Transaction Privilege Tax (TPT), commonly referred to as sales tax, is imposed upon the seller rather than the purchaser.
Tax rates vary by city and county. Please see the Arizona State, County, and City Transaction Privilege and Other Tax Rate Tables for details.
Reporting sales. When filling out the tax return (TPT-1), the gross income from the business must be reported. Tax exempt sales, such as subcontracting business and sales for resale (wholesale), may be deducted.
Use tax must be reported and paid on merchandise purchased as an exempt sale for resale that is subsequently used by the business and on purchases from an out-of-state vendor for use in Arizona. The use tax is reported on the TPT-1 under business class code 030 for items removed from inventory and under business class code 029 for purchases from out-of-state vendors. Transaction privilege tax and use tax are complementary taxes; only one of these taxes can be applied to a given transaction.
Changes that affect the transaction privilege tax license:
Changes in ownership require a new license because licenses are not transferable. Use the Arizona Joint Tax Application to apply for a new license if your business changes from a sole proprietorship to a partnership or corporation, or undergoes a similar change in organization. Also, if the business is a partnership and partners are added or removed, a new license is required.
Changes in location or business location do not require a new transaction privilege license number. When locations are added or there are changes in the business name (or DBA), the license number does not change; however, a new license is printed showing the updated information. License fees are required whenever these changes are made and the business receives a new print of the license.
Other business changes that should be reported to the Department of Revenue include changes in the mailing address or location of audit records, requests to suspend licenses when the business plans to temporarily cease operations, and requests to change filing frequency. These changes do not require a license fee.
When reporting transaction privilege tax, remember to file all tax returns whether or not you have any sales.
Due Dates. All businesses are required to report on a monthly basis, unless specifically authorized to report less frequently by the DOR. Businesses with an annual tax liability between $500 and $1,250 may be permitted to report on a quarterly basis; those with an annual tax liability of $500 or less may be permitted to report annually. If the tax liability subsequently increases beyond the criteria mentioned above after a business has been authorized to report less frequently, the business must begin reporting and paying the tax at the appropriate frequency; otherwise, penalties and interest will accrue for late reporting and payment. New business licenses may qualify for monthly or quarterly filing based on the anticipated annual income for your first twelve months of business. The due date for the TPT-1 return is the 20th of the month following the month of the TPT activity. However, the mailed return will be considered timely if it is postmarked on or before the 25th of the month or received by the department on or before the next to last business day of the month. Returns and payments from businesses required to pay via electronic funds transfer (EFT) or who use AZTaxes.gov to file and pay their transaction privilege tax must also be received by the second to the last business day to be timely.
Estimated transaction privilege taxes must be paid each June by all businesses with an annual tax liability of $1,000,000 or more.
Electronic Funds Transfer (EFT) is the required way to remit payments for transaction privilege tax and use tax taxpayers with a prior calendar year liability of $1,000,000 or more. Before payments are made via EFT, the Authorization Agreement for Electronic Funds Transfer (ADOR 10366) must be completed and submitted to the department’s EFT Unit. The department will send a confirmation of the taxpayer’s enrollment in the EFT program along with further payment instructions. Taxpayers not meeting the mandatory level of participation are allowed to enroll in the program.
Penalties are 0.5% per month or part of a month for late payment and 4.5% per month or part of a month for late filing, up to a combined maximum of 25%. Interest accrues on delinquent payments at the same rate as charged by the IRS and, by law, cannot be waived.
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 our forms link page.
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 on 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 on 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).