Arizona-Based Sellers without Storefront
Most states have implemented laws that subject businesses with no physical presence in their state to sales tax when making sales into their state. These laws are generally called remote seller/marketplace facilitator laws. If you also have physical presence in a state outside of Arizona, you are likely not considered a remote seller in that state.
What has changed?
Prior to 2018, per the Quill case, the Supreme Court held that states could not levy taxes from purchases made by their residents from out-of-state retailers without a physical presence in their jurisdictions. In 2018, the Supreme Court expanded the “physical presence” standard in the Wayfair case. This expansion is commonly known as “economic nexus.” It allows for states to levy tax on out-of-state retailers without physical presence.
Q: I am based in Arizona and I do not have a storefront, I only sell online; does this mean I am a remote seller?
A: Even without a storefront, if you are based in Arizona, you are an Arizona retailer will likely be required to obtain a transaction privilege tax (TPT) license. You may not be required to obtain a TPT license if you sell 100% through a marketplace facilitator. You will not be considered a remote seller in Arizona because you have physical presence in Arizona. By Arizona’s definition, a remote seller does not have physical presence in Arizona (A.R.S. 42-5001(16)). However, you may be considered a remote seller in other states.
To verify how the business is currently registered, click here.
Q: Does this mean that I am liable for sales tax in every state I sell into?
A: Not necessarily. Different states have different standards as to whether you will be liable for sales tax in that state. The “physical presence” standard still exists. Thus, if you have physical presence in a state other than Arizona, you are likely subject to their sales tax laws. Most states have enacted “remote seller” and/or “marketplace facilitator” laws that create thresholds for their economic nexus. These thresholds are based on direct sales and/or number of transactions into the state. The thresholds for the different states can be found on that state’s taxing authority’s website. The most common direct sales threshold is $100,000; meaning if you have $100,000 of direct sales into a different state, you may be liable for sales tax in that state. The most common threshold for the number of transactions is 200; this means you will need to have 200 separate transactions into the state before being subject to their sales tax laws.
Q: Do Arizona’s thresholds apply to me?
A: No, these thresholds will not be applicable because you are not a remote seller. Since you are based in Arizona and have a physical presence; you will likely be required to obtain a TPT license and will be liable for Arizona’s TPT on Arizona sales made by you directly.
Q: Do I need a business license?
A: Business licenses are handled at the city level. There is no business license for the State of Arizona. Contact the city in which you are located to see if that city requires retailers to obtain a city business license.
Q: What tax rate am I liable for on my sales to an Arizona customer?
A: Your sales should be reported using the tax rates and region codes of your location in Arizona, if the order information is received in Arizona.
If you have a location outside of Arizona, and the order is received there, the tax rates and region codes of your customer’s address should be used. The place of business or residence of the purchaser does not determine where the order is received.
An order is received when all of the information necessary to accept the order has been received by or on behalf of the seller, regardless of where the order is accepted or approved.
An updated tax rate table can be found here.
Note: If the order is received from a location outside of Arizona and you ship and deliver the product to a location outside of Arizona for use outside of Arizona, this sale will likely be considered a sale in the state in which you are shipping the product and you will not be liable for TPT on this sale.
Sales Made Through a Marketplace Facilitator
If you make sales through a marketplace facilitator, you will not be responsible for remitting TPT on these sales to ADOR. However, when filing, you are required to report these sales. The marketplace facilitator is responsible for remitting the TPT; they do not file on your behalf. If you possess a TPT license, you are required to file as designated on your account. When filing you may deduct your sales through a marketplace facilitator using deduction code 804.
If you sell 100% through a marketplace facilitator, you are not required to obtain a TPT license. However, if you do obtain a TPT license for other business reasons, i.e. if you are able to fill out Arizona Form 5000A (resale certificate) completely, you will be required to file. In doing so, you should be reporting gross income and deducting the sales made through the marketplace facilitator.
Arizona defines a marketplace facilitator as any person or business operating a marketplace (e.g., website) that facilitates transactions between a buyer and retailer/wholesaler, by listing or advertising and accepting payment on behalf of the retailer/wholesaler. A marketplace facilitator is responsible for reporting and remitting the TPT on sales made through its marketplace.
References
For guidance on starting a business in Arizona, click here.
Streamline Sales Tax Governing Board, Inc. has a resource for businesses to look up all states’ economic nexus thresholds.
The Multistate Tax Commission is an intergovernmental state tax agency working on behalf of states and taxpayers to facilitate equitable and efficient administration of state tax laws that apply to multistate and multinational enterprises.
For further information on Arizona’s remote seller/marketplace facilitator laws, please review ADOR’s dedicated webpages for remote sellers and marketplace facilitators.
To request an ADOR speaker to come to your organization, click here.
If you have any further questions about licensing, click here.
If you would like to obtain a TPT license, click here.
IMPORTANT NOTE: This is meant to be a helpful tool to Arizona-based sellers. This is not a comprehensive guide or legal advice for selling into different states. In the event of inconsistency or omission, the language by the specific state will prevail. For specific state information, see the applicable state’s website.
For general questions on remote seller laws, please contact the E-Commerce Compliance and Outreach Unit by phone at 833-293-7253 (833-AZesale) or email at [email protected].
Terms to Know
Transaction Privilege Tax (TPT): A tax on a vendor for the privilege of doing business in the state. It differs from the sales tax imposed by most states. Unlike a true sales tax, the TPT is levied on income derived by the seller that is legally allowed to pass the tax burden on to the purchaser.
Remote Seller: Any person or business selling or shipping products into Arizona but does not have a physical presence. Includes sales through any medium (online, catalog, etc.)
Marketplace: Any place (physical, online or electronic) where tangible personal property is sold. This includes a store, booth, website, catalog, etc.
Marketplace Facilitator: Any person or business operating a marketplace (e.g., website), and facilitating transactions between a buyer and retailer/wholesaler, and accepting payment on behalf of the retailer/wholesaler.
Marketplace Seller: Any remote seller that makes all sales through a marketplace.
Nexus: The connection required to exist between a state and a potential taxpayer such that the state has the constitutional right to impose tax. States have a physical nexus (physical presence) requirement before they impose tax collection responsibilities on taxpayers. Following the Wayfair decision, many states have implemented economic (dollar-based) nexus rules that require taxpayers to collect and remit taxes where they have specific threshold sales into the state.