While often called a sales tax, the Arizona Transaction Privilege Tax (TPT) is actually a tax on businesses for the privilege of conducting business within the state. It’s important for businesses operating in Arizona, or those selling to Arizona customers from out of state, to understand their TPT obligations. Various business activities are subject to this tax, necessitating proper licensing and reporting.
Who Needs an Arizona TPT License?
If your business sells products or provides services that are subject to TPT, you likely need a license from the Arizona Department of Revenue (ADOR). Furthermore, depending on your business location and operations, you might also need a transaction privilege tax or business/occupational license from the city or cities where you operate.
ADOR acts as the collection agency for TPT on behalf of counties and cities in Arizona. It’s crucial to note that tax rates are not uniform; they vary based on the specific type of business activity and the city and county where the business is conducted.
For businesses with multiple locations or diverse business lines, there’s flexibility in licensing and reporting. You can choose to obtain separate licenses and report for each location, or opt for a consolidated license and report aggregate sales. The fee for each license, per location, is $12.
TPT and Use Tax Explained
It’s also important to understand “use tax” in Arizona. Individuals become subject to use tax when they purchase tangible personal property from a retailer who does not collect Arizona transaction privilege tax. This tax applies when the property is used, stored, or consumed within Arizona.
The following scenarios typically trigger use tax obligations:
- Out-of-state retailers: Businesses located outside Arizona that sell tangible personal property to purchasers within Arizona.
- Misuse of resale certificates: Arizona residents who purchase goods using a resale certificate, but then use, store, or consume those goods in Arizona in a way that contradicts the stated purpose on the certificate.
- Lower out-of-state tax rates: Arizona residents who buy goods in another state where the sales tax or excise tax rate is lower than Arizona’s use tax rate. In these cases, they may owe the difference in tax to Arizona.
For comprehensive guidance and resources related to TPT, refer to the Reporting Guide.
For information on making payments, visit the TPT Estimated Payment page.
What’s New in Arizona TPT Regulations?
Stay informed about recent changes to TPT regulations to ensure compliance:
New Age Exemption for TPT License
Starting September 14, 2024, a significant change allows individuals under the age of 19 to operate a business without a transaction privilege tax (TPT) license under specific conditions. This exemption applies if the business generates no more than $10,000 in gross income during a calendar year. This is based on Arizona Revised Statutes (A.R.S.) § 42-5045.
Furthermore, individuals under nineteen operating a business on an occasional basis are also exempt from city and county business license or permit requirements. For specific questions about city or county business licenses and permits, it’s recommended to contact the relevant city or county directly.
For individuals under 19 currently holding a TPT license (possibly with an adult co-applicant) and whose business income is under $10,000 annually, the license can be cancelled with effect from October 1, 2024. It’s crucial to ensure all returns are filed according to the assigned filing frequency before cancellation. Failure to file returns, including a final return, may result in penalties and interest. Instructions for canceling a TPT license are available online.
Changes to Residential Rental Tax
A significant change for residential rental property owners is effective January 1, 2025. From this date, owners should no longer collect and remit city transaction privilege tax (TPT) on income from long-term lodging stays of 30 days or more to ADOR. This change stems from Laws 2023, Chapter 204 and A.R.S. § 42-6004 (H).
This applies to licensees registered under business code 045, indicating residential rental business classification. Residential rental is defined as renting real property for residential (non-commercial) purposes for 30 or more consecutive days.
Currently, there is no state or county TPT on residential rentals, and this new law eliminates city TPT. While city TPT obligations end on January 1, 2025, property registration with the county assessor remains necessary for landlord-tenant law compliance and other government requirements. Even if a license is cancelled or a location is closed, owners can still file for prior periods online.
For tax periods before January 1, 2025:
- Filing and payment obligations remain in effect.
- These periods are still subject to audit as per statute.
Importantly, hotels, motels, and transient lodging businesses offering stays shorter than 30 days must continue to collect and remit TPT under the transient lodging or hotel classification.
Action Items for Residential Rental Owners:
Continue to collect, file, and pay residential rental TPT for periods up to December 31, 2024, which is filed in January 2025. For periods starting January 1, 2025, and onwards, collection, filing, and payment of residential rental TPT are no longer required.
License cancellation is not necessary. However, cancellation does not exempt you from liabilities for periods before January 1, 2025. Unpaid liabilities may lead to enforcement actions. Use AZTaxes.gov to resolve any outstanding liabilities or missing returns.
Tax Rate Updates
For the latest changes to tax rates, consult the Model City Tax Code’s Rate and Code Updates and TPT Newsletters.
Resources for Arizona Businesses
Arizona Business One Stop is an invaluable online portal designed to simplify business operations in Arizona. It provides a centralized online platform with personalized tools for planning, starting, growing, relocating, and closing businesses. This secure digital experience eliminates the need for in-person interactions for many processes.
Businesses starting in Arizona should utilize Business One Stop (B1S). Note: New TPT license submissions via Business One Stop will redirect you to AZTaxes.gov for payment. Currently, TPT filings, payments, and renewals are exclusively handled through AZTaxes.gov.
For updated TPT information, access ADOR’s monthly newsletter, TPT Tax Rate Table, and Model City Tax Code changes here by selecting the relevant month and year. Archived information is available here.
Stay proactively informed by subscribing to ADOR’s TPT newsletter. Receive email or text alerts about TPT due dates, city tax rate changes, license renewals, and new AZTaxes.gov features.
