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Notice for Arizona Automotive Dealers

August 9, 2021

To effectively administer the state, counties, and cities’ transaction privilege tax, the Arizona Department of Revenue issued Arizona Transaction Privilege Tax Ruling TPR 20-2 on October 6, 2020. In summary, this ruling addresses the issue of conflicting sourcing provisions between the state and city statutes. Ultimately, TPR 20-2 ruled that the state sourcing statutes prevail where they conflict with the city statutes.

Specific to the automotive dealer industry, conflicting provisions exist between state and city statutes when sourcing motor vehicle leases for a term of 24 months or greater (“long-term leases”). State statutes provide that leases are sourced to the lessor’s business location in Arizona. If the lessor does not have an Arizona business location, leases are sourced to the lessee’s shipping address. However, city statutes require a long-term motor vehicle lease to be sourced to the location of the original motor vehicle dealership. This is interpreted to mean that ongoing lease payments are sourced to the original motor vehicle dealership even if the lease contract is later sold, transferred, or otherwise assigned to a third-party leasing company. Because these two provisions conflict, TPR 20-2 mandates that the state provisions apply and long-term motor vehicle leases transferred to a third-party leasing company should be sourced following the state provisions.

Additionally, leased motor vehicles permanently moved to a location outside of Arizona and used exclusively outside of Arizona are not subject to Arizona state, county, or city tax.

Please note, new leases should be sourced as described in this notice and TPR 20-2. No change is required to existing leases until they expire and are renewed.

For additional information regarding these sourcing provisions, please refer to TPR 20-02.

Additional questions may be directed to [email protected].



Monday, August 9, 2021