The State of Arizona has similar taxes and rates to other states in the union, but differs slightly because of the differentiation between transaction privilege tax and use tax – two different forms of tax collected by merchants in different situations in the state.
While the tax discussed throughout will be referred to as "sales tax", Arizona technically has something different called the Transaction Privilege tax. More information on this type of tax is discussed here. For the purposes of this article we’ll describe it as "sales tax" for simplicity.
The following rates apply at the state and city level:
There are currently 15 cities in Arizona that administer their own sales tax, combined with the county taxes and state tax – if you live in Arizona this is relatively easy to handle as the state is Origin-based, but for those selling into Arizona from out of state, a number of factors need to be considered.
For those who live and operate in Arizona, collecting sales tax is relatively simple. You collect and pay local, county, and state sales tax to the areas in which you live. For those who are not wholly based in Arizona, however, the state expects sales tax to be collected if you have nexus there.
There are several situations in which a business is considered to have sales tax nexus in Arizona. These include:
You can learn more about what constitutes sales tax nexus in Arizona and how to confirm if you are subject to these factors on the Arizona Department of Revenue’s website.
For those that sell goods online through Amazon’s FBA program (or a similar program with another online retailer), there are five fulfillment centers in the state – four of them are in Phoenix and the fifth is in Goodyear. Make sure you know exactly where your inventory is being held if you use Amazon or another online retailer for fulfillment as this constitutes nexus in the state.
The State of Arizona maintains a list of what is and is not taxable for those who have established sales tax nexus. The exceptions to these rules are generally similar to other states, with a few specific items that you should keep in mind. The following are things to consider when determining if sales tax applies:
Before assuming exception to any of the sales tax applied in Arizona, be sure to review the documentation on the Department of Revenue’s website and ensure it does not apply to you in these situations.
To collect and pay sales tax in the state of Arizona, you must first register with the state. This is done after determining nexus and can be done through their website. It is illegal to collect sales tax on purchases even if the purchase is applicable before applying for a permit to do so in the state. You can do this from the links below:
To complete the application, you’ll need a significant amount of information for the state. This includes your federal identification number, legal business name, the physical location of your business, your bonding information, NAICS code, and detailed documentation of your business’s ownership structure (among other details from the person filing these forms. There is also a nominal fee to file the paperwork of $12 to the state and up to $50 for each municipality or county in which forms need to be filed. Keep in mind that you may need to file multiple of these forms if you are out of state and plan on doing business in Arizona.
You can apply for a sales tax permit in all 15 of Arizona’s cities using Form J-10 – there are also changes scheduled to the Arizona registration process in 2016 that will further simplify this process.
You will pay Arizona sales and use tax by:
The frequency with which you must file is based on the amount of tax you owe each year and is first assigned when you apply for your permit. This date can change depending on the total liability you owe each year. For example, in 2015, those who owe less than $2,000 annually are now permitted to pay yearly, while those with liability between $2,000 and $8,000 may pay quarterly. All others are expected to pay their sales tax liability in the state monthly.
Like many states, Arizona offers a discount to those who pay their sales tax on time – the discount is equal to 1% of the total sales tax due, but no greater than $10,000 per calendar year.
Quarterly: The following deadlines apply to those whose sales tax liability in Arizona is between $2,000 and $8,000 per year:
|January – March (Q1)||April 20|
|April – June (Q2)||July 20|
|July – September (Q3)||October 20|
|October – December (Q4)||January 20|
Monthly: The following deadlines apply to those whose sales tax liability in Arizona is greater than $8,000 per year:
Annual: For those businesses with liability less than $2,000 per year, annual filing is also an option.
Arizona charges penalties and interest on late payments. This applies to both active returns and zero returns. Even if there is no sales tax due for a period, you are expected to file a zero return and may be subject to a penalty if it is not filed.
The late fees for delinquent returns are 4.5% per month of the tax imposed that you owe. If there is late payment, the penalty is 1% of the unpaid tax due for each of the months you are late on your payment.
The term "transaction privilege tax", also called TPT, is one you won’t hear about outside the state of Arizona. While it’s generally treated just like sales tax, the transaction privilege tax differs from true sales tax in that it applies to the seller rather than the purchaser. Individual products and their sale aren’t taxed. Instead, the TPT is a gross revenues tax, which means that it’s a tax on the gross receipts for the business. This doesn’t directly impact the cost of a transaction, since the cost will usually be included in the sales price and passed along to the buyer. However, it does affect the ultimately holder of that liability, in this case the merchant whose products are being sold.
Because of the complicated nature of Arizona’s sales tax system for out of state sellers, if you are looking to streamline and simplify the process, TaxTools sales tax software is a good fit. We offer data review and sorting tools that will help you determine the proper sales tax rate for each sale you make in Arizona. It can work with your existing e-commerce website or other transactions from within a single interface. Contact us today to learn more about TaxTools or signup here for a free trial.