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One of the most common questions individuals ask when starting a business in Arizona is “Do I need a license to start a business?” They ask this question because they assume that everyone needs a license to start a business in Arizona.
Well, this assumption is not true. Not all businesses require a license, however, some may need more than one license to start a business in Arizona.
Typically, there are three common licenses in Arizona including Transaction Privilege Tax License (TPT License), Business License, and Regulatory (Professional/Special) Licensing/Permits. The type of license you may need to obtain can vary depending on the type of business you plan to operate, its location, and the industry you’re in.
For instance, you must obtain a TPT License from the Arizona Department of Revenue (ADOR) if you plan to sell tangible goods or engage in services that are subject to TPT or use tax. Note that the TPT is also referred to as sales tax, resale tax, wholesale tax, or vendor tax in Arizona.
Likewise, many city or town offices in Arizona may require your business to obtain a business license. For instance, some of them may only require your business to obtain a license if your business is based within their jurisdiction. Others may require your business to obtain a license if you conduct business within their city or town limits. Arizona as a state may not require your business to obtain a state business license.
Then, your business may need to obtain certain special licenses, certifications, or permits if it is providing services that are supervised and regulated by one or more federal, state, or local governmental offices. For instance, if you manufacture, wholesale, import, or sell alcoholic beverages at a retail location in Arizona, you’ll need to obtain a license from the Alcohol and Tobacco Tax and Trade Bureau at the federal level, the Arizona Department of Liquor Licenses and Control (DLLC) at the state level, and the Local Alcohol Beverage Control Board at the local level. Besides this, you may also require other licenses and permits including but not limited to health and safety permits, distribution permits, label approval, and much more.
This indicates that some businesses may need a host of licenses to start a business in Arizona while others may require one or none of the licenses. Now, the agenda of this article is not to know the various types of licenses that a business requires in Arizona. Rather, its focus is to know when a business needs a sales tax license or the TPT license to start its operations in Arizona.
Therefore, in this article, we are going to walk you through what a TPT License is, when your business needs a TPT license or a Sales Tax License, and how to apply for an Arizona Sales Tax License.
What Is TPT?
In Arizona, the Transaction Privilege Tax (TPT) is a tax imposed on the vendor for the privilege of doing business within the state. It is a transaction-based tax that applies to various business activities, including retail sales, leasing or renting of tangible personal property, and certain services.
Note that TPT is often referred to as a “sales tax,” however it is a bit different from the sales tax systems found in many other states.
Unlike traditional sales taxes typically collected from the end consumer, the TPT is imposed on businesses at various points in the transaction process. This means businesses (sellers) are responsible for collecting and remitting the tax, and it can apply to business-to-business transactions as well as sales to end consumers.
Though businesses (sellers) may pass the burden of the TPT tax onto the consumers (buyers), it is ultimately the businesses who remain liable to the state for the tax.
Now, Arizona’s TPT system is known for its complexity because it allows various cities and counties in the state to impose their own local TPT rates on top of the state base rate.
In simple words, TPT comprises both state and local components. The state sets the base rate, and local jurisdictions can impose additional taxes on top of the state rate, resulting in varying total tax rates across Arizona. Thus, local taxes can result in different total tax rates for the same transaction, depending on where it occurs.
At present, the state TPT base rate is 5.6%. Whereas, the local tax rates vary widely and can range from 0.1% to over 5% or more.
Furthermore, TPT rates can vary depending on the category of goods or services being taxed as different categories may have different rates. Common categories include retail, restaurant, rental, construction, and more.
In addition to the above, some areas within Arizona may have additional taxes for specific purposes, such as transportation or tourism. You must be aware of any special taxing districts that may apply to your location.
The total TPT rate for a transaction is the combination of the state base rate, any applicable local taxes, and any special district taxes.
You can access the Arizona Department of Revenue’s website or use its resources to look up the specific TPT rate for your location and transaction category. The ADOR provides a Tax Rate Look-Up Tool on its website, which allows you to search for tax rates by address or city.
What Is A TPT License?
If your business sells tangible goods or engages in services subject to the TPT in Arizona, you must obtain a TPT License from the Arizona Department of Revenue (ADOR) or a business or occupational license from the city or cities in which your business is based.
Further, you must obtain a TPT license for each location where you conduct the business. However, you may choose to license and report for each location separately or have a consolidated license if you have multiple locations or business lines.
Also, you must collect TPT as a business when you have a physical or economic nexus with Arizona.
In addition to this, if as a vendor you do business only for special events in Arizona, you are required to obtain a TPT license. The Arizona state license fee is $12 irrespective of how many special events you attend as a vendor. Apart from the state license fee, a vendor is required to pay a separate city license fee unless he or she is currently licensed for the city in which an event will be held.
Also, a vendor who runs a business out of a home must obtain a TPT license. In such a scenario, he or she must use the home address as the business address on the application. Furthermore, the vendor or the business owner is responsible for researching the legality of operating a business in a home and complying with county and city zoning requirements.
Physical Nexus With Arizona
Prior to 2018, Arizona required businesses to collect TPT if they had a physical nexus with Arizona. But following the South Dakota v. Wayfair Supreme Court decision in 2018, Arizona, like many other states, implemented economic nexus thresholds for the Transaction Privilege Tax (TPT).
Let’s first understand what having a Physical Nexus with Arizona means.
Physical nexus in Arizona, also known as a physical presence, refers to a situation where a business has a physical presence or connection within the state of Arizona.
Accordingly, there are some common scenarios that result in the creation of a Physical Nexus with Arizona. The following section describes those scenarios.
1. Physical Location
A business is considered to have a physical presence if it has a physical location in Arizona. The physical location can be in the form of a store, a warehouse, an office, or a manufacturing facility. Such a physical presence creates a tax obligation for the business and hence it is generally required to collect and remit TPT on sales made within the state.
2. Employees Or Representatives
If a business has employees, agents, or representatives working in Arizona, this can create a physical nexus. This means that even if the business doesn’t have a physical office or store, having personnel in the state may trigger TPT obligations.
3. Inventory Storage
Storing inventory in Arizona can also establish a physical nexus with Arizona. If your business uses third-party fulfillment centers or warehouses in the state of Arizona, you may be subject to TPT requirements.
4. Leased Space
If your business has a leasing office space or a storage facility in Arizona, it can create a physical nexus with Arizona even if your business does not own the property.
5. Trade Shows And Events
Participating in trade shows, conventions, or events in Arizona where your business conducts sales or promotional activities can establish a physical presence in Arizona and result in TPT obligations.
6. Delivery Vehicles
If your business owns or leases delivery vehicles that operate within Arizona, this may create a physical nexus in Arizona.
Now that we have an understanding of the physical nexus rules in Arizona, let’s understand what economic nexus in Arizona means.
Economic Nexus With Arizona
As mentioned earlier, following the South Dakota v. Wayfair Supreme Court decision in 2018, Arizona, like many other states, implemented economic nexus thresholds for the Transaction Privilege Tax (TPT).
Economic nexus thresholds allow Arizona to require out-of-state sellers (remote sellers and marketplace facilitators) to collect and remit sales tax (TPT) in Arizona even if they do not have a physical presence in the state. The obligation to collect and remit TPT gets activated when these sellers meet certain economic activity thresholds.
Note that marketplace sellers are the individuals who only make sales in Arizona through a marketplace facilitator. For instance, you are a marketplace seller if you make sales in Arizona on a website you do not own or operate, and that website collects payment on the sales and remits the tax to Arizona on your behalf. Also, marketplace sellers are not required to be licensed with Arizona or file and remit tax on these sales.
Remote sellers are the out-of-the-state sellers who make sales in the state but do not have a physical presence in Arizona. They conduct transactions with Arizona customers remotely, often through online sales or other means of remote communication.
Now, an economic nexus in Arizona is established if out-of-the-state sellers meet the following thresholds either in the previous calendar year or in the current year.
- A marketplace facilitator has an economic nexus in Arizona if it has a gross amount of more than $100,000 in sales in Arizona.
- A remote seller has an economic nexus if the gross sales generated from direct sales into Arizona is more than $100,000.
Note that if remote sellers or marketplace sellers make sales through a marketplace facilitator, they will not include such sales in their economic nexus threshold calculation. In such a scenario, the marketplace facilitator is required to report and remit the Arizona transaction privilege tax (TPT) due on the sales.
However, if remote sellers make direct sales in Arizona rather than through a marketplace, they are required to report such sales as a licensed seller in Arizona and collect TPT once the threshold is met.
Also, if an affiliated party of either a remote seller or a marketplace facilitator generates income, it must be included while calculating thresholds.
An affiliated party is a person or company having more than 5% ownership in the other party or is related because a third person or company (or group of persons or companies) holds an ownership interest of more than 5%.
Now, an economic nexus may be established by combining the income of an affiliated party. Once this nexus gets established, each of the affiliated parties is required to get a TPT license and report individually or in consolidation. However, they are not required to file consolidated returns.
Also, a remote seller or marketplace facilitator must remit tax in the month following 30 days after the economic nexus threshold was met. Further, they must continue to collect and remit TPT for the remainder of the year and the year following.
Who Needs A TPT License In Arizona?
Whether or not a business needs a TPT license in Arizona depends upon the type of activity a business engages in and whether a business meets certain criteria set by the Arizona Department of Revenue (ADOR).
The following section lays down the criteria that a business must meet to determine whether or not it needs to obtain a TPT license in Arizona.
1. Type Of Business Activity
The need for a TPT license in Arizona is generally tied to the type of activities a business conducts. If a business engages in any taxable activities, then it may need a TPT license in Arizona. Taxable activities can include, but are not limited to:
- Retail sales
- Restaurants or bars
- Hotel or motel (transient lodging)
- Commercial lease
- Personal property rentals
- Severance (metal mining)
- Non-metal mining
- Job printing
- Private (rail) car
2. Physical Presence
In the past, a physical presence in Arizona was a significant factor in determining the need for a TPT license. However, Arizona has also implemented economic nexus rules, which may require remote sellers (those without a physical presence) to obtain a TPT license if they meet certain sales or transaction thresholds. Economic nexus thresholds can change, so it’s important to check with the ADOR for the most up-to-date information.
3. Sales Or Transaction Thresholds
After the South Dakota v. Wayfair Supreme Court decision in 2018, out-of-state sellers without a physical presence in Arizona are required to obtain a TPT license if they meet one of the following economic nexus thresholds during the current or prior calendar year:
- A marketplace facilitator has facilitated for remote sellers or on its own behalf a gross amount of more than $100,000 in sales.
- A remote seller has generated gross sales from direct sales into Arizona of more than $100,000.
How To Apply For An Arizona Sales Tax License?
The following are the steps on how do I get a Sales Tax Certificate in Arizona.
1. Register With The ADOR And DES
The first thing that you need to do to obtain a sales tax certificate in Arizona is to register with the Arizona Department of Revenue (ADOR) and the Arizona Department of Economic Security (DES) at the same time. To do this, you have to complete Form JT-1/UC-001 and submit it to the ADOR’s License & Registration Section.
Now the reason why you have to register with both ADOR and DES is that both these agencies use Form JT-1. That’s why the JT-1 application is called Joint Tax Application.
Note that the ADOR is the state agency responsible for administering and enforcing various tax programs and revenue-related functions in the state of Arizona. Its primary mission is to collect and manage revenue in the form of taxes including TPT, use tax, income tax, property tax, withholding tax, and so on to fund Arizona’s public services and programs.
Whereas, the Arizona Department of Economic Security (DES) is a separate state agency that primarily deals with social services, unemployment insurance, and workforce-related matters. Thus, DES in Arizona is responsible for administering the state’s unemployment insurance program. Unemployment insurance (UI) is a state and federal program that provides financial assistance to eligible individuals who have lost their jobs through no fault of their own and are actively seeking new employment.
Accordingly, you need to use Form JT-1 to apply for TPT, use tax, and Employer Withholding and Unemployment Insurance. TPT, use tax, and employer withholding of income tax are managed by the ADOR, whereas unemployment insurance is managed by the DES.
Once you submit Form JT-1/UC-001 to the ADOR’s License & Registration Section, the ADOR will then forward a copy to DES, which it will use to determine whether or not a business is liable to pay Arizona Unemployment Insurance (UI) taxes.
Note that you must record your Federal Employer Identification Number (FEIN) in the section of the form JT-1 provided for this purpose. Otherwise, your application will not be processed. In case you do not have a Federal EIN, then you must contact the Internal Revenue Service to apply for the same.
Now, both the ADOR and DES will process the Arizona Joint Tax Application. After they complete the processing of the application, each of the agencies will notify you separately. If as a business you are determined and liable to pay UI taxes, then the DES will send you the “Determination of Unemployment Insurance Liability” (UC-016 or UC-015A) form through mail.
In that form, the DES will specify the legal basis for liability, the date UI coverage starts, the tax rate, and the Arizona UI employer account number.
2. Apply Form JT-1 In Paper Form
There are four ways in which you can apply for a TPT license. These include:
- Registering with AZTaxes.gov
- Registering with Business One Stop
- Completing Form JT-1 in paper form and mailing it to ADOR through post
- Applying in person
Let’s discuss each of these methods to know how you can apply Form JT-1.
a. Create An Account On AZTaxes.gov
The first way through which you can apply form JT-1 is to register with AZTaxes.gov. To register at the platform, go to AZTaxes.gov. The following are the steps that you need to follow to know how to create an account on the platform and how to file AZ TPT online.
I. Register With AZTaxes.gov
1. Go to AZTaxes.gov.
2. Click on “Enroll to File and Pay Online” under Businesses.
3. Read the information listed on the User Account Registration Welcome page and click “Continue”.
4. Complete the required fields annotated with a red asterisk.
6. Click “Register”.
7. You will receive two emails from email@example.com. The first email will contain your username, and the second will provide a temporary password. If you do not find these emails in your inbox, please check your spam folder. This password expires after 24 hours. If you cannot locate either or both of these emails, please call the Arizona Department of Revenue toll-free at 800-352- 4090 weekdays only between 8 a.m. and 5 p.m. (M.S.T.)
II. Setup Your E-Signature PIN
1. Log into AZTaxes.gov using the username and temporary password provided in the email.
2. Change your temporary password to a password of your choice. The password must contain at least one number, one letter, one special character (!, @, #, $, %, &, *,or ?) and must be 8 to 16 characters long.
3. After logging in using your personal password, you will be asked to answer four security questions. Make sure you remember your answers or write them down as you will not be able to recall them at a later date. Then click on “Submit Answers”.
4. Create a self-selected E-Signature personal identification number (PIN.) Your PIN is required to electronically sign your applications and/or returns. Your PIN must be 6 to 10 digits.
III. Link Your Accounts
1. Log into AZTaxes.gov using your username and password.
2. If already have a TPT license or withholding number, click on “Link Accounts”.
3. Read the information on the Business Account Linking Welcome page.
4. Check the box verifying that you have the required information, then click “Continue”.
5. Was there a payment made in the last 12 months?
If NO, then:
- Complete the required fields annotated with a red asterisk.
- Check the box verifying that you are not a robot, then click “Save & Continue”.
- Enter your E-signature PIN in the required field.
- Click “Submit”.
- Keep a copy of the confirmation for your records and click “Finished”.
If YES, then:
- Complete the required fields annotated with a red asterisk.
- Select “Yes” to the last question.
- Check the box verifying that you are not a robot, then click “Save & Continue”.
- Select the “Year” and “Month” your payment was applied to; not when you made the payment.
- Select the type of tax from the tax type drop-down menu.
- If you selected tax type “Transaction Privilege Tax,” enter the TPT license number.
- Enter the exact amount of payment for the period used in the step above. Click “Save & Continue”.
- Enter your E-signature PIN in the required field. Click “Submit”.
- Keep a copy of the confirmation for your records and click “Finished.
Once you fill out the form through this mode, you can expect to receive the TPT License number the same day and the mailed license certificate within 7-10 business days.
b. Create An Account On Arizona Business One-Stop
If you do not want to register with AZTaxes.gov, you can also create an account on Arizona Business One Stop. This is an online portal that provides you with a single online location with personalized tools to plan, start, grow, move, and close your business in Arizona. The portal provides you with a secure digital experience and it does not require any in-person interaction.
If you are setting up your business in Arizona for the first time, then you must visit Business One Stop (B1S). When submitting your applications on the Business One Stop platform for a TPT license for the first time, you will be directed to pay at AZTaxes.gov as TPT filings, payments, and renewals are only available at AZTaxes.gov.
c. Apply In Paper Form
You must download Form JT-1 at AZDOR.gov by clicking the download button. Once the form is downloaded, you must complete the following details in the form in Section A, Section B, and Section C.
Section A: Business Information
The following are the details that you must have with regard to your business.
- Federal Employer Identification Number (FEIN) or Social Security Number (SSN) if you are a sole proprietor without employees
- License Type
- Type of Organization/Ownership
- Legal Business Name
- Mailing Address
- Business Phone Number
- Email Address
- Fax Number
- Description of Business
- North American Industries Classification System Codes (NAICS Codes)
- If you acquired or changed the legal form of an existing business?
- If you are a construction contractor?
- Withholding the Physical Location of the business
Section B: Identification Of Owners, Partners, Corporate Officers Members/Managing Members Or Officials Of This Employing Unit
The following are the details that you need to provide regarding the different owners or partners or corporate members of your business.
- Social Security Number
- Last Name
- First Name
- Middle Name
- Street Address
- Percentage of ownership
- ZIP Code
- Phone Number
Section C: Transaction Privilege Tax (TPT)
The following are the details that you must provide for TPT.
- Date Business Started in Arizona
- Date Sales Began in Arizona
- Estimated Tax Liability for your first twelve months of business
- Filing frequency
- Whether your business sells tobacco products
- TPT Filing Method
- Whether your business sells new motor vehicle tires or vehicles
- Tax Records Physical Location
Section D: Transaction Privilege Tax (TPT) Physical Location
The following are the details that you must provide for TPT’s Physical Location.
- Business Name, “Doing Business As” or Trade Name at this Physical Location
- Phone Number
- Physical Location of Business or Commercial/Residential Rental
- Additional County/Region Indian Reservation/City
Section E: Withholding & Unemployment Tax Applicants
The following are the details that you must provide for Withholding & Unemployment Tax Applicants.
- Regarding THIS application, Date Employees First Hired in Arizona
- Whether you are liable for Federal Unemployment Tax
- Whether you as an individual are performing services that are excluded from withholding or unemployment tax
- Whether you have an IRS ruling that grants an exclusion from Federal Unemployment Tax
- Whether you have, or have you previously had, an Arizona unemployment tax number
- First calendar quarter Arizona employees were/will be hired and paid
- When did/will you first pay a total of $1,500 or more gross wages in a calendar quarter
- When did/will you first reach the 20th week of employing 1 or more individuals for some portion of a day in each of 20 different weeks in the same calendar year
Section F: Acquired Business Information
You must complete this section if you answered “Yes” to Section A, question 11 in Form JT-1. The following are the details that you provide in this section.
- Did you acquire or change all or part of an existing business?
- Date of Acquisition
- EIN of Business Under Previous Owner
- Previous Owner’s Telephone Number
- Name of Business Under Previous Owner
- Name of Previous Owner
- Did you change the legal form of all or part of the Arizona operations of your existing business?
- Date of Change
- EIN of Previous Legal Form
Section G: AZTaxes.gov Security Administrator
When you register on AZTaxes.gov, you register for the Arizona Department of Revenue’s online customer service center which will provide you with its online services.
As an authorized individual, you will have full online access to transaction privilege, use, withholding and corporate tax account information and services. Further, you will be able to add or delete users and grant user privileges.
Note that the online services include viewing tax account information, filing tax returns, signing returns electronically with a Self-Select Personal Identification Number (PIN), and remitting tax payments.
Section H: Required Signatures
In this section, you have to put your signatures. Note that this application must be signed only by either a sole owner, at least two partners, a managing member, or a corporate officer legally responsible for the business. The agents or representatives cannot sign this application.
Once you complete all the above details, you must mail the form to the License and Registration section of the Arizona Department of Revenue (ADOR) at the following address:
PO BOX 29032
Phoenix, AZ 85038-9032
This address is also mentioned on the form. Note that you can register, file, and pay for this application online at www.AZTaxes.gov. It is a more secure and fast way to complete the form. If you have any further questions regarding Licensing for TPT, Withholding, or Use Tax, you must call Customer Care and Outreach at (602) 255-3381. However, if you have any questions regarding Unemployment Tax, you must call the Arizona Department of Economic Security at (602) 771-6602.
Once you fill out the form through this mode, you can expect to receive the TPT License Certificate within 2 weeks.
d. Apply In Person
Once you complete the JT-1 form, go to one of the ADOR offices to deliver the completed JT-1 paper application. You do not have to mail by post to the below addresses.
1600 W. Monroe
Phoenix, AZ 85007
55 N. Center
Mesa, AZ 85201
400 W. Congress
Tucson, AZ 85701
Note that if you are applying for the JT-1 form in person, you can receive the license only if you are the owner or principal officer of a business that has signed the application. Furthermore, you will have to provide proof of identity to receive the license. If you do not have proof of identity, you will have to provide power of attorney to receive the license through mail.
Once you fill out the form through this mode, you can expect to receive the TPT License Certificate the same day.
Also note that the ADOR offices close at 5 p.m., and it will take time to process an application. Thus, you must reach the office at least 45 minutes prior to closing.
3. Pay Fees
You must use the State/County & City License Fee Worksheet to calculate the total fee that you have to pay for the sales tax license.
To apply for the Arizona Sales Tax License or TPT License, you must pay a state fee of $12 per license per location. However, if you are registering for Withholding/Unemployment Insurance, or Use Tax, you do not have to pay any fees. You must complete section BB of the State/County & City License Fee Worksheet to provide details regarding the state fee.
Apart from the state fee, you also need to pay a city fee to obtain the sales tax license. To calculate the city license fees, you must use the listing of cities on page 4, Section I of the JT-1 application as city fees are subject to change. You must regularly check for updates at www.azdor.gov.
To calculate the city fees, you must multiply the number of locations in the city by the license fee and enter the sum in Subtotal City License Fees. You must complete section AA of the State/County & City License Fee Worksheet to provide details regarding the city fee. If you have a location in Phoenix and your business is only under Class 213, Commercial Lease, there is no license fee due.
Then, if you have a business location in Chandler, Phoenix, and Scottsdale, then you must pay a Residential Rental license fee for these locations. You must complete section CC of the State/County & City License Fee Worksheet to provide details regarding the Residential Rental license fee in Chandler, Phoenix, and Scottsdale.
To calculate the Residential Rental license fee, multiply the number of units by the number of locations by $2.00 ($50.00 Annual Cap per license). Remember, the amount for each city cannot exceed $50.00.
How Long Does It Take To Get A TPT License In Arizona?
As mentioned before, once you fill the form through any of the four ways mentioned in the above, you will receive TPT license as per the following table.
|Method of Application||Time Duration Of Receipt of TPT License|
|Paper JT-1 Mailed||2 weeks|
|In-Person JT-1||Same Day|
How Much Does It Cost To Get A Sales Tax Permit In Arizona?
You must pay the state license fee and a city license fee to acquire a TPT License in Arizona. However, if you have a business location in Chandler, Phoenix, and Scottsdale, then you must pay the Residential Rental license fee for these locations in addition to the state license fee and the city license fee.
To know how much fee you have to pay, see the following table.
|Method of Application||Time Duration Of Receipt of TPT License|
|State License Fee||$12 per license per location|
|City License Fee||Check out page 4, Section I of JT-1 for city fee rates here.|
|Residential Rental Fee||$2 per location|
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