Should you collect sales tax in Arizona?
Sales tax in Arizona is typically referred to as “Transaction Privilege Tax (TPT)”, which is imposed on a vendor or seller for getting the privilege of doing business in Arizona. Tax is measured on the value of tangible personal property sold within the state or having a business nexus in Arizona. Nexus is the presence that may come physically or economically.
A physical nexus is typically created when your business has a store, warehouse, or office location in Arizona. An economic nexus is intertwined when you cross paths with threshold limits as already stipulated by the state. These thresholds are based on revenue.
Let’s explore if your business has a Physical nexus in Arizona.
A physical nexus is integrated when your business is engaged in the following in Arizona:
- Delivering items using owned, leased or company vehicles in Arizona.
- Having a temporary or permanent location or maintaining a place of business in Arizona.
- Employing or retaining any contractor, including an agent, representative, or salesman, by whatever name, conducting business activities within the state.
- Leasing or owning a real or tangible personal property in Arizona.
You may also refer to the Arizona Revenue Department advisory to know more about business activities that may create a physical nexus within the state.
Constituting an Economic nexus in Arizona?
If you are a marketplace facilitator or a remote seller and your gross sales exceed $100,000 (effective 2021) during the previous calendar year or are meeting during the current relevant fiscal year, you are required to comply with and register under sales tax rules. The threshold limits for 2020 and 2019 were $150,000 and $200,000, respectively, for remote sellers.
Kindly visit the department website here for detailed, precise guidance on remote sellers and marketplace facilitators.
How can you Register for Sales tax in Arizona?
You can apply for a sales tax permit in Arizona using one of the four methods listed below:
- AZTaxes.gov—You can register, file, and pay the sales tax (TPT) using this medium (it is not applicable for construction contractors).
- Business One Stop—This is an online portal that provides personalized tools to plan, start, grow, and close a business in the state.
- Paper form – You can download the Joint Tax Application (JT-1) form and mail it to the address indicated in the form.
- In-Person: Visit the office of the Revenue Department of Arizona with the completed JT-1 form and submit it in person.
Additionally, before applying for a new tax account number or completing the JT-1 form, make sure you have the following information handy with you:
- Date of starting the business, ownership type.
- All relevant addresses, including email and mailing addresses.
- Employee Information.
- NAICS code
The state charges a fee of $12 for each license application. Further, you can license and file for each location separately if you have a business with multiple locations.
Is your product or services liable to Sales tax in Arizona?
Sales tax in Arizona is imposed primarily on vendors or sellers for the privilege of doing business in Arizona. Additionally, several retail sales are subject to Transaction Privilege tax in Arizona.
Digital Product: Arizona charges sales tax on digital products. So, if you sell digital products such as software, streaming services, e-books, etc., you need to collect sales tax. You can also read the guidance issued by the state on digital goods.
SAAS: SAAS is software that allows users to connect to the cloud and use it over an internet connection. It is taxable in Arizona .Click here for more guidance.
Services: Services are generally not liable to sales tax in Arizona; however, exceptions include communication services, fabrication, utilities, hotel stays, installation, etc.
Certain exemptions (e.g., home consumption food, solar devices, textbooks to be used by the public, etc.) are granted by TPT in Arizona, which are specific to each business classification. Refer to ARS Title 42 Chapter 5, Article 2 for more details.
How should you collect and calculate state taxes in Arizona?
Collecting and computing accurate sales tax to be remitted to the state may not involve those boisterous efforts. The sales tax (TPT) is origin-based in Arizona, which means you must collect taxes at the rate where your business is located. However, if you are not based in Arizona and create a business relationship through economic nexus in the state, you’ll have to collect and remit the sales tax.
Any default may lead to severe concerns, penalties, or fines by the state. That is what TaxDo is here for you! Our specialized sales tax calculator and professional services will simplify your job and lighten your compliance burden.
Arizona has a base sales tax rate of 5.6%, followed by local tax rates that vary based on the cities and municipalities. You may visit the tax rate table page on the Arizona Department of Revenue website.
Below is the simple formula you can use to calculate your sales tax collection on each merchandise sold:
Sales Tax collectible = Sale value * (5.6% plus local tax rate)
Do you need to collect sales tax on Shipping Charges?
Shipping charges can be delineated separately in the sale invoice raised to the customer or dissipated within the selling price of the items sold. If shipping charges are separately stated on the invoice, there will be no tax applicability; however, you need to collect the tax on the full sales price, including shipping charges, if not stated separately. Handling charges are always taxable in the state. Here is the guidance issued by the state over shipping charges.
How should you file sales tax in Arizona?
Effective 2017, you must report sales tax or TPT activity through an online platform at AZTaxes.gov. The state requires you to file, pay, and remit the taxes electronically if you meet the 500 annual. transaction privilege tax threshold and use tax liability. Please note that a penalty of 5% of the tax due, with a minimum of $25, is imposed if you do not adhere to the electronic filing guidelines.
Kindly visit the ADOR page for more detailed instructions.
Filing frequencies and due dates
Filing frequency is decided based on the amount of your total estimated annual combined Arizona, county and municipal TPT liability. Below are the filing frequencies based on the TPT liability:
- Annual filing – estimated TPT liability of $2,000
- Quarterly filing – estimated TPT liability of $2,000 – $8,000
- Monthly filing – estimated TPT liability of more than $8,000
Furthermore, the state allows you to change your filing frequency by completing the business account update form and mailing it to the address mentioned in the form. Based on your filing frequency, you must file the sales tax by the last Day of the following month from the reporting period. If the due date turns out to be a holiday, the next business day will be considered a due date. For more information, please visit the here.
Are there any fines or penalties for default when filing or paying sales tax?
The state levies a penalty of 4.5% of sales tax or TPT due if filed after the due date. There will be a minimum of $25 (a maximum of 25% of sales tax or $100), whichever is higher. You can read more about penalties and interests by visiting here.
However, assigning your tax burden to TaxDo would not result in you paying any penalty or interest. We will adhere to the due dates.