Sales Tax Fundamentals
Get up to speed on the basics of sales tax
Do you need to collect sales tax in Arizona?
You’ll need to collect sales tax in Arizona if you have nexus there. There are two ways that sellers can be tied to a state when it comes to nexus: physical or economic. Physical nexus means having enough tangible presence or activity in a state to merit paying sales tax in that state. Economic nexus means passing a states’ economic threshold for total revenue or the number of transactions in that state.
If you are doing business in Arizona, you’ve likely seen the term transaction privilege tax (TPT). Although commonly referred to as a sales tax, the Arizona transaction privilege tax (TPT) is actually a tax on a vendor for the privilege of doing business in the state. This tax is essentially Arizona’s version of a sales and use tax and is handled similarly to sales and use tax in other states. For the purposes of this guide, we’ll refer to it as sales tax.
Do you have physical nexus in Arizona?
Arizona considers a seller to have physical nexus if you have any of the following in the state:
- An office or place of business
- An employee present in the state for more than 2 days per year
- Goods in a warehouse
- Ownership of real or personal property
- Delivery of merchandise in Arizona in vehicles owned by the taxpayer
- Independent contractors or other representatives in Arizona for more than 2 days per year
You can click here to read exactly what the Arizona Department of Revenue (Arizona’s taxing authority) has to say about what constitutes sales tax nexus in Arizona.
Do you have economic nexus in Arizona?
Arizona is the first state to use a graduated approach to their economic nexus threshold, effective October 1, 2019. In 2019, it was $200,000/year in gross revenue in current or previous calendar year’s sales. The threshold for 2020 was $150,000, and $100,000 in 2021 and thereafter. According to state law, sellers who exceed the gross sales are required to register for an Arizona sales tax permit to collect transaction privilege tax (TPT) on sales that ship to Arizona and remit the sales tax to the state. Read more about TPT here.
Is what you’re selling taxable?
If you’ve discovered you have sales tax nexus in Arizona, your next step is to determine if what you’re selling is taxable. The state sales tax rate in Arizona is 5.6%. To calculate the full tax rate, including the rate for local taxes, use the TaxJar sales tax calculator.
Services in Arizona are generally not taxable. However, if the service you provide includes creating or manufacturing a product, you may have to deal with the sales tax on products.
Tangible products are taxable in Arizona, with a few exceptions. These exceptions include certain groceries, prescription medicine and medical devices, and machinery and chemicals used in research and development.
If you have sales tax nexus in Arizona and your products are taxable, your next step is to register for a sales tax permit.
The use tax in Arizona for untaxed goods purchased from out-of-state sellers is 5.6% – the same as the state sales tax rate. For more information on use tax, consult the Arizona Department of Revenue’s site
Sales tax exemptions can create headaches for sellers, but the process is easier if buyers can find and complete the appropriate certificates and provide it to the seller. Those forms for Arizona (and multiple other states) can be found here.
Is SaaS taxable in Arizona?
SaaS is taxable in Arizona. (Source)
How to get a sales tax permit in Arizona
You can register for an Arizona sales tax permit online at the State of Arizona Department of Revenue. You can print the sales tax application or fill out the sales tax form online.
To mail in the form, the address is:
License & Registration Section
Department of Revenue
PO Box 29032
Phoenix, AZ 85038-9032
What information do you need to register for a sales tax permit in Arizona?
- Type of ownership
- Federal Employer Identification Number or Social Security Number
- Legal Business Name
- Business Phone Number
- Mailing Address
- Email Address
- Physical Location of Business
- Date business started in Arizona
- Employee information
- Bonding Requirements (if you’re a construction contractor)
- Unemployment Tax Information (for certain situations)
- North American Industrial Classification System (NAICS) code required for all businesses. Look up NAICS code.
- Identification of Owner, Partners, Corporate Officers, Members/Managing Members or Officials
The state of Arizona charges $12.00 per application for a sales tax permit. On top of that, vendors are required to file for a sales tax permit in individual cities where they do business. (Out-of-state sellers with nexus in Arizona, read more about that here.) Each city charges its own rate, varying from $2.00 to $50.00.
Other business registration fees may also apply. Contact each state’s individual department of revenue for more about registering your business.
How to collect Sales Tax in Arizona
The sales tax rate you collect in Arizona depends on whether you are based in Arizona or out-of-state.
Arizona is an origin-based sales tax state. So if you live in Arizona, collecting sales tax is fairly easy. Collect sales tax at the tax rate where your business is located. The state sales tax rate in Arizona is 5.6%.
How to collect sales tax in Arizona if you are not based in Arizona
If you are not based in Arizona, collecting sales tax gets tricky. Read our detailed guide on how to collect sales tax in Arizona here.
Utilize our sales tax calculator at the top of this guide for specific sales tax rates in Arizona.
Should you collect sales tax on shipping charges in Arizona?
As long as you separately state the shipping charges on your bill to your customer, you do not have to charge sales tax on shipping.
But if you include shipping in the price of the product you sell the customer, then shipping is considered part of the taxable transaction and Arizona declares that you must collect sales tax on shipping.
Read a full explanation of sales tax on shipping in Arizona here.
When are Returns Due?
When you file and pay Arizona sales tax depends on two things: your assigned filing frequency and your state’s due dates.
How often will you file sales tax returns in Arizona?
States assign you a filing frequency when you register for your sales tax permit (or, in the case of Arizona, your TPT permit). In most states, how often you file sales tax is based on the amount of sales tax you collect from buyers in the state.
In Arizona, you will be required to file and remit sales tax either monthly, quarterly or annually. Arizona electronic sales tax returns are always due the final day of the month following the reporting period. If the filing due date falls on a weekend or holiday, sales tax is generally due the next business day.
Filing Sales Tax
When it comes time to file sales tax in Arizona you must do three things:
- Calculate how much sales tax you owe
- File a sales tax return
- Make a payment
How to calculate how much sales tax you owe in Arizona
Calculating how much sales tax you should remit to the state of Arizona is easy with TaxJar’s Arizona sales tax report.
All you do is connect the channels through which you sell – including Amazon, eBay, Shopify, Square and more – and we’ll calculate exactly how much sales tax you collected. All the information you need to file your Arizona sales tax return will be waiting for you in TaxJar.
How to file and pay sales tax in Arizona
You have two options for filing and paying your Arizona sales tax:
- File online – File online at the Arizona Department of Revenue. You can remit your payment through their online system.
- File by mail – You can use Form TPT-EZ if you live in-state, or TPT-2 if you live out-of-state and file and pay through the mail, though you must file and pay online if your tax liability in the previous year was $1,000,000 or more.