An online retailer that has to collect and remit transaction privilege tax.

Transaction Privilege Tax: Have You Received a Notice from the Arizona Department of Revenue?

The state of Arizona requires an individual selling online or out-of-state to collect and remit transaction privilege tax (TPT) if the business has nexus in Arizona. Historically, sales tax nexus was established in Arizona if the business had a physical presence in the state, such as an employee, independent contractor, inventory, locations, or delivery trucks. However, beginning October 1, 2019, Arizona enacted an economic nexus threshold. Following the enactment of HB 2757, Arizona began enforcing sales tax laws and collection requirements on businesses without a physical presence in the state.

What Is the Transaction Privilege Tax?

Transaction privilege tax, also known as sales tax, is imposed on sellers for the privilege of doing business in Arizona. Therefore, remote sellers are required to apply for a TPT license from the Arizona Department of Revenue if they have nexus within the state. The license is applicable if a business has reached a certain threshold computed on gross sales.

If the business has multiple branches, it can register for separate licenses for each location or apply for a consolidated license.

Threshold Limits for Out-Of-State and Online Sellers

The seller will start to remit tax in the month following 30 days from when they reach the threshold on a graduated basis. The thresholds are:

  • $200,000 for 2019, in which the seller should have reviewed direct sales for the current and past year starting from October 1, 2019.
  • $150,000 for 2020 if the seller didn't meet the threshold in 2019, they need to review their sales for 2019 and 2020 as of January 1, 2020.
  • $100,000 for 2021 and beyond; likewise, if the vendors didn't reach the threshold in 2020, they reviewed direct sales for 2020 and 2021.

Transaction Privilege Tax Registration and Renewal

Presently, many businesses reached the applicable threshold and registered for sales tax. While most states have not looked beyond the registration and the prospective compliance under their respective economic nexus laws, Arizona does not seem as concerned with getting the new relationships with businesses off on the right foot. In addition to the voluntary compliance of the business, Arizona has been sending mass notices to businesses who registered for sales tax collection.

The notices sent are simply inquiry letters, not audits. Often times the Arizona Department of Revenue has information that would have required your business to register prior to its stated registration date. However, many times it is simply a fishing expedition to try and collect extra months of sales tax out of your business.

The letter reads something like this:

Dear Taxpayer:

We understand you registered with the Arizona Department of Revenue on (insert date). *NOTE – yes, Arizona forgets to put the date!. We have information that shows you should have registered early. Kindly review your records and if you should have been registered sooner, send us extra tax revenue!

Yours Truly, Arizona DOR

Generally, we recommend responding to the notice as failure to respond may result in additional notices and eventually, estimated Arizona sales tax assessments. Unless you are aware of information Arizona might have, it is generally advisable to send a carefully crafted letter to determine what, if anything, the state has. Most times, Arizona has nothing to substantiate their claim. Of course, if your business volunteers information to the Arizona Department of Revenue, it can result in a sales tax assessment based on information that the state doesn’t have absent you volunteering that information.

Because there is no one size fits all approach, we recommend speaking with a sales tax professional to discuss the options that are best for your business. Of course, if you don’t have a well-versed sales tax lawyer, accountant, or other professional, you can call us for a free consultation.

Learn More About Transaction Privilege Tax

If you need more information about Arizona transaction privilege taxes in general, the Arizona Department of Revenue has plenty of it! Visit the Arizona Department of Revenue’s website for information concerning the correct thresholds, registering, renewing, and submitting accurate information while filing returns. In all this, it's easy for vendors to overlook critical steps to ensure they comply with the respective tax laws. Thus, leading to high tax liability.

Sales Tax Helper is ready to help your business avoid unnecessary penalties and fees due to a lack of proper understanding of the TPT provisions. Our sales tax experts can answer any queries and ensure every year your business doesn't face any sales tax hurdles that could impact the bottom line. Get in touch with us today.

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