Arizona's transaction privilege tax (TPT) is a tax on businesses. Businesses must pay the TPT if they wish to do business in Arizona. 

While some products clearly fall under the TPT rules, others are more difficult to determine. Membership fees, for example, may or may not qualify as being subject to TPT.  

When Membership Fees Fall Under TPT 

Membership fees are subject to tax under TPT when a business or taxpayer operates as a limited-access retail business. Fees are treated similarly to any products provided by a business in Arizona. 

In general, if an organization is for-profit and involved in retail operations, any membership fee it sells falls under TPT. This includes what Arizona calls limited-access retail businesses. 

Arizona defines a limited-access retail business as one that isn't open for sales to the public. These businesses charge a membership fee or due as a way of gaining access to business, discounts, or other preferential treatment as part of purchasing or renting tangible personal property.  

When a taxpayer is considered a limited-access retail business, membership fees are considered part of the business's taxable gross income. In other words, these fees fall under TPT. 

In other words, if an organization conducts retail-selling activity, any membership fees collected are subject to TPT. This is because the business falls under TPT's retail classification. 

When Membership Fees Do Not Fall Under TPT 

Arizona exempts nonprofits from TPT. This includes nonprofit organizations that are involved in retail sales. 

The entire issue falls to one question: Is an organization nonprofit? If it is, TPT doesn't apply even if the organization's activities appear identical to for-profit activities.  

If a nonprofit organization has membership fees, these membership fees don't fall under TPT. Arizona reaffirmed this stance on nonprofit organizations' membership fees in a 2019 Taxpayer Information Ruling.  

The 2019 ruling stressed that membership fees are subject to TPT for for-profit organizations conducting retail activities but not for nonprofit organizations. This is the case even when they're conducting retail activities. 

If you need help, call Senior Partner, Tax Controversy Attorney, and former IRS attorney Brandon A. Keim at (602) 200-7399 or contact him online to discuss your options.