Sales & Use Tax
Collecting, Reporting, and Remitting Arizona Sales and Use Tax
Arizona businesses are required to obtain a Transaction Privilege Tax (TPT) license for the privilege of doing business in Arizona. Understanding the state, county and municipal TPT (aka sales and use tax) laws is of the utmost importance.
Arizona is among the top ten most complex and confusing states for collecting and reporting sales tax with over 30 taxable classifications. In addition, there are 14 counties, and each one sets a sales tax rate for each taxable classification. Furthermore, each of the 91 municipalities set a sales tax rate for each classification. SURPISE! All those rates are subject to change, and it is the resposibility of the business owner to be aware of all taxable classification updates—in every jurisdiction, at all times. Failure is not an option!
When it Comes to Sales Tax, It’s All About Compliance.
Misunderstanding the regulations, miscalculating the proper tax, or missing a deadline can be costly, especially when an audit—by any one of those taxing authorities mentoned above—discovers you’re out of compliance. YIKES! You will then be assessed for unpaid liabilities, penalties, and interest for the full four-year statute of limitations.
The TPT license holds the business liable to pay the tax—not the consumer. If you didn’t charge the correct tax, then you didn’t collect the correct tax, nevertheless you owe the correct tax. Be aware that you will pay any under-collected tax out of your own pocket, and if you have any over-collected tax, you will be required to remit it as well, because you don’t get to keep it.
The Magnitude of the Complexity Does Not Stop There.
In order to collect the correct sales tax, your POS system, as well as your accounting system, must be set up to calculate the current rate of tax on taxable items; and on taxable sales; BUT must refrain from charging tax on tax-exempt items; tax-exempt sales; and tax-exempt customers.
At the same time, your system must identify the reason a particular item, sale, or customer is tax exempt (by the way, Arizona has 44 pages of deduction codes). Moreover, your system must be able to generate a report specifying the total sales; the taxable sales; the tax-exempt sales; and the reason for exemption listed by tax classification; by business location; and by the taxing jurisdiction, which also includes Tribal Reservations.
As If All That Isn't Confusing Enough, There's USE TAX.
TPT regulations require you to report and pay Use Tax. Your business incurs a Use Tax when it purchases an inventory product for resale using your tax exemption certificate, but then someone pulls the product from inventory for business use. Oh, by the way, Use Tax is charged at its own tax rate, which is different than sales tax.
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The Next Step is to Comply with REPORTING Requirements.
Regardless of whether any Use Tax is due, and any sales occurred—you must file a Sales & Use Tax Return on time or incur a late-filing penalty and interest. You must also pay the tax liability in full and on time or incur a late-payment penalty and interest.
But Wait, THERE’S MORE!
Your Arizona business may be subject to NEXUS when you’re also operating in another state that has nexus with Arizona. Nexus is the link between a state and a potential taxpayer granting the state authority to impose tax on inter-state commerce. Don’t get caught failing to collect, report, and pay according to nexus rules.
Have No Fear!
If you, like most small business owners are confused and overwhelmed by the complexity of Sales & Use Tax, Books Done Right knows how to set up your accounting system to avoid costly mistakes when it comes to complying with Arizona TPT regulations.