Chapter 14 Arizona Transaction Privilege Tax

Chapter 14 Arizona Transaction Privilege Tax2018-11-17T12:51:44+00:00

Section 14.1 What is the Arizona Transaction Privilege Tax?

If the company will sell a product or engage in a service subject to transaction privilege tax, you will most likely need to obtain the Arizona transaction privilege tax (TPT) license from the Arizona Department of Revenue (commonly referred to as a sales tax, resale, wholesale, vendor or tax license) and a transaction privilege tax or business/occupational license from the city(ies) in which the company is based and/or operates.

The Arizona transaction privilege tax is commonly referred to as a sales tax; however, the tax is on the privilege of doing business in Arizona and is not a true sales tax. Although the transaction privilege tax is usually passed on to the consumer, it is actually a tax on the vendor.

Arizona transaction privilege taxes are imposed on persons engaged in certain business classifications, including retail sales. What this means is that various business activities are subject to state, county and/or city transaction privilege tax (TPT).

Types of business activities subject to the transaction privilege tax include, but are not limited to: retail sales, restaurants/bars, hotel/motel (transient lodging), commercial leasing, advertising, amusements, personal property rentals, real property rentals, construction contracting, owner/builders, manufactured building, severance (mining, timbering), transportation, printing, publishing, utilities, communications, air/railroad, private cars/pipelines and use tax.

The Department of Revenue collects the tax for the counties and most cities, however, some of the cities license and collect their tax independently. Tax rates vary depending on the type of business activity, the city and the county.

Note: There are some differences between Arizona and local authorities in the taxability of transactions. For instance, Arizona does not impose a transaction privilege tax on (i) renting, leasing, or licensing for use residential real property, or (ii) the sale of advertising. However, many cities do tax these activities.

If you have questions about whether or not your business activity is subject to transaction privilege tax/licensing, check with both the Arizona Department of Revenue and the licensing office(s) of the city(ies) in which you will be based and/or operate

Section 14.2 More About the Arizona Transaction Privilege Tax

The State of Arizona has a tax called the “transaction privilege tax,” which is a tax on the privilege of doing business in Arizona. The transaction privilege tax (TPT) is imposed on people and entities that engage in the business of making retail sales in Arizona. Anyone involved in an activity taxable under the TPT statutes must apply for a TPT license before engaging in business in Arizona. Some, but not all, Arizona counties and cities have a TPT. The tax is levied on the seller of certain items for the privilege of doing business in Arizona, a county and/or a city. The state TPT rate is 6.3%. Because most Arizona businesses pass the TPT on to their customers, the tax is equivalent to a state sales tax.

Companies subject to the TPT are required to obtain and display a separate license certificate for each business or rental location by one of the following two methods:

  • Each location may be licensed as a separate business with a separate license number for purposes of reporting transaction privilege and use taxes individually. Therefore a separate application is needed for each location.
  • Multiple locations may be licensed under a consolidated license number, provided the ownership is the same, to allow filing of a single tax return.

If a company is already licensed and is adding locations, do not use the Arizona Joint Tax Application to consolidate an existing license. Submit an update form instead.

A company subject to the Arizona TPT must obtain a TPT license for the State of Arizona and for each county and city in which the company conducts business in Arizona and sells items subject to the TPT, but only if the county and city have a TPT (not all do). Each separate physical location where sales take place must have a TPT license for display.

In Arizona, the seller owes the TPT to the State, county or city. This is true whether or not the seller collected the TPT from the buyer. However, the seller may pass the burden of the tax on to the buyer by adding the TPT to the cost of an item. A company that sells items subject to the TPT owes a TPT if it is in the business of selling tangible personal property and the buyer does not present the seller with a valid exemption certificate or other appropriate documentation to establish that the sale is exempt from the tax.

Many, but not all, business activities are subject to the TPT. The business activities subject to the TPT that must be licensed include retail sales, restaurants, bars, hotels, motels, any transient lodging, commercial leasing, amusements, personal property rentals, contracting, owner/builders, severance (mining, timbering), transportation, printing, publishing, utilities, communications, air/railroad, and private cars/pipelines. Arizona does not tax the sale of food for home consumption or drugs prescribed by a licensed physician or dentist.

Businesses with multiple locations or business lines can opt to license and report for each location separately or have a consolidated license and report aggregate sales. Use the Arizona Joint Tax Application to apply for your transaction privilege tax license. Tax rates vary by city and county. Please see the Arizona State, County, and City Transaction Privilege and Other Tax Rate Tables for combined state and count tax rates and other information about the Arizona TPT.

The Arizona TPT license is effective indefinitely. It is not necessary to “renew” an Arizona state, county or city TPT license.

If you visit an Arizona Department of Revenue service center location and complete the Arizona Joint Tax Application it will take approximately 20 minutes to complete the application and receive a TPT license. If you mail your completed Arizona Joint Tax Application, it will take 10 to 14 business days to receive the license.

For more, see the Arizona Department of Revenue’s TPT Frequently Asked Questions.

Section 14.3 How to Apply for the Transaction Privilege Tax License Online

The Arizona Department of Revenue (DOR) Arizona Joint Tax Application is used to apply for Transaction Privilege Tax, Use Tax, and Employer Withholding and Unemployment Insurance. The application is called “joint” because it is used by both the Departments of Revenue and Economic Security and allows you to apply for any of the listed licenses and registrations on a single application.

The Arizona Department of Revenue offers businesses the opportunity to complete the Joint Tax Application online, download the signature card and submit in person or by mail along with payment. Once the license registration is completed, and the business is registered to use the site, businesses may file and pay their transaction privilege, use and withholding taxes online.

Section 14.4 Arizona City Transaction Privilege Taxes

Most Arizona cities have a privilege tax. Because the Arizona Department of Revenue collects the privilege tax for most cities, no additional license application beyond the Joint Tax Application is necessary. Businesses subject to a city transaction privilege tax must pay the privilege tax license fee only with respect to cities in which they do business. For example, if a company does business only in Phoenix, it does not have to collect or pay a privilege tax in any other Arizona city.

Some Arizona cities license and collect their privilege tax independent of the Department of Revenue and the Arizona Joint Tax Application. Please see the Arizona State, County, and City Transaction Privilege and Other Tax Rate Tables for the tax rates. This form also lists the cities that license and collect their tax independently. There are also some differences between the state and local authorities in the taxability of transactions.

For questions regarding taxability and licensing, contact the agency responsible for collecting the tax. City license fees may also vary.

Section 14.5 Arizona Cities that are “Nonprogram” TPT Cities

Some cities in Arizona license and collect their TPT independent of the State of Arizona. The cities are called “nonprogram cities.” If business is conducted in one of these cities, the company must obtain a separate city TPT license. In addition, the company must report and pay the city portion of the TPT directly to the city. The non-program cities are listed below, you must contact them directly for licensing.

Apache Junction (480) 982-8002
Privilege Tax/Use Tax – 2.4%
Utilities /Telecom – 3.4%
Use Tax for Single Item Portion over $2,000 – 1.4%
Retail Tax for Single item Portion over $2000 – 1.4%

Avondale (623) 333-2000
Privilege Tax – 2.5%
Retail Tax for a Single item over $5000 – 1.5%
Use Tax – 1.5 %

Chandler (480) 782-2280
Privilege Tax/Use Tax – 1.5%
Rest & Bar – 1.8%
Utilities/Telecommunications – 2.75%

Douglas (520) 417-7333
Privilege Tax – 2.8%
Retail Tax for a Single item over $10,000 – 1.8%
Use Tax – 2.5 %

Glendale (623) 930-3190
Privilege Tax 2.9%
Use Tax – 2.9%
Rest & Bar – 3.9%
Telecommunications – 6.1%

Mesa  (480) 644-2316
Privilege Tax/Use Tax – 1.75%

Nogales (520) 287-6571
Privilege Tax – 2%

Peoria (623) 773-7160
Privilege Tax – 1.8%
Rest & Bar – 2.8%

Phoenix (602) 262-6785
Privilege Tax/Use Tax – 2.3%
Telecommunications – 4.7%
Utilities – 2.7 %
Use Tax for Single Item Portion over $10,000 – 2%
Retail Tax for Single item Portion over $10,000 – 2%
Utilities – 3.3 %

Prescott (928) 777-1268
Privilege Tax/Use Tax – 2%

Scottsdale (480) 312-2400
Privilege Tax – 1.65%
Use Tax – 1.45 %

Flagstaff (928) 213-2250
Privilege Tax – 2.051%
Restaurant and Bar – 4.051%
Hotels -4.051%
Use Tax – 1%

Tempe (480) 350-2955
Privilege Tax/Use Tax – 1.8%
Contracting – 1.8 %

Tucson (520) 791-4566
Privilege Tax/Use Tax – 2%

Each incorporated city/town in which the company does business may have their own license, permit and/or tax requirements, as well as, zoning rules. Contact the city/town in which the company will be based, as well as, any city/town in which the company will conduct business to learn about local requirements and/or restrictions that may affect the company’s business.

Section 14.6 Changes that Affect the TPT License

Changes in ownership require a new license because licenses are not transferable. Use the Arizona Joint Tax Application to apply for a new license if your business changes from a sole proprietorship to a limited liability company, partnership or corporation, or undergoes a similar change in organization. Also, if the business is a partnership and partners are added or removed, a new license is required.

Changes in location or business location do not require a new transaction privilege license number. When locations are added or there are changes in the business name (or DBA) the license number does not change; however, a new license is printed showing the updated information. License fees are required whenever these changes are made and the business receives a new print of the license.

Other business changes that should be reported to the Department of Revenue include changes in the mailing address or location of audit records, requests to suspend licenses when the business plans to temporarily cease operations, and requests to change filing frequency. These changes do not require a license fee.

Section 14.7 Due Dates of TPT Returns

All businesses that have transaction privilege tax licenses are required to report on a monthly basis, unless specifically authorized to report less frequently by the Department of Revenue. Businesses with an annual tax liability between $500 and $1,250 may be permitted to report on a quarterly basis; those with an annual tax liability of $500 or less may be permitted to report annually.

If the tax liability subsequently increases beyond the criteria mentioned above after a business has been authorized to report less frequently, the business must begin reporting and paying the tax at the appropriate frequency; otherwise, penalties and interest will accrue for late reporting and payment. New business licenses may qualify for monthly or quarterly filing based on the anticipated annual income for your first twelve months of business.

The due date for the TPT-1 return is the 20th of the month following the month of the TPT activity. However, the mailed return will be considered timely if it is postmarked on or before the 25th of the month or received by the department on or before the next to last business day of the month. Returns and payments from businesses required to pay via electronic funds transfer (EFT) or who use AZTaxes.gov to file and pay their transaction privilege tax must also be received by the second to the last business day to be timely. Estimated transaction privilege taxes must be paid each June by all businesses with an annual tax liability of $100,000 or more.

Electronic Funds Transfer (EFT). Transaction privilege tax and use tax taxpayers with a prior calendar year liability of $1,000,000 or more are required to remit payments via EFT. Before payments are made via EFT, the Authorization Agreement for Electronic Funds Transfer (ADOR 11-5568) must be completed and submitted to the department’s EFT Unit. The department will send a confirmation of the taxpayer’s enrollment in the EFT program along with further payment instructions. Taxpayers not meeting the mandatory level of participation are allowed to enroll in the program.

Penalties are 1/2% per month or part of a month for late payment and 4 1/2% per month or part of a month for late filing, up to a combined maximum of 25%. Interest accrues on delinquent payments at the same rate as charged by the IRS and, by law, cannot be waived.

Section 14.8 Transaction Privilege Tax Special Situations

Sales for resale (wholesale) are exempt. The burden of proving that a sale was for resale is on the seller. However, if the seller has a valid Transaction Privilege Tax Exemption Certificate (Form 5000) or an Arizona Resale Certificate (Form 5000A) on file that was completed by the purchaser, the burden of proof shall shift to the purchaser. Please contact the Department of Revenue to obtain copies of the form or visit the forms on the ADOR website.

Subcontracting income is not subject to transaction privilege tax if the subcontractor can demonstrate that the job was within the control of a prime contractor and that the prime contractor is liable for the tax on the job. If the subcontractor is given a Transaction Privilege Tax Prime Contractor’s Certificate (Form 5005) that has been completed by the prime contractor, the subcontractor is relieved of the burden of proof.

Retail sales of tangible personal property to nonresidents temporarily within Arizona, for use outside of Arizona, are exempt from transaction privilege tax if the seller ships or delivers the tangible personal property out of Arizona. For sales other than motor vehicles or boats, to substantiate the deduction the seller shall obtain a completed Transaction Privilege Tax Exemption Certificate (Form 5000) or a written statement from such a buyer certifying that the buyer is not a resident of Arizona and the property purchased is for use outside Arizona. The seller shall also maintain records to substantiate the sale was made to a nonresident and the out-of-state shipment.

Sales to non-profit organizations are generally subject to the tax.

Solar energy device deductions are available only to retailers, lessors and contractors registered with the Department of Revenue who sell, lease or install qualified solar energy devices that have been certified by the Department of Commerce. The retailers, lessors and contractors may register to sell these items by completing the Solar Energy Device Registration form (Form 6015).

Section 14.9 How to Cancel a TPT License

To cancel or deactivate a TPT business license, follow only one of the procedures below:

  • Return the license to the Arizona Department of Revenue with the word “CANCEL” written across the front of it.
  • Submit a written request to deactivate or suspend the license. Include the license number and the name of the business.

Mail the license or deactivation request to:

License and Registration
Arizona Department of Revenue
1600 West Monroe
Phoenix , Arizona 85038-9032