AZ Sales Tax 101

Arizona Sales Tax Collection Requirements for Out of State Sellers

by Mark Faggiano

Arizona Sales Tax

If your business is based out-of-state, but you have sales tax nexus in Arizona (such as through selling on Amazon FBA), this may affect the way you register for and collect sales tax in the state.

Arizona’s current sales tax administration system is complex. Not only are sellers required to register and file with the state of Arizona, in many cases they are required to register with individual localities. Here is the list of individual localities that administer their own sales tax:

Apache Junction
Avondale
Chandler
Douglas
Flagstaff
Glendale
Mesa
Nogales
Peoria
Phoenix
Prescott
Scottsdale
Sedona
Tempe
Tucson

What This Means for Arizona Sellers

For sellers who live in Arizona, this is fairly easy. Arizona is an “origin-based” state for in-state sellers. This just means that an Arizona-based seller charges the sales tax rate at his or her location within Arizona.

In-State Seller Example: A seller who sells on eBay out of her home in Sedona should register for an Arizona state sales tax permit and a Sedona permit. When it comes time to file sales tax, she files with the state of Arizona and the city of Sedona. (I told you this was complicated.)

But out-of-state sellers with sales tax nexus in Arizona run into a problem. For out-of-state sellers, Arizona is a destination-based sales tax state. This means that out-of-states sellers should charge sales tax at the local rate of the buyer within Arizona. Even more complicated, sellers must register for a sales tax permit with not just the state of Arizona, but any of the individual cities to which you sell.

Out-of-State Seller Example: A seller who lives in Texas but has sales tax nexus in Arizona due to having products stored in the Amazon fulfillment center in Goodyear (Maricopa County), is required to charge the sales tax rate at the location of her buyer. So, if she sells to buyers in Tucson, Tempe and Glendale, then the state of Arizona requires her to register for a sales tax permit and file sales tax with each of those individual locations. Ouch. Talk about a lot of paperwork and hassle.

For what it’s worth, one representative at the Arizona Department of Revenue told us that they recommend sellers register with the bigger cities where they are more likely to make a sale. But, of course, the word of one customer service rep will generally not stand up to the scrutiny of a sales tax audit. To comply with the law as Arizona now interprets it would mean out-of-state sellers who want to be extremely cautious would need to register for one Arizona states sales tax permit and 15 city sales tax permits. This is an extremely big administrative ask from online sellers. And it’s all the more frustrating because there should be…

Only One More Year of Arizona Frustrations (Hopefully)

Arizona was supposed to change this overly complex system by 2015. However, in December 2014, they announced that – due to technical difficulties – the Arizona sales tax simplification would not be implemented until 2016 instead.

When the changes are implemented, sellers with sales tax nexus in Arizona will only be required to register for one sales tax permit: the one from the state of Arizona. There will be no more “non-program” cities who administer their own sales tax and require out-of-state sellers to jump through additional hoops.

Our opinion? This system is extremely unfair to online sellers who are just trying to do the right thing. These licenses cost money (ex: A Phoenix sales tax license is $50), and that quickly adds up. Plus, making sellers jump through this many hoops just to sell in your state is way too much to ask.

As always, it’s up to you as a seller to collect and remit sales tax. If you need advice on Arizona, check out our list of TaxJar-trusted sales tax specialists or give the Arizona Department of Revenue a call to ask about your specific situation. Do you have questions? Comments? Want to vent? Leave a message below in the comments.

  • Pratik

    Can out of country business(international business) register for the sales tax permits from these cities and state?

    • Yes! We recommend CPA Sylvia Dion (www.sylviadioncpa.com) if you need professional help with this! It can be complicated for international sellers.

  • Gregg Hansen

    If I have a business based in Arizona and I sell product online do I have to charge AZ sales tax to out of state customers?

    • Hi Gregg,

      You only have to charge sales tax to customers in states where you have sales tax nexus. http://taxjar.wpengine.com/sales-tax-nexus-definition/ It sounds like you definitely have nexus in Arizona and must collect Arizona sales tax there.

      But, if you don’t have sales tax nexus in a state, you don’t need to collect sales tax from buyers in that state. If you DO have sales tax nexus in another state (see the link above) then you’d need to collect that state’s sales tax rate. More about that here: http://taxjar.wpengine.com/charging-sales-tax-rates/

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