In Arizona, businesses pay for the privilege of working in the state through the transaction privilege tax (TPT). While a business may pass on these costs to its customers, it's the business, not the customer, who is directly taxed under TPT.

In general, businesses must have a TPT license to conduct business in Arizona and are liable for the tax. In situations when tangible personal property (TPP) is stored, used, or consumed in Arizona and the business isn't based in Arizona, the buyer may be liable for a use tax. 

Customers are liable for a use tax if the state of sale didn't collect any tax. In these situations, a business may collect the use tax from the customer. These determinations are made through Arizona's nexus program.

The Nexus Program

Arizona has provided general guidelines on when activities may establish a minimum nexus with Arizona. Establishing this nexus may result in the business needing a TPT license or falling under Arizona's use tax requirements.

These guidelines include:

•         Are employees present in Arizona and conducting business on the company's behalf?
•         Does the business own or lease real or personal property in Arizona?
•         Does the business maintain an office or other business location in Arizona?
•         Does the business deliver merchandise in Arizona in taxpayer-owned or -leased vehicles?
•         Does the business have independent contractors or other non-employee representations in Arizona to establish and maintain a market via

o   Sales

o   Repairs

o   Delinquent account collection

o   Delivery to customers

o   Product installation

o   Employee or other types of business-related training

o   Customer service

o   Consulting service

o   Franchise agreements

Arizona uses a broad net for its nexus test. For example, even simply storing products in Arizona subjects a business to TPT. Similarly, having employees, independent contractors, or other representatives in Arizona for more than two days annually also subjects a business to TPT's requirements. 

For businesses with a physical address or location in Arizona, the determination is easy. They must have a TPT license. For online businesses based out of Arizona and other businesses with only the slightest connections to the state, the determination can be difficult.

If you're a business and have questions about TPT licenses and other Arizona state taxes, 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.