Arizona’s Simplified Sales Tax Reporting Isn’t That Simple

After two years of delays, Arizona implemented centralized licensing and reporting of its Transaction Privilege Tax (TPT)—an excise tax that functions similar to a sales tax. At first glance, this might seem like a simplification of the state’s complicated sales tax reporting regime, but in reality, it provides little relief for businesses.

Overview of Centralized Reporting

Beginning with the January 2017 return due this February, the Arizona Department of Revenue (ADOR) will be the single point of licensing, return filing, and payment of state, county, and all municipal TPTs.

Before centralized reporting, several cities—known as nonprogram cities—required businesses to file separate returns. This resulted in businesses filing multiple returns each period: one to the ADOR reporting the TPT liability for the state, counties, and so-called program cities, plus one for each of the nonprogram cities or towns in which the business had taxable activity. With the implementation of centralized licensing and reporting, all activity will be reported on a single return filed with the ADOR.

While the sheer number of returns has been reduced, not much else has been simplified. Businesses must segregate and separately report their receipts in each business classification by county and city, and each jurisdiction still has its own deductions and exemptions that vary further by business classification. The retail classification, for example, has upwards of 80 different state and county exemptions or deductions and around 50 different city deductions or exemptions which may or may not apply in any particular city.  

Better Audit Enforcement

Historically, the ADOR and the nonprogram cities audited their taxes separately. An audit by a nonprogram city didn’t include the taxes collected by the ADOR and vice versa—they only verified each other’s taxes if the business requested it. Businesses could be audited multiple times.

The legislative bill that mandated centralized licensing and reporting also required the ADOR and the cities to unify and coordinate their audit programs. Now, businesses may be audited only once for a given tax period, but each audit will include all of Arizona’s 107 taxing jurisdictions—whether the audit is performed by a city or state auditor. By unifying the audit programs, the legislature expanded enforcement of the state and county TPT.

Requirements and Dates

Businesses with more than one Arizona location were required to file electronically through the state’s online portal last year beginning with the June 2016 tax period.

All businesses were required to renew their licenses with the ADOR on January 1, 2017; TPT license numbers issued by nonprogram cities are no longer valid.

Centralized reporting is effective for tax periods beginning January 1, 2017. Nonprogram city TPT returns and payments for tax periods in 2016 or earlier must be filed and paid directly with the city. This includes returns and payments for periods ending December 31, 2016, that are due in January 2017.

We're Here to Help

For more information about Arizona TPT or help determining what the implications are for your business, please e-mail statetax@mossadams.com or visit www.mossadams.com/statetax.