Arizona is one of the top ten states in the country in terms of the number of rapidly expanding small businesses. This guide contains everything you need to know about the Arizona corporate tax rate and how to form a business in Arizona.
Introduction to the Arizona Corporate Tax Rate and Launching a Business in Arizona
The Arizona corporate tax rate is ideal for business owners for many reasons Arizona has actively promoted a business-friendly environment by offering incentives to entice investors to establish their operations within its borders. Favorable tax laws and straightforward regulations reinforce this commitment, which gives businesses a solid foundation to thrive. The state grants companies access to public resources and free trade agreements with other countries and offers tax breaks that reduce operational costs. Many multinational corporations looking to expand their footprint are drawn to it because of its commitment to fostering economic growth and maintaining a business-friendly environment.
- Arizona has a flat corporate income tax rate of 6.968%, a state sales tax (or transaction privilege tax) of 5.60%, and a maximum local sales tax of 5.3%.
- Arizona has no franchise tax.
- Arizona was the first to use a graduated economic nexus threshold.
- The deadline for state income tax is the 15th day of the fourth month after the end of the taxable year. If this deadline coincides with a Saturday, Sunday, or legal holiday, you can file your state return the following business day.
- The transaction privilege tax (TPT), which is equivalent to a sales tax in Arizona, is levied on software as a service (SaaS).
What Do I Need to Do If I Want to Start a Business in Arizona?
The company must adhere to these basic procedures to legally operate in Arizona:
- Choose an entity type for your business. When choosing an entity type for your business, consider factors such as liability protection, taxation, and management structure to ensure alignment with your goals and needs.
- Select a business name. Your business name must adhere to Arizona’s statutory name requirements. At the very least, you must include an identity identifier. Review the Arizona Corporation Commission Naming Standards for the complete criteria.
- If you are establishing a limited liability company, its name must bear the words “Limited Liability Company” or “LLC.”
- If you are forming a corporation, you must include the words “Corporation,” “Company,” “Incorporated,” or “Limited” in your business name.
- Check business name availability with the Arizona Corporation Commission. You can search using the Arizona Secretary of State’s Search for an Entity Name.
- You can reserve the business name for up to 120 days. Apply online at the Arizona Corporate Commission’s (ACC) website. Name-reservation documents submitted online will take precedence over those submitted by mail, fax, or in person. The other option is to register the business name as a trade name through the Secretary of State’s website.
- Register your company with the state of Arizona.
- For corporations: Articles of incorporation must be submitted to the Corporations Division of the Arizona Corporation Commission. The ACC’s website is the fastest and most convenient way to submit your documentation. Filing fees: $50 for regular processing, $85 for standard rush processing, and an additional $100 to $400 for guaranteed rush filing, depending on the time frame you select for processing.
- For LLCs: File Articles of Organization with the ACC via online submission, mail, fax, or in-person delivery. Fees for filing: $175 for regular processing, $35 to $400 for rush filing, depending on the timeframe guarantee you choose
Note: Business One Stop (B1S) is the place to go if this is your first time establishing a business in Arizona.
- A transaction privilege tax application might be something that the Arizona Department of Revenue (ADOR) requires you to submit. Depending on your business activities, you may need to acquire supplementary licenses or remit additional taxes. Check out the ADOR website or contact License Compliance if you need help determining licensing requirements for your specific type of business.
- If your business is located in an unincorporated region, it is essential to register it with the county or city where it is located. This registration is necessary to obtain any business or occupational licenses required by the city and for transaction privilege tax (TPT) purposes. It’s important to note that the Arizona Corporation Commission does not handle the issuance of business or occupational licenses. You can find information regarding taxes and licenses on the Arizona Commerce Authority Small Business Services website.
- Go to the IRS website to get a tax identification number (TIN) or an employer identification number (EIN).
- Get a bank account for your company. You will need your IRS EIN letter and corporate documents authorizing you to open an account.
Does Arizona Have a Corporate Income Tax?
Beginning in 2023, Arizona is doing away with progressive tax systems and levying a flat tax rate on corporate income. The Arizona corporate tax rate is 6.968%.
Does Arizona Have a Franchise Tax?
There is currently no business use or franchise tax in Arizona.
Does Having a Mailing Address in Arizona Trigger Corporate Income Tax and/or Registration Requirements?
Yes, having a mailing address in Arizona triggers future corporate income tax and registration requirements.
If I Own a Business in Arizona but Live in Another State, Do I Have to Pay Taxes?
Yes, having an office or place of business in Arizona is one of the state’s nexuses for triggering tax obligations. Nonresident individuals are liable for Arizona taxes on any income derived from sources within the state. Individuals subject to taxation in Arizona and another state for the same income may qualify for a tax credit.
I Live in Another Country and All My Activities Take Place Outside of the United States. Do I Have to Pay the Arizona Corporate Tax Rate?
Yes, as long as the nexus is met, and registering a company in Arizona is one of the nexuses that trigger income tax. As a US resident, you must report and pay taxes on worldwide income. Residents of Arizona are taxed on the same income that they report on their federal income tax returns, with a few exceptions permitted by Arizona tax law. If you file a tax return in another state and are taxed in both that state and Arizona, you may be able to seek relief by claiming a credit for taxes paid to the other state.
Does Having an Employee or Independent Contractor in Arizona Trigger Corporate Income Tax?
If the employee, independent contractors, or other representatives are present in Arizona for a period that exceeds two days per year, then the answer is yes. In this case, you will need to pay the Arizona corporate tax rate.
Does Having a Founder Live in Arizona Trigger Corporate Income Tax?
Yes. Similar to having an employee, contractor, or representative, a founder residing in Arizona must pay the Arizona corporate tax rate on income.
Will Holding Board Meetings in Arizona Trigger Corporate Income Tax Requirements?
No, holding board meetings in Arizona does not necessarily trigger the need to pay the Arizona corporate tax rate on income, as it does not meet the nexus of Arizona.
Does Arizona Have a Sales Tax?
Yes, it has a 5.60% state sales tax and allows local governments to collect up to a 5.3% local sales tax. A business must collect and submit sales tax if it has a physical presence and makes sales there. If you have any of the following in Arizona, you are deemed to have a physical nexus:
- A place of business or an office
- An employee who spends more than two days per year
- Goods stored in a warehouse
- Possession of real or personal property
- Shipping of goods in Arizona using taxpayer-owned vehicles
- A representative or independent contractor spending more than two days in Arizona each year
To have an economic nexus, one must meet the state’s economic threshold, which can be measured using the total revenue or the number of transactions that take place in that state. As they reach a particular volume of sales or number of transactions that take place in that state, out-of-state sellers are typically required by the economic nexus to register, collect, and remit sales tax.
Arizona took a pioneering step by adopting a graduated approach to its economic nexus threshold, starting on October 1, 2019. In 2019, the economic nexus threshold stood at $200,000 per year in gross revenue for the current or previous calendar year. This threshold was reduced to $150,000 in 2020 and to $100,000 in 2021 and subsequent years. Arizona state law requires you to apply for a sales tax license if your gross sales exceed the threshold. This license allows them to collect and remit transaction privilege tax (TPT) on Arizona sales.
Is SaaS Income Taxable in Arizona?
Arizona generally requires a transaction privilege tax (Arizona’s version of sales tax) on Software-as-a-Service (SaaS) income. The taxation of SaaS income varies depending on factors such as the specific nature of the SaaS offering, how it is delivered, and whether it is classified as a taxable service.
Does Arizona Tax Online Marketplaces?
Businesses in Arizona that sell their products or services online to customers located in other states are considered to be retailers in Arizona. As a result, they must collect and remit tax to the department for sales made to customers in Arizona.
Does Arizona Tax Remote Software Sales?
Beginning October 1, 2019, sellers and marketplace facilitators operating remotely in Arizona are required to pay the transaction privilege tax (TPT) if their sales exceed a state-determined threshold.
How Do We Close Our Business in Arizona?
To dissolve a corporation or LLC in Arizona, you must submit Form CF:0030 Articles of Dissolution and a copy to the ACC within 60 days after ACC approval of the Articles of Dissolution. The notice must be published in an Arizona newspaper for three consecutive editions.
Here are the general steps:
- Prepare the Articles of Dissolution and submit them to the ACC to dissolve the business entity.
- File any payroll, income, or sales tax returns that are due and pay outstanding taxes
- Cancel all state licenses and permits.
- Notify creditors and settle any outstanding debts
- Wind up business affairs and collect on any accounts receivable.
- Distribute all assets.
- Keep your records until the statute of limitations expires.
- Notify the IRS.
- Final Tax Return
- Cancel your EIN and close your IRS business account.
For more information on how to close your company, read our blog, How to Dissolve Your Corporation in 7 Steps.
When is Arizona State Corporate Income Tax Due?
Arizona’s corporate income tax is due on the 15th day of the fourth month following the end of the taxable year. The return must be filed by the next business day if the deadline falls on a Saturday, Sunday, or official holiday. Corporations required to file Arizona estimated income tax payments must do so by the 15th of the fourth, sixth, ninth, and twelfth months of their taxable year. Work with Cleer Tax to ensure you are paying the right Arizona corporate tax rate for your needs and getting everything filed on time.
What If I File My Arizona State Tax Return Late?
For each month or fraction of a month that the return is filed after the deadline, there is a 4.5% late filing penalty based on the tax that must be shown on the return.
Can Cleer Tax Help Our Company File Taxes in Arizona?
Yes, Cleer Tax offers hassle-free Corporate Income Tax Packages that include federal and state income tax filings. We also offer a new company package that includes tax consultation, bookkeeping, and a chart of accounts set up to help ensure you are paying the proper Arizona corporate tax rate and filing on time.
Our all-in-one monthly accounting packages include monthly statements plus your federal and state tax returns. If you have additional questions, schedule a consultation to discuss the best setup for your startup, regardless of which state you register in.