Conducting Taxable Retail Activity

Am I Conducting a Taxable Retail Activity That Requires a TPT License?

Generally, all retail sales are taxable unless a specific statutory deduction or exclusion applies.  However, the following are examples where a TPT license may not be needed in certain circumstances.

Wholesale Sales

A wholesale sale is the sale of a product by one wholesaler to another wholesaler, distributor, or retailer for the purpose of resale (or for the purposes of incorporation into a product) in the regular course of business. This means that the business purchasing the item for resale must be in the business of selling that same item to its customers.

All wholesale/resale sales are TPT exempt at time of sale to another wholesaler, distributor, or retailer as TPT will be collected by the retailer selling the end product to the end user or consumer. Documentation of such sales must be retained.

Note: If the purchaser of a resale item (normally exempt) mistakenly pays tax at the time of purchase, TPT must still be collected when sold to the final consumer. Be sure to purchase such ingredients and/or component parts tax-free. 

Do I need a TPT license as a wholesaler?

An Arizona wholesale business must obtain a TPT license to be able to purchase items for resale tax-free, and must file TPT returns to report wholesale sales (including ingredients or component parts), even though it may not have any TPT liabilities. When filing TPT, all wholesale sales are deducted as a sale for resale using deduction code 503. Wholesalers normally file on an annual cadence. 

Casual Sales

A casual retail sale is an isolated or one-off transaction in which tangible personal property is sold where the volume and frequency do not indicate the seller regularly sells such property. For example, items sold at a garage sale are considered a casual sale because the seller is not normally in the business of selling used items. However, selling used items regularly at local flea markets would be considered a business and subject to tax because the sale is repeated and continuous and not isolated in nature. See also Arizona Administrative Code (A.A.C.) R15-5-101(2).

Do I need a transaction privilege tax (TPT) license if I make a casual sale? 

No. TPT is imposed on the business of conducting certain activities in Arizona. "Business" includes all activities or acts, personal or corporate, that are engaged in or caused to be engaged in with the object of gain, benefit or advantage, either directly or indirectly, but does not include casual activities or sales (A.R.S. § 42-5001(1)). Gross receipts from a casual activity or sale are not taxable under the retail classification (A.A.C. R15-5-102(A)).

Agricultural Producers

Agricultural producers that produce and sell their own food products are exempt from Arizona’s TPT when selling those products. An agricultural producer means an owner or operator of agricultural lands, orchards, farms, or gardens where agricultural products are grown, raised, or prepared for market. To qualify for this exemption, the sale must be made by the producer. 

The exemption applies to food products only and does not extend to non-food products. For example, a beekeeper that sells honey from its beehives at a farmers market would not be subject to taxation under the retail classification on those sales of honey. However, if the beekeeper was to sell beeswax from its beehives, those sales would be subject to taxation unless another deduction or exclusion applies. Food products that require processing, preserving, or other forms of preparation by the producer before the sale are also exempt.  An example includes a peanut farmer that produces and sells peanut butter with the peanuts it grows.

Agricultural producers that only sell their own agricultural products are not required to obtain a TPT license.

Consignment Sales

Consignment sales are a trade agreement in which one party (the consignor) provides goods to another party (the consignee) to sell. A consignee is a person that is in the business of selling tangible personal property belonging to a consignor. A consignor is the owner of the property that has the legal right to contract with the consignee to sell the consignor’s tangible personal property. 

Do I need a TPT license for a consignment sale?

Gross receipts from consignment sales are subject to tax under the retail classification. A consignee must obtain a transaction privilege tax license before making consignment sales. Consignees are responsible for the collection and remittance of TPT on the sale of any items sold on consignment.

A consignee who is a marketplace facilitator without a physical presence in Arizona, as provided in A.A.C. R15-5-2002(B), is required to obtain a transaction privilege tax license upon meeting the threshold requirements in A.R.S. § 42-5044.

Example of a consignment sale

An individual is selling items through a consignment shop that will take payment at the shop for the individual. In a typical consignment arrangement, the consignee (i.e., the shop) should report and remit the tax on all tangible personal property sold. The individual would not be responsible for any TPT as long as all of the items are sold through the consignment shop.

Professional Services

Arizona generally does not tax professional services. However, certain business activities labeled as “services” are not necessarily classified as services under Arizona statutes. A signature element of a service business is human activity such that the business activity itself is not possible without human interaction.

For some service business activities, it is readily apparent only services are being performed and are therefore non-taxable. In other instances, a test must be used to determine whether the primary purpose of the business activity is solely to perform a service using tangible personal property (TPP), or the end result of the service is to provide TPP. 

Examples of Professional Service

For example, in a purely service business there might be a minimal deliverable created using TPP (e.g. a report produced by consultant, a letter/brief written by attorney, a financial report generated by accountant, etc.) or TPP might be utilized in providing the service itself (e.g. shampoo used by hairdresser, massage oil used by therapist, etc.). 

However, the end result of these services is not to provide TPP. It is to provide a service where the human interaction or expertise is at the core of the transaction. If it is determined that a service business is not engaged in any other taxable business activity, the business would not need a TPT license and would not need to remit TPT or city privilege tax. If TPP is used in the service only business, it is subject to tax at the time of purchase by the business.