Tax Victory for Arizona Agriculture: Irrigation
Systems Ruled Exempt Agricultural Machinery
Irrigation system construction and maintenance
constitute a major cost for growers, particularly those converting flood
irrigation systems to more efficient drip systems.
In a recent private taxpayer ruling, the Arizona Department of Revenue
determined that purchases of certain irrigation systems for commercial purposes
are exempt from Arizona’s transaction privilege tax, commonly referred to as
In its ruling, the Department of Revenue determined that such purchases are
covered by the same exemption that is allowed for four-inch pipe and new
agricultural machinery and equipment. Both exemptions are provided in
A.R.S. § 42-5061(B).
The ruling is a win for Arizona farmers, including growers in the Casa Grande
Valley, who may realize a significant tax savings in purchases of irrigation
equipment. Irrigation system construction and maintenance constitute a major
cost for growers, particularly those converting flood irrigation systems to more
efficient drip systems.
Arizona's transaction privilege tax (TPT) taxes the privilege of conducting
certain businesses in Arizona. Technically, the TPT taxes the seller, not the
purchaser, although as a practical matter the purchaser ultimately pays the tax,
which the seller must then pay over to the Department of Revenue and to local
taxing authorities. All sales subject to the TPT are also subject to applicable
county excise taxes.
Arizona's use tax is a complimentary tax to the TPT, and even if a company
is not liable to collect and pay TPT, Arizona’s use tax may apply.
§ 42-5155(A) imposes the use tax on retail purchases of tangible personal
property that is used, stored or consumed in Arizona.
Irrigation System Details
Irrigation equipment such as inline-steel filters, mainline pipes and four-inch
sub-mainline pipes generally qualify for the TPT exemption, as they are all
larger than the required diameter and are used to transport water as part of a
commercial agricultural irrigation system. Any fittings, seals and any other
parts used in operating those pipes are also exempt.
Exempt items used for commercial agricultural purposes include drip irrigation
The exemption does not apply to all irrigation-related equipment, however. State
law – A.R.S. §§ 42-5061(C)(7) and
42-5159(C)(7) – specifically excludes motors
and pumps used in irrigation systems. Also, the pipes and other components that
generally do not qualify include:
• sub-mainline pipes less than four inches in diameter
• lateral lines
• risers less than four inches in diameter
• field and flush valves less than four inches in diameter
• valves not connected to four-inch or larger pipes
• seals, couplings, fittings, flanges, and other adaptors not attached to
four-inch or larger pipes.
Whether a grower is responsible for the TPT or use tax on the purchases of
components for its irrigation system depends on whether any specific statutory
exemption or deduction is applicable. To determine whether an exemption applies,
you should consult a state and local tax attorney or accountant..