What is the Arizona Sales Tax?
It is also known as the Transaction Privilege Tax, or TPT, and is imposed upon the seller rather than the purchaser.
Transaction Privilege Tax Special Situations
NOTE: Without proper documentation for tax-exempt sales claimed as deductions, the seller may be responsible for the tax.
- Sales for resale (wholesale) are exempt. The burden of proving that a sale was for resale is on the seller. However, if the seller has a valid Transaction Privilege Tax Exemption Certificate (Form 5000) or an Arizona Resale Certificate (Form 5000A) on file that was completed by the purchaser, the burden of proof shall shift to the purchaser. Please contact the Department of Revenue to obtain copies of the form, or visit the forms link at our website.
- Subcontracting income is not subject to transaction privilege tax if the subcontractor can demonstrate that the job was within the control of a prime contractor and that the prime contractor is liable for the tax on the job. If the subcontractor is given a Transaction Privilege Tax Prime Contractor’s Certificate (Form 5005) that has been completed by the prime contractor, the subcontractor is relieved of the burden of proof. Please visit the forms link at our website to obtain copies of the certificates.
- Retail sales of tangible personal property to nonresidents temporarily within Arizona, for use outside of Arizona, are exempt from transaction privilege tax if the seller ships or delivers the tangible personal property out of Arizona. For sales other than motor vehicles or boats, to substantiate the deduction, the seller shall obtain a completed Transaction Privilege Tax Exemption Certificate (Form 5000) or a written statement from such a buyer certifying that the buyer is not a resident of Arizona and the property purchased is for use outside Arizona. The seller shall also maintain records to substantiate the sale was made to a nonresident and the out-of-state shipment. For sales of motor vehicles, please see Arizona Transaction Privilege Tax Procedure TPP 08-1, and the accompanying certificates (Forms 5010, 5011, 5012 and 5013). Please visit the department’s website to obtain copies of the certificates.
- Sales to non-profit organizations are generally subject to the tax. For additional information, please see the Non-Profit Organizations publication, which is available at our website.
- Solar energy device deductions are available only to retailers, lessors, and contractors registered with the Department of Revenue who sell, lease, or install qualified solar energy devices. The retailers, lessors, and contractors may register to sell these items by completing the Solar Energy Device Registration form (Form 6015).
Unclaimed Property consists of items such as payroll/vendor checks, bank deposits, and insurance proceeds that have remained unclaimed for a specified period of time. The abandonment periods range from one to fifteen years depending on the type of property. Businesses holding these items are required to file an unclaimed property report annually and remit the funds to the DOR.
Unemployment Insurance requires employers to register with the Department of Economic Security. Employers use the Arizona Joint Tax Application (Form JT-1) to register for both withholding and unemployment insurance. For unemployment tax rates and other information, please contact the Department of Economic Security.
New Hire Reporting requires all public, private, nonprofit and government employers to report every newly hired and rehired employee within 20 days of hire to the State Directory of New Hires, a program of the Arizona Department of Economic Security, Child Support Division. For additional information regarding the new hire reporting requirement for an employer, please contact the Department of Economic Security.
Use Tax is the companion tax to the transaction privilege tax. Businesses (or individuals) making out-of-state purchases for their own use – not for resale – on which no tax is paid, are required to pay the use tax. Therefore, businesses planning to use, store, or consume goods brought into Arizona on a regular basis must register for use tax using the Arizona Joint Tax Application (Form JT-1). Out-of-state vendors conducting business in the state or making direct sales into Arizona are also required to be registered and to collect and report the tax. Payment and reporting requirements are the same as for transaction privilege tax. The Arizona State, County, and City Transaction Privilege and Other Tax Rate Tables identify the use tax rates for the state and cities.
Waste Tire Fee is paid on the retail sales of motor vehicle tires, including tires for automobiles, motorcycles, trucks, semi-trailers, or other vehicles operated on the road. Fees are reported on the Motor Vehicle Waste Tire Fee (Form TR-1) and paid to the Department of Revenue on a quarterly basis, due the 20th of the month following the end of each quarter. The waste tire fee must be listed separately on any invoice. The fee is charged at a rate of 2% of the retail sales price, up to a maximum of $2 per tire. On the sales of new vehicles (where the price of the tire is not listed separately on the bill), the fee is $1 per tire. A credit of 10¢ per tire is allowed to be kept by the seller.
Withholding of Arizona income tax is required for businesses or individuals who hire employees. There are a few exceptions to this requirement. Businesses considering the use of “contract” workers are cautioned to consult with their tax professional for advice. Use the Arizona Joint Tax Application (Form JT-1) to register your Employer Identification Number for withholding and to begin your unemployment insurance registration (there are no registration fees).
- Withholding percentages are based on gross taxable wages. “Gross taxable wages” is the amount that meets the federal definition of “wages” contained in Internal Revenue Code § 3401. Generally, gross taxable wages are reported in box 1 of the employee’s federal Form W-2 at the end of the calendar year. The available withholding percentages are 0.8%, 1.3%, 1.8%, 2.7%, 3.6%, 4.2%, and 5.1%. In addition to electing a withholding percentage, employees may also designate an additional amount to be withheld from each paycheck. Employees elect the applicable percentage of Arizona withholding on Form A-4, Employees Withholding Allowance Certificate, available at our website.
- Due dates for the quarterly returns (Form A1-QRT) are April 30, July 31, October 31, and January 31 for the preceding calendar quarter. Payments are due at the same time as the quarterly return if the average amount of Arizona income taxes withheld in the preceding four calendar quarters does not exceed $1,500. If the average amount of Arizona income taxes withheld in the preceding four calendar quarters exceeds $1,500, the withholding payments are due at the same time as the employer’s federal withholding deposits. The employer must determine its Arizona withholding payment schedule for each calendar quarter by calculating the average amount of Arizona income taxes withheld in the four preceding calendar quarters. Employers are granted an automatic 10 day extension to file the quarterly reconciliation if their payments for the quarter were made timely. Annual withholding may be allowed if the amount collected and payable by the employer in each of the preceding calendar quarters did not exceed an average of $200.
- Electronic Funds Transfer (EFT) is the required method of payment for withholding if the employer’s average quarterly withholding liability for the preceding calendar year was $20,000 or more. Requirements for completion of the department’s authorization agreement and for voluntary participation in the EFT program are the same as for transaction privilege tax listed in this publication.
- The annual reconciliation (Form A-1R) is due February 28 of the year following the calendar year for which Arizona withholding payments were made. The completed form is submitted with the state copy of Forms W-2.
- Penalties for late filing and late payment are the same as for transaction privilege tax listed in this publication.
Your Federal TIN (taxpayer identification number)
Your Federal TIN (taxpayer identification number) is either your social security number, your employer identification number (EIN), or your individual tax identification number (ITIN), and must be included on every tax return, payment, application, or other document submitted to the DOR.
EIN is required for:
- Anyone paying wages to one or more employees
- Anyone required to withhold federal taxes on income, other than wages, paid to a nonresident alien (individual, corporation, partnership, etc.)
- Trusts, except IRA trust
- REMICs (real estate mortgage investment conduits)
- Nonprofit organizations (churches, clubs, etc.)
- Farmers’ cooperatives
- Plan administrators
The IRS allows businesses to obtain an EIN online that may be used immediately. For more information, go to www.irs.gov/businesses/small/index.html and click on the “Employer ID Numbers (EINs)” link. You may also obtain an EIN from 7:00 am-10:00 pm local time Monday through Friday at (800) 829-4933, or fax at (215) 516-3990. Failure to supply a federal TIN on tax returns or payments will result in a $5 penalty for each submission.