Whether you’ve fully set up shop in Arizona, or simply ship there once in a while, it’s important you know whether your business is liable to their transaction privilege taxes. In our 10+ years of experience helping online businesses comply with taxes, we’ve found that tax policies are confusing. So we translated all the information from the Arizona Department of Revenue into language that’s easy to understand.
This guide will tell you everything you need to know, plus direct you to the right places for handling any transaction privilege tax responsibility you may have.
What’s taxable in Arizona?
Arizona has adopted a Transaction Privilege Tax (TPT), which is a gross receipts tax generally broader than a sales tax. It imposes different rates on different types of businesses. While there is no obligation to pass the tax through to the customer, most merchants choose to do so, in which case the TPT operates much like a sales tax.
Below is an overview of products and services that are generally taxable in Arizona. Some local cities or districts might have their own rules or exceptions, however. For example, check out the Phoenix sales tax guide for specific rules in the Arizona capital.
- Tangible personal property: These are physical items. Arizona taxes most tangible products, unless specifically exempted.
- Prepared food
- Clothing
- Software as a service (SaaS)
To be absolutely clear about which products and services are subject to TPT, and which are exempt, check the Arizona Department of Revenue website.
What are non-taxable items in Arizona?
Arizona has various TPT exemptions. Here are a few examples of non-taxable items that you don’t need to charge Arizona TPT on:
- Some prescription drugs
- Certain groceries (exempt from state tax, but not always local tax)
- Some medical devices
Arizona also exempts certain types of organizations from TPT, such as government agencies and some non-profit organizations.
Do you have nexus in Arizona?
The word “nexus” refers to a commercial connection in the state. Nexus determines the following questions for a state tax agency: Do you do business here, what kind, and how much? And when you do have nexus, that means you’re obligated to collect tax on your sales there. So the first question for you to answer is whether you have nexus in Arizona.
Arizona physical nexus
| Nexus Trigger | Description | |---------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------| | Physical Presence in Arizona | Having a store, office, warehouse, distribution center, or storage space in Arizona, as well as the presence of yourself, an employee, or a representative. | | Employee Presence | Having an employee present in the state for more than two days per year. | | Independent Contractors or Representatives | Engaging independent contractors or other representatives in Arizona for more than two days per year to establish and maintain a market for your business. | | Goods in a Warehouse | Storing goods in a warehouse in the state, including merchandise owned by FBA merchants stored in Arizona in Amazon-operated warehouses. | | Personal Property Ownership | Owning personal property in the state. | | Delivered Merchandise Using Taxpayer-Owned Vehicles | Using your own vehicles to deliver merchandise in Arizona. |
Arizona economic nexus
- A significant amount of sales in Arizona within twelve months. This is called an economic nexus, a TPT nexus determined by economic activity, i.e., the amount of sales you make in a particular state, not including sales through a marketplace.
- The threshold in Arizona is $100,000 in annual gross sales in the current or previous calendar year. Your obligation to collect begins on the first day of the first month that begins at least 30 days after you exceed the threshold. For example, if you exceed the threshold on February 15, you need to begin collecting on April 1.
To learn more about how this works, check out the Ultimate Guide to US Economic Nexus. For more information, see the Arizona Department of Revenue Nexus Program TPT guidelines.
Sales tax rates in Arizona
Tax rates can vary based on the location of your business and the location of your customer, plus the levels of TPT that apply in those specific locations.
The base Arizona state TPT rate for retailers is 5.6%. There are additional levels of TPT at local jurisdictions, too, ranging from 0% to 5.6%. Currently, combined TPT rates in Arizona range from 5.6% to 11.2%, depending on the location of the sale.
| TPT Rate Component | Description | |----------------------------------------------|----------------------------------------------------------------------------------------------------------| | Base Arizona State TPT Rate for Retailers | 5.6% | | Local Jurisdictions TPT Rate | Ranges from 0% to 5.6%, depending on the specific local jurisdiction within Arizona. | | Combined TPT Rates | Currently range from 5.6% to 11.2%, depending on the location of the sale within Arizona. |
Local rate tables are available at Arizona Department of Revenue’s Tax Rate Table.
You can also check out Quaderno’s Sales Tax Calculator to see your product’s tax rate, amount, and final price in Arizona and any other state.
How to calculate sales tax in Arizona
Arizona has an origin-based sales tax system. This means you’re responsible for applying the TPT rate determined by the ship-from address on all taxable sales. If you have more than one location in Arizona, then charge the TPT rate of where the sale occurred.
How does Arizona TPT work with marketplaces?
Marketplaces in Arizona are generally required to collect, report, and pay the TPT on sales via their marketplaces. Marketplace sellers are, therefore, not always required to pay taxes on what they sell through a marketplace. However, marketplace sellers must still count the sales made through marketplaces towards their economic nexus even if they don’t have to pay taxes on those sales.
Sales tax on shipping charges in Arizona
Arizona doesn’t apply TPT to any shipping costs, as long as the shipping costs are clearly listed and separated from the price of the item(s) you’re selling. Be sure to always mark the cost of the product and the cost of the shipping on two different lines of the bill.
How to register for a Arizona TPT license
Businesses can register for a TPT license via AZTaxes, an online tax portal. (This portal is also where you’ll file and pay your tax returns. For information on how to file, check out this Arizona sales tax filing guide.)
How much does it cost to get a TPT license in Arizona?
For remote sellers or out-of-state marketplace facilitators, the cost of a TPT license is $12. It’s valid for the calendar year in which it’s issued and can be renewed for free in the following years.
What you need for a TPT license
The first step is to register your business for a TPT license using the AZTaxes online service.
Be prepared to share the following information:
- Your social security number or visa number
- Your date of birth
- Your driver license number, state ID number, or other ID (e.g., passport, military ID)
- Names and location of banks where you have an account
- Names and addresses of suppliers
- Name and address of bookkeeper or accountant
- Name and address of personal references
- Expected average monthly sales and the amount of those sales which are taxable
- Your email address
- If you’ve purchased an existing business, you must also provide the previous permit information
Step-by-step guide to register for a TPT license
- Go to AZTaxes.gov and create a new user account by entering some basic information.
- Log into AZTaxes.gov and click ‘Business Registration.’
- Complete an Arizona Remote Seller/Out-of-State Marketplace Facilitator Tax Application by clicking ‘Register New Business Remote Seller/Out-of-State Marketplace Facilitator.’
- Complete the fields and indicate that you’re a remote seller in the ‘License Type’ section of the application.
- Once submitted, you’ll receive a confirmation number and your application will begin processing.
- Once your registration is complete, there’s one more verification process! Simply use this step-by-step guide to verify your TPT license type.
As for the application, the AZ website doesn’t state how long you should expect to wait, but if you have any questions, you can email the tax office at [email protected].
After your application is reviewed and approved, you should receive a TPT License ID number. You’ll also be assigned a tax filing frequency: monthly, quarterly, or yearly.
Sales tax guides for other states
- Alabama Sales Tax Guide
- Alaska Sales Tax Guide
- Arkansas Sales Tax Guide
- California Sales Tax Guide
- Colorado Sales Tax Guide
- Connecticut Sales Tax Guide
- Delaware Sales Tax Guide
- Florida Sales Tax Guide
- Georgia Sales Tax Guide
- Hawaii Sales Tax Guide
- Idaho Sales Tax Guide
- Illinois Sales Tax Guide
- Indiana Sales Tax Guide
- Iowa Sales Tax Guide
- Kansas Sales Tax Guide
- Kentucky Sales Tax Guide
- Louisiana Sales Tax Guide
- Maine Sales Tax Guide
- Maryland Sales Tax Guide
- Massachusetts Sales Tax Guide
- Michigan Sales Tax Guide
- Minnesota Sales Tax Guide
- Mississippi Sales Tax Guide
- Missouri Sales Tax Guide
- Montana Sales Tax Guide
- Nebraska Sales Tax Guide
- Nevada Sales Tax Guide
- New Hampshire Sales Tax Guide
- New Jersey Sales Tax Guide
- New Mexico Sales Tax Guide
- New York Sales Tax Guide
- North Carolina Sales Tax Guide
- North Dakota Sales Tax Guide
- Ohio Sales Tax Guide
- Oklahoma Sales Tax Guide
- Oregon Sales Tax Guide
- Pennsylvania Sales Tax Guide
- Rhode Island Sales Tax Guide
- South Carolina Sales Tax Guide
- South Dakota Sales Tax Guide
- Tennessee Sales Tax Guide
- Texas Sales Tax Guide
- Utah Sales Tax Guide
- Vermont Sales Tax Guide
- Virginia Sales Tax Guide
- Washington Sales Tax Guide
- Washington, D.C. Sales Tax Guide
- West Virginia Sales Tax Guide
- Wisconsin Sales Tax Guide
- Wyoming Sales Tax Guide
Note: At Quaderno we love providing helpful information and best practices about taxes, but we are not certified tax advisors. For further help, or if you are ever in doubt, please consult a professional tax advisor or the tax authorities.