Arizona Sales Tax on Remodeling (2026): MRRA vs Prime Contracting
Whether an Arizona contractor owes tax on the job or only on materials, the 25% test, and three jobs worked at the 5.6% state rate.
Not tax advice. General information from each state's revenue department, checked Oct 29, 2026. Rates shown are the state rate; city and county tax is extra where it applies. The facts of your job and contract can change the answer; for a specific job, ask a tax professional in your state.
The rule in Arizona
Materials only
A remodel priced at or under 25% of the home's full cash value is repair and alteration work: you pay tax on materials and bill none. Above 25%, or new construction, the job is prime contracting, taxed on 65% of the price.
5.6%
5.6% plus county and city
Itemizing or time and materials
The 25% test decides, not the invoice format.
None from the homeowner. Form 5000 only if you hold a TPT license; you then remit tax on materials.
Source: A.R.S. 42-5075; ADOR Contracting FAQs (Statute and ADOR FAQ)
“Generally, the gross receipts of a MRRA project are not subject to the TPT”
“The tax base is sixty-five percent of the gross receipts”
Three jobs, worked
| Job | Customer | You pay |
|---|---|---|
| Bathroom $12,000 job, $5,000 materials | $0 | $280 |
| Kitchen $40,000 job, $15,000 materials | $0 | $840 |
| Addition $90,000 job, $35,000 materials | $0 | $1,960 |
On the kitchen: The customer pays no sales tax. You pay $840 on $15,000 of materials at 5.6%, and build it into the price. If the job costs more than 25% of the home's full cash value, it's prime contracting: 5.6% on 65% of the price, or $1,456.
The three jobs assume each is under 25% of the home's full cash value. A $90,000 addition on a home with a full cash value under $360,000 would be prime contracting.
How it works in Arizona
MRRA
Remodels, repairs and alterations costing up to 25% of the home's most recent full cash value. You pay tax on materials; labor isn't taxed.
Prime contracting
New construction, or alterations over 25% of full cash value. Tax on 65% of the price, an effective 3.64% at the state rate.
The invoice
Don't show tax as a separate line on an MRRA job.
Also check
- Full cash value is the county assessor's figure, not the market price.
- Cities and counties add their own rates; check the city rules for the job's location.
Arizona sales tax questions
Do contractors charge sales tax in Arizona?
Not on an MRRA remodel: they pay tax on materials. On prime contracting, the tax is on 65% of the price and is usually built into it.
What is MRRA in Arizona?
Maintenance, repair, replacement or alteration. A residential alteration counts if it costs no more than 25% of the home's full cash value.
How is prime contracting taxed in Arizona?
On 65% of gross receipts, so 5.6% state works out to 3.64% of the price, plus local.
Compare other states
How we checked
We read each state's sales tax rule for construction contractors on the revenue department or legislature site, and its 2026 state rate. Two independent research passes covered all 50 states and DC, and a third reviewer checked the result. Where a state's own page would not load, the row names the copy we read. Last checked .
This guide explains the general rule for remodeling an owner-occupied home. It is not tax advice.