Arizona Sales and Use Tax
Businesses having a presence in or a connection of some kind with the State of Arizona must obtain an Arizona business license and, when making taxable sales, are required to collect and remit applicable Transaction Privilege Tax (TPT) to the Arizona Department of Revenue. Although commonly referred to as "sales tax," TPT is differentiated from sales tax in that it is a tax imposed on the seller rather than on the purchaser. Transaction privilege tax is an excise tax imposed on vendors for the privilege of doing business in Arizona. It is ultimately the vendor, not the customer, who is liable to the Arizona Department of Revenue for tax associated with taxable sales made in Arizona. Although not required to do so, vendors generally choose to pass the tax on to the customer, so we generally tend to think of TPT as a sales tax.
More detail: Arizona statutes state that there is a presumption that, "all gross proceeds of sales and gross income derived from a business activity classified under a taxable business classification comprise the tax base from the business until the contrary is established." In other words, all sales are considered taxable until the seller of goods or services provides proof that the sale should be nontaxable or tax exempt. Sellers overcome this presumption by requiring that customers believing their purchases to be exempt from tax provide Arizona Form 5000, an exemption certificate.
Common Sales Tax Exemptions on Purchases of:
- Professional or personal services (if not as part of the purchase of tangible personal property)
- Tangible personal property purchased for resale
- Warranty or service contracts (if not required as part of the purchase of tangible personal property, and listed separately in the invoice)
- Prescription drugs, certain medical equipment, prostheses, insulin, prescription eyeglasses, and hearing aids
- Printed and other media materials purchased by publicly-funded libraries in Arizona, and made available to the public (materials not available to public are not exempt; equipment is not exempt either)
- Internet access and cable services
- Custom computer software (pre-written software and pre-written software update are taxable)
- Conference fees
- Professional membership dues
- Machinery and equipment used in research and development
- Chemicals used in research and development
- Food for (human) home consumption
- Freight or shipping if separately stated on the invoice
- Commercial lease
- Others as set forth in ARS §42-5061.
The use tax also applies to purchases on which another state's sales tax or other excise tax was imposed if the rate of that tax is less than the Arizona use tax rate.
- Tangible personal property purchased for resale
- Tangible personal property on which sales tax has already been paid
- Tangible personal property, the sale or use of which has already been subject to an equal or greater excise tax under the laws of some other state
- Internet access and cable services
- Custom computer software (pre-written software and pre-written software update are taxable)
- Conference fees
- Professional membership dues
- Medically prescribed drugs, equipment (such as wheelchairs) or devices (such as hearing aids)
- Food for (human) home consumption
- Printed and other media materials purchased by publicly-funded libraries in Arizona, and made available to the public (Materials not available to public are not exempt. Equipment is not exempt either)
- Machinery or equipment used in research and development 1 (see explanation below)
- Chemicals used in research and development 2 (see explanation below)
- Others as set forth in ARS §42-5159.
Because the presumption is that property brought into the State of Arizona is subject to use tax, departments making purchases they deem to be nontaxable or tax exempt should be careful to retain documentation supporting their position.
- 3820 - Postage & Mailing
- 3870 - Express Shipping
- 5520 - Conference Registration Fees
- 5535 - Purchasing Transaction Fees
- 5540 - Dues
- 5560 - Freight In/Out (Noncapital Related)
- 5810 & 5830 - Resale Supplies - Tax Collected at Sale
- 7810 - Library Acquisitions - Books
- 7820 - Library Acquisitions - Periodicals
- 7830 - Library Acquisitions - Other
- Printing / copying / binding services
- Publication
- Food
- Sale by Bookstore (other than textbooks)
If you are selling goods over the internet and the UA has a presence in the state of delivery, the UA has established nexus and will be required to register to collect sales tax on all taxable items regardless of method of order placement. In other words, whether the order is placed over the Internet or through traditional means, if the UA has nexus with the state in which the product is being shipped, sales tax should be billed and collected.
Currently, the UA has place of business only in AZ and therefore has no nexus in any other state. For example, if UA ships to a customer in Phoenix, there is nexus, and tax is collected. If the UA ships out of AZ, the UA need not collect any tax since it does not have nexus in any other state other than AZ.
The procedure for correcting use tax errors depends on how the tax was paid or should have been paid at the time of purchase. Errors in use tax can arise in relation to a P-Card Purchase or Purchase Order.
P-Card Purchase
To correct use tax erroneously processed on a Procurement Card Transaction (PCDO), refer to our documentation on Correcting Use Tax on a PCDO. NOTE: Most use tax errors related to P-Card transactions result from incorrect reconciliation or failure to use a purchase invoice when reconciling transactions. The Purchasing Card Policies Manual on the P-Card website is an excellent resource.
Purchase Order
If use tax was charged inappropriately on a purchase order, Accounts Payable should be contacted directly. The same procedure is followed if use tax was not paid on a purchase but should have been remitted. Occasionally, both sales and use tax are paid on a purchase. When sales and use tax have both been paid, the use tax should be reversed. Follow the guidelines outlined above to correct the error making sure that the amount being reversed is the use tax amount, not the sales tax amount.
Award/Prize Tax Data Collection
Non-employee recipients who are US citizens or permanent residents will receive a 1099-MISC if the combined payments from the University for non-cash awards and the face value of cash/cash equivalents are equal to or greater than $600.00.
Non-employee recipients who are nonresident aliens will receive a 1042-S for the prize and any grossed up taxes, regardless of the amount.
Employee recipients will have the amount added to their W-2.
Unrelated Business Income Tax
- If applicable, dual use of a facility for both exempt and non-exempt activity must be reviewed.
Example: Product testing and research for commercial or industrial application may occur in the same lab where testing and research related to the University’s exempt purpose occurs. The income generated from standard product testing represents UBI as it does not meet the definition of research for this purpose. - The selling of products of exempt functions is not subject to UBIT.
Example: The College of Agriculture and Life Sciences operates a Farmer’s Market selling tomatoes grown by students in the program. As the tomatoes are a product of the exempt function of teaching and learning, their sale to external customers is not an unrelated activity. However, if tomato sauce was also made and sold, the income generated from sauce sales would represent UBI as the product is no longer the original product of the exempt function.
- Catering services provided to the general public
- Use of recreational facilities by alumni and the general public,
- Parking lot services provided to the general public,
- Product testing and research for commercial or industrial application.
- Sales of farm and agricultural products produced by an exempt function,
- Student dormitories rented to enrolled students,
- Revenue from University sporting events, including admissions and TV/radio rights,
- In general, research activities that are not routine, not for consumer product testing, or not for commercial or industrial application.