Understanding Arizona Sales and Use Taxes
Understanding and complying with the sales tax requirements in the states in which you do business is absolutely essential. More states are taxing services, as well as retail sales, so no business owner can afford to be in the dark. In addition, you may find that you are liable for use taxes for products purchased out of state. This article answers some of the basic questions regarding sales tax in Arizona
In Arizona, the transaction privilege tax (TPT) is a tax on the privilege of doing business in the state. Despite the name, the transaction privilege tax is, in effect, a sales and use tax. The tax is measured by the amount or volume of business transacted by persons on account of their business activities. This transaction privilege (sales) tax is on the seller, not the buyer.
General Sales Tax Rate in Arizona Is 6.6 Percent
The Arizona sales and use tax rate ranges from 3.125 to the general rate of 6.6 percent at the state level. Local governments in Arizona are allowed to assess a local sales and use tax. Some Arizona local governments administer their own sales tax system so be sure to check with your local government officials to find out the rules that will apply in your area.
Generally, 6.6 percent state rate applies to all retail sales, plus all of the following activities:
- job printing
- membership camping
- owner-builder sales
- personal property renta
- prime contracting
- private car line
- transient lodging
Arizona taxes leases. Arizona taxes the leasing or renting of tangible personal property. Arizona also imposes a surcharge on the rental of a motor vehicle for a period of 180 days or less. Leases or rentals of real property used for commercial, residential or agricultural purposes are not subject to sales tax in Arizona. The leasing area is full of exceptions and specific situations that could affect whether or not you are subject to the tax — be sure to check on your specific transaction.
Tax-exempt items. Arizona includes many specific items that are exempt from sales tax. Examples include food sold for home consumption and prescription medication.
Most sales to nonprofits Are taxable. There are no general exemptions for sales to churches, schools, and other nonprofit organizations, so these sales are subject to the transaction privilege tax or the use tax unless specifically exempt (for example, there is a specific exemption for sales to nonprofit organizations that operate rodeos).
Arizona Provides for Resale Exemptions
Gross receipts from the following sales are not taxable under the retail classification:
- the sale of tangible personal property to be resold by the purchaser in the ordinary course of business
- the sale of tangible personal property to be leased out by a person in the business of leasing such personal property
- the sale of repair or replacement parts for tangible personal property that is to be leased out by a person engaged in the business of leasing such tangible personal property
Obtaining a resale certificate exemption. Anyone conducting business under a taxable classification and claiming a deduction from the tax must mark the invoice indicating the deduction and obtain a resale exemption certificate executed by the purchaser. The exemption certificate must include the following information:
- the name and address of the purchaser
- the precise nature of the business of the purchaser
- the purpose for which the purchase was made
- facts necessary to establish the appropriate deduction
- the tax license number of the purchaser (to the extent the deduction depends on the purchaser conducting business)
- a certification that the person executing the certificate is authorized to do so on behalf of the purchaser
Blanket resale certificates are allowed. A vendor and a purchaser may agree to use a blanket certificate that will continue in force for a period stated on the certificate. The main purpose of a blanket resale certificate is that both parties can avoid the hassle of having to present a certificate for every transaction. The vendor may refuse to honor a blanket certificate if the vendor believes that the information contained in the certificate is no longer accurate or complete.
Purchases from out-of-state vendors
If a purchase from an out-of-state retailer is subject to another state's sales tax, then the purchaser may take a credit against the use tax equal to the amount of sales tax paid in the state of purchase.
Transaction Privilege Tax Is Imposed on Retailer, Not Customer
In Arizona, the transaction privilege (sales) tax is imposed on the retailer or other person conducting the business. The retailer or other person is responsible for paying the tax to the Arizona Department of Revenue. The seller may (or may not) pass the tax onto the purchaser, but the tax collected must be remitted to the state.
Arizona Use Tax Parallels Its Sales Tax
Arizona use tax is imposed on the storage, use, or consumption in Arizona of tangible personal property purchased from a retailer. The use tax is at the same rate that is applied for sales tax. The use tax complements the sales tax because only one of the taxes can apply to a given transaction. If a purchase from an out-of-state retailer is subject to another state's sales tax, then the purchaser may take a credit against the Arizona use tax equal to the amount of sales tax paid in the state of purchase.
Responsibility for collecting use tax. Although the use tax is imposed on consumers, retailers are required to collect it from purchasers when applicable. The tax must be shown separately on the invoice and constitutes a debt owed by the retailer to the state. An Arizona purchaser who holds an Arizona transaction privilege tax license must remit use tax to the Department of Revenue if the purchaser buys tangible personal property from an out-of-state retailer that is not licensed to collect the use tax.
Obtaining Tax Permits in Arizona
Every person receiving gross proceeds of sales upon which the transaction privilege (sales) tax is imposed must obtain a privilege license. The license is obtained from the Department of Revenue. The fee for the license is modest and there is no expiration date. Retailers required to collect the use tax must also register with the Arizona Department of Revenue.