Arizona Economic Nexus: Sales Tax Requirements
Understand the sales tax framework for remote sellers in Arizona, where economic activity, not physical presence, dictates collection and remittance duties.
The 2018 Supreme Court decision in South Dakota v. Wayfair altered sales tax collection for out-of-state businesses, or remote sellers. The ruling allows states to require tax collection from sellers who lack a physical presence but have a significant economic connection to the state. In response, Arizona established its own economic nexus laws. Businesses must now assess their sales into Arizona to determine if they need to collect and remit the state’s Transaction Privilege Tax (TPT).
Determining Your Nexus Obligation
A remote seller establishes economic nexus in Arizona by exceeding a specific sales threshold. For 2021 and subsequent years, this threshold is $100,000 in gross sales to Arizona customers.
The calculation is based on your gross receipts from sales of tangible personal property or services delivered into Arizona. This figure is determined before any deductions, such as the cost of goods sold or returns. Even sales of products that are exempt from tax are included when calculating if you have met the threshold.
The measurement period for the threshold is the current or previous calendar year. For example, if your direct sales to Arizona customers surpassed $100,000 during 2024, you have established nexus. Your duty to collect tax begins on the first day of the first month that starts at least 30 days after you exceed the threshold.
Required Registration and Information
Once you determine that your business has met the economic nexus threshold, you must register with the Arizona Department of Revenue (ADOR). This registration is for a Transaction Privilege Tax (TPT) license, which authorizes you to collect and remit tax on sales to Arizona customers. The registration process is handled online through the state’s portal, AZTaxes.gov.
To complete the application, you will need:
- Your Federal Employer Identification Number (FEIN), or a Social Security Number for a sole proprietorship
- The legal name of your business and any “doing business as” (DBA) names
- Your primary business address and contact information
- The North American Industry Classification System (NAICS) code for your business activity
- The names and addresses of principal owners, partners, or corporate officers
Compliance and Filing Process
After registering for a TPT license, your primary responsibility is to collect the tax from Arizona customers and remit it to the state. Arizona’s tax system combines the state’s 5.6% general rate with various county and city taxes. However, the ADOR acts as the single point of administration for most jurisdictions, which simplifies the payment process.
Filing your TPT returns is done electronically through the AZTaxes.gov portal. The ADOR assigns a filing frequency based on your total annual tax liability. Businesses with an annual liability of more than $8,000 file monthly, those with a liability between $2,000 and $8,000 file quarterly, and businesses with a liability of less than $2,000 file annually. Businesses with a total tax liability of $500 or more per year are generally required to file electronically.
When you file, you will report your gross receipts from Arizona sales and calculate the TPT due. Timely filing and remittance are required to avoid penalties and interest.
Marketplace Facilitator Rules
Many online businesses sell through platforms like Amazon or Etsy, which are defined as marketplace facilitators under Arizona law. The law places the responsibility for collecting and remitting TPT directly on the marketplace facilitator for all sales made through its platform.
When determining if you have met the $100,000 sales threshold, you must exclude sales made through a marketplace where the facilitator is collecting the tax. Your focus should only be on your direct sales to Arizona customers, such as those made through your own website.
For example, if your business had $120,000 in total sales to Arizona customers, but $80,000 of that was through a marketplace facilitator, your direct sales are only $40,000. In this scenario, you have not met the threshold and are not required to register for a TPT license.