Section R15-5-1604. Gross Income

	fication.	A.	Gross income under the commercial lease classification shall
D.	For periods prior to July 17, 1993, gross income from the		include all amounts paid to or on behalf of the lessor including
	rental of one economic unit of agricultural property shall not		but not limited to the following items:
	be taxable if the following conditions exist:		1.     Rent;
	1.     A lessor had income from another source which was		2.     Property tax paid by the lessee either as reimbursement to
	unrelated to the income from the rental of one economic		the lessor or paid directly to the county assessor on the
	unit of agricultural property and such income was of a		lessor’s behalf;
	significant amount so as to indicate that the rental activity		3.     Insurance paid by the lessee either as reimbursement to
	was not the sole or main support of the lessor and		the lessor or directly on the lessor’s behalf;
	2.     The scope and degree of the rental activity clearly indi-		4.     Common area maintenance charges paid by the lessee;
	cated that the rental activity was an investment activity		5.     Payments by the lessee for the promotion of the facility or
	rather than income from a business.		of the lessee;
E.	For periods from and after July 17, 1993, gross income from		6.     Flat fees paid by the lessee for telephone and reception
	the rental of agricultural property shall not be subject to tax if		services, clerical services, library services, reproduction
	the conditions of A.R.S. § 42-5069(C)(12) are met.		services or facsimile services when such services are con-
F.	The following situations are indicative of the application of the		tracted for as part of the lease or are obligatory under the
	general provisions of the commercial lease classification:		lease:
	1.     A three-story office building is lease in its entirety to a		7.     Utility connect/disconnect charges;
	large law firm. The building is one unit of property. Prior		8.     Improvements to the leased property made on behalf of
	to August 1, 1988, the lessor of the office building was		the lessor; or
	not considered to be engaged in business under the com-		9.     Reimbursement for utility service in excess of the actual
	mercial lease classification if the conditions of subsection		amount charged by the utility company.
	(A) existed. Commencing on or after August 1, 1988, the	B.	Refundable deposits shall not be subject to tax at the time of
	single rental of commercial real property is subject to tax		receipt if such deposits are separate from gross receipts from
	under the commercial lease classification.		commercial  leasing  and   are  maintained  on  the  books  and
	2.     Individual spaces in a small medical building are rented		records of the lessor as a liability and not as income.
	to three different members of the medical profession on		1.     Any portion of a refundable deposit which is retained by
	separate  leases.   The  property   consists  of  three  units.		the lessor as a forfeited deposit shall be included in gross
	Regardless  of  the   time  period  in   which  the   rental		receipts subject to tax.
	occurred, the lessor in this situation has always been		2.     Any portion of a refundable deposit which is not claimed
	engaged in business under the commercial lease classifi-		by the tenant at the time the tenant departs shall be pre-
	cation.		sumed to be abandoned property if not claimed within
	3.     A partnership is formed to hold one unit of real property		five years from the date of departure pursuant to A.R.S.
	for purposes of leasing. Income received from this activ-		Title 44, Chapter 3 and shall be reported and delivered as
	ity is taxable since the partnership was formed for busi-		unclaimed property to the Department after the five-year
	ness purposes.		period of time has elapsed.
	4.     Two hundred acres of farmland are leased to one tenant.		3.     If amounts reported as income are claimed as refundable
	The acreage is one economic unit of agricultural property.		deposits, the burden of proof shall be on the taxpayer to

show that the income reported is not gross receipts sub- ject to tax.

C.   Nonrefundable  charges, such as cleaning charges, shall be