Section R15-2E-101. Feeder Organization Not Exempt from Tax

A.      In determining the primary purpose of an organization for purposes of A.R.S. § 43-1202, all circumstances must be considered, including the size and extent of the trade or business and the size and extent of those activities of the organization that are specified in the applicable paragraph of

A.R.S. § 43-1201.

1.        If a subsidiary organization of a tax-exempt parent organization is an integral part of the exempt activities of the parent organization, the exemption will remain valid

even if the subsidiary derives a profit from the dealings with the parent organization.

Example: A subsidiary organization that is operated for the sole purpose of furnishing electric power used by the tax-exempt parent organization is exempt from tax.

2.        If a subsidiary organization of a tax-exempt parent organization is operated for the primary purpose of carrying on a trade or business that is unrelated to the parent’ exempt activities, then the subsidiary organization is not exempt from tax.

Example: If a subsidiary organization is operated primarily for the purpose of furnishing electric power to consumers other than the tax-exempt parent organization, then the subsidiary organization is not exempt because the business would be an unrelated trade or business if regularly carried on by the parent organization. Similarly, if the subsidiary is owned by several unrelated exempt organizations and is operated for the purpose of furnishing electric power to each of them, it is not exempt because the business would be an unrelated trade or business if regularly carried on by any one of the tax- exempt organizations.

B.       In certain cases, an organization that carries on a trade or business for profit but is not operated for the primary purpose of carrying on the trade or business is subject to tax under

A.R.S. § 43-1231.

Historical Note

Recodified at 6 A.A.R. 2308, filed in the Office of the Secretary of State June 2, 2000 (Supp. 00-2). Amended by final rulemaking at 7 A.A.R. 2326, effective May 14, 2001 (Supp. 01-2).