 5,476,881 5,674,452 6,346,629 6,392,637 Subtotal $23,418,054 $23,419,875 $22,192,921 $22,642,655 $22,529,247 DEPARTMENT TOTAL $7,048,499,556 $7,681,166,856 $8,363,447,477 $8,797,562,629 $8,950,994,710 State Property Tax (2) 37,957,273 10,069,191 24,686,866 22,552,932 18,454,625 TOTAL (3) $7,086,456,829 $7,691,236,047 $8,388,134,343 $8,820,115,561 $8,969,449,335 (1) Figures represent gross tobacco revenue less administrative expenses. (2) Property Tax is collected and deposited in the state general fund by counties. This figure includes deposits to the General Fund derived from the minimum Qualifying Tax Rate and taxes collected within Unorganized School Districts. (3) All revenues collected by the Department of Revenue, including those which are refunded or distributed, and State Property Tax. (4) Corrected figures. (5) Education tax became effective on June 1, 2001. For additional detail on the current year revenue, please refer to the appropriate section within this Annual Report. Figures may not add to total due to rounding. TABLE 2 NET REVENUE TO STATE GENERAL FUND FISCAL YEAR 1997-98 THROUGH FISCAL YEAR 2001-02 FY1997-98 FY1998-99 FY1999-00 FY2000-01 FY2001-02 SOURCE Transaction Privilege, $2,362,627,656 $2,566,087,404 (3) $2,817,525,828 $2,982,824,755 $2,972,274,262 Use, and Severance Tax Undistributed Estimated 5,262,078 11,668,636 12,392,607 1,894,841 28,766,081 Transaction Privilege Tax Income Tax 2,099,332,295 2,302,706,944 2,434,799,495 2,445,472,944 2,011,052,550 Luxury Tax 64,429,625 64,770,498 65,436,145 65,568,793 66,069,587 Estate Tax/ 65,269,787 89,334,610 84,725,503 78,961,539 88,298,138 Unclaimed Property Bingo 750,970 717,830 677,036 634,384 629,680 Private Car Tax 1,494,821 1,441,440 1,476,728 1,349,685 1,509,625 Nuclear Plan 880,824 926,814 945,935 924,778 940,611 Assessment Flight Property Tax (2) 7,582,939 7,367,078 6,709,385 6,693,590 6,528,347 Department Total $4,607,630,996 $5,045,021,253 $5,424,688,662 $5,584,325,308 $5,176,068,883 State Property Tax (1) 37,957,273 10,069,191 24,686,866 22,552,932 18,454,625 TOTAL $4,645,588,269 $5,055,090,444 $5,449,375,528 $5,606,878,240 $5,194,523,508 (1) Property Tax is not collected by the Department of Revenue and, therefore, is not reflected in this chart. It is collected by the Counties for distribution to local taxing authories. The "state property tax" referenced above is the only portion of the property tax that is deposited in the state general fund. It is derived from the minimum qualifying tax rate. (2) Beginning with FY98, 50% of all Flight Property Tax revenues were deposited into the General Fund. (3) Corrected figure. Figures may not add to total due to rounding. TABLE 3 GROSS COLLECTIONS OF AUDIT ASSESSMENTS AND DELINQUENT TAX FISCAL YEAR 2000-01 AND FISCAL YEAR 2001-02 % AUDIT COLLECTIONS FY2000-01 FY2001-02 CHANGE Assessment Collections (Gross) $90,281,036 $59,929,966 -33.6% Miscellaneous Taxes (Net of Credit) $6,176,200 $1,360,262 -78.0% TOTAL AUDIT UNIT COLLECTIONS $96,457,236 (3) $61,290,228 -36.5% TOTAL BILLINGS $181,828,894 (3) $147,046,075 -19.1% TOTAL DELINQUENT TAX COLLECTIONS $169,126,938 $272,698,314 61.2% TOTAL UNADJUSTED ENFORCEMENT COLLECTIONS $447,413,068 (3) $481,034,617 7.5% ADJUSTMENTS (1) Duplication, Credit Audits and Other Adjustments As Reported ($88,491,768) ($67,733,729) 23.5% TOTAL ADJUSTED ENFORCEMENT COLLECTIONS (2) $358,921,300 $413,300,888 15.2% REFUND DENIALS $19,271,321 $18,991,988 -1.4% (1) Audits resulting in credit adjustments are subtracted to produce an actual figure representing the net gain to the state from the Taxation and Transaction Privilege Tax Divisions' efforts. (2) Actual amounts resulting from the Department's enforcement effort. (3) Corrected figures TRANSACTION PRIVILEGE, USE AND SEVERANCE TAX MAJOR FEATURES Arizona’s transaction privilege, use and severance taxes are imposed on the privilege of transacting business in the state. The rates range from 1% (cities) to 5.6% depending on the type of business, with most rates at 5.6% (Refer to Table 5). Approximately 178,000 accounts collectively remitted gross revenues exceeding $4.5 billion during the 2002 fiscal year for transaction privilege, use and severance tax revenues (Refer to Table 4). SEVERANCE TAX A severance tax is imposed in lieu of a transaction privilege tax on the businesses of mining metalliferous mineral and severing timber. The severance rates are 2.5% on mining metalliferous minerals, $2.13 per thousand board feet (Ponderosa) and $1.51 per thousand board feet (other) on timbering, (Refer to Table 5). DISTRIBUTION The total of transaction privilege and rental occupancy taxes creates a tax base that is divided into two parts, distribution base and non-shared. The distribution base portion is divided among municipalities (25%), counties (40.51%), and the state general fund (34.49%). The non-shared portion is deposited directly to the state general fund (Refer to Tables 7 and 8). Beginning with November 1999 returns, mining severance collections are fully distributed to municipalities (38.16%) and counties (61.84%). Mining severance returns for prior periods are distributed in the same manner as transaction privilege tax. Use tax is deposited only to the state general fund. USE TAX A 5% use tax is imposed on the purchase price of tangible personal property when a transaction privilege or sales tax equal to or greater than the Arizona rate was not paid. A use tax collection responsibility is imposed on retailers whose activities in the state are insufficient to require them to pay transaction privilege tax but are nonetheless substantial enough to fall outside the protective umbrella of the United States Constitutional provision governing interstate commerce. Firms without nexus may also voluntarily collect use tax for the benefit of their customers. MUNICIPAL PRIVILEGE AND USE TAX DOR collects transaction privilege and use tax for 75 Arizona cities and towns at no charge to the municipalities. This is a service to the cities and to the taxpaying community who are therefore able to combine their reporting requirements on a single form and payment to a single governmental entity. Weekly distribution checks are processed after the Department collects the local taxes (Refer to Tables 26 and 27). Effective with the enactment of Laws 2000, Chapter 297, DOR also conducts multi-jurisdictional audits with and for all other cities in Arizona. COUNTY TAX AND SURCHARGE COLLECTION Of the 15 counties in Arizona, 14 levy some type of county tax or surcharge (Refer to Table 4). These taxes or surcharges are collected by the DOR. The rental car surcharge is imposed only in Maricopa and Pima Counties. A tax on hotels located in unincorporated areas of the county is levied in Pima county. Of the 14 counties with statutory authority to impose an excise tax, all 14 do so. By statute, Maricopa County may not impose an excise tax. Although subject to voter approval, any county may levy a transportation excise tax or road tax. Only three counties, Gila, Maricopa, and Pinal, do so. The three other types of county excise tax options are a hospital tax, a jail tax, and a stadium tax. Currently, no county imposes a hospital tax, although Gila County had one in the past. La Paz, Yuma, Coconino, and Maricopa counties have a jail tax. ARIZONA DEPARTMENT OF REVENUE 2002 ANNUAL REPORT TABLE 4 GROSS TRANSACTION PRIVILEGE, USE AND SEVERANCE TAX COLLECTIONS FISCAL YEAR 1997-98 THROUGH FISCAL YEAR 2001-02 SOURCE FY1997-98 FY1998-99 FY1999-00 FY2000-01 FY2001-02 Distribution Base $1,015,306,840 $1,089,625,165 (5) $1,195,140,016 $1,248,485,639 $1,246,773,262 Nonshared 1,875,579,736 2,042,232,511 (5) 2,230,332,220 2,356,788,664 2,379,509,616 Use Tax 136,868,591 148,043,174 (5) 176,566,264 196,887,927 162,751,987 SUBTOTAL $3,027,755,167 $3,279,900,850 $3,602,038,500 $3,802,162,230 $3,789,034,865 Education Tax (9) ----- ----- ----- 100,682 (1) 439,004,543 Undistributed Estimated 5,262,078 11,668,636 12,392,607 1,894,841 28,766,081 911 Wireline/Excise Tax 7,652,326 8,084,729 7,846,057 9,201,049 14,998,348 Telecommunications Devices 4,908,914 5,158,289 4,960,224 5,514,542 6,395,057 Poison Control Fund 1,815,626 1,907,860 1,834,603 2,039,625 2,365,295 911 Wireless Service 722,736 (1) 1,181,481 1,507,573 2,136,015 6,928,990 Municipal Water 1,891,072 1,957,725 2,081,879 2,120,483 2,213,435 Environmentally Hazardous Products (2) 784 536 980 5,909 14 Waste Tire Accounts Receivable Collections 105,094 62,946 25,739 109,948 71,330 Less Collection Fees (2,255) (1,521) (2,682) (4,084) (888) GROSS STATE COLLECTIONS $3,050,111,543 $3,309,921,530 $3,632,685,479 $3,825,281,241 $4,289,777,071 Municipal Privilege Tax 180,932,433 202,218,016 230,976,587 257,706,985 280,950,442 Pima County Hotel Tax 2,378,163 2,437,787 2,625,508 2,823,410 2,495,830 Maricopa County Rental Car Surcharge 5,376,877 5,405,493 5,734,678 5,636,907 5,396,445 Pima County Rental Car Surcharge 1,384,659 1,388,744 1,476,750 1,557,354 1,377,083 Pima County R.V. Surcharge 182,205 (1) 218,359 212,849 197,598 189,838 Apache County Excise Tax 582,718 638,649 1,862,479 1,130,977 903,381 Cochise County Excise Tax 4,058,429 4,311,066 4,853,891 5,123,754 5,698,660 Coconino County Excise Tax 7,742,012 8,085,596 8,876,866 9,054,404 8,793,909 Coconino County Jail Tax 4,121,136 4,793,744 5,261,397 5,358,317 5,486,442 Gila County Excise Tax 2,357,618 2,350,334 2,311,624 2,596,028 2,617,971 Gila County Hospital Tax (3) 3,054 7,003 92 38,499 509 Gila County Transportation 2,396,123 2,423,201 2,377,944 2,612,288 2,718,050 Graham County Excise Tax 1,128,771 1,172,236 1,188,238 1,206,320 1,192,075 Greenlee County Excise Tax 632,440 546,749 563,020 645,168 562,389 La Paz County Excise Tax 691,178 777,423 806,441 820,780 885,465 La Paz County Jail Tax 692,383 776,444 807,563 821,969 885,694 Maricopa County Road Tax 209,263,453 229,470,201 248,595,990 264,722,440 267,563,343 Maricopa County Stadium Tax (4) 50,550,929 437,677 150,336 280,370 145,148 Maricopa County Jail Tax ----- 34,290,683 (1) 91,054,451 97,603,200 98,372,053 Mohave County Excise Tax ----- ----- 1,608,620 (1) 4,114,594 4,446,472 Navajo County Excise Tax 3,964,486 4,372,839 4,655,169 4,831,327 4,993,912 Pinal County Excise Tax 5,076,787 5,698,428 6,149,485 6,492,013 6,763,454 Pinal County Road Tax 5,232,966 6,072,244 6,575,202 6,750,294 6,965,671 Santa Cruz County Excise Tax 1,725,137 1,847,305 1,918,653 2,092,940 2,114,505 Yavapai County Excise Tax 7,696,746 8,565,735 9,571,900 10,054,989 10,799,358 Yavapai County Jail Tax (6) ----- ----- ----- 3,627,698 4,294,368 Yuma County Excise Tax 6,252,408 6,638,969 6,965,025 7,417,302 7,665,873 Yuma County Jail Tax 6,241,927 6,617,655 6,950,571 7,412,145 7,653,390 Yuma County Capitol Projects Tax (7) ----- ----- ----- 3,150,273 (1) 7,582,374 Tourism/Sports Authority (8) ----- ----- ----- 5,579,087 (1) 16,504,732 COUNTY AND CITY COLLECTIONS 510,665,036 541,562,578 654,131,327 721,459,433 766,018,836 TOTAL DEPARTMENT OF REVENUE RECEIPTS $3,560,776,579 $3,851,484,108 $4,286,816,806 $4,546,740,674 $5,055,795,907 (1) The tax was in place for only a portion of the first fiscal year. This figure does not represent a full year's collection. (2) Environmentally Hazardous Products was repealed September 1, 1992. All amounts received are for prior tax periods. (3) Gila County Hospital Tax ended effective March 31, 1993. (4) Maricopa County Stadium Tax ended effective December 1, 1997. (5) Corrected Figure. (6) Yavapai County Jail Tax began on July 1, 2000 (7) Yuma County Capitol Projects Tax Began on January 1, 2001 (8) Tourism/Sports Authority Tax became effective March 1, 2001. (9) Education Tax became effective on June, 1, 2001. TABLE 5 STATE TRANSACTION PRIVILEGE, USE AND SEVERANCE TAX RATES FISCAL YEAR 2001-02 DISTRIBUTION TOTAL TAXABLE ACTIVITIES BASE NONSHARED EDUCATION TAX 1. Transporting and Towing 1.0% 4.0% 0.6% 5.6% 2. Nonmetalliferous Mining, Oil and Gas Production 1.0% 2.125% 0.0% 3.125% 4. Utilities 1.0% 4.0% 0.6% 5.6% 5. Communications 1.0% 4.0% 0.6% 5.6% 6. Railroads and Aircraft 1.0% 4.0% 0.6% 5.6% 7/8. Private Car/Pipelines 1.0% 4.0% 0.6% 5.6% 9. Publishing 1.0% 4.0% 0.6% 5.6% 10. Printing 1.0% 4.0% 0.6% 5.6% 11. Restaurants and Bars 2.0% 3.0% 0.6% 5.6% 12. Amusements 2.0% 3.0% 0.6% 5.6% 14. Personal Property Rentals 2.0% 3.0% 0.6% 5.6% 15. Contracting (1) 1.0% 4.0% 0.6% 5.6% 17. Retail 2.0% 3.0% 0.6% 5.6% 19. Mining Severance 2.5% 0.0% 0.0% 2.5% 21. Timbering Severance - Ponderosa $1.704 $0.426 $0 $2.13 (per thousand board feet) 22. Timbering Severance - Other $1.208 $0.302 $0 $1.51 (per thousand board feet) 25. Hotel/Motel Tax 2.75% 2.75% 0.0% 5.5% 28. Rental Occupancy Tax 2.0% 1.0% 0.0% 3.0% 29/30. Use and Use Inventory Tax 0.0% 5.0% 0.6% 5.6% 47. Membership Camping 2.0% 3.0% 0.6% 5.6% 49. Jet Fuel (per gallon) $0.0122 $0.0183 $0 $0.0305 51. Jet Fuel Use ( per gallon) $0 $0.0305 $0 $0.0305 (1) Most Contracting activity is covered under class 15, at a 5.6% total tax rate. Other classes at lower rates exist. TABLE 6 NET TAXABLE SALES BY TRANSACTION PRIVILEGE, USE AND SEVERANCE TAX CLASSIFICATIONS (1) FISCAL YEAR 1997-98 THROUGH FISCAL YEAR 2001-02 % OF % OF % OF % OF % OF CLASSIFICATION FY1997-98 TOTAL FY1998-99 TOTAL FY1999-00 TOTAL FY2000-01 TOTAL FY2001-02 TOTAL Transportation and Towing $64,281,736 0.11 $58,302,201 0.09 $56,620,330 0.08 $85,910,143 0.11 $57,567,191 0.08 Mining, Oil & Gas 190,472,916 0.31 204,730,724 0.31 193,933,697 0.27 224,834,096 0.30 208,310,010 0.28 Mining Severance 1,082,898,418 1.77 749,256,686 1.14 481,582,634 0.66 168,695,209 0.22 (4,263,622) (0.01) Timber Severance (4) (781) (0.00) (6) (439) (0.00) (6) 0 0.00 (6) 0 0.00 (6) 766,360 0.00 (6) Utilities 4,923,557,931 8.05 5,066,644,493 7.72 5,268,207,981 7.27 5,814,282,521 7.65 5,919,273,137 7.83 Communications 1,919,236,806 3.14 2,153,027,806 3.28 2,453,093,781 3.39 2,870,088,870 3.78 2,945,681,407 3.90 Railroads and Aircraft 36,688,382 0.06 36,057,579 0.05 32,885,789 0.05 52,745,618 0.07 38,788,894 0.05 Private Car and Pipelines 12,773,763 0.02 15,556,192 0.02 5,612,007 0.01 15,485,669 0.02 7,134,188 0.01 Publishing 110,592,575 0.18 119,042,396 0.18 112,357,871 0.16 124,462,488 0.16 82,843,214 0.11 Job Printing 405,093,470 0.66 418,739,698 0.64 418,677,603 0.58 402,933,841 0.53 351,141,961 0.46 Local Advertising (2) 0 0.00 (1,614) (0.00) (6) 27,476 0.00 (6) 0 0.00 (6) 0 0.00 (6) Restaurants and Bars 5,095,503,749 8.33 5,476,712,938 8.34 5,976,371,272 8.25 6,300,820,165 8.29 6,428,712,331 8.51 Amusements 672,756,982 1.10 680,140,832 1.04 758,823,163 1.05 760,837,607 1.00 743,800,365 0.98 Commercial Lease (5) 386,199,867 0.63 (133,063,779) (0.20) 659,198,999 0.91 182,691,438 0.24 36,912,605 0.05 Personal Property Rentals 2,909,345,629 4.76 3,170,337,708 4.83 3,412,995,935 4.71 3,658,549,237 4.81 3,607,518,815 4.77 Contracting 8,568,022,267 14.00 10,021,561,060 15.27 10,847,157,383 14.98 11,250,537,683 14.80 11,820,596,498 15.64 Feed Wholesale (3) (6,707,034) (0.01) 269,821 0.00 (6) 382,271 0.00 (6) (41,648) (0.00) (6) (1,806,235) (0.00) (6) Retail 30,469,141,007 49.80 32,964,475,378 50.22 36,403,861,655 50.27 38,282,337,115 50.37 38,432,859,974 50.85 Hotel/Motel 1,609,506,373 2.63 1,679,514,834 2.56 1,818,473,902 2.51 1,871,008,576 2.46 1,659,760,985 2.20 Rental Occupancy Tax 4,211,147 0.01 3,930,929 0.01 3,733,808 0.01 4,896,781 0.01 5,967,630 0.01 Use Tax 2,729,476,046 4.46 2,951,224,001 4.50 3,514,612,988 4.85 3,922,952,933 5.16 3,240,459,960 4.29 Membership Camping 1,621,718 0.00 (6) 1,682,321 0.00 (6) 1,411,253 0.00 (6) 2,420,361 0.00 (6) 2,741,146 0.00 (6) Agriculture Equipment (7) ----- ----- ----- 1,212,738 0.00 (6) 2,106,425 0.00 (6) TOTAL $61,184,672,966 100.00 $65,638,141,764 100.00 $72,420,021,798 100.00 $75,997,661,442 100.00 $75,586,873,240 100.00 (1) Net taxable sales are based upon tax receipts. (2) Local advertising was phased out on January 1, 1986. (3) Feed Wholesale dropped to 0% effective July 17, 1994 and was repealed effective October 1, 1994. (4) Effective July 13, 1995 the tax rate on Timber Severance was changed to a dollar amount per 1,000 board feet. Timber Severance includes only sales subject to the repealed rate. (5) Commercial Lease rate dropped to 0% effective July 1, 1997. (6) Percent of total is less than 0.01%. (7) Agriculture Equipment was phased out July 1, 1988 and is not a current business classification. Figures may not add to total due to rounding. TABLE 7 TRANSACTION PRIVILEGE, USE AND SEVERANCE TAX COLLECTIONS BY CLASS (1) FISCAL YEAR 2001-02 DISTRIBUTION TOTAL CLASSIFICATION BASE NONSHARED COLLECTIONS Transporting and Towing $575,672 $2,302,688 $2,878,360 Nonmetal Mining, Oil and Gas 2,083,100 4,426,588 6,509,688 Mining Severance (85,598) (20,993) (106,591) Timbering Severance 9,196 2,299 11,495 Timbering Severance - Ponderosa 718 180 897 Timbering Severance - Other 1,114 278 1,392 Utilities 59,192,731 236,770,926 295,963,657 Communications 29,456,814 117,827,256 147,284,070 Railroads and Aircraft 387,889 1,551,556 1,939,445 Private Car and Pipelines 71,342 285,368 356,709 Publishing 828,432 3,313,728 4,142,161 Printing 3,511,419 14,045,679 17,557,098 Restaurants and Bars 128,574,246 192,861,370 321,435,616 Amusements 14,876,008 22,314,011 37,190,018 Commercial Lease (3) 303,101 271,413 574,514 Rentals of Personal Property 72,150,374 108,225,567 180,375,941 Contracting 118,205,962 472,823,862 591,029,823 Feed Wholesale (2) (4,518) (3,954) (8,471) Retail 768,614,485 1,153,028,514 1,921,642,999 Hotel/Motel 45,643,489 45,643,365 91,286,854 Rental Occupancy Tax 119,358 59,670 179,029 Use Tax 0 162,022,998 162,022,998 License Fees 0 475,424 475,424 Membership Camping 54,823 82,234 137,057 Jet Fuel Tax 2,259,054 3,388,581 5,647,634 Jet Fuel Use Tax 0 728,989 728,989 Non Sufficient Funds 0 36,558 36,558 Telecommunications Service Assistance (55,948) (223,793) (279,742) Miscellaneous Fees 0 20 20 Agriculture Equipment (4) 0 21,064 21,064 Utility Credit/Reimbursement 0 157 157 TOTAL $1,246,773,262 $2,542,261,603 $3,789,034,865 (1) Does not reflect the balance of undistributed estimated payments at the end of FY02. (2) Feed Wholesale dropped to 0% effective July 17, 1994 and was repealed effective October 1, 1994. (3) Commercial Lease rate dropped to 0% effective July 1, 1997. (4) Agriculture Equipment was phased out July 1, 1988 and is not a current business classification. Figures may not add to total due to rounding. TABLE 8 DISTRIBUTION OF TRANSACTION PRIVILEGE, USE AND SEVERANCE TAX COLLECTIONS FISCAL YEAR 2001-02 Net Regular to State General Fund $2,972,274,262 Net Estimated Payments to General Fund 28,766,081 Net to Cities 311,693,101 Net to Counties 505,067,501 Net to Education Fund 439,004,543 911 Wireline/Excise, 911 Wireless, Telecommunications Devices, Poison Control Fund, Municipal 32,972,469 Water and Environmentally Hazardous Products, and Waste Tire Accounts Receivable Collections Less Collection Fees (888) TOTAL GROSS COLLECTIONS $4,289,777,071 ADDITIONAL DISTRIBUTION FROM TRANSACTION PRIVILEGE, USE AND SEVERANCE TAX COLLECTIONS FISCAL YEAR 2001-02 Office of Tourism $10,739,453 Phoenix International Raceway $416,667 School Facilities Board $382,000,000 Tourism and Sports Authority $694,080 Tribal Community Colleges $1,750,000 Urban In-Lieu $645,322 Figures may not add total due to rounding. TABLE 9 TRANSACTION PRIVILEGE, USE AND SEVERANCE TAX COLLECTIONS (1) IN APACHE COUNTY FOR THE PERIOD BEGINNING JULY 1, 2001 AND ENDING JUNE 30, 2002 TAXABLE ACTIVITIES AND CALCULATED NET % CHANGE BUSINESS CLASSIFICATIONS TAXABLE INCOME FROM FY2000-01 COLLECTIONS Utilities $9,625,070 -20.0% $481,254 Communications 12,147,459 -1.6% 607,373 Publishing 453,177 1.7% 22,659 Restaurants and Bars 8,865,661 -6.6% 443,283 Amusements 397,249 50.6% 19,862 Rentals of Personal Property 3,269,901 6.1% 163,495 Contracting (All) 73,088,110 28.4% 3,654,406 Retail 57,726,056 -23.1% 2,886,303 Hotel/Motel 10,298,568 -15.1% 566,421 Other Taxable Activities 35,859,777 -79.9% 1,730,942 TOTAL $211,731,029 -41.2% $10,575,998 NUMBER OF ACCOUNTS FISCAL YEAR 1999-00 THROUGH FISCAL YEAR 2001-02 TAXABLE ACTIVITIES AND BUSINESS CLASSIFICATIONS FY1999-00 FY2000-01 FY2001-02 Utilities 25 27 25 Communications 85 94 111 Publishing 13 15 14 Restaurants and Bars 70 67 63 Amusements 11 10 12 Rentals of Personal Property 179 195 182 Contracting (All) 279 307 321 Retail 1,027 1,010 987 Hotel/Motel 54 57 63 Other Taxable Activities 489 530 488 TOTAL 2,232 2,312 2,266 (1) License fees, Jet Fuel, Jet Fuel Use, Timber Severance Ponderosa/Other, NSF, Seizure/Sales Fees, Telecommunications Service Assistance, Subpoena Fees and Utilities Credit are not included. Figures may not add to total due to rounding. TABLE 10 TRANSACTION PRIVILEGE, USE AND SEVERANCE TAX COLLECTIONS (1) IN COCHISE COUNTY FOR THE PERIOD BEGINNING JULY 1, 2001 AND ENDING JUNE 30, 2002 TAXABLE ACTIVITIES AND CALCULATED NET % CHANGE BUSINESS CLASSIFICATIONS TAXABLE INCOME FROM FY2000-01 COLLECTIONS Utilities $117,280,077 1.1% $5,864,004 Communications 50,464,932 0.4% 2,523,247 Publishing 1,883,882 12.1% 94,194 Printing/Advertising 1,884,218 16.4% 94,211 Restaurants and Bars 89,315,314 6.7% 4,465,766 Amusements 5,992,093 -2.1% 299,605 Rentals of Personal Property 21,251,331 1.7% 1,062,567 Contracting (All) 147,696,531 5.1% 7,384,827 Retail 597,497,254 5.3% 29,874,863 Hotel/Motel 24,601,914 -3.1% 1,353,105 Other Taxable Activities 68,342,989 -10.7% 3,387,901 TOTAL $1,126,210,536 3.3% $56,404,288 NUMBER OF ACCOUNTS FISCAL YEAR 1999-00 THROUGH FISCAL YEAR 2001-02 TAXABLE ACTIVITIES AND BUSINESS CLASSIFICATIONS FY1999-00 FY2000-01 FY2001-02 Utilities 48 49 48 Communications 133 166 181 Publishing 21 18 19 Printing/Advertising 27 27 25 Restaurants and Bars 341 347 346 Amusements 79 69 70 Rentals of Personal Property 418 439 421 Contracting (All) 753 804 796 Retail 3,238 3,193 3,107 Hotel/Motel 138 141 140 Other Taxable Activities 845 862 886 TOTAL 6,041 6,115 6,039 (1) License fees, Jet Fuel, Jet Fuel Use, Timber Severance Ponderosa/Other, NSF, Seizure/Sales Fees, Telecommunications Service Assistance, Subpoena Fees and Utilities Credit are not included. Figures may not add to total due to rounding. TABLE 11 TRANSACTION PRIVILEGE, USE AND SEVERANCE TAX COLLECTIONS (1) IN COCONINO COUNTY FOR THE PERIOD BEGINNING JULY 1, 2001 AND ENDING JUNE 30, 2002 TAXABLE ACTIVITIES AND CALCULATED NET % CHANGE BUSINESS CLASSIFICATIONS TAXABLE INCOME FROM FY2000-01 COLLECTIONS Non Metal Mining/Mining Severance $3,816,104 51.7% (2) $119,253 Utilities 120,664,563 5.5% 6,033,228 Communications 65,516,782 -0.2% 3,275,839 Publishing 3,356,620 5.0% 167,831 Printing/Advertising 2,967,240 -13.3% 148,362 Restaurants and Bars 242,195,096 -0.2% 12,109,755 Amusements (11,511,220) N/A (575,561) Rentals of Personal Property 54,290,507 0.3% 2,714,525 Contracting (All) 256,042,190 1.6% 12,802,109 Retail 853,357,687 3.1% 42,667,884 Hotel/Motel 164,159,208 -6.8% 9,028,756 Other Taxable Activities 76,075,862 -7.2% 3,793,982 TOTAL $1,830,930,638 -1.3% $92,285,964 NUMBER OF ACCOUNTS FISCAL YEAR 1999-00 THROUGH FISCAL YEAR 2001-02 TAXABLE ACTIVITIES AND BUSINESS CLASSIFICATIONS FY1999-00 FY2000-01 FY2001-02 Non Metal Mining/Mining Severance 15 16 17 Utilities 39 47 40 Communications 169 184 215 Publishing 39 32 32 Printing/Advertising 41 36 33 Restaurants and Bars 426 423 426 Amusements 95 93 98 Rentals of Personal Property 550 531 542 Contracting (All) 1,350 1,354 1,459 Retail 3,810 3,828 3,771 Hotel/Motel 239 248 251 Other Taxable Activities 1,128 1,152 1,172 TOTAL 7,901 7,944 8,056 (1) License fees, Jet Fuel, Jet Fuel Use, Timber Severance Ponderosa/Other, NSF, Seizure/Sales Fees, Telecommunications, Service Assistance, Subpoena Fees and Utilities Credit are not included. (2) Increase due to unusual activity. Figures may not add to total due to rounding. TABLE 12 TRANSACTION PRIVILEGE, USE AND SEVERANCE TAX COLLECTIONS (1) IN GILA COUNTY FOR THE PERIOD BEGINNING JULY 1, 2001 AND ENDING JUNE 30, 2002 TAXABLE ACTIVITIES AND CALCULATED NET % CHANGE BUSINESS CLASSIFICATIONS TAXABLE INCOME FROM FY2000-01 COLLECTIONS Utilities $83,601,380 -4.0% $4,180,069 Communications 34,324,266 34.6% 1,716,213 Publishing 1,051,605 3.3% 52,580 Printing/Advertising 707,358 20.5% 35,368 Restaurants and Bars 46,500,034 4.1% 2,325,002 Amusements 1,897,577 16.0% 94,879 Rentals of Personal Property 12,560,184 -5.1% 628,009 Contracting (All) 90,717,870 2.3% 4,535,894 Retail 236,377,403 3.4% 11,818,870 Hotel/Motel 10,459,151 -11.7% 575,253 Other Taxable Activities 23,637,793 13.7% 1,054,901 TOTAL $541,834,622 3.4% $27,017,038 NUMBER OF ACCOUNTS FISCAL YEAR 1999-00 THROUGH FISCAL YEAR 2001-02 TAXABLE ACTIVITIES AND BUSINESS CLASSIFICATIONS FY1999-00 FY2000-01 FY2001-02 Utilities 33 36 36 Communications 124 135 164 Publishing 15 19 14 Printing/Advertising 16 15 14 Restaurants and Bars 165 164 167 Amusements 43 40 37 Rentals of Personal Property 289 286 280 Contracting (All) 711 696 710 Retail 1,809 1,818 1,812 Hotel/Motel 68 66 67 Other Taxable Activities 576 572 598 TOTAL 3,849 3,847 3,899 (1) License fees, Jet Fuel, Jet Fuel Use, Timber Severance Ponderosa/Other, NSF, Seizure/Sales Fees, Telecommunications Service Assistance, Subpoena Fees and Utilities Credit are not included. Figures may not add to total due to rounding. TABLE 13 TRANSACTION PRIVILEGE, USE AND SEVERANCE TAX COLLECTIONS (1) IN GRAHAM COUNTY FOR THE PERIOD BEGINNING JULY 1, 2001 AND ENDING JUNE 30, 2002 TAXABLE ACTIVITIES AND CALCULATED NET % CHANGE BUSINESS CLASSIFICATIONS TAXABLE INCOME FROM FY2000-01 COLLECTIONS Communications $10,964,074 -7.5% $548,204 Restaurants and Bars 16,214,002 -4.2% 810,700 Rentals of Personal Property 6,941,527 1.2% 347,076 Contracting (All) 40,468,223 46.6% 2,023,411 Retail 132,562,336 -5.7% 6,628,117 Other Taxable Activities 37,808,767 -23.9% 1,904,159 TOTAL $244,958,929 -3.4% $12,261,667 NUMBER OF ACCOUNTS FISCAL YEAR 1999-00 THROUGH FISCAL YEAR 2001-02 TAXABLE ACTIVITIES AND BUSINESS CLASSIFICATIONS FY1999-00 FY2000-01 FY2002-03 Communications 87 103 110 Restaurants and Bars 71 74 67 Rentals of Personal Property 182 177 170 Contracting (All) 228 215 197 Retail 996 999 974 Other Taxable Activities 443 453 491 TOTAL 2,007 2,021 2,009 (1) License fees, Jet Fuel, Jet Fuel Use, Timber Severance Ponderosa/Other, NSF, Seizure/Sales Fees, Telecommunications Service Assistance, Subpoena Fees and Utilities Credit are not included. Figures may not add to total due to rounding. TABLE 14 TRANSACTION PRIVILEGE, USE AND SEVERANCE TAX COLLECTIONS (1) IN GREENLEE COUNTY FOR THE PERIOD BEGINNING JULY 1, 2001 AND ENDING JUNE 30, 2002 TAXABLE ACTIVITIES AND CALCULATED NET % CHANGE BUSINESS CLASSIFICATIONS TAXABLE INCOME FROM FY2000-01 COLLECTIONS Communications $3,427,170 -14.0% $171,358 Restaurants and Bars 2,735,862 -18.8% 136,793 Rentals of Personal Property 663,721 -29.0% 33,186 Contracting (All) 12,074,225 29.8% 603,711 Retail 54,854,616 -8.4% 2,742,731 Other Taxable Activities 62,154,515 -62.9% 2,659,585 TOTAL $135,910,108 -44.6% $6,347,365 NUMBER OF ACCOUNTS FISCAL YEAR 1999-00 THROUGH FISCAL YEAR 2001-02 TAXABLE ACTIVITIES AND BUSINESS CLASSIFICATIONS FY1999-00 FY2000-01 FY2001-02 Communications 52 69 69 Restaurants and Bars 23 22 23 Rentals of Personal Property 82 88 79 Contracting (All) 68 82 78 Retail 373 375 363 Other Taxable Activities 193 230 203 TOTAL 791 866 815 (1) License fees, Jet Fuel, Jet Fuel Use, Timber Severance Ponderosa/Other, NSF, Seizure/Sales Fees, Telecommunications Service Assistance, Subpoena Fees and Utilities Credit are not included. Figures may not add to total due to rounding. TABLE 15 TRANSACTION PRIVILEGE, USE AND SEVERANCE TAX COLLECTIONS (1) IN LA PAZ COUNTY FOR THE PERIOD BEGINNING JULY 1, 2001 AND ENDING JUNE 30, 2002 TAXABLE ACTIVITIES AND CALCULATED NET % CHANGE BUSINESS CLASSIFICATIONS TAXABLE INCOME FROM FY2000-01 COLLECTIONS Utilities $17,576,249 13.8% $878,812 Communications 5,462,360 31.1% 273,118 Publishing 485,309 7.2% 24,265 Restaurants and Bars 22,035,866 -6.2% 1,101,793 Amusements 316,772 -41.4% 15,839 Rentals of Personal Property 4,978,099 22.5% 248,905 Contracting (All) 21,111,760 1.6% 1,055,588 Retail 95,076,962 8.4% 4,753,848 Hotel/Motel 5,310,296 5.8% 292,066 Other Taxable Activities 17,708,790 358.1% (2) 883,093 TOTAL $190,062,464 14.8% $9,527,328 NUMBER OF ACCOUNTS FISCAL YEAR 1999-00 THROUGH FISCAL YEAR 2001-02 TAXABLE ACTIVITIES AND BUSINESS CLASSIFICATIONS FY1999-00 FY2000-01 FY2001-02 Utilities 18 21 22 Communications 91 94 100 Publishing 13 12 11 Restaurants and Bars 102 91 97 Amusements 15 17 13 Rentals of Personal Property 200 191 174 Contracting (All) 212 217 225 Retail 1,865 1,806 1,787 Hotel/Motel 55 59 58 Other Taxable Activities 447 394 387 TOTAL 3,018 2,902 2,874 (1) License fees, Jet Fuel, Jet Fuel Use, Timber Severance Ponderosa/Other, NSF, Seizure/Sales Fees, Telecommunications Service Assistance, Subpoena Fees and Utilities Credit are not included. (2) Increase due to unusual activity in FY 02. Figures may not add to total due to rounding. TABLE 16 TRANSACTION PRIVILEGE,USE AND SEVERANCE TAX COLLECTIONS (1) IN MARICOPA COUNTY FOR THE PERIOD BEGINNING JULY 1, 2001 AND ENDING JUNE 30, 2002 TAXABLE ACTIVITIES AND CALCULATED NET % CHANGE BUSINESS CLASSIFICATIONS TAXABLE INCOME FROM FY2000-01 COLLECTIONS Non Metal Mining/Mining Severance $40,423,852 -18.8% $1,262,663 Utilities 3,684,640,251 3.2% 184,232,013 Communications 1,979,154,446 -0.5% 98,957,722 Publishing 45,136,947 -47.5% 2,256,847 Printing/Advertising 280,788,123 -14.4% 14,039,406 Restaurants and Bars 4,327,397,867 1.5% 216,369,893 Amusements 594,851,658 4.6% 29,742,583 Rentals of Personal Property 2,819,301,684 -2.3% 140,965,084 Contracting (All) 8,163,380,357 5.5% 408,169,018 Retail 26,168,729,464 -0.5% 1,308,436,473 Hotel/Motel 986,195,425 -13.5% 54,240,748 Other Taxable Activities 2,526,220,932 -22.6% 125,126,682 TOTAL $51,616,221,006 -1.1% $2,583,799,133 NUMBER OF ACCOUNTS FISCAL YEAR 1999-00 THROUGH FISCAL YEAR 2001-02 TAXABLE ACTIVITIES AND BUSINESS CLASSIFICATIONS FY1999-00 FY2000-01 FY2001-02 Non Metal Mining/Mining Severance 57 55 52 Utilities 146 136 157 Communications 589 624 640 Publishing 360 322 295 Printing/Advertising 1,022 956 970 Restaurants and Bars 5,213 5,239 5,443 Amusements 740 706 695 Rentals of Personal Property 2,950 2,925 2,913 Contracting (All) 11,576 11,773 12,177 Retail 43,693 43,250 43,087 Hotel/Motel 606 619 625 Other Taxable Activities 10,910 10,938 10,713 TOTAL 77,862 77,543 77,767 (1) License fees, Jet Fuel, Jet Fuel Use, Timber Severance Ponderosa/Other, NSF, Seizure/Sales Fees, Telecommunications Service Assistance, Subpoena Fees and Utilities Credit are not included. Figures may not add to total due to rounding. TABLE 17 TRANSACTION PRIVILEGE, USE AND SEVERANCE TAX COLLECTIONS (1) IN MOHAVE COUNTY FOR THE PERIOD BEGINNING JULY 1, 2001 AND ENDING JUNE 30, 2002 TAXABLE ACTIVITIES AND CALCULATED NET % CHANGE BUSINESS CLASSIFICATIONS TAXABLE INCOME FROM FY2000-01 COLLECTIONS Utilities $175,433,261 10.3% $8,771,663 Communications 59,353,778 13.8% 2,967,689 Publishing 2,367,141 2.6% 118,357 Printing/Advertising 4,289,293 1.2% 214,465 Restaurants and Bars 148,589,696 10.0% 7,429,485 Amusements 14,189,288 -1.0% 709,464 Rentals of Personal Property 58,606,400 7.0% 2,930,320 Contracting (All) 319,798,891 5.2% 15,989,945 Retail 974,535,306 8.1% 48,726,765 Hotel/Motel 35,340,194 1.4% 1,943,711 Other Taxable Activities 114,768,948 94.8% (2) 5,687,072 TOTAL $1,907,272,197 10.8% $95,488,935 NUMBER OF ACCOUNTS FISCAL YEAR 1999-00 THROUGH FISCAL YEAR 2001-02 TAXABLE ACTIVITIES AND BUSINESS CLASSIFICATIONS FY1999-00 FY2000-01 FY2001-02 Utilities 49 51 53 Communications 112 136 159 Publishing 29 27 26 Printing/Advertising 42 36 36 Restaurants and Bars 403 404 407 Amusements 64 64 68 Rentals of Personal Property 535 549 541 Contracting (All) 1,259 1,277 1,286 Retail 4,203 4,151 4,225 Hotel/Motel 145 148 145 Other Taxable Activities 1,140 1,140 1,144 TOTAL 7,981 7,983 8,090 (1) License fees, Jet Fuel, Jet Fuel Use, Timber Severance Ponderosa/Other, NSF, Seizure/Sales Fees, Telecommunications Service Assistance, Subpoena Fees and Utilities Credit are not included. (2) Increase due to unusual activity in FY 02. Figures may not add to total due to rounding. TABLE 18 TRANSACTION PRIVILEGE, USE AND SEVERANCE TAX COLLECTIONS (1) IN NAVAJO COUNTY FOR THE PERIOD BEGINNING JULY 1, 2001 AND ENDING JUNE 30, 2002 TAXABLE ACTIVITIES AND CALCULATED NET % CHANGE BUSINESS CLASSIFICATIONS TAXABLE INCOME FROM FY2000-01 COLLECTIONS Utilities $58,996,112 0.6% $2,949,806 Communications 41,317,358 -9.8% 2,065,868 Publishing 1,341,433 0.9% 67,072 Restaurants and Bars 64,135,553 3.5% 3,206,778 Amusements 4,363,746 29.8% 218,187 Rentals of Personal Property 17,468,897 -6.7% 873,445 Contracting (All) 138,607,290 15.9% 6,930,364 Retail 578,071,060 3.6% 28,903,553 Hotel/Motel 28,465,826 -10.9% 1,565,620 Other Taxable Activities 119,192,858 -5.4% 4,307,347 TOTAL $1,051,960,132 2.6% $51,088,040 NUMBER OF ACCOUNTS FISCAL YEAR 1999-00 THROUGH FISCAL YEAR 2001-02 TAXABLE ACTIVITIES AND BUSINESS CLASSIFICATIONS FY1999-00 FY2000-01 FY2001-02 Utilities 39 40 46 Communications 131 134 154 Publishing 20 18 17 Restaurants and Bars 201 199 198 Amusements 44 38 37 Rentals of Personal Property 342 337 340 Contracting (All) 770 802 850 Retail 2,243 2,272 2,205 Hotel/Motel 144 136 149 Other Taxable Activities 689 732 769 TOTAL 4,623 4,708 4,765 (1) License fees, Jet Fuel, Jet Fuel Use, Timber Severance Ponderosa/Other, NSF, Seizure/Sales Fees, Telecommunications Service Assistance, Subpoena Fees and Utilities Credit are not included. Figures may not add to total due to rounding. TABLE 19 TRANSACTION PRIVILEGE, USE AND SEVERANCE TAX COLLECTIONS (1) IN PIMA COUNTY FOR THE PERIOD BEGINNING JULY 1, 2001 AND ENDING JUNE 30, 2002 TAXABLE ACTIVITIES AND CALCULATED NET % CHANGE BUSINESS CLASSIFICATIONS TAXABLE INCOME FROM FY2000-01 COLLECTIONS Non Metal Mining/Mining Severance $12,287,098 -70.3% (2) $378,523 Utilities 1,029,276,491 -2.2% 51,463,825 Communications 443,208,480 15.8% 22,160,424 Publishing 15,724,754 -6.3% 786,238 Printing/Advertising 47,473,259 -9.3% 2,373,663 Restaurants and Bars 1,015,497,369 2.9% 50,774,868 Amusements 83,031,941 -3.0% 4,151,597 Rentals of Personal Property 445,587,851 4.0% 22,279,393 Contracting (All) 1,519,119,188 -0.2% 75,955,958 Retail 5,952,745,532 0.5% 297,637,277 Hotel/Motel 265,848,719 -11.3% 14,621,680 Other Taxable Activities 331,327,201 -4.5% 16,460,532 TOTAL $11,161,127,882 0.2% $559,043,976 NUMBER OF ACCOUNTS FISCAL YEAR 1999-00 THROUGH FISCAL YEAR 2001-02 TAXABLE ACTIVITIES AND BUSINESS CLASSIFICATIONS FY1999-00 FY2000-01 FY2001-02 Non Metal Mining/Mining Severance 24 20 21 Utilities 68 75 76 Communications 196 250 319 Publishing 98 94 113 Printing/Advertising 201 187 178 Restaurants and Bars 1,574 1,535 1,527 Amusements 223 224 222 Rentals of Personal Property 1,257 1,227 1,210 Contracting (All) 4,232 4,330 4,371 Retail 14,567 14,179 13,982 Hotel/Motel 266 258 252 Other Taxable Activities 2,513 2,575 2,569 TOTAL 25,219 24,954 24,840 (1) License fees, Jet Fuel, Jet Fuel Use, Timber Severance Ponderosa/Other, NSF, Seizure/Sales Fees, Telecommunications Service Assistance, Subpoena Fees and Utilities Credit are not included. (2) Decrease due to unusual activity. Figures may not add to total due to rounding. TABLE 20 TRANSACTION PRIVILEGE, USE AND SEVERANCE TAX COLLECTIONS (1) IN PINAL COUNTY FOR THE PERIOD BEGINNING JULY 1, 2001 AND ENDING JUNE 30, 2002 TAXABLE ACTIVITIES AND CALCULATED NET % CHANGE BUSINESS CLASSIFICATIONS TAXABLE INCOME FROM FY2000-01 COLLECTIONS Non Metal Mining/Mining Severance ($3,693,511) -105.3% (2) $56,889 Utilities 184,739,118 3.1% 9,236,956 Communications 87,023,969 9.3% 4,351,198 Publishing 3,326,901 4.3% 166,345 Printing/Advertising 1,473,306 -31.3% 73,665 Restaurants and Bars 98,961,584 2.6% 4,948,079 Amusements 16,979,606 -13.3% 848,980 Rentals of Personal Property 38,037,442 8.5% 1,901,872 Contracting (All) 333,959,177 2.9% 16,697,959 Retail 540,035,225 6.4% 27,001,761 Hotel/Motel 15,875,133 -7.3% 873,132 Other Taxable Activities 61,516,560 10.3% 3,053,170 TOTAL $1,378,234,509 -0.8% $69,210,007 NUMBER OF ACCOUNTS FISCAL YEAR 1999-00 THROUGH FISCAL YEAR 2001-02 TAXABLE ACTIVITIES AND BUSINESS CLASSIFICATIONS FY1999-00 FY2000-01 FY2001-02 Non Metal Mining/Mining Severance 34 28 26 Utilities 48 50 60 Communications 157 171 218 Publishing 26 23 23 Printing/Advertising 25 21 22 Restaurants and Bars 328 294 314 Amusements 80 87 83 Rentals of Personal Property 426 423 433 Contracting (All) 1,452 1,546 1,645 Retail 3,398 3,288 3,265 Hotel/Motel 94 98 102 Other Taxable Activities 912 954 990 TOTAL 6,980 6,983 7,181 (1) License fees, Jet Fuel, Jet Fuel Use, Timber Severance Ponderosa/Other, NSF, Seizure/Sales Fees, Telecommunications Service Assistance, Subpoena Fees and Utilities Credit are not included. (2) Decrease due unusual activity. Figures may not add to total due to rounding. TABLE 21 TRANSACTION PRIVILEGE, USE AND SEVERANCE TAX COLLECTIONS (1) IN SANTA CRUZ COUNTY FOR THE PERIOD BEGINNING JULY 1, 2001 AND ENDING JUNE 30, 2002 TAXABLE ACTIVITIES AND CALCULATED NET % CHANGE BUSINESS CLASSIFICATIONS TAXABLE INCOME FROM FY2000-01 COLLECTIONS Utilities $27,563,837 3.7% $1,378,192 Communications 19,986,205 -9.3% 999,310 Publishing 181,274 -16.5% 9,064 Restaurants and Bars 32,842,522 -2.8% 1,642,126 Amusements 1,396,098 -2.9% 69,805 Rentals of Personal Property 12,995,882 -16.8% 649,794 Contracting (All) 46,785,030 2.4% 2,339,251 Retail 266,013,176 3.6% 13,300,659 Hotel/Motel 9,416,481 -7.1% 517,906 Other Taxable Activities 10,341,956 -20.6% 516,863 TOTAL $427,522,460 0.5% $21,422,971 NUMBER OF ACCOUNTS FISCAL YEAR 1999-00 THROUGH FISCAL YEAR 2001-02 TAXABLE ACTIVITIES AND BUSINESS CLASSIFICATIONS FY1999-00 FY2000-01 FY2001-02 Utilities 18 19 19 Communications 110 124 133 Publishing 12 14 11 Restaurants and Bars 124 121 131 Amusements 24 24 16 Rentals of Personal Property 284 271 264 Contracting (All) 410 416 392 Retail 1,528 1,535 1,518 Hotel/Motel 28 26 29 Other Taxable Activities 529 516 506 TOTAL 3,067 3,066 3,019 (1) License fees, Jet Fuel, Jet Fuel Use, Timber Severance Ponderosa/Other, NSF, Seizure/Sales Fees, Telecommunications Service Assistance, Subpoena Fees and Utilities Credit are not included. Figures may not add to total due to rounding. TABLE 22 TRANSACTION PRIVILEGE, USE AND SEVERANCE TAX COLLECTIONS (1) IN YAVAPAI COUNTY FOR THE PERIOD BEGINNING JULY 1, 2001 AND ENDING JUNE 30, 2002 TAXABLE ACTIVITIES AND CALCULATED NET % CHANGE BUSINESS CLASSIFICATIONS TAXABLE INCOME FROM FY2000-01 COLLECTIONS Non Metal Mining/Mining Severance $34,036,656 -32.9% (2) $1,063,567 Utilities 195,530,843 7.7% 9,776,542 Communications 81,954,766 11.1% 4,097,738 Publishing 4,470,033 -2.6% 223,502 Printing/Advertising 5,406,515 13.6% 270,326 Restaurants and Bars 191,730,204 4.6% 9,586,510 Amusements 19,769,057 9.2% 988,453 Rentals of Personal Property 54,005,954 3.8% 2,700,298 Contracting (All) 436,873,952 9.8% 21,843,698 Retail 1,058,305,666 7.5% 52,915,283 Hotel/Motel 72,717,900 -2.1% 3,999,485 Other Taxable Activities 47,880,134 -3.4% 2,371,240 TOTAL $2,202,681,680 6.2% $109,836,641 NUMBER OF ACCOUNTS FISCAL YEAR 1999-00 THROUGH FISCAL YEAR 2001-02 TAXABLE ACTIVITIES AND BUSINESS CLASSIFICATIONS FY1999-00 FY2000-01 FY2001-02 Non Metal Mining/Mining Severance 28 24 31 Utilities 63 72 73 Communications 166 200 222 Publishing 53 54 52 Printing/Advertising 70 65 61 Restaurants and Bars 553 536 545 Amusements 86 85 94 Rentals of Personal Property 541 560 529 Contracting (All) 2,046 2,092 2,235 Retail 5,373 5,309 5,333 Hotel/Motel 185 189 174 Other Taxable Activities 1,103 1,179 1,218 TOTAL 10,267 10,365 10,567 (1) License fees, Jet Fuel, Jet Fuel Use, Timber Severance Ponderosa/Other, NSF, Seizure/Sales Fees, Telecommunications Service Assistance, Subpoena Fees and Utilities Credit are not included. (2) Decrease due to unuaual activity. Figures may not add to total due to rounding. TABLE 23 TRANSACTION PRIVILEGE, USE AND SEVERANCE TAX COLLECTIONS (1) IN YUMA COUNTY FOR THE PERIOD BEGINNING JULY 1, 2001 AND ENDING JUNE 30, 2002 TAXABLE ACTIVITIES AND CALCULATED NET % CHANGE BUSINESS CLASSIFICATIONS TAXABLE INCOME FROM FY2000-01 COLLECTIONS Utilities $153,178,418 -3.9% $7,658,921 Communications 51,375,362 1.0% 2,568,768 Publishing 2,699,789 -7.5% 134,989 Restaurants and Bars 121,695,701 7.2% 6,084,785 Amusements 9,431,947 1.4% 471,597 Rentals of Personal Property 57,559,434 -10.4% 2,877,972 Contracting (All) 220,873,703 9.0% 11,043,685 Retail 866,972,231 1.3% 43,348,612 Hotel/Motel 26,871,573 -3.6% 1,477,937 Other Taxable Activities 49,556,892 -1.6% 2,446,918 TOTAL $1,560,215,050 1.5% $78,114,184 NUMBER OF ACCOUNTS FISCAL YEAR 1999-00 THROUGH FISCAL YEAR 2001-02 TAXABLE ACTIVITIES AND BUSINESS CLASSIFICATIONS FY1999-00 FY2000-01 FY2001-02 Utilities 34 40 44 Communications 122 144 187 Publishing 15 15 13 Restaurants and Bars 278 277 292 Amusements 49 46 41 Rentals of Personal Property 487 491 462 Contracting (All) 618 672 693 Retail 3,265 3,229 3,246 Hotel/Motel 91 109 92 Other Taxable Activities 900 963 925 TOTAL 5,859 5,986 5,995 (1) License fees, Jet Fuel, Jet Fuel Use, Timber Severance Ponderosa/Other, NSF, Seizure/Sales Fees, Telecommunications Service Assistance, Subpoena Fees and Utilities Credit are not included. Figures may not add to total due to rounding. TABLE 24 STATE TRANSACTION PRIVILEGE AND SEVERANCE TAX DISTRIBUTION TO COUNTIES FISCAL YEAR 1997-98 THROUGH FISCAL YEAR 2001-02 % CHANGE COUNTY FY1997-98 FY1998-99 FY1999-00 FY2000-01 FY2001-02 FROM FY2000/01 Apache $3,384,940 $3,565,934 $5,473,442 $4,445,431 $3,808,535 -14.3% Cochise 7,886,873 8,390,958 9,229,981 9,594,853 9,111,850 -5.0% Coconino 12,183,683 12,695,530 13,841,588 13,978,278 13,695,680 -2.0% Gila 4,156,713 4,067,599 3,882,098 4,443,907 4,087,916 -8.0% Graham 2,139,621 2,247,541 2,412,735 2,462,318 2,366,529 -3.9% Greenlee 3,813,256 3,226,878 3,098,540 3,003,365 1,794,359 -40.3% La Paz 1,316,162 1,421,105 1,486,269 1,495,379 1,525,956 2.0% Maricopa 256,008,018 277,695,556 306,464,900 322,426,596 325,710,325 1.0% Mohave 11,639,836 12,194,408 12,938,817 13,012,998 13,293,460 2.2% Navajo 6,690,773 7,136,959 7,748,173 7,932,049 7,990,618 0.7% Pima 65,670,660 70,057,426 76,273,737 79,516,015 76,759,008 -3.5% Pinal 10,457,557 11,018,980 11,582,587 12,511,593 12,467,448 -0.4% Santa Cruz 2,793,965 2,968,377 3,180,054 3,346,986 3,275,822 -2.1% Yavapai 13,324,088 14,218,059 16,154,370 16,629,440 16,504,368 -0.8% Yuma 9,834,655 10,495,286 11,358,869 11,861,866 12,675,627 6.9% $411,300,801 $441,400,596 $485,126,158 $506,661,075 $505,067,501 -0.3% Figures may not add to totals due to rounding. TABLE 25 STATE TRANSACTION PRIVILEGE AND SEVERANCE TAX DISTRIBUTION TO MUNICIPALITIES FISCAL YEAR 2001-02 CITIES AMOUNT COUNTY TOTAL CITIES AMOUNT COUNTY TOTAL APACHE Queen Creek $332,593 Eagar $310,785 Scottsdale 15,620,534 St. Johns 243,343 Surprise 2,377,160 Springerville 160,531 $714,658 Tempe 12,223,711 COCHISE Tolleson 383,299 Benson 363,032 Wickenburg 391,621 Bisbee 469,298 Youngtown 231,952 $220,616,766 Douglas 1,102,889 MOHAVE Huachuca City 134,933 Bullhead City 2,602,254 Sierra Vista 2,910,958 Colorado City 256,919 Tombstone 115,899 Kingman 1,546,526 Willcox 287,667 5,384,675 Lake Havasu City 3,231,760 7,637,459 COCONINO NAVAJO Flagstaff 4,076,034 Holbrook 378,906 Fredonia 79,835 Pinetop-Lakeside 276,030 Page 524,704 Show Low 592,980 Williams 219,006 4,899,579 Snowflake 343,690 GILA Taylor 244,744 Globe 576,874 Winslow 733,615 2,569,965 Hayden 68,738 PIMA Miami 149,189 Marana 1,044,631 Payson 1,049,563 Oro Valley 2,288,695 Winkelman 34,138 1,878,502 Sahuarita 249,830 GRAHAM South Tucson 423,062 Pima 153,273 Tucson 37,505,234 41,511,452 Safford 711,422 PINAL Thatcher 309,937 1,174,632 Apache Junction 2,451,601 GREENLEE Casa Grande 1,943,772 Clifton 200,049 Coolidge 599,993 Duncan 62,573 262,622 Eloy 799,502 LA PAZ Florence 1,113,215 Parker 241,970 Kearny 173,309 Quartzsite 258,461 500,430 Mammoth 135,780 MARICOPA Superior 250,755 7,467,926 Avondale 2,765,159 SANTA CRUZ Buckeye 654,782 Nogales 1,608,868 Carefree 225,556 Patagonia 67,890 1,676,758 Cave Creek 287,281 YAVAPAI Chandler 13,607,407 Camp Verde 728,298 El Mirage 586,353 Chino Valley 603,768 Fountain Hills 1,559,318 Clarkdale 263,701 Gila Bend 152,580 Cottonwood 707,338 Gilbert 8,453,298 Jerome 25,353 Glendale 16,861,747 Prescott 2,615,277 Goodyear 1,457,290 Prescott Valley 1,813,617 Guadalupe 402,872 Sedona 785,400 7,542,752 Litchfield Park 293,600 YUMA Mesa 30,544,828 San Luis 1,180,720 Paradise Valley 1,052,954 Somerton 559,921 Peoria 8,350,576 Wellton 140,944 Phoenix 101,800,295 Yuma 5,973,339 7,854,924 TOTAL $311,693,101 $311,693,101 City Distributions are based on relative population. Figures may not add to total due to rounding. TABLE 26 MUNICIPAL PRIVILEGE TAX COLLECTION PROGRAM COLLECTIONS BY CITY FISCAL YEAR 2001-02 RATE (1) RATE (1) CITY (PERCENT) COLLECTIONS CITY (PERCENT) COLLECTIONS Apache Junction 2.2* $7,976,373 Marana 2.0* $14,842,812 Benson 2.5* 1,729,091 Miami 1.5 116,348 Bisbee 2.5* 1,210,933 Oro Valley 2.0* 6,333,076 Buckeye 2.0* 1,676,502 Page 2.0* 3,371,939 Bullhead City 2.0* 7,750,817 Paradise Valley 1.4* 7,297,814 Camp Verde 2.0* 1,367,995 Parker 2.0* 977,970 Carefree 2.0* 1,833,020 Patagonia 3.0* 161,750 Casa Grande 1.8* 9,887,404 Payson 2.0* 5,166,169 Cave Creek 2.5* 2,370,960 Pima 2.0* 141,215 Chino Valley 2.0* 2,055,626 Pinetop-Lakeside 2.5* 2,428,102 Clarkdale 2.25* 399,591 Prescott Valley 2.0* 5,828,323 Clifton 2.0 301,558 Quartzsite 2.5* 941,117 Colorado City 2.0* 216,132 Queen Creek 1.0* 1,100,691 Coolidge 2.0* 2,205,133 Safford 2.0* 2,623,302 Cottonwood 2.2 6,603,951 Sahuarita 2.0* 2,723,008 Douglas 2.5* 4,090,781 St. Johns 2.0* 460,509 Duncan 2.0 117,115 San Luis 2.5* 2,068,532 Eagar 3.0* 372,379 Sedona 3.0* 10,651,562 El Mirage 3.0* 6,649,544 Show Low 2.0 6,617,258 Eloy 3.0* 2,437,413 Sierra Vista 1.5* 9,741,663 Florence 2.0* 902,407 Snowflake 2.0* 1,010,994 Fountain Hills 1.6* 4,268,848 Somerton 2.5* 528,863 Fredonia 2.0 81,536 South Tucson 2.5* 2,217,163 Gila Bend 3.0* 868,966 Springerville 3.0* 1,215,617 Gilbert 1.5* 29,194,285 Superior 2.0* 172,045 Glendale N/A 101 (2) Surprise 2.0* 16,090,834 Globe 1.5* 1,770,347 Taylor 2.0 490,662 Goodyear 2.0* 12,305,079 Thatcher 2.0* 1,844,013 Guadalupe 2.0 660,014 Tolleson 2.0* 3,276,405 Hayden 1.0* 359,654 Tombstone 2.5* 505,351 Holbrook 3.0* 2,105,617 Wellton 2.5 350,130 Huachuca City 1.0 120,004 Wickenburg 1.0 1,149,538 Jerome 3.0 338,647 Willcox 2.0 1,226,634 Kearny 2.0* 245,706 Williams 3.0* 2,660,117 Kingman 2.0* 8,458,447 Winkelman 3.5* 79,960 Lake Havasu City 2.0* 14,705,906 Winslow 3.0* 2,973,359 Litchfield Park 2.0* 1,342,656 Youngtown 2.0* 463,644 Mammoth 2.0* 79,620 Yuma 1.7 22,041,801 TOTAL $280,950,442 * Jurisdiction levied at more than one rate during the fiscal year. Rate shown is the rate charged on most transactions. (1) Rate shown is effective January 1, 2002 and may have changed during the remainder of FY02. (2) Glendale is not part of the Department's Collection program. These figures do not represent a full years collections. Figures may not add to total due to rounding. TABLE 27 MUNICIPAL PRIVILEGE TAX COLLECTION PROGRAM FISCAL YEAR 1997-98 THROUGH FISCAL YEAR 2001-02 FISCAL TOTAL NUMBER OF CITIES YEAR COLLECTIONS IN PROGRAM 1997-98 $180,932,433 74 1998-99 $202,218,016 75 1999-00 $230,976,587 75 2000-01 $257,706,985 75 2001-02 $280,950,442 75 Income Tax The State of Arizona imposes two types of income tax: corporate, which applies to incorporated businesses and certain other entities operating in this state; and individual, which is levied upon those persons who reside in or earn income in the state (Refer to Table 28). CORPORATE INCOME TAX MAJOR FEATURES Every corporation doing business in Arizona is required to file a corporate income tax return. Corporations filed returns with the state and made payments of $512 million during FY02 (Refer to Table 28). Tax Rate Reduction. Laws 1999, Ch. 318 amended ARS § 43-1111 to reduced the corporate tax rate from 8 percent on taxable income or $50, whichever is greater, to 7.968 percent of taxable income or $50, whichever is greater. The tax reduction is effective for taxable years beginning from and after December 31, 1999. Corporations that expect an Arizona income tax liability of at least $1,000 for the taxable year are required to make estimated tax payments. Any corporate taxpayer whose Arizona income tax liability for the preceding taxable year was $20,000 or more is required to make estimated tax payments via the electronic funds transfer program. Repeal of Several Corporate Tax Credits. Laws 1999, Ch. 318 repealed ARS § 43-1162 (correction industries tax credit); § 43-1164 (recycling equipment tax credit); § 43-1171 (construction materials tax credit); and § 43-1172 (agricultural water conservation system tax credit). The tax credits are repealed effective for taxable years beginning from and after December 31,1999. Taxpayers may claim carryovers of unused tax credits from taxable years beginning prior to January 1, 2000, for taxable years beginning on or before December 31, 2005, consistent with the provisions of the repealed credits. INDIVIDUAL INCOME TAX MAJOR FEATURES For tax year 2000 filed in 2001, approximately two million individual filers reported Arizona gross income (defined as federal adjusted gross income) totaling more than $ 95.6 billion. Individuals with Arizona gross income of more than $75,000, in the preceding or current year, are required to file Arizona estimated tax payments. An individual can apply any portion of an income tax refund toward the following year's income tax as an estimated payment. The graduated rate structure for the 2001 tax year ranged from 2.87 percent to a maximum of 5.04 percent on an individual's income over $150,000 (or joint income over $300,000). New Subtraction for World War II Victims: Starting with 2000 taxable year, taxpayers may subtract distributions made to them for their persecution or their ancestors by Nazi Germany or any other Axis regime for racial, religious or political reasons. Taxpayers may also subtract items of income that are attributable to, derived from or related to assets that were stolen or hidden from or lost to them if they were persecuted by Nazi Germany or any other Axis regime for racial, religious or political reasons before, during or immediately after World War II. DISTRIBUTION State income tax collections are shared with Arizona municipalities in an Urban Revenue Sharing Program. During FY 2002 an amount equal to 15 percent of net income tax collections from two years prior was distributed to cities and towns. In FY 2001 the percentage was 15 percent. The distribution is based on population and is given only to incorporated cities and towns. The remainder is deposited in the state general fund after amounts sufficient to pay refunds are allocated (Refer to Tables 28 and 29 ). Voluntary taxpayer contributions to Aid to Education Fund, Citizens Clean Elections Fund, Domestic Violence Shelter Fund, Child Abuse Prevention Fund, Arizona Wildlife Fund, Special Olympics Fund, Neighbors Helping Neighbors Fund, and political parties are distributed to the appropriate agency, political party or organization (Refer to Table 29). ARIZONA DEPARTMENT OF REVENUE 2002 ANNUAL REPORT 51 CORPORATE AND INDIVIDUAL INCOME TAX CREDITS In addition to the new (expanded) provisions listed above, the following are non-refundable corporate and individual income tax credits. (Refer to Table 29). CREDIT AVAILABLE TO Agricultural Water Taxpayers that incur expenses to purchase and install an Conservation System agricultural water conservation system in Arizona. This credit was repealed for corporations for taxable years beginning from and after December 1, 1999. Taxes paid for Coal Corporate taxpayers, a credit equal to 30 percent of the amount Consumed in Generating paid by the seller or purchaser as transaction privilege tax or use Electrical Power tax for coal sold to the taxpayer that is consumed in the generation of electrical power in Arizona. Construction Materials Taxpayers that purchase construction materials, in excess of five million dollars, for a building used predominantly for mining, manufacturing, fabricating, refining, metallurgical operations, or research and development as defined in ARS 43-1168. This credit was repealed for corporations for taxable years beginning from and after December 1, 1999. Contributions to Individual taxpayers that make cash contributions to certain Charities that Provide charities that provide help to the working poor. The maximum Assistance to the amount of this credit is $200. Working Poor Contributions to Individual taxpayers that made contributions to a school tuition School Tuition organization that provides scholarships or grants to qualified Organizations schools. Taxpayers filing single or head of household can take a maximum credit of $500. Taxpayers that file married filing joint can take a maximum credit of $625, taxpayers that are married filing separately can each take one-half of the required credit up to the maximum credit of $625. Correctional Industries Corporate taxpayers for the investment in qualified property on the grounds of an Arizona correctional facility, or for the employment of inmates in the Arizona correctional facility, or for the employment of inmates in prison construction (for an Arizona correctional facility). This credit was repealed for taxable years beginning from and after December 1, 1999. Defense Contracting Taxpayers certified by the Arizona Department of Commerce as a qualified defense contractor for qualified increases in employment. Employment of Taxpayers that employ recipients of Temporary Assistance for TANF Recipients Needy Families (TANF). 52 ARIZONA DEPARTMENT OF REVENUE 2002 ANNUAL REPORT CREDIT AVAILABLE TO Enterprise Zone Taxpayers whose business is located in an Arizona enterprise zone that have a net increase in qualified employment positions. Environmental Technology Taxpayers that incur expenses in constructing a qualified Facility environmental technology manufacturing, producing, or processing facility as described in ARS 41-1514.02. The qualified environmental technology manufacturer, producer, or processor must have been certified by Commerce before July 1, 1996. Fees Paid to Individual taxpayers that paid certain fees to public schools in Public Schools Arizona. Taxpayers filing single or head of household can take a maximum credit of $200. Taxpayers that file married filing joint can take a maximum credit of $250, taxpayers that are married filing separately can each take one-half of the required credit up to the maximum credit of $250. Increased Excise Taxes This credit is for Arizona residents whose federal adjusted gross income is beneath a certain threshold ($25,000 or less for Married Filing Joint or Head of Household, or $12,500 for Married Filing Separately or Single) and who cannot be claimed as a dependent by any other taxpayer. Military Reuse Zone Taxpayers with a net increase in employment of full-time employees working in a military reuse zone. Pollution Control Taxpayers that purchase real or personal property that is used within Arizona in the taxpayer's trade or business to control or prevent pollution. Recycling Equipment Taxpayers who acquire and place in service recycling equipment in Arizona. This credit was repealed for corporations not individuals. Research and Development Corporate taxpayers with an increase in qualifying research and Expenses development expenses conducted in Arizona. Individuals must use Form 308-I effective for taxable years beginning January 1, 2002. School Site Donation This tax credit is for the donation of real property and improvements to an Arizona school district or Arizona charter school for use as a school or as a site for the construction of a school. The credit applies to taxable years beginning from and after December 31, 2000. Solar Energy Individual taxpayers who install a solar energy device in his or her residence located in Arizona. Credit for Taxes Paid to (INDIVIDUALS ONLY) Taxpayers that paid a net income tax to Another State or Country Arizona and another qualified state or foreign country, on the same income. ARIZONA DEPARTMENT OF REVENUE 2002 ANNUAL REPORT 53 54 ARIZONA DEPARTMENT OF REVENUE 2002 ANNUAL REPORT CREDIT AVAILABLE TO Underground Storage Tanks Taxpayers that incurred expenses for corrective actions taken with respect to the release of a regulated substance from an underground storage tank. To qualify for this credit, the taxpayer must not have been liable or responsible for the corrective action as an owner or operator of the underground storage tank. Solar Hot Water Taxpayers for the installation of solar hot water heater plumbing Heater Plumbing Stub stub outs and electric vehicle recharge outlets in houses or dwelling Outs and Electric Vehicle units constructed by the taxpayer. The houses or dwelling units Recharge Outlets must be located in Arizona. Wheels to Work Donation This tax credit is for the fair market value of any motor vehicle donated by the taxpayer to the Wheels to Work program established by ARS §46-142. The credit applies to taxable years beginning from and after December 31, 1998. TABLE 28 INCOME TAX COLLECTIONS FISCAL YEAR 1997-98 THROUGH FISCAL YEAR 2001-02 PERCENT OF NET COLLECTIONS SOURCE FY1997-98 FY1998-99 FY1999-00 FY2000-01 FY2001-02 IN FY2001-02 Withheld from Wages Gross Revenue $1,863,292,013 $2,072,018,474 $2,259,201,907 $2,363,693,852 $2,309,340,885 Refunds and Charge-offs (11,947,994) (18,463,322) (10,053,362) (7,032,321) (9,047,839) NET $1,851,344,019 $2,053,555,152 $2,249,148,545 $2,356,661,531 $2,300,293,045 94.4% Individuals & Fiduciaries Gross Revenue 669,323,279 765,853,606 826,789,215 858,775,963 705,843,394 Refunds and Charge-offs (657,470,764) (721,059,420) (784,055,322) (911,549,899) (915,490,638) NET $11,852,514 $44,794,187 $42,733,894 ($52,773,936) ($209,647,244) -8.6% Corporations Gross Revenue 630,836,596 643,230,321 637,765,231 678,002,658 512,257,476 Refunds and Charge-offs (102,775,471) (97,842,182) (114,583,545) (136,828,789) (165,976,997) NET $528,061,125 $545,388,138 $523,181,687 $541,173,869 $346,280,480 14.2% Subtotal Net Collections $2,391,257,658 $2,643,737,477 $2,815,064,125 $2,845,061,464 $2,436,926,281 100.0% Less distributions for: Urban Revenue Sharing 291,243,578 340,310,656 377,710,988 396,452,640 421,876,573 Contracted Collection Agency 82,890 39,610 58,016 60,989 20,922 Wildlife Contributions 190,715 146,278 177,079 194,201 177,886 Child Abuse Prevention 223,435 210,355 185,666 222,325 210,223 Special Olympics 95,487 74,471 83,854 88,051 83,873 Neighbors Helping 61,562 32,374 46,610 38,800 37,696 Neighbors State Aid to Public Schools (1) *** 48,503 7,411 26,884 33,955 Domestic Violence Shelter (1) *** 137,524 139,208 152,928 150,954 Democratic Party 12,091 14,401 11,127 15,130 15,984 Green Party 0 0 0 2,667 2,559 Libertarian Party 3,004 3,077 3,210 2,422 2,090 New Alliance Party 5 0 0 0 0 Republican Party 11,623 12,077 13,650 15,474 14,127 Reform Party 973 869 194 36 92 Natural Law Party 0 0 0 142 200 Clean Elections (1) *** 340 1,827,616 2,315,832 3,246,597 Subtotal Distributions $291,925,363 $341,030,534 $380,264,630 $399,588,520 $425,873,731 NET REVENUE TO STATE GENERAL FUND $2,099,332,295 $2,302,706,944 $2,434,799,495 $2,445,472,944 $2,011,052,550 WQARF DISTRIBUTION (2) *** *** $15,000,000 $15,000,000 $15,000,000 (1) Individual and corporate income tax checkoffs and donations established in tax year 1998. (2) Beginning July 1, 1999, a transfer is made to the Water Quality Assurance Revolving Fund from corporate income tax collections. Figures may not add to total due to rounding. TABLE 29 EXEMPTIONS, DEDUCTIONS AND CREDITS TAX YEAR 1997 THROUGH TAX YEAR 2001 AGE 65 STANDARD MAXIMUM MAXIMUM TAX PERSONAL BLIND AND OVER DEPENDENT DEDUCTION PROPERTY FAMILY YEAR EXEMPTION EXEMPTION EXEMPTION EXEMPTION LIMIT (1) TAX CREDIT TAX CREDIT 1997 2,100 (2) 1,500 2,100 2,300 3,600/7,200 502 120 1998 2,100 (2) 1,500 2,100 2,300 3,600/7,200 502 240 1999 2,100 (2) 1, |