Arizona Business Tax: Everything You Need to Know
Arizona business tax is a tax charged on the gross taxable income of most corporations and businesses doing business or registered in Arizona.4 min read
2. What Goods and Services Are Subject to Sales Tax in Arizona?
3. Collecting Sales Tax
4. How Often Should You File?
5. Filing Deadlines
6. What Are the Penalties for Late Filing?
How to Get an Arizona State Tax ID Number
A state business license is required for all online, home, traditional, and wholesale businesses that operate in the state of Arizona. The state business license is also referred to as a state tax ID. Even though these businesses may not pay state or local transaction privilege tax, they still are required to have a state tax ID. Remember, all individuals starting a business in Arizona must obtain local licenses and permits unique to their company.
All partnerships, limited liability companies (LLCs), and corporations must register with the Arizona Department of Revenue (DOR). However, a sole proprietorship isn't required to register. The corporate filing forms section on the Arizona DOR website provides applicants with the filing forms. Applicants should also request a Federal Employer Identification Number (FEIN).
Unless you're the only employee of the business, you must obtain a FEIN to receive an Arizona state tax ID number. A Social Security number may be used by sole proprietorships with no employees. Applicants may apply online with the Internal Revenue Service (IRS) or by calling the IRS directly at 800-829-4933.
The Arizona Joint Tax Application allows applicants to apply for numerous tax and license registrations on a single form, including the use and state unemployment tax and the transaction privilege. The application may be downloaded at AzTax.gov. Submit the form online and then sign and print the signature card.
The signature card should be filed in person or by mailing it to the address on the card. There is also an associated filing fee. Upon processing, the license and state tax ID number are immediately available. The first step in determining whether you're sales tax compliant is figuring out if the services or products your business sells are taxable in Arizona.
What Goods and Services Are Subject to Sales Tax in Arizona?
You must pay sales tax in Arizona when purchasing physical property, like motor vehicles, home appliances, and furniture. However, you won't be charged sales tax on the purchase of gasoline, prescription medicine, or groceries. In order to be sales tax compliant (on taxable goods), you should register for a seller's permit.
Collecting Sales Tax
Upon receiving the permit, you should calculate how much tax to charge different customers. For example, when determining the sales tax to charge, consider the following:
- Shipping in-state.
- Store sales.
- Out-of-state sales.
Remember, organizations operating in Arizona only have to pay tax on out-of-state sales if they have sufficient physical presence in another state and collect and pay tax on sales in that state. Accepted forms of nexus include:
- An employee working remotely.
- An employee that's a traveling sales representative.
- A physical location:
- A marketing affiliate.
- A temporary physical location:
- Fair booths.
- Drop-shipments from a third party.
How Often Should You File?
The deadline for filing taxes will depend upon the amount of sales tax the business collects. A new business may elect to file a tax return on a monthly or quarterly basis, based on the initial anticipated yearly income. Remember, a sales tax return must be filed even if the business has not collected any sales tax.
Businesses collecting less than $2,000 per year in sales tax should file a sales tax return on an annual basis. Businesses collecting between $2,000 and $8,000 per year in sales tax should file a sales tax return on a quarterly basis. Businesses collecting more than $8,000 per year in sales tax should file a sales tax return on a monthly basis.
- Monthly filing: Sales tax returns are due the twentieth of the subsequent month or the following business day.
- Quarterly filing: Sales tax returns are filed on the calendar quarterly year and are due the twentieth of the following month or the following business day.
- Annual filing: Returns are due Jan. 20 or the following business day.
What Are the Penalties for Late Filing?
Arizona charges a penalty of 4.5 percent of the tax required to be shown on the return for each month or fraction of a month when the return is late. The maximum amount of penalty fee is based on 25 percent of the total amount of tax due. The late payment penalty is 0.5 percent up to 10 percent of the tax due on the return per month. The combination of the late filing penalty and the late payment penalty may not exceed 25 percent of the total tax due.
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