“Helloooooooooooooooooooooooooooooooo” echoes down the Grand Canyon. From laid-back Flagstaff nestled more than a mile high amid Ponderosa pines in Northern Arizona, to the home of legends of the Old West like Wyatt Earp and Doc Holiday in the ‘Town too tough to die’, Tombstone in Southeastern Arizona, the flavor and sophistication of Arizona changes with almost every mile. Smack dab in the middle is the bustling metropolis composed of Phoenix, Scottsdale, Tempe and Mesa which serve as a haven of relaxing resorts and award-wining golf, restaurants, shopping, nightlife and a variety of culture that can satisfy almost anyone.
Regardless of your residence in Arizona, or where you are shopping or visiting, the Arizona Department of Revenue (AZDOR) is poised to collect ‘privilege tax’ from you. Arizona has no actual ‘sales tax’, rather they charge a Transaction Privilege Tax (TPT) on the privilege of doing business in Arizona, and while this tax is actually a tax on the vendor doing business, it is usually passed on to the consumer doing business with the vendor. Not only does the State assess TPT, but counties and cities can also assess a TPT.
Generally the types of business subject to TPT include retail sales, restaurants, bars, hotels, motels, commercial leasing, advertising, amusements, personal property rentals, real property rentals, construction contracting, owners/builders, manufactured building, severance, transportation, printing, publishing, utilities, communications, air and railroad, private cars, pipelines and use tax. The AZDOR collects the tax for the counties and most cities; however, some cities have elected to collect their tax independently (another source of potential collection and reporting nightmares in Arizona).
Heading out from your hotel to a helicopter tour of the Grand Canyon, TPT applies; taking in admission to see the cribs at the Bird Cage Theater in Tombstone, TPT applies; head for some skiing in Flagstaff you can expect that lift ticket to be subject to TPT. You can’t go very far, or do very much in Arizona without paying TPT. I wonder if they tax the number of times my “Hello” echoes off the wall of the Canon?
Thanks to Avalara, the 'tax people', this article is one in a 50 part series covering sales tax issues associated with each and every state tax jurisdiction in the United States. We will be publishing a "Sales Tax Tuesday" article every week during 2015. By the end of this year there could be sufficient changes to warrant starting over with updated information.
Sales tax (or it’s Arizona ‘TPT substitute’ in this case) provides critical revenue for states as well as many counties and cities. Other than property and income tax, sales tax is the largest source of tax revenue in the majority of the 46 states that collect it. From a government perspective, making sure every sales tax dollar is collected, through audits, fines, penalties rates and rules, is an exercise for income. It’s easy to be lured into a false sense of compliance when it comes to sales tax, this series is intended to insure that you are aware of the key sales tax facts for YOUR state.
Note: For sales tax definitions and essentials check out the opening article to this series.
Arizona Tax Facts1:
- Arizona has a Transaction Privilege Tax (TPT) which is commonly referred to as sales tax and manage by the State of Arizona Department of Revenue (ADOR).
- Arizona is not a member of the Streamlined Sales Tax (SST)
- Arizona has 131 different sales tax jurisdictions. The state rate is 5.6% and the total rate can range as high as 10.7% when including local jurisdictions. The average is 8.16% making it the 12th highest average sales tax rate.
- Sales tax is sourced at the origin address.
- Arizona is one of 4 states (AZ, CO, LA, AL) we identify as a “home rule” state -- a state that allows local jurisdictions to collect their own sales tax:
- Some common nexus creating activities are: place of business, employees, sales solicitation, installation, service or repair.
- Arizona taxes computer software, but not services or maintenance in most cases. Membership fees are taxable. Most food is tax exempt, unless sold for consumption “on premise”. Pipes are tax exempt if under a diameter of 4”, if larger then they are taxable.
- Amazon.com has a fulfillment center in Arizona, which means that not only will Amazon charge tax on sales in Arizona because of their nexus profile, but many companies participating in Amazon FBA (fulfillment by Amazon) will also create nexus by storing inventory and will also have to collect and remit.
- Exemptions certificates are available for purposes of resale. Partial exemptions are available for some solar energy related sales. Non-profits are generally NOT tax-exempt.
Arizona tax is on the change, several local rate changes take effect this spring and a few exemptions are also under modification. I usually write something about some unusual aspect of the particular sale tax in the state we are reviewing, well I found this recent change and the complexity of it, a prime example of why ‘sales tax’ is such a “pain in the relative of a donkey” to keep track of.
A recent change ‘state wide’ repealed provisions which had exempted personal property purchased within Arizona for delivery destinations outside the United State to a foreign country. For example, let’s say that I take a vacation in Arizona, and while there I purchase an “OK Corral” T-shirt from one of the souvenir shops in Tombstone and ask them to ship it to Marnie Stretch in Canada. Prior to this past January that sale would not have been subject to Arizona’s TPT tax and the retailer had to code the transaction with a deduction code of 540 on the TPT-1 form. But now, deduction code 540 is no longer valid, so I am going to have to pay city, county and state TPT tax on the sale despite the T-shirt being shipped directly to Canada. On the other hand, if I had called Marnie on the cell phone and told her to call the clerk at the store and order the T-shirt for herself, well then that sale would have be deductible and the clerk would have to code the sale with exemption 504. (Yes, you are required to keep track of the exemption codes that apply for every exempt sale, “what a pain in the...”; I can’t even remember how old I am, how am I going to recall tax exempt code numbers?)
Don’t get me wrong, Arizona is a nice place to visit, I use to go there ‘all the time’; it has some of the best ‘desert resorts’ on the planet and is perfect for a winter retreat to get away from the cold, but if you are ‘selling’ in Arizona and have to deal with all the variations and coding numbers for the TPT, you better get Avalara. Avalara provides solutions for sales tax automation, including tax calculation, exemption certificate management, returns processing and 1099 filing and reporting. Automation via Avalara allows businesses to be fully sales tax compliant without sacrificing productivity.
1 - State by State Sales Tax - Arizona, Patrick Neu, Avalara - February 16, 2015