Sales Tax Exemption Certificate Arizona: Forms, Rules & Use

Key Takeaways

• Arizona uses a Transaction Privilege Tax (TPT) rather than a traditional sales tax, with exemptions available for specific goods or buyers.
• Exemption certificates like Form 5000, 5000A, and 5000M are required to claim exemptions.
• Common exemptions include resale, government, nonprofit, and manufacturing purposes.
• Buyers must present a valid certificate to sellers to qualify for exemption; sellers must maintain proper records.
• Blanket certificates are allowed and can apply to multiple transactions with the same vendor.
• Arizona accepts certain multi-jurisdictional forms, but has its own specific forms for most exemptions.
• UpCounsel can connect you with an attorney for guidance on applying or complying with Arizona sales tax exemption rules.

The Arizona sales and use tax exemption form is a document that you complete when you need to make a purchase that qualifies for exemption from sales tax. You give this form to the vendor you are buying from. The vendor is responsible for verifying that you meet the qualifications for a tax-exempt purchase.

The form is the legal documentation of the buyer's claim of exemption. It is good only for the period of time shown on the certificate and only for goods purchased for resale. However, Arizona does allow a blanket resale certificate that can be re-used for all exempt purchases from that vendor without the buyer having to complete a new form for each sale.

Retailers buying goods for resale must have the exemption certificate before they can buy tax-free. The exemption certificate should include:

• The date it was generated
• The buyer's signature or his or her agent
• The names and addresses of the seller and the buyer
• The legal reason for the exemption
• The buyer's business license number or tax registration number
• A description of the goods the buyer is purchasing

Sales Tax

Most products are taxable in Arizona. For example, if you sell toys in the state, you collect sales tax from your Arizona customers. A few exceptions include some groceries, prescription medicines, medical devices, and machinery and chemicals used in research.

Services, on the other hand, are generally not taxable in Arizona. Freelance writers, plumbers, and graphic designers, for example, don't typically collect sales tax.

The state sales tax rate in Arizona is 5.6 percent, which is lower than average. However, when you add local sales tax rates from the state's 92 local tax jurisdictions, the combined rate is higher than average.

Common Sales Tax Exemptions in Arizona

Arizona provides sales tax exemptions (via TPT exemptions) for a variety of transactions. Some of the most common exemptions include:

• Resale: Retailers purchasing inventory for resale can use Arizona Form 5000.
• Manufacturing: Purchases of machinery or equipment used directly in manufacturing are exempt.
• Government Agencies: Federal, state, and local government purchases are exempt from TPT.
• Nonprofit Organizations: Certain 501(c)(3) entities qualify for exemptions, especially for items used in charitable activities.
• Contractors: Specific exemptions exist for contractors purchasing materials for certain government or federally funded projects.
• Utilities: Electricity and natural gas used in manufacturing or smelting may also be exempt under Form 5000M.

To qualify for these exemptions, buyers must submit the appropriate sales tax exemption certificate Arizona form to the seller and maintain documentation for audit purposes.

Transaction Privilege Tax

Arizona's sales tax system is somewhat unusual. The terms "transaction privilege tax" (TPT) and "use tax" are used to refer to the taxes a merchant collects and submits to the government. You may hear TPT referred to as sales tax, but it's different from sales tax in most states because it's charged to the seller rather than the buyer.

TPT is an excise tax that vendors must pay for the privilege of doing business in Arizona. It is collected as a percentage of the sale and is submitted to the State. The vendor, not the consumer, is held responsible for paying the taxes. No legal requirement exists for the vendor to pass the tax on to the customer, but most do. This is why most people see it as a sales tax.

If a business has a location in the Arizona or some other connection to the state, then the company needs an Arizona business license. It must collect and remit the transaction privilege tax to the Arizona Department of Revenue on all taxable sales.

How to Obtain an Arizona Exemption Certificate

To obtain and use an Arizona exemption certificate:

1. Determine Eligibility: Understand the nature of your exemption (e.g., resale, manufacturing).
2. Select the Correct Form: The Arizona Department of Revenue offers several TPT exemption certificates. Most commonly used forms include:
   • Form 5000: General TPT exemption certificate
   • Form 5000A: For out-of-state purchasers
   • Form 5000M: For utility exemptions
3. Complete and Submit the Form: Provide accurate business details, the type of exemption claimed, and the seller’s information.
4. Keep Records: Sellers must retain the certificate for at least four years in case of audit.

Arizona does not require pre-approval from the Department of Revenue for most exemption certificates, but they must be completed correctly and in good faith.

Use Tax

The use tax law was enacted in Arizona in 1955. The stated purpose of the law was to "protect sellers in the state of Arizona from inequities that would result without a use tax." Vendors outside of Arizona who do business in the state must collect and submit use tax from their Arizona customers. Vendors outside Arizona who do business in the state must collect use tax from their Arizona customers and remit it. If the buyer doesn't pay sales tax to the out-of-state seller, then Arizona law requires that the buyer pay use tax directly to the State of Arizona.

Seller Responsibilities When Accepting Exemption Certificates

Sellers play a critical role in ensuring the proper use of sales tax exemption certificates in Arizona:

• Verify the Certificate: Ensure the form is fully completed, includes all necessary information, and appears valid.
• Retain Documentation: Sellers must keep certificates for each exempt transaction for a minimum of four years.
• Charge Tax If In Doubt: If a certificate appears invalid or incomplete, the seller should charge tax to avoid liability.
• Apply to Blanket Purchases: Arizona permits blanket exemption certificates for recurring purchases, provided the certificate specifies that it applies to future transactions.

Failure to maintain proper records could result in the seller being held liable for unpaid taxes, interest, and penalties.

Types of Forms

The form you use varies depending on the type of tax-exempt purchase you are making. These are a few of the different forms:

• The Arizona Department of Revenue Privilege Tax Exemption Certificate is a general-use document for most products.
• The Transaction Privilege Tax Exemption Certificate for Commercial Enhancement District Projects is used when buying materials for use in a task that enhances that specific type of district.
• The Transaction Privilege and Use Tax Used Oil Burner Exemption Certificate is used when buying used oil.
• The Arizona Department of Revenue Transaction Privilege and Use Tax Overhead Exemption Certificate is used by government contractors buying materials to make, modify, assemble, or repair products. It is also used by subcontractors engaged in the same activities.
• The Exemption Certificate for Electricity and Natural Gas Primarily Used in Manufacturing and Smelting Operations is for purchasing materials related to these ongoing processes.

Arizona Form 5000A: For Out-of-State Purchasers

Arizona Form 5000A is used by out-of-state purchasers claiming a sales tax exemption in Arizona. Common scenarios where Form 5000A may apply include:

• The buyer is located outside Arizona and purchases goods to be shipped out of state.
• The transaction qualifies for an interstate commerce exemption.
• The goods are purchased for resale by an out-of-state business.

This form is critical for maintaining tax compliance across state lines. Sellers should ensure that buyers provide a completed and signed Form 5000A, which must include:

• Buyer and seller contact details
• Type of business and exemption category
• Description of goods being purchased
• Signature and date

Sellers must retain the form and may need to present it during a state audit to justify the non-collection of tax.

Frequently Asked Questions

1. What is the purpose of a sales tax exemption certificate in Arizona?
   It allows qualified buyers to purchase certain goods without paying TPT (Arizona's version of sales tax), provided the purchase meets exemption criteria.
2. What is Form 5000A used for in Arizona?
   Form 5000A is specifically for out-of-state businesses claiming exemption from TPT on Arizona transactions, especially for resale or interstate commerce.
3. Are blanket certificates allowed in Arizona?
   Yes. Arizona allows blanket certificates for repeated transactions with the same vendor, reducing the need to issue a new certificate for every purchase.
4. Do sellers need to submit exemption certificates to the Arizona Department of Revenue?
   No. Sellers are not required to submit the forms but must keep them on file for at least four years for audit purposes.
5. Can I use a multi-jurisdictional form like the SST form in Arizona?
   Generally, Arizona requires its own forms such as Form 5000, but under certain conditions, multi-jurisdictional certificates may be accepted. Confirm with the Arizona Department of Revenue or an attorney.

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