Recent developments

Recent developments

Have there been any notable recent developments concerning state and local taxation in your state, including any regulatory changes or case law?

Proposition 126–taxation of services In November 2018 Arizona voters adopted a constitutional amendment, Proposition 126, that prohibits state and local governments in Arizona from enacting new taxes or increasing tax rates on services that were not already taxed as of December 31, 2017. Although Arizona does not tax most services, business activities such as transient lodging, restaurants and printing involve taxing service activities. In addition to curtailing future revenues sources of certain taxable services, Proposition 126 would affect the reauthorization of taxes that may expire in the future. Cities, which tend to tax a broader array of services than state or county governments, will be hampered should they wish to increase or reauthorize any tax. Currently, a tax increase requires a two-thirds vote of the Arizona House and Senate and the governor’s approval, which has occurred only once in the past 25 years.

Bypass conference–administrative appeals process In March 2018 Arizona adopted new legislation creating an additional option for taxpayers appealing an assessment by the Arizona Department of Revenue. Previously, as part of exhausting its administrative remedies, a taxpayer appealing a proposed assessment was required to participate in a hearing before the Office of Administrative Hearings or the Arizona Department of Revenue’s Hearing Office. Now, except in the case of individual income taxes, a taxpayer may bypass the administrative hearing process and file directly with the Arizona Board of Tax Appeals or the Arizona Tax Court. The taxpayer must first file a request for a bypass conference. The bypass conference must be scheduled within 45 days of receipt by the department. If the department fails to schedule a bypass conference within those 45 days, a taxpayer may appeal directly to the board of tax appeals or the tax court.

Centralized administration of transaction privilege tax Arizona was one of the few states in which sales (transaction privilege tax (TPT)) and use tax was administered locally. For some cities, taxes were administered locally. In other cases, the Arizona Department of Revenue administered taxes on behalf of the city. Beginning January 1, 2017, the Department of Revenue became the single point of administration and collection of state and city taxes for all businesses. Businesses must file one return with the department for all taxing jurisdictions. In addition to collecting TPT payments, the department oversees all licensing and administering of TPT. In certain instances, local jurisdictions still conduct audits of taxpayers. Taxpayers seeking refunds of overpayment of taxes to cities paid before January 1, 2017 must initiate their refund claim with that city.

General framework

Legislation

What primary and secondary legislation governs the collection and remittance of taxes in your state?

Title 42 (excise taxes and property taxes) and Title 43 (income tax) govern the collection and remittance of taxes in Arizona.

Government authorities

What government authorities (at both state and local level) are charged with the collection and administration of taxes, and what are the extent of their powers?

The Arizona Department of Revenue is charged with administering all taxes under Title 42 (excise taxes and property taxes) and Title 43 (income tax) at the state level. In 2017 the department became the single point of administration for the collection of state and municipal transactional privilege tax for all businesses in the state. Property tax is generally administered by the individual counties, except for properties centrally assessed by the department.

State/local balance

How would you describe the balance between taxes collected at state and local level?

In general, taxes are collected at the state level, except for property taxes. Municipalities and local governments levy taxes but the taxes are remitted to the state. Arizona state law pre-empts a county, city, or town from levying a local income tax.

Tax year and filing deadlines

What is the prescribed tax year in your state and what filing deadlines apply?

Personal and corporate income taxes are based on the calendar year and are due on or before April 15 following the close of the calendar year.

Returns made on the basis of a fiscal year must be filed by April 15 following the close of the fiscal year.

For partnerships, returns are due on March 15 following the close of the taxable year.

For most taxpayers, transaction privilege returns must be filed monthly.

For real property, annual property tax notices of value are mailed in February a year in advance of the calendar year in which the taxes are paid. For example, the 2020 valuation year notices are mailed in February 2019. Supplemental notices must be mailed to taxpayers no later than September 30. In the case of business personal property, the appeal year and calendar year are concurrent.

Government policy

How competitive is your state in terms of taxation in relation to other states? What is the government’s general policy and approach to taxation?

Overall, Arizona is ranked in the middle of the US states in terms of business tax climate. The 2019 Tax Foundation Index ranked Arizona 27th overall, as well as:

  • 17th for corporate tax;
  • 19th for individual income tax;
  • 47th for sales tax;
  • 5th for property tax; and
  • 13th for unemployment insurance tax.

Corporate income and franchise taxes

Taxable income

How is taxable income determined in your state? To what extent is the state income tax base aligned with the federal income tax base?

Arizona has an income tax on corporations, which is intended to impose on “each corporation with a business situs in this state a tax measured by taxable income which is the result of activity within or derived from sources within this state.” Arizona law imposes a tax on a corporation's entire “Arizona taxable income,” which is defined as federal taxable income subject to adjustments (i.e. additions and subtractions) (specified in A.R.S. §§43-1121 to—1130.01).

How is in-state income apportioned for multi-state businesses? Does your state regulate transfer pricing?

If a corporation conducts a multi-state business, Arizona requires that its net income be allocated and apportioned under Arizona's version of the Uniform Division of Income for Tax Purposes (UDITPA) (A.R.S. §§43-1131 to—1138). Under Arizona’s UDITPA, certain non-business income is allocated to Arizona, based on factors such as the location of property and the taxpayer's commercial domicile. Business income is generally apportioned between the states in which the corporation does business using a formula defined in the statutes. In Arizona a taxpayer may elect one of two formulae. The first formula employs three factors—property, payroll, and two times the sales factor—by which a taxpayer's Arizona sales, property, and payroll are compared to the taxpayer's operations in all states. The second formula multiplies the income by the sales factor. If neither of these formulae fairly represent the extent of the taxpayer's business activity, the taxpayer may petition for, or the department may require, the use of alternative methods to allocate and apportion a business’s income in respect to all or any part of the taxpayer's business activity.

Arizona does not have a separate I.R.C. 482-like authority but incorporates I.R.C. 482 for mandatory combined filings (A.R.S. §43-942).

Nexus

How is nexus determined for corporate income tax purposes?

All corporations are considered to be “doing business” in Arizona for corporate income tax purposes if the minimum nexus standards in Public Law 86-272 (15 U.S.C. §381-384) are exceeded. For the in-state activity to be a protected activity under P.L. 86-272, it must be limited solely to solicitation (except for de minimis activities and those activities conducted by independent contractors). ‘Solicitation’ means:

  • speech or conduct that explicitly or implicitly invites an order; or
  • activities that neither explicitly nor implicitly invite an order but are entirely ancillary to requests for an order.

Is affiliate nexus recognized in your state? If so, to what extent? Has there been any notable case law in this area?

Yes. See Arizona Dept. of Revenue v. Central Newspapers, Inc., (222 Ariz. 626, 218 P.3d 1083 (App. 2009)).

Rates

What are the applicable corporate income tax rates?

Arizona’s applicable corporate income tax rate is currently 4.9% of taxable income or $50, whichever is greater (A.R.S. §43-1111).

Exemptions, deductions and credits

What exemptions, deductions, and credits are available?

A list of deductions to taxable income can be found in A.R.S. § 43-1122. Arizona has several tax credits for corporations that can be found in A.R.S. §43-1161 to—1184.

Filing requirements

What filing requirements and procedures apply? Are there special filing requirements for groups of company?

Every corporation subject to corporate tax must file a return to the Arizona Department of Revenue, even if the corporation has no federal taxable income or a federal return is not required. A wholly owned corporation that only has income from business activity that is taxable entirely in Arizona must use Arizona Form 120A. A corporation that has income from business activity in more than one state must complete Form 120.

Affiliated corporations have the following filing methods for corporate income tax returns in Arizona:

  • separate;
  • combined; and
  • consolidated.

A corporation files on a combined basis when it is part of a unitary group of companies whose parts and component functions are integrated and interdependent at the basic operational level. The entities compromising the unitary business must be owned or controlled directly or indirectly by the same interest that collectively owns more than 50% of the voting stock.

The common parent of an affiliated group of corporations that files a federal consolidated return may elect to file an Arizona consolidated return. The consolidated return includes all members of the group filing a federal consolidate return, regardless of whether each member is subject to Arizona income tax.

Corporate franchise tax

Does your state impose a corporate franchise tax? If so, is it imposed in lieu of or in addition to corporate income tax?

No.

If your state imposes a corporate franchise tax, please stipulate:

(a) The applicable tax base.

N/A.

(b) Tax rates.

N/A.

(c) Any exemptions or deductions.

N/A.

(d) Filing formalities.

N/A.

Personal income taxes

Taxable income

How is taxable personal income determined in your state?

In Arizona, taxable personal income is based on an individual's federal adjusted gross income for the taxable year, subject to certain additions and subtractions, such as exemptions and deductions.

Tax residence

Under what circumstances is an individual deemed resident in your state for personal income tax purposes?

Every individual who is in Arizona for any purpose other than a temporary or transitory purpose is a resident. There is a presumption under Arizona law that every individual who spends, in the aggregate, more than nine months of the taxable year in the state is a resident. This presumption may be overcome by competent evidence that the individual is in the state for a temporary or transitory purpose. Arizona statutes do not define the terms ‘temporary’ and ‘transitory’. Arizona law further states that an individual who is domiciled in Arizona continues to be a resident even when they are temporarily absent from the state.

Rates

What are the applicable personal income tax rates?

Arizona’s individual income tax rates have always been graduated (progressive). The current levels range from 2.59% to 4.54%.

Table 1. 2017 tax rates for filing status single or married filing separate

Table 2. 2017 tax rates for filing status married filing joint of head of household

Exemptions, deductions and credits

What exemptions, deductions, and credits are available?

Arizona personal and dependency exemptions are numerous. The basic exemptions are summarized in the table below.

Table 3. Personal and dependency exemptions

Arizona provides several tax credits, which are explained below.

Credit for contributions to qualifying charitable organizations Arizona provides an individual income tax credit for contributions to qualifying charitable organizations of $800 for married filing joint filers and $400 for single, heads of household, and married filing separate filers who provide immediate basic needs to residents of Arizona.

Credit for contributions to qualifying foster care charitable organizations Arizona provides an individual income tax credit for contributions to qualifying foster care charitable organizations of $1,000 for married filing joint filers and $500 for single, heads of household, and married filing separate filers who provide immediate basic needs to residents of Arizona.

Public school credit An individual may claim a non-refundable tax credit of $400 for married filing joint filers and $200 for single, heads of household and married filing separate filers for making contributions or paying fees directly to an Arizona public school for support of extra-curricular activities.

Credit for contributions to private school tuition organizations Arizona provides a tax credit of $555 for single, heads of household and married filing separate filers and $1,110 for married filing joint filers for contributions to private school tuition, which provides scholarships for students enrolled in Arizona private schools. 

Credit for contributions to certified school tuition organizations Those who donate the maximum amount allowed under the credit for contributions to private school tuition organizations can make an additional donation to a certified school tuition organization of $552 for single, heads of household and married filing separate filers and $1,103 for married filing joint filers.

Filing requirements

What filing requirements and procedures apply?

The starting point for an individual is the individual’s federal adjusted gross income. An individual must complete a federal return before beginning Arizona Form 140 or 140EZ. For calendar-year taxpayers, the filing deadline is on or before April 15 following the close of the calendar year. Sole proprietors report business income on the Arizona individual income tax return.

Returns made based on a fiscal year should be filed on or before the 15th day of the fourth month following the close of the fiscal year (A.R.S. §43-325(2)).

For taxable years beginning from and after December 31, 2015, partnership returns are due on or before the 15th day of the third month following the close of the taxable year (A.R.S. §43-325(3)).

Employer obligations

What obligations are imposed on the employer in relation to the collection and remittance of state personal income taxes (eg, withholding)?

Arizona employers must withhold income tax from employee wages for services performed in Arizona. There are very few exceptions to the withholding requirement. The state income tax withholding is a percentage of the employee’s gross taxable wages. 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). Withholding returns are filed quarterly on April 30, July 31, October 31, and January 31 for the preceding calendar quarter.

Sales and use taxes

Taxable goods

What goods are subject to sales and use tax in your state (at both state and local level)?

Arizona has a multi-tiered system of taxation whereby certain transactions are taxable at a city, county, and state level. Other transactions may be taxable by a city but not by the state and vice versa.

Arizona does not impose a sales tax. Instead, it imposes a transaction privilege tax (TPT) or an excise tax directly on businesses for the privilege of doing business in Arizona. The TPT amounts to an excise on the business of selling goods and services. Currently, there are 16 business classifications that are taxable, including the following:

  • The retail classification, which is comprised of the business of selling tangible personal property at retail.
  • The transporting classification, which is comprised of the business of transporting for hire persons, freight, or property by motor vehicle, railroads, or aircraft from one point to another point in the state.
  • The utilities classification, which is comprised of the business of producing and/or furnishing to consumers natural or artificial gas and water, and providing to retail electric customers ancillary services, electric distribution services, electric generation services, electric transmission services, and other services related to providing electricity.
  • The telecommunications classification, which is comprised of the business of providing intra-state telecommunications services, such as monthly telephone services.
  • The publication classification, which is comprised of the business of publishing newspapers, magazines, or other periodicals and publications if published in this state.
  • The job printing classification, which is comprised of the business of job printing, engraving, embossing, and copying.
  • The pipeline classification, which is comprised of the business of operating pipelines for transporting oil, natural gas, or artificial gas through pipes or conduits from one point to another point in this state. The pipeline classification does not include sales of natural gas or liquefied petroleum gas used to propel a motor vehicle.
  • The private car line classification, which is comprised of the business of operating a private car company used for transporting or accommodating persons or freight over railroad lines from one point to another point in this state.
  • The commercial lease classification, which is comprised of the business of leasing for a consideration the use or occupancy of real property. Although this classification remains in effect, the current state tax rate is 0%. The commercial lease classification is mainly an excise tax imposed by municipalities and three counties.
  • The transient lodging classification, which is comprised of the business of operating, for occupancy by transients, a hotel or motel, or any other type of abode.
  • The personal property rental classification, which is comprised of the business of leasing or renting tangible personal property for consideration.
  • The mining classification, which is comprised of the business of mining, quarrying, or producing for sale, profit, or commercial use any non-metalliferous mineral product that has been mined, quarried, or otherwise extracted within Arizona. Non-metalliferous mineral products taxed under the mining classification include among other industrial minerals gravel, limestone, oil, natural gas, potash, quartz, and sand, but not coal. Copper—Arizona’s most abundant metallic mineral product—is taxed separately under a severance tax, which imposes a lower tax rate.
  • The amusement classification, which is comprised of the business of operating or conducting theatres, movies, operas, shows of any type or nature, exhibitions, concerts, carnivals, circuses, amusement parks, menageries, fairs, races, contests, games, billiard or pool parlors, bowling alleys, public dances, dance halls, boxing and wrestling matches, skating rinks, tennis courts, video games, pinball machines, or sports events or any other business charging admission or user fees for exhibition, amusement or entertainment.
  • The restaurant classification, which is comprised of the business of operating restaurants, dining cars, dining rooms, lunchrooms, mobile food units, lunch stands, soda fountains, catering services or similar establishments where articles of food or drink are sold for consumption on or off the premises.
  • The prime contracting classification, which is comprised of the business of prime contracting and the business of manufactured building dealer.
  • The online lodging marketplace classification, which operates an online lodging marketplace. The online lodging marketplace classification is Arizona’s newest tax classification and was adopted in 2016.

At the city level, each municipality has adopted provisions of the Model City Tax Code (MCTC). The MCTC was adopted to create a greater degree of uniformity for multi-jurisdictional taxpayers who are paying tax to the state as well as to multiple cities. While the MCTC makes tax compliance easier, businesses operating in multiple jurisdictions must still be aware of the nuances of each jurisdiction.

State rate

What is the state sales tax rate?

In Arizona, the state transaction privilege tax rate on all classifications is 5.6%, except for commercial leasing, transient lodging, online lodging marketplace, and mining. Other tax rates include the following:

  • The state tax rate on commercial leasing classification is 0%.
  • The state tax rate on the transient lodging classification and the online lodging marketplace classification is 5.5%.
  • The mining classification state tax rate is 3.125%.

Local rates

What is the range of local sales tax rates levied in your state?

Tax rates vary by city and county depending on the classification. For more information, see the Arizona State, County, and City Transaction Privilege and Other Tax Rate Tables for details.

Exemptions

What goods are exempt from sales and use tax?

Each TPT classification discussed above broadly defines what is subject to tax and then excludes those activities within each classification that are exempt from taxation. For example, in the retail classification, there are over 80 separate exemptions. For any transaction that is subject to taxation under a particular classification, a detailed review of exemption provisions is required.

Services

Are any services taxed?

Yes. Arizona imposes a TPT or an excise tax directly on businesses for the privilege of doing business in Arizona. In many instances, the TPT taxes services. For a full discussion of what is taxed, see “What goods are subject to sales and use tax in your state (at both state and local level)?”.

Filing requirements

What filing requirements and procedures apply?

As of January 1, 2017, the Arizona Department of Revenue became the single point of administration and collection of state, county, and municipal transaction privilege tax. Taxpayers are required to file monthly and pay for all tax jurisdictions to the department.

A business may license and register by filing an Arizona joint tax application (Form JT-1) to apply for and create an account for transaction privilege tax, use tax, employer withholding, and unemployment insurance.

Property taxes

Taxable value

How is the value of property assessed for tax purposes in your state? Which types of property are subject to tax?

All real estate, improvements to real estate, and personal property are taxable unless otherwise exempted by the Arizona Constitution or by statute.

In Arizona, county assessors annually determine the full cash value of all property within a county that is subject to taxation. The Arizona Department of Revenue is responsible for determining the full cash value of centrally assessed properties such as:

  • mines;
  • oil, gas, and geothermal properties;
  • gas, water, and electric utilities;
  • pipelines;
  • airlines;
  • railroads; and
  • telecommunication companies.

Arizona has two values for property tax purposes: the full cash value and the limited property value. ‘Full cash value’ means the value determined by statute. If no statutory method is prescribed, which is the case for almost all property, full cash value is synonymous with market value. Property is valued based on market value subject to current use, not highest and best use. In cases where a statutory method is prescribed to determine value for property tax purposes, the full cash value cannot be greater than the market value.

The limited property value (LPV) is the value that is most important to locally assessed taxpayers. Property taxes are calculated only from the LPV. While the full cash value varies each year, depending on market conditions, the LPV is determined by a statutory formula based on a property’s LPV from the prior tax year. LPV is limited to annual increases of no more than 5%. Sales of property do not affect the limitation on the LPV. However, certain changes, such as new constructions or additions, parcel splits or consolidations, or changes to a property’s use trigger a reassessment of the LPV.

State rate

What is the state property tax rate?

Arizona does not have a state property tax rate.

Local rates

What is the range of local property tax rates levied in your state?

In Arizona, tax rates are determined in each county for each tax district. Tax rates vary within a county and among tax districts within a county.

Table 4. Average tax rates by Arizona county for tax year 2018

Exemptions and deductions

What exemptions and deductions are available?

Article 9, Section 2 of the Arizona Constitution outlines the categories of property and persons who qualify for exemption from property tax. Arizona, like most states, exempts all federal, state, county, and municipal property, as well as property of educational, charitable, and religious associations or institutions not used or held for profit. The Constitution also exempts from property tax all household goods, cemeteries, and personal property used for agricultural purposes or business purposes up to a certain amount, as well as property of disabled veterans and widows and widowers who meet certain criteria.

By statute, Arizona exempts 32 categories of property, including property owned by non-profits such as:

  • educational institutions;
  • volunteer fire departments;
  • fraternal societies;
  • observatories;
  • veteran’s organizations; and
  • organizations established to preserve and protect scientific resources.

Filing requirements

What filing requirements and procedures apply?

A taxpayer may choose to file an administrative or a judicial appeal.

If a taxpayer elects to file an administrative appeal, it must be filed with a county assessor no later than 60 days from the notice of value’s mailing date in February. A taxpayer dissatisfied with a county assessor’s determination of its appeal may file an appeal within 25 days of the mailing of the assessor’s decision to the state board of equalization in Maricopa County or Pima County or to the county board of equalization in all other counties.

A taxpayer dissatisfied with the administrative ap­peals process may appeal directly to the Arizona Tax Court within 60 days of the last administrative decision.

A taxpayer may skip the administrative process entirely and file a judicial appeal anytime before December 15 of the valuation year.

Real estate transfer tax

How is the transfer of real estate taxed in your state (including tax base, rates, exemptions, and filing formalities)?

N/A.

Unclaimed and abandoned property

Reporting and remittance

Describe your state’s regime for reporting and remitting unclaimed and abandoned property. How is the value of such property calculated? How assertive is your state in enforcing its rights to unclaimed property?

In Arizona, unclaimed property law is governed by the Revised Arizona Unclaimed Property Act under Title 44, Chapter 3 of the Arizona Revised Statutes, which was adopted in 2000. To date, Arizona has not adopted the 2016 Revised Uniform Unclaimed Property Act.

Unclaimed property and holders Property is presumed abandoned after a specified period in which there has been no contact with the owner (A.R.S. §44-302(C)). In Arizona, a dormancy period typically occurs between one and three years, depending on the type of property (A.R.S. §44-302(A)).

Unclaimed property includes all tangible or intangible property in whatever form. A list of the reporting codes and example of property can be found in the Arizona Unclaimed Property Reporting Manual.

Any person or entity in possession of property considered abandoned is subject to the Revised Arizona Unclaimed Property Act and a holder of unclaimed property. This includes all:

  • individuals;
  • businesses;
  • banking and financial institutions; and
  • other entities such as:
    • state, county, and city governments;
    • political subdivisions;
    • public authorities;
    • public corporations;
    • estates;
    • trusts; and
    • any other legal or commercial entity.

Reporting and remitting unclaimed property A holder of unclaimed property, whether located in Arizona or in another state, must report to the Arizona Department of Revenue. A holder with unclaimed property valued at $50 or more must send due diligence notifications to the apparent owner’s last known address 120 days before filing a report, notifying them that the holder is in possession of the property (A.R.S §44-307(E)).

When determining the value of property to be reported, a holder may deduct from the value of the presumed abandoned property a charge imposed by reason of the owner's failure to claim the property within a specified time if:

  • there is a valid and enforceable written contract between the holder and the owner which allows the holder to impose the charge;
  • the holder regularly imposes the charge; and
  • the charge is not regularly reversed or otherwise cancelled.

The amount of the deduction is limited to an amount that is not unconscionable (A.R.S §44-305).

Most holders of abandoned property are required to file a report with the Department of Revenue before November 1 and the report must cover the last 12 months before July 1 of that year. A holder may elect to annually report abandoned property at the same time it reports its income tax.

The holder must remit to the department the total amount listed on the report. In the case of securities, the security must be registered in the Arizona nominee’s name. For mutual funds, the account must be transferred to an account registered to the State of Arizona. For tangible property, an appointment should be arranged with an unclaimed property unit.

Voluntary compliance program Historically, Arizona has not been aggressive in the enforcement of its rights to unclaimed property.

Arizona’s voluntary compliance program encourages persons who are not in compliance with the Unclaimed Property Act to report and remit monies to the Department of Revenue. A business that is eligible under the compliance program receives substantial benefits. The holder’s liability is limited to the past 10 years, provided that they file returns on time in the future. The department will also agree not to assess penalties or interest and will indemnify the holders against claims on items reported.

Excise and other indirect taxes

Excise taxes

What excise taxes are levied in your state, including applicable goods, rates, and filing formalities?

Luxury taxes Arizona imposes a luxury tax on a range of alcohol and tobacco products. The liquor tax requires wholesalers, microbreweries, craft distillers, and domestic farm wineries to file a return each month and remit luxury tax on spirituous, vinous, and malt liquors. Tobacco tax applies to businesses wholesaling cigarettes, cigars, or other tobacco products. Anyone who manufactures, produces, ships, transports, or imports into Arizona or in any manner acquires or possesses cigarettes without stamps or other tobacco products upon which taxes have not been paid, for the purpose of making the first sale, must be licensed with the Department of Revenue. Tax rates vary by product type.

Severance tax Arizona imposes a severance tax on the production or extraction of metalliferous minerals such as copper, gold, silver, molybdenum, or other metals or any ore or substance containing such metals including turquoise.

The severance tax on metalliferous minerals is levied at the rate of 2.5% on a tax base that is 50% of the difference between the gross value of production and production costs (A.R.S. §§42-5202 and 42-5204).

Telecommunications service excise tax A tax is levied on every provider in an amount of twenty cents per month for each activated wire and wireless service account for the purpose of financing emergency telecommunications services (A.R.S. §42-5252(A)).

A separate tax is levied on every public service corporation at the rate of 1.1% of the public service corporations' gross proceeds of sales or gross income derived from the business of providing exchange access services.

Tax on water use Owners or operators of a municipal water delivery system that distributes or sells potable water primarily through a pipeline delivery system are subject to a tax of 0.65 cents per 1,000 gallons of water delivered to customers.

Jet fuel excise tax and use tax A jet fuel excise tax is levied on every person engaging or continuing in the business of the retail sale of jet fuel. The jet fuel excise tax levied on the purchase of jet fuel by each purchaser of jet fuel in each calendar year is 3.05 cents per gallon on the first 10 million gallons of jet fuel sold, any amounts sold over 10 million gallons of jet fuel are not subject to tax.

Prepaid wireless excise tax A prepaid wireless telecommunications E911 excise tax is levied on every seller in an amount of eight-tenths of 1% of the gross proceeds of sales or gross income derived from the retail sale of prepaid wireless telecommunications services.

Other indirect taxes

Are any other indirect taxes levied in your state?

See “What excise taxes are levied in your state, including applicable goods, rates, and filing requirements?”.

Other taxes

Other taxes

Do any other taxes apply to businesses in your state? If so, please include applicable tax bases, rates, exemptions/deductions, and filing formalities.

The state of Arizona and its municipalities impose various taxes, assessments, and fees including:

  • the bingo tax;
  • the private car tax;
  • a nursing facility assessment;
  • the flight property tax;
  • a nuclear plan assessment; and
  • a waste tire fee.

Incentives

Incentive schemes

Does your state offer any tax incentive schemes to attract businesses and promote investment?

Arizona offers an array of tax incentives to attract and keep businesses. The table below provides a summary of some of the tax incentives.

For a full list of credits and incentives offered by Arizona can be found on the Arizona Commerce Authority website.

Planning considerations

Compliance

What tax compliance procedures and best practices should businesses operating in your state be aware of?

The best practice in any jurisdiction is to understand how that jurisdiction’s tax system applies to a business’s activities before those activities occur. For a basic understanding of Arizona’s tax system, the Arizona Department of Revenue offers several resources to assist taxpayers to comply with state and local tax laws. The department offers classes and online tutorials to help businesses develop a basic understanding and administration of tax compliance. The department also makes available on its website copies of:

  • hearing decisions;
  • taxpayer rulings;
  • private letter rulings; and
  • tax guidance procedures.

For a more in-depth understanding, businesses should consult their tax and legal professionals.

Strategic planning

What strategic planning considerations should businesses operating in your state bear in mind to optimize tax efficiency?

Strategic planning opportunities will vary greatly depending on the nature of the business. Although there is some degree of uniformity among taxing jurisdictions in certain areas of state and local taxation, the administration, law, and practices vary greatly in each state. The best practice is to begin working with a tax or legal professional before starting business in Arizona. It is important not only to take advantage of all exemptions, deductions, and tax credits, but also to avoid the many pitfalls that commonly beset unaware taxpayers.