Arizona Business Taxes at a Glance
Arizona does not have a sales tax in the usual sense. It has a transaction privilege tax (TPT), which is a tax on the seller for the privilege of doing business in the state. The rate and rules depend on the type of business and the city where it operates. Arizona also has a flat individual income tax, a corporate income tax, and payroll rules that let employees choose their withholding rate. BOMCAS helps Arizona businesses and individuals manage these rules.
How the Transaction Privilege Tax Works
TPT is levied on the business, not the buyer, though most businesses pass it on to customers. It is organized by business classification, such as retail, restaurant and bar, prime contracting, transient lodging, commercial lease, and utilities. Each classification has its own state rate and deductions, and each city and county adds its own tax.
Cities' TPT is collected through the Arizona Department of Revenue, so a business files one return covering the state, counties, and cities. But city tax codes can still differ from the state rules. A city may tax an activity the state does not, or apply a different rate. Getting the classification and location codes right is the core of TPT compliance.
We help businesses get a TPT license, set up the right classifications and location codes, file returns, and reconcile tax reported to the books.
Construction: Prime Contracting and MRRA
Construction is taxed differently in Arizona from most states. Prime contractors generally pay TPT on a portion of their gross receipts from construction projects, rather than paying sales tax on their materials. Certain maintenance, repair, replacement, and alteration (MRRA) projects are treated differently, with the contractor paying tax on materials when purchased instead.
The distinction affects pricing, invoices, and how materials are bought. Contractors need project-by-project records and the right certificates from customers and subcontractors. We set up job costing that follows these rules and prepare TPT returns for contractors.
Residential Rentals and Short-Term Rentals
Arizona cities may no longer impose TPT on long-term residential rentals, starting January 1, 2025. Short-term rentals of less than 30 days are still taxable under the transient lodging classification, at state, county, and city levels. Online platforms may collect some of this tax for hosts, but owners should confirm what is covered and keep their licenses current. Commercial leases may still be taxable in many cities.
We help landlords and short-term rental owners understand which taxes apply to each property.
Remote Sellers and Marketplaces
Out-of-state businesses that sell into Arizona must obtain a TPT license and collect once their Arizona sales pass the state's economic nexus threshold. Marketplace facilitators collect on behalf of sellers on their platforms, but a seller with its own website or other sales channels may still need its own license. Arizona businesses that buy taxable items from out-of-state vendors without paying tax generally owe use tax. We review where clients sell and buy, then register and file where required.
Individual Income Tax
Arizona has a flat individual income tax rate for all levels of income. Arizona starts from federal adjusted gross income and makes its own additions and subtractions. Residents are taxed on all income, and nonresidents on Arizona-source income.
Arizona attracts many winter visitors and retirees. Spending part of the year in Arizona does not make someone a resident by itself, but buying a home, moving a business, or staying longer can raise questions in both Arizona and the home state. We help part-year residents and new arrivals with the returns in each state.
Corporate Income Tax and Pass-Through Entities
C corporations pay Arizona corporate income tax on Arizona-apportioned income. Arizona also allows partnerships and S corporations to elect to pay tax at the entity level, with owners receiving a credit. Whether that election helps depends on the owners. We prepare entity returns and evaluate elections each year.
Payroll and Employee Withholding
Arizona's withholding system is unusual. Employees choose a withholding percentage from a list on Arizona Form A-4, or elect zero withholding, rather than using allowances. Employees who do not submit the form receive a default rate. Employers must offer the form to new hires and apply the employee's election.
Employers also register with the Department of Economic Security for unemployment insurance and file quarterly reports. We set up payroll, give employees the right forms, file reports, and reconcile payroll to the books.
Business Personal Property
Arizona taxes business personal property, but an exemption applies to a portion of the value, and the exemption increased for 2026. Many small businesses no longer owe tax on their equipment, but larger operations still need accurate asset reporting to the county assessor. We maintain fixed asset records that support both property reporting and federal depreciation.
Construction, Hospitality, and Semiconductor Supply Chains
- Construction and real estate development: prime contracting, MRRA, and job costing
- Hospitality and tourism: transient lodging and restaurant TPT, and seasonal staffing
- Technology and semiconductor supply chains: apportionment, equipment-heavy fixed assets, and multistate payroll
- Retail and e-commerce: TPT by location, remote seller obligations, and marketplace sales
Bookkeeping Built for TPT
Arizona bookkeeping works best when revenue is recorded by TPT classification and location. A restaurant, retail shop, and rental property in different cities produce three different TPT calculations. We set up the chart of accounts and month-end close to give the figures each return needs.
Getting Help With Arizona TPT
Whether you are a contractor sorting out prime contracting and MRRA, a short-term rental owner checking which jurisdictions tax your property, or an employer new to Form A-4, contact BOMCAS for a remote review. City and service pages for Arizona will be added under this section next. Visit the BOMCAS home page or our United States services for more about the firm. This page explains Arizona's system generally and is not a ruling on any specific business.
Talk to BOMCAS About Your Arizona Taxes
Have a question about your Arizona filings, payroll or bookkeeping? Contact BOMCAS or use the contact form below, and we will get back to you as soon as possible. You can also browse all United States services.