Sales and use taxes
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.
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%.
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.
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.
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)?”.
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.
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