Arizona 2023 Sales Tax Guide

Arizona Sales Tax in a Word

Running a business in Arizona takes focus, commitment, and an ability to keep cool.😎

And, of course, a good dose of inevitable regulatory compliance.

This comprehensive guide will set anyone with an Arizona business on the path to meeting their legal requirements around “Sales Tax,” or its funky Arizona cousin, Transaction Privilege Tax. Grab a frosty beverage and get ready for tax help that aims to be hopefully less dry than the Sonoran Desert.

After reading this guide, you will know:

• How to contact the Arizona Department of Revenue

• When to charge use tax vs paying Transaction Privilege Tax in Arizona

• What goods and products are taxable in Arizona

• When you establish a sales tax nexus with the state of Arizona

• How to register for a sales tax license (aka Transaction Privilege Tax License) in Arizona

• How to collect tax in Arizona

• How to file and pay sales tax in Arizona

Our Arizona Sales Tax Guide will give you the confidence to manage your AZ sales tax questions from beginning to end. If you have any other questions to help you determine your tax sales obligations in Arizona and how to fulfill them, we are here for you.

Arizona Sales Tax Contacts

✔️ Do you need to contact the Arizona Department of Revenue ?

✔️Are you unsure if you should call, email, mail, or visit in person?

✔️ Do you ever wondered what information to have ready before contacting them?

Well, you're in luck! 

Here's how to get in touch with the Arizona Department of Revenue. 

• Call: (602) 255-3381
• Online: AZDOR
• Email: AZTaxHelp@azdor.gov

• Visit: Arizona DOR has three offices that you can visit IRL, but you must email AZTaxHelp@azdor.gov first. 

  • Phoenix Office: 1600 W. Monroe Phoenix, AZ 85007

  • Mesa Office: 55 N. Center Mesa, AZ 85201

  • Tucson Office: 400 W. Congress Tucson, AZ 85701

If you wish to have someone call on behalf of the owners or principles, whomever is calling must have an Arizona Power of Attorney (PDF) active before calling or else they will be wasting their time. Representatives at ADOR will not be authorized to talk to someone unless they have a Power of Attorney established. Learn how to complete an Arizona Form 385 - Power of Attorney Form - here. 

Do You Have Nexus in Arizona?

Well... it's complicated especially since, like many other states, Arizona has enacted laws in response to the South Dakota vs Wayfair case. Read on, so you can learn if you and your business are affected. 

What Creates Sales Tax Nexus in Arizona?

Effective October 1, 2019, remote sellers and marketplace facilitators are required to file and pay transaction privilege tax (TPT) in Arizona as a result of House Bill (H.B.) 2757 signed into law by Arizona Governor Doug Ducey on May 31, 2019. This legislation follows the U.S. Supreme Court's 2018 ruling in the South Dakota v. Wayfair case, allowing states to enforce tax collection on sales from out-of-state businesses without a physical presence. This law is not retroactive, but if you sell in Arizona you will need to pay attention to the thresholds that the State of Arizona has set. 

Economic Nexus in Arizona

H.B. 2757 establishes an economic nexus standard based on dollar thresholds for businesses without a physical presence in the state.

Economic nexus is triggered if either of the following thresholds were met in the previous calendar year or are projected to be met in the current year:

• A marketplace facilitator has economic nexus if it facilitates a gross amount of sales exceeding $100,000, either for remote sellers or on its own behalf.
• A remote seller has economic nexus if the gross sales from direct sales into Arizona in the previous or current year exceed:

Physical Nexus in Arizona

Establishing physical nexus, or a physical presence, in Arizona is an important consideration for businesses regarding their tax obligations. The following factors indicate the likelihood of physical nexus:

1. Assets or Property in Arizona: If your business has control over assets or property stored in Arizona, indicating the ability to determine their location and storage conditions, it is likely that physical nexus exists.

2. Conducting Taxable Business Activity in Arizona: When your business engages in taxable business activities in Arizona, irrespective of the duration, physical nexus is typically established.

3. Ongoing Business-Related Activities in Arizona: If your business regularly conducts other ongoing business-related activities in Arizona, physical nexus is likely present. These activities contribute to establishing and maintaining a market presence in the state, supporting sales and customer relations.

Activities and factors that, individually or in combination, contribute to establishing physical presence in Arizona include:

• Maintaining an office or another business location within Arizona, regardless of the specific function performed at that location.

• Owning or leasing real estate or personal property in Arizona.

• Storing inventory in Arizona under the retailer's direction and control.

• Regularly delivering merchandise or goods into Arizona using vehicles owned or leased by the retailer.

• Undertaking local activities within Arizona by employees, agents, representatives, contractors, or affiliated persons that contribute to name recognition, market share, sales volume, goodwill, and customer relations. These activities should be ongoing and not transitory, such as soliciting sales through local marketing contracts, providing ongoing delivery, installation, or repair services through contracts, or offering training or support services to customers, employees, or representatives on a consistent basis.

Retailers meeting the criteria for physical presence described above are considered liable for transaction privilege tax as taxpayers located within Arizona.

Physical NExus FAQs 

Third-Party Fulfillment Center Storage

If you are temporarily storing property with a third-party fulfillment center and have no control over the storage facility, it is unlikely that this arrangement constitutes physical nexus. In such cases, where you lack control over the storage location, the level of physical nexus is typically not met.

Marketplace Sellers in Arizona 

Registering and filing as a Marketplace Seller

In general, as a marketplace seller, you are not individually required to register for a sales tax license or file tax returns if you exclusively sell through a marketplace facilitator. Instead, it is the responsibility of the marketplace facilitator to handle the necessary registration, tax collection, and filing on your behalf. The marketplace facilitator should provide you with documentation confirming their role in collecting and remitting sales tax.

Arizona transaction privilege tax (TPT) due on these sales are reported and remitted by that marketplace facilitator.

Affiliate Nexus in Arizona

An affiliated party refers to a person or company that holds more than a 5% ownership in the other party or is considered related due to a third person or company (or group) having an ownership interest exceeding 5%.

While economic nexus can be established by combining the income of affiliated parties, it is important to know that once nexus is established, each affiliated party must obtain a license and may choose to report their taxes individually or on a consolidated basis. However, filing consolidated returns is not mandatory for affiliated parties.

Click-Through Nexus in Arizona

Arizona does not currently have click through nexus laws on the books. 

Arizona Sales Tax Registration

The first thing to say about Sales Tax in Arizona is the most surprising and confusing: that there is no such thing! Say whaaat? Ok, article over, thanks for coming everybody…. :) If only!

There is, of course, a tax liability for conducting business in Arizona, it’s just not transaction-based and it is levied against the vendor for the privilege of doing business. Are you a business with a physical presence or selling tangible items in the state of Arizona? If so, you likely need to register for a Transaction Privilege Tax (TPT) License. 

How to Register for Sales Tax in Arizona 

There are four ways to register for an Arizona Transaction Privilege (TPT) License in Arizona. 

1. AZTaxes.gov -  This option enables businesses to register, file and pay TPT online.  The State of Arizona has provided a detailed guide explaining how to set up your AZTaxes.gov account here.
2. Arizona Business One Stop - You can only use this to set up a license and not file and pay sales tax. 
3. Paper Form - You will use the JT-1 Joint Tax Application.
4. In Person - Use the addresses listed above. 

What Information Do I Need to Register for a Arizona Sales Tax License?

Before you sign up for Arizona TPT License, you want to have the following information easily accessible: 

• Business name
• Business entity type (I.E. LLC, S Corp, C Corp, etc)
• Description of business activities
• Date business activities began or will begin
• Business physical address and mailing address
• Business contact information
• NAICS code (PDF) that best matches the business
• Federal Employer Identification Number (FEIN)
• List of business officers, partners, managing members, and/or trustees

How Much Does it Cost to Register for a Arizona Sales Tax License? 

At minimum, the cost to set up a sales tax license in Arizona is $12. You may also need to pay city and county fee, depending on the location of your business. 

Here is the current fee schedule: 

Do I Need a Federal Tax ID Number or EIN to Register for a Arizona Sales Tax License?

Absolutely, unless you are registering as a sole proprietor in which case you may opt to use your Social Security Number.

You can easily register for a Federal EIN here.

I promise that it will be the least stressful encounter with the IRS; it is quick and easy to apply for an EIN number.

Which Agencies in Arizona Might I Need to Register With Additionally?

Depending on your business type, it may be necessary to comply with other regulatory bodies such as:

• Arizona Corporation Commission (ACC):
• Arizona Department of Financial Institutions
• Arizona State Department of Labor
• Arizona Department of Economic Security (DES)
• City or County Licensing Departments
  
  

This will require some investigation on your end. Since every business is unique, there are different rules, regulations, and laws may apply.

We suggest contacting to the Arizona Department of Revenue’s License Compliance Program at their email to verify which additional government agencies you will be required to register with.

Collecting Sales Tax in Arizona

If you are a business who has established a nexus with Arizona, you are required to collect sales tax in Arizona. Knowing this is just half the battle. Now, We are going to help you navigate the process of how to go about that.

In fact, We are going to review some common questions our clients have ask regarding their Arizona sales tax obligations.

• How do I collect Arizona sales tax?
• Who is eligible for Arizona Sales Tax Exemptions?
• What should I do if my customer is exempt from sales tax in Arizona?
• What happens if I lose an Arizona sales tax exemption certificate?

After reading this, you will be better equipped to collect sales taxes.

Is Arizona an origin or destination sales tax state?

Arizona is origin-based tax state. As such, you need to charge sales taxes based on where the seller is located. If Arizona was a destination-based sales tax state, you would charge based on where your buyer is located.

Now that you know how origin and destination-based sales tax states are different, you will appreciate why you need to know these two things:

1. Where the seller is located
2. Where the buyer takes possession of the product sold (in other words, where the buyer is located)

Based on the location of the seller, you want to make sure you correctly charge sales taxes in your point of sale or eCommerce software. Otherwise, you risk under or over collecting.

How to Collect Sales Tax in Arizona?

Remember when we said that Arizona is a Destination-Based and a Transaction Privilege Tax State? This means your business pays for the privilege of conducting business in Arizona, based on the revenue received. No need to collect taxes based on transactions; purely the location of the purchase. Your eCommerce software should be able to calculate this for you on the fly.

What are the Current Arizona Sales Tax and Use Tax Rates?

Rather that listing a zillion sales tax rates, I recommend that you use the Arizona Sales Tax Look Up Tool that can be found here. 

What Sales are Subject to Sales Tax in Arizona? 

In the state of Arizona, various goods, services, and transactions are generally subject to sales tax. Here are some common taxable items and activities in Arizona:

Tangible personal property: Most sales of tangible personal property, such as clothing, electronics, furniture, appliances, and vehicles, are subject to sales tax in Arizona.

1. Prepared food and beverages: Sales of prepared food and beverages, including meals at restaurants, fast food establishments, and food sold at concession stands, are generally taxable in Arizona.

2. Lodging and accommodations: Charges for hotel rooms, vacation rentals, and other lodging accommodations are subject to sales tax in Arizona.

3. Retail services: Certain retail services, such as pet grooming, car washes, and dry cleaning, are subject to sales tax in Arizona.

4. Amusements and entertainment: Admission charges to events, concerts, movies, amusement parks, and recreational activities are generally taxable in Arizona.

5. Telecommunications services: Charges for telecommunications services, including telephone, internet, cable TV, and satellite TV services, are subject to sales tax in Arizona.

6. Motor vehicle rentals: Rental charges for motor vehicles, including cars, trucks, and motorcycles, are generally taxable in Arizona.

7. Digital products: Sales of digital products, including e-books, digital music, downloadable software, and streaming services, are subject to sales tax in Arizona.

It is important to note that there may be specific exemptions, exceptions, or additional taxes applicable to certain goods, services, or transactions. The Arizona Department of Revenue or a tax professional can provide more detailed information and guidance regarding specific taxable items and activities in Arizona.

Is Software as a Service (SaaS) taxed in Arizona?

Yes. 

According to the Arizona Department of Revenue, computers, computer equipment, hardware, and software are all subject to transaction privilege tax (TPT) in Arizona. When these items are sold or leased, they are considered tangible personal property and fall under the retail or personal property rental classification for tax purposes.

If you are selling or leasing computers, computer equipment, hardware, or pre-written software, you will be required to pay TPT. This includes the sale of "canned" or pre-written software, which is considered tangible personal property and subject to tax. However, the charges for the installation of canned software may be exempt from tax if separately stated on the invoice and in the records.

On the other hand, if you are selling custom software designed exclusively for a specific customer's unique application, it is considered a professional service and not subject to tax.

Maintenance agreements and warranty contracts sold with computer hardware and software may be exempt from TPT if the price of the contract is separately stated on the invoice and in the records. However, software maintenance agreements that provide canned updates or revisions are subject to tax as the sale of tangible personal property.

Certain computer services, such as consulting, training, software installation, and technical phone support, are exempt from TPT as professional services. It is important to separately state charges for exempt services from the sale of tangible personal property on invoices and in records. Failure to separate the charges may make the entire transaction taxable.

What is Exempt from Arizona Sales Tax?

In Arizona, certain items and transactions are exempt from sales tax. Here are some common exemptions from sales tax in Arizona:

1. Food for home consumption: Sales of unprepared food, such as groceries and raw food items intended for home consumption, are generally exempt from sales tax in Arizona.
2. Prescription medications: Prescription drugs and medications prescribed by licensed healthcare professionals are exempt from sales tax in Arizona.
3. Medical equipment and supplies: Sales of medical equipment, prosthetic devices, and supplies that are prescribed for use by a licensed healthcare professional are exempt from sales tax.
4. Agricultural and farming products: Certain agricultural and farming products, including livestock, feed, seeds, fertilizers, and machinery used in agricultural production, may be exempt from sales tax in Arizona.
5. Utilities and residential rent: Residential utilities, such as electricity and natural gas, and residential rent are generally exempt from sales tax in Arizona.
6. Nonprofit and charitable organizations: Sales made by qualified nonprofit and charitable organizations may be exempt from sales tax in Arizona, provided they meet specific criteria.
7. Government and educational institutions: Purchases made by government agencies, public schools, and certain educational institutions may be exempt from sales tax in Arizona.
8. Manufacturing and certain commercial activities: Some machinery, equipment, and chemicals used in manufacturing, as well as certain commercial activities like printing and publishing, may be eligible for sales tax exemptions in Arizona.

Who is eligible for Arizona Sales Tax Exemptions?

In Arizona, various entities may be eligible for sales tax exemptions based on certain criteria. Here are some examples of entities that may qualify for sales tax exemptions in Arizona:

1. Nonprofit Organizations: Qualified nonprofit organizations that meet specific criteria, such as charitable, religious, or educational organizations, may be eligible for sales tax exemptions on purchases related to their exempt activities.
2. Government Agencies: Purchases made by federal, state, and local government agencies are generally exempt from sales tax in Arizona. This includes government departments, agencies, and institutions.
3. Schools and Educational Institutions: Public schools, colleges, universities, and certain educational institutions recognized by the state may qualify for sales tax exemptions on eligible purchases.
4. Native American Tribes: Purchases made by Native American tribes or tribal entities for tribal government activities or for the benefit of tribal members may be exempt from sales tax.
5. Qualifying Manufacturers: Certain machinery, equipment, and raw materials used in manufacturing or processing activities may be eligible for sales tax exemptions in Arizona. These exemptions are typically designed to support and promote manufacturing operations in the state.

Each exemption category may have specific requirements, limitations, or documentation that needs to be provided to claim the exemption. Eligible entities should review the guidelines provided by the Arizona Department of Revenue or consult a tax professional to determine their eligibility and ensure compliance with the sales tax exemption provisions.

What should I do if my customer is exempt from sales tax in Arizona?

If you have a customer who is exempt from sales tax in Arizona, there are certain steps you can follow to ensure compliance and document the exemption appropriately. Here's what you should do:

1. Obtain the necessary documentation: Ask your customer to provide you with the appropriate documentation that proves their exemption status. This could include a valid exemption certificate or a reseller's permit issued by the Arizona Department of Revenue.
2. Verify the exemption certificate: Review the exemption certificate or permit provided by your customer to ensure it is valid and properly filled out. Make sure it includes all the required information, such as the customer's name, address, and exemption category.
3. Keep records: Maintain accurate records of the exemption certificates you receive from customers. It's important to retain these documents for a specified period of time as required by the Arizona Department of Revenue.
4. Do not charge sales tax: Once you have verified the customer's exemption status and have the necessary documentation on file, do not charge sales tax on the exempt transactions related to their eligible purchases.
5. Report exempt sales: When filing your sales tax returns with the Arizona Department of Revenue, make sure to report the exempt sales separately. Most tax filing systems have specific fields or codes for exempt sales, allowing you to exclude them from the taxable sales total.
6. Stay informed: It's essential to stay updated on any changes or updates to sales tax exemptions in Arizona. The Arizona Department of Revenue provides guidelines and resources to help businesses understand and comply with the sales tax regulations.

Consult with a tax professional or the Arizona Department of Revenue for specific guidance and to ensure compliance with the sales tax exemption process in Arizona.

What happens if I lose an Arizona sales tax exemption certificate?

If you lose an Arizona sales tax exemption certificate, it is important to take the necessary steps to obtain a replacement certificate. Here's what you should do:

1. Contact the issuing authority: In Arizona, sales tax exemption certificates are typically issued by the Arizona Department of Revenue. Reach out to their office or the specific division responsible for handling sales tax exemptions to inform them about the lost certificate.
2. Request a replacement: Request a replacement certificate from the issuing authority. They will guide you on the specific process and requirements for obtaining a new certificate. This may involve completing a new application or providing supporting documentation.
3. Provide necessary information: Be prepared to provide relevant information to verify your identity and eligibility for the exemption. This may include your business details, tax identification number, and any supporting documentation required for your particular exemption category.
4. Retain records: Keep copies of all correspondence, applications, or documentation related to your request for a replacement certificate. These records will help you maintain a clear audit trail and ensure compliance with sales tax regulations.
5. Continue operations with temporary measures: While waiting for the replacement certificate, you may need to continue conducting business transactions. In such cases, you should inform your customers that you are in the process of obtaining a replacement certificate and request their cooperation in providing necessary information to ensure compliance.

It is crucial to maintain accurate records and promptly address any lost or missing exemption certificates to avoid potential issues during sales tax audits or compliance checks.

Filing and Paying Sales Taxes in Arizona

It is time to talk about filing and paying your sales taxes in Arizona. In this section, We are going to cover the following frequently asked questions from our clients:

• When is Arizona sales tax due?
• What are the Arizona sales tax thresholds?
• What if an Arizona sales tax filing date falls on a weekend or holiday?
• How do I file an Arizona Sales Tax Return?
• How do I correct an Arizona sales tax return?
• What happens if I file or pay my sales tax return late?
• Do I need to file a return if I don’t collect any sales tax in Arizona?
• Does the Arizona Department of Revenue offer a discount for filing on time?

By the time you finish reading this, you will feel confident enough to file and pay your Arizona sales tax.

When to File Taxes in Arizona

Arizona Filing Frequencies

Sales tax filing frequency is based on estimated annual combined tax liability:

If a business wants to change its filing frequency, they can download the Business Account Update Form, complete it, and mail it to the designated address mentioned on the form.

These filing frequency categories help businesses determine how often they need to submit TPT returns and remit the taxes owed to the Arizona Department of Revenue. It is important for businesses to accurately assess their estimated annual combined tax liability to ensure compliance with the appropriate filing frequency.

When is Arizona sales tax due?

You must file and pay your sales tax no later than the 20th day of the month following the period being reported. For example, you will need to pay December sales tax by January 20th to avoid penalties and interest. You can download a printable filing schedule here. 

What if an Arizona sales tax filing date falls on a weekend or holiday?

The deadline is moved to the next business day, typically the Monday following the weekend or the day after the holiday. However, we always suggest filing before the holiday.

How Do I File a Arizona Sales Tax Return?

Let me ask you a question before I answer this one.

Are you a business who prepares your own tax returns, uses the computer to do so, and has internet access?

If the answer is “Yes, Yes, Yes”, Arizona offers an easy way to file online. Simply head to ADOR’s AZTaxes site and file the TPT-2 form online through the portal.

If you get stuck and need a hand, AZ Department of Revenue created this handy guide (PDF) to get through the online filing process.

You can also watch this video that walks you through how to file a sales tax return, one step at a time.

Paper submittal is also permitted, if you’re into that sort of thing. You can download form TPT2, fill out, enclose payment, and mail to:

Arizona Department of Revenue

PO Box 29010

Phoenix AZ 85038-9010

How do I correct an Arizona sales tax return?

To correct an Arizona sales tax return, follow these steps:

1. Identify the error: Determine the specific mistake or error that needs to be corrected on your sales tax return. This could include incorrect sales amounts, tax calculations, or reporting of exemptions or deductions.
2. Complete a new return: Prepare a new sales tax return with the corrected information. Use the same reporting period as the original return that contained the error.
3. Explain the correction: Clearly indicate on the new return that it is a correction for a previous return. Include a brief explanation of the error and the changes made to rectify it.
4. Calculate the adjustments: Calculate the necessary adjustments to correct the error. If you underreported sales or tax owed, include the additional amount in the new return. If you over reported sales or tax owed, subtract the excess amount from the new return.
5. Submit the corrected return: File the corrected sales tax return with the Arizona Department of Revenue. Ensure that the corrected return is submitted by the specified deadline to avoid penalties or interest charges.
6. Maintain records: Keep thorough records of the corrected return, including any supporting documentation or explanations provided. These records will serve as evidence of the correction made in case of future audits or inquiries.
7. Make payment or request refund: If the correction results in additional tax owed, submit the payment to the Arizona Department of Revenue. If the correction leads to an overpayment, you may be eligible for a refund. Follow the appropriate procedures outlined by the department to request a refund.

If the error requires significant changes or adjustments, or if it involves multiple reporting periods, you may need to consult with the Arizona Department of Revenue or a tax professional for guidance on the specific correction process. They can provide assistance and ensure compliance with the applicable regulations.

Arizona Penalties

Businesses with an annual transaction privilege tax and use tax liability of $500 or more during the prior calendar year are required to file and pay electronically.

Failure to comply with the electronic filing and payment requirements may result in penalties.

Penalty for not filing and paying electronically:

• Taxpayers required to file an electronic return will be subject to a penalty of 5% of the tax amount due for filing a paper return. The minimum penalty is $25, including filings with zero liability.
• Taxpayers required to pay electronically will be subject to a penalty of 5% of the amount of payment made by check or cash.
• Taxpayers who file their tax return late will be subject to a late file penalty of 4.5% of the tax required to be shown on the return for each month or fraction of a month the return is late. There is a minimum of $25 and a maximum 25% of the tax due or $100, per return, whichever is greater.

Arizona Discounts

The Arizona Department of Revenue is pleased to update transaction privilege tax (TPT) taxpayers who e-file using the department’s electronic filing programs.

Taxpayers who file electronically during a calendar year are now able to claim an increased accounting credit from 1 percent to 1.2 percent; this increases the total calendar year credit limit from $10,000 to $12,000. 

TPT taxpayers who have already e-filed can file an amended return to claim the increased accounting credit.

The increased accounting credit for electronic TPT filers is in accordance with the Arizona Department of Revenue’s commitment to expanding electronic filing of individual, corporate and TPT as e-filing is a more secure and efficient process.

For taxpayers who file paper TPT returns, the accounting credit remains unchanged at 1 percent and a total calendar year credit of $10,000.

TPT filers can confirm the electronic or paper accounting credit rate for each TPT business code by going to the following rate table.

Arizona Sales Tax Holidays

This blog is for informational purposes only and the information is accurate as of 2023-05-29 If you want legal advice on sales tax law for your business, please contact a Sales Tax professional. Keep in mind that sales tax regulations and laws are subject to change at any time. While we strive to keep our blog current, this blog possibly may be out of date by the time you review it.