Return Deductions

Deduction Code List

View a comprehensive list of allowable deductions by ST Code/Business Activity.

Exemption Forms

  • City Exemption Form                                                                                                                                                                        
  • State Exemption Certificate Form 5000 - This form may be used if the exemption shown on the certificate by the buyer is an exemption available in the Phoenix Tax Code.
  • Prime Contractor's Certificate 5005 - The State form may be used to provide a subcontractor with the validation required for tax exemption of a particular project, for a period of time, or until revoked. This certificate establishes responsibility for the transaction privilege tax. Therefore, it must be completed by the prime contractor assuming the contracting transaction privilege tax liability for the contracting project(s).
  • Speculative Builder Privilege Sales Tax Certificate - This form may be used when a speculative builder sells partially improved residential property to another speculative builder.

Sales Tax Collected Deduction (Deduction Code 64)

What is it?

Tax should never be paid on tax.  When privilege sales tax is included in the gross income value indicated on the tax return, this amount may be reported as a deduction under code 64 on the sales tax return form.  

How do I Report it?

A business may or may not separately charge sales tax. 

    • When sales tax is separately charged, the below formula is followed:

Sales Tax Collected Deduction (Code 64) =  Net Taxable * Combined Tax Rate

Example: $1,500.00 gross retail sales, $500.00 resale deduction, combined tax rate = 0.083 or 8.3%

Sales Tax Collected: $1,000 * 0.083 = $83.00

    • When sales tax is not separately charged, use one of the two factoring methods below:

            Division Method

            Step 1) Base Sales: Gross Sales - Itemized Deductions

            Step 2) Net Taxable: Base Sales / (1 + Combined Tax Rate)

             Step 3) Factored Sales Tax Deduction (Code 64): Base Sales – Net Taxable  

Example: $1,500.00 gross retail sales, $500.00 resale deduction, combined tax rate = 0.083 or 8.3%

Base Sales: $1,500 - $500 = $1,000

Net Taxable:  $1,000/1.083 = $923.36

Factored Sales Tax Deduction (Code 64):  $1,000 - $923.36 = $76.64 

Multiplication Method

Step 1) Factor: Combined Tax Rate / (1 + Combined Tax Rate)

 Example: Retail Sales combined tax rate = 0.083 or 8.3%

0.083 / (1 + 0.083) = 0.076638

       Step 2) Factored Sales Tax Deduction (Code 64): Net Taxable * Factor 

Example: $1,500.00 gross retail sales, $500.00 resale deduction, combined tax rate = 0.083 or 8.3%

Factor: 0.083 / (1 + 0.083) = 0.076638

Factored Sales Tax Deduction (Code 64):  $1,000 * 0.076638 = $76.64 

Common Factors
Business ActivityCombined Tax RateFactorFactor Calculation
Retail (17)8.3%0.0766380.083 / (1+0.083)
Construction Contracting (15)8.3%0.051188(0.083 * 0.65) / (1+ (0.083 * 0.65)
Residential Rental (18)2.0%0.019607843140.020/ (1+0.020)
Commercial Rental (13)2.6%0.025341130600.026 / (1+0.026)

Excess Tax Collected

What is excess tax?  

When a deduction for sales tax collected is claimed in excess of the amount of tax due, it indicates that a business has overcharged tax to their customers. A business may not keep the excess tax but must report and pay Phoenix the city portion of excess tax collected. 

How is excess tax determined?  

When a taxpayer reports a value for Deduction Code 64, our tax system determines if excess tax was collected. 

System review process
  • Step 1)  The system calculates the allowable sales tax collected deduction amount: Net Taxable * Combined sales tax rate 

                            Example: Retail sales = $1,000.00

                            System Calculated Tax = $1,000 * 0.083 = $83.00

  • Step 2)  The system calculates the difference between the tax collected deduction (Deduction Code 64) claimed by the taxpayer to the system calculated allowable deduction. When the claimed deduction (Deduction Code 64) exceeds the allowable deduction, excess tax applies. Excess tax is calculated by subtracting the allowable sales tax deduction from the claimed sales tax deduction.

                                Example: Claimed $100.00 on Deduction Code 64

                                Excess Tax = $100.00 - $83.00 = $17.00

  • Step 3)  City portion of excess tax = (Excess tax collected / Combined sales tax rate) * City of Phoenix tax rate. The Phoenix portion of excess tax should be reported on Schedule C by business activity.

                               Example: Excess tax = $17.00

                               Phoenix portion of Excess Tax = ($17.00/0.083) * 2.0% = $4.09