Where do I start?
Arizona businesses must comply with all licensing requirements at the State and Federal Level. Review all of the topics below to be sure that your business has addressed all of the various licenses, taxes, and permits required by the State and Federal government.
** These taxes are all included in the Joint Application. Created by the Arizona Department of Revenue (AZDOR) and the Department of Economic Security (DES), the Joint Tax Application allows a business to register for the following licenses in one fell swoop:
- State Transaction Privilege Tax (TPT)
- State Withholding/Unemployment Tax (if hiring employees)
- State Use Tax License
- TPT for Program Cities
You have three options for submitting the Joint Application:
- Fill out the on-line form at AZTaxes.gov.
- Print the Joint Tax Application (.pdf), complete, and mail it in for processing. You may receive the license in approximately two weeks, depending on the processing times at the time you send it.
- Visit an Arizona Department of Revenue Service Center location and complete the Joint Tax Application on-site. You can obtain the TPT license while you are at the Service Center.
- Contact AZ Accounting Solutions to help you take care of all of your business licensing needs.
Federal Tax Requirements
Businesses are required to withhold Federal Income Tax from employees’ wages. Your business is also responsible for Social Security and Medicare taxes under the Federal Insurance Contributions Act (FICA) and for Federal Unemployment Tax (FUTA). More information on paying the Federal Taxes is available from the IRS website.
Federal Income Tax Withholding
Unless an employee has claimed an exemption from Withholding, an employer must withhold potential income tax payments from each employee’s wages. The amount of the Withholding must be based on the marital status and the withholding allowances claimed on the employee’s W-4. In general, the Federal Withholding amount is calculated on gross wages (before any deductions for social security taxes, insurance, etc). Withholding is calculated for each payroll period.
Social Security/Medicare taxes (FICA)
The Federal Insurance Contributions Act (FICA) provides for a federal system of old age, survivors, disability, and hospital insurance financed through social security (FICA) taxes. FICA taxes are the responsibility of both the employer and employee. It is the employer’s responsibility to collect and pay both the employee and employer’s share of the FICA tax.
Federal Unemployment Tax (FUTA)
The FUTA system works in conjunction with the Arizona state system. It funds the administration of Unemployment Insurance Benefits to employees who have lost their jobs as well as the Employment Service program which helps employers fill jobs by finding qualified people. Most employers are required to pay both a State and Federal Unemployment Tax. For questions, contact the local branch of the IRS.
State Withholding and Unemployment Taxes
You are required to obtain a Withholding Number and an Unemployment Number if your business pay wages to employees for their services in Arizona. This allows you to ensure the appropriate taxes are withheld from the employee’s paycheck. Unemployment Insurance Benefits to employees who have lost their jobs are through state unemployment taxes; the Federal Unemployment Tax (FUTA) funds the administrative costs of the program.
Transaction Privilege Tax (TPT)
In addition to state taxes, all counties and most cities have a Transaction Privilege Tax (TPT or Sales Tax). If your business sells goods or and certain services, subject to the Transaction Privilege Tax (TPT), your business must obtain a TPT license for the State of Arizona as well as for each county and city in which the company conducts business. Tax rates vary by city and county; not all city and counties have a TPT. The AZDOR website provides the tax rate table for the various industries, cities and counties. The AZDOR TPT FAQ offers answers to common questions. Once you receive the TPT license, it is valid indefinitely and you do not have to renew it.
Arizona State TPT
The Arizona Transaction Privilege Tax (TPT) License is a tax on the privilege of selling goods at a retail location in Arizona; you must apply for the TPT license before engaging in any business in Arizona.
If your business is subject to the TPT, you are required to obtain and display a license certificate at each business location. There are two ways to do this:
- You can license each location as a separate business with a separate license number for purposes of individually reporting TPT. If you select this option, you will need to prepare a separate application for each location.
- You can license multiple locations under a consolidated license number, but the owner must be the same at each location. If you select this option, you can file a single tax return.
The TPT is commonly referred to as a state sales tax because most businesses pass the tax on to their customers. Ultimately, the business that sells goods is responsible for paying the TPT, regardless of whether or not the business collects the TPT from the customer. The AZDOR website provides the tax rate table for the various industries, cities, and counties.
In addition to the AZ TPT, most cities in Arizona also have a Privilege Tax. The Arizona Department of Revenue collects the TPT from called “Program Cities”, which include most cities in the state. The Program Cities are listed on the Joint Tax Application (page 2). The AZDOR website provides the tax rate table for the various industries, Program Cities and counties.
Non-Program Cities are responsible for the licensing and collection of their TPT. Businesses must obtain a separate license from each Non-Program city in which it engages in the business of selling goods and certain services. If the city in which your business is doing business is not a Non-Program City, you will need to contact the city directly (list of Non-Program Cities with contact information) for their tax rates and types of taxes. Sales in these cities must be reported directly to the applicable city.
State Use Tax
A Use Tax applies when a business uses, stores or consumes any tangible, personal property upon which Arizona Transaction Privilege Tax has not been collected by a retailer. For example, if you purchase goods out of state for use in Arizona and if those goods would normally be taxed in Arizona, you must pay to Use Tax on those items. The AZDOR website provides additional information on Use Tax (.pdf).
State Property Tax
Arizona taxes both real (land and buildings on the land) and personal property. The taxes are classified as either primary or secondary. Primary taxes are for the purpose of supporting the local jurisdiction’s operating expenses. Secondary taxes are used for the purposes of special obligations, such as repayment of bonds and special district levies and voter-approved overrides.
If you have any questions about the licensing requirements of an agency or for a particular profession, the AZDOR website has a comprehensive listing of specific licensing requirements.
Other City Requirements
Each incorporated city/town in which you do business may have their own license, permit, and/or tax requirements, as well as zoning rules. Use this list from the Arizona Department of Commerce to contact the city/town where your business is based as well as any other cities/towns where you will be doing business. The local contact can tell you more about local requirements and/or restrictions that may affect your business. Note: Information on business activity requirements may be posted under terms such as: Licensing, Permits, Certifications, Applications, and/or Forms.
Other County Requirements
To be sure you are in compliance with county requirements, use this page from the Arizona Department of Commerce to contact all counties where you are based or are doing business. The county issues permit for and perform inspections on numerous kinds of business establishments; the county also regulates water, wastewater, and solid waste-related activities.
If your business is based and/or operates in an unincorporated region of the county, check with the following departments of the county:
- Planning and Zoning and/or Development Services Departments – regarding zoning laws.
- Fire Department – regarding any regulations/restrictions that may impact your business.
- Sheriff’s Department for any regulations/restrictions that might impact your business.
- The “Licensing and Taxes for your Business” chapter (.pdf) of the Entrepreneur’s Edge is an invaluable guide for licensing and taxing your business appropriately. Published by the AZ Department of Commerce.
- The AZDOR offers many classes and workshops to educate business owners on the various requirements and compliance issues. Examples include “Small Business Workshop”, “Retail Workshop”, “TPT for Retail Workshop”, and “Contracting Workshop”.
Does all of this information leave your head spinning? Help is just a phone call away. Contact AZ Accounting Solutions to help you take care of ALL of your business licensing needs. Phone: (602) 613-4425