Arizona ranks near the middle for best states to do business in, according to a 2023 survey from Lendio. Data from the Small Business Administration’s Office of Advocacy shows that Arizona has over 600,000 small businesses collectively employing over one million people across the state.
If you own a business in Arizona or want to start one, it’s important to understand how small business taxes in Arizona work. Keep reading for information on every type of Arizona small business tax, who has to pay them, and when.
What kind of business taxes do you have to pay in Arizona?
Business owners in Arizona pay taxes based on their business entity. Depending on how you structure your operation, you could end up paying an Arizona corporate income tax, a pass-through entity (PTE) tax, a small business income (SBI) tax, a transaction privilege tax (TPT), personal property taxes, withholding taxes, or unemployment insurance taxes.
Arizona corporate income tax
Arizona imposes a corporate income tax on C corporations and Limited Liability Companies (LLCs) with C corp elections. The corporate income tax rate is 4.9% of your taxable income.
S corporations, partnerships, standard LLCs, and sole proprietorships don’t pay corporate income tax.
How to pay corporate income tax and file your tax return
If you owe Arizona corporate income tax, you need to file your corporate income tax return by the 15th day of the fourth month after the end of your tax year. For calendar-year businesses, that day is April 15. Here are the different forms to download and file; which one you fill out depends on where your business income comes from.
You also have to make estimated quarterly tax payments if your corporate tax liability for the year will be at least $1,000. Those payments are due by the 15th day of the fourth, sixth, and ninth months of your taxable year, and the 15th day of the first month after the close of the taxable year (April 15, June 15, September 15, and January 15 for calendar-year filers).
Arizona pass-through entity income tax election
If you own a pass-through entity like an S corp, partnership, or LLC taxed as a partnership, you can elect to have your pass-through income taxed at the entity level in Arizona. This is called pass-through entity (PTE) income tax. The primary appeal of taking the PTE tax is that as a taxpayer, you’ll receive a credit for your share of the entity-level tax.
For tax year 2022 (filing in 2023), the PTE tax rate is 2.98%; for tax year 2023 (filing in 2024), the PTE tax rate is 2.5%. Those percentages apply to the income from your partnership or S corp’s resident partners or shareholders, as well as the general income from sources within Arizona.
You have to make the PTE election by the due date for filing the Arizona income tax return, which is the 15th day of the third month following the close of the taxable year (March 15 for calendar-year businesses). Partnerships should use Arizona Form 165 and S corps should use Arizona Form 120S.
How to pay the PTE income tax
If you take the PTE tax and your taxable income for the preceding tax year is over $150,000, you need to make estimated quarterly payments. For calendar-year businesses, the payments are due April 15, June 15, and September 15 of the current taxable year, and January 15 following the close of the taxable year.
If your taxable year doesn’t start on January 1, the due dates for estimated tax payments are the 15th days of the fourth, sixth, and ninth months of the current taxable year, as well as the 15th day of the first month following the close of the taxable year.
If you’re anticipating a PTE tax liability of $500 or more, you have to make payments electronically on the Arizona Department of Revenue (ADOR) portal, AZtaxes.gov.
Arizona small business income tax
Arizona’s small business income (SBI) tax is a relatively new tax that lets individual taxpayers report their small business income on a separate tax return at a flat rate. The SBI tax rate for tax year 2023 (making payments in 2024) is 2.8%.
You can make the SBI tax election by filing a Small Business Income Tax Return along with your individual income tax form (Form 140, Form 140NR, or Form 140PY) by April 15 following the close of the tax year.
How to pay SBI tax
The due date for filing your SBI tax return is the same as the due date for a regular individual income tax return. For calendar-year filers, the due date is April 15. You can make payments by electronic funds transfer (EFT) here.
You also have to make estimated SBI tax payments (due April 15, June 15, September 15, and January 15) if your SBI tax liability for the year will be $1,000 or more. Download the forms to fill out here.
Arizona transaction privilege tax
Arizona’s transaction privilege tax (TPT) is a tax on certain businesses for the privilege of doing business in the state. Different businesses are subject to TPT, depending on their business activities. Here are the activities subject to TPT:
- Retail sales
- Restaurants and bars
- Hotels and motels (transient lodging)
- Commercial lease
- Personal property rentals
- Severance (metal mining)
- Nonmetal mining
- Job printing
- Private (rail) car
If your business has multiple locations, you have two choices: 1) get a separate TPT license for each location where you conduct business or 2) get a consolidated license. You can fill out the Arizona Joint Tax Application to apply for your TPT license (which costs $12 per location or license).
TPT rates vary depending on the type of business activity you conduct and the city and county you reside in. You can see recent tax rates here.
How to pay TPT
You have to report and pay TPT on a monthly basis, unless the Arizona Department of Revenue specifies otherwise. If your TPT annual tax liability is less than $2,000, you might be allowed to report and pay annually; If your TPT annual tax liability is between $2,000 and $8,000, you might be allowed to report and pay quarterly.
TPT returns and payments are due by the second to last business day of the month. Since 2017, Arizona businesses are required to file all their TPT activity with the Arizona Department of Revenue through a centralized reporting and payment system. If you have $500 or more in TPT liability, you have to pay online.
Certain businesses also have to pay estimated TPT each June if their annual tax liability is greater than or equal to $3,100,000 in tax year 2022 and $4,100,000 in tax year 2023 and after.
Arizona use tax
Arizona also charges use tax as a complement to retail TPT. Here are the situations where you have to pay use tax:
- If you make a purchase for your business out of state and don’t pay sales tax on it or the sales tax is less than Arizona’s use tax rate, you have to pay use tax.
- If you purchase goods using a resale certificate, and the goods are used, stored, or consumed in Arizona contrary to the purpose stated on the certificate, you have to pay use tax.
The use tax rate depends on your county and city TPT rates. You can see recent tax rates here.
How to pay use tax
You report use tax on your TPT return, which is due by the second to last business day of the month. You can make payments online at AZtaxes.gov.
Arizona personal property taxes
If you use personal property for business purposes, you have to pay a tax on that property. Examples of personal property include:
- Office equipment
- Retail store equipment
- Manufacturing equipment
- Ranch and farm equipment
- Hotel/motel property
How to pay personal property taxes
You have to report personal property tax to your local county assessor’s office using either the Business Property Statement (DOR Form 82520) for commercial business property or the Agricultural Business Property Statement (DOR Form 82520A) for agricultural properties.
You have to submit your form annually by April 1. When you pay your personal property taxes depends on the amount of taxes you owe. If you owe:
- $100 or less, your payment is due on October 1
- Over $100, half of your payment is due October 1 and the second half is due the following March 1
For more information on Arizona personal property taxes, contact your county assessor.
Arizona withholding taxes
If you hire employees for your small business, you’ll be subject to Arizona state withholding taxes. The withholding percentages are based on gross taxable wages, which vary from 0.8-5.1%.
How to pay Arizona withholding taxes
You have to file quarterly returns using Form A1-QRT by April 30, July 31, October 31, and January 31. If the average amount of Arizona income taxes withheld in the preceding four calendar quarters does not exceed $1,500, your quarterly payments are due the same date as your quarterly returns.
However, if the average amount of Arizona income taxes withheld in the preceding four calendar quarters does exceed $1,500, your quarterly payments are due at the same time as your federal withholding deposits. You can make payments online.
Need help determining withholdings for your employees? Check out Gusto’s Arizona Hourly Paycheck and Payroll Calculator.
Arizona unemployment insurance taxes
If you have employees, you have to pay a state unemployment tax to the Arizona Unemployment Insurance Program. This money goes to Arizona workers who qualify for unemployment assistance.
The tax rate depends on a few factors, including your annual taxable payroll and the amount of taxes you’ve paid. For new businesses, the tax rate is 2% for your first two years.
How to pay unemployment insurance taxes
You have to register with the Arizona Department of Economic Security and file the quarterly Unemployment Tax and Wage Report (UC-018) according to the wage reporting schedule. Your payments are due by the same dates as your reports; you can make payments online here.
Want to see how Arizona’s unemployment tax rate compares to other states? Here’s an updated list of unemployment tax rates for every state.
Arizona individual income taxes
If your business is considered a disregarded business entity—like a sole proprietor or single-member LLC—you’ll pay business taxes as part of your individual state income taxes. Starting in tax year 2023 (filing in 2024), Arizona is implementing a flat income tax rate of 2.5% for all individuals, regardless of income bracket or filing status.
How to pay individual income taxes
Your Individual Income Tax Withholding Form (Arizona Form A-4) and payment is due April 15 after the close of the taxable year. You can use Arizona’s e-filing system here.
You also have to make estimated payments using Arizona Form 140ES if your Arizona gross income for both the prior year and the current taxable year exceeds $75,000 (or $150,000 for married taxpayers filing a joint return).
If you’re a calendar-year filer, the payments are due on April 15, June 15, and September 15 of the current year and on January 15 of the next year. For fiscal years, the payments are due on the 15th day of the fourth, sixth, and ninth months of the current fiscal year, and the first month of the next fiscal year. You can pay electronically at AZtaxes.gov.
Arizona business tax breakdown
Here’s a summary of Arizona business types and their federal and state tax obligations. Keep in mind that pass-through entities don’t pay federal income taxes.
|Business type||State income taxes||Sales and use taxes||Unemployment insurance taxes||Pass-through entity tax||Federal taxes|
|C corporation||Yes, 4.9% corporate income tax rate||Yes, if applicable||Yes, if you hire employees||No||Yes|
|S corporation||No||Yes, if applicable||Yes, if you hire employees||Yes, if elected||No|
|LLC with C corp election||Yes, 4.9% corporate income tax rate||Yes, if applicable||Yes, if you hire employees||No||Yes|
|LLC||No||Yes, if applicable||Yes, if you hire employees||No||No|
|Partnership||No||Yes, if applicable||Yes, if you hire employees||Yes, if elected||No|
|Sole proprietorship||No||Yes, if applicable||Yes, if you hire employees||No||No|
File your Arizona small business taxes with Gusto
If you need help filing your Arizona small business taxes, Gusto has you covered. Our flexible payroll platform lets you run payroll, file taxes, and maintain compliance all in one centralized place. Sign up for Gusto now.