Understanding Use Tax
Since 1955, Arizona residents have been required to self-assess and report use tax liability to the Arizona Department of Revenue. The use tax was instituted to protect Arizona sellers who otherwise would be at a competitive disadvantage when out-of-state sellers make sales of goods to Arizona customers without charging tax. All states that impose sales tax also impose use tax.
Overall, use tax is an important source of revenue for the Arizona General Fund. Every dollar collected is a dollar available for government and public services. Equally as important, uniform collection and enforcement of use tax provides for fair competition between out-of-state and Arizona-based businesses.
The state use tax rate is the same as the state transaction privilege tax (TPT) rate (sometimes referred to as sales tax), currently at 5.6 percent. In addition to state use tax, cities also assess use tax through TPT. Please refer to the TPT tax rate table.
An out-of-state company engaged in business in Arizona must register with ADOR to pay transaction privilege tax on their retail sales of tangible personal property to Arizona customers. Generally, an out-of-state company is engaged in business in Arizona when it has a sales office, warehouse or sales representation in the state, or it has some other physical presence.
If a company is not “engaged in business” in Arizona, that company will generally not charge Arizona tax. However, some out-of-state companies with no physical presence register with ADOR and collect tax as a courtesy to their Arizona customers. If the out-of-state vendor does not charge sales tax, the Arizona resident is required to remit use tax directly to ADOR.
Individuals who purchase taxable products from out-of-state locations, but pay no sales tax, are responsible for paying use tax. In addition, individuals who purchase taxable merchandise over the internet, and that merchandise is used or consumed in Arizona, must pay use tax.
Casual sales between individuals are the exception and not subject to use tax. Items purchased for use in Arizona from people who make isolated or occasional sales, and who are not engaged in the business of selling tangible personal property at retail, are not subject to use tax.
Individuals can send use tax payments to:
Arizona Department of Revenue
PO Box 29010
Phoenix, AZ 85038-9010
Individuals who fail to pay use tax face penalties and interest. ADOR does conduct both routine and special audits to promote compliance.
There are, however, some purchases exempt from use tax. Generally, the same types of items subject to TPT are subject to use tax. Use tax does not apply to items specifically exempt from TPT, including prescription medicines, most food items purchased at a grocery store, casual sales and sales for resale.
For individuals who purchase a vehicle from an out-of-state dealer or manufacturer, the Arizona Department of Transportation (ADOT) will require, at the time of vehicle registration, proof that tax was paid in the state of purchase, and that the amount of state tax paid is equal to or greater than the applicable Arizona use tax rate. If tax was not paid in the state of purchase, or was less than the Arizona use tax, ADOT will require that the use tax be paid at the time of vehicle registration. For more information on vehicle use tax, and/or to calculate vehicle use tax, click here.