Retail Sales Subject to TPT

Selling at Retail - The Retail Classification

This guidance is intended to assist taxpayers in the retail industry with direction on how to apply the transaction privilege tax (TPT) to the gross income received in Arizona under the retail classification.

What is a Retail Sale?

A retail sale is a sale of tangible personal property sold by persons (i.e. retailers) that have substantial nexus by physical presence or economic nexus. Examples of tangible personal property include, but are not limited to: digital images, handmade items, vehicles, clothing, handmade jewelry, etc. Substantial nexus by physical nexus means that a person either is located in Arizona, has property physically located in Arizona, or is working with other people physically located in Arizona who are helping the person to establish or maintain a market here.

A sale of tangible personal property means that the seller is transferring ownership of the property from the seller to the customer for a single fee and where the customer takes possession of the property gets to keep the property. A single fee includes installments or financing options as opposed to a subscription.

A retail sale can occur through a number of different sales channels, such as online, in a storefront, farmer’s markets, pop-up craft markets, flea markets, business-to-business (B2B), and through home sales. A retail sale can be made by anyone. It is not restricted to big box retail stores and includes sales by entities, wholesalers, and individuals. A sale could be large or small as long as the person making the sale does it on a regular basis and it is not a casual activity. Please review casual sales for more information.

In Arizona, a taxable business activity or sale can fall under any one of the sixteen business classifications so it is important to determine whether a ‘sale’ is a retail sale or whether it is considered another taxable activity. As a result, some sales (gross receipts) may not be classified under the retail classification but may be taxable under a different classification. 

For example: A restaurant owner might say they had $100,000 in “sales.” However, a “sale” by a restaurant is not a retail sale and it is not taxable under the retail classification. The gross receipts received by a restaurant is considered taxable under the restaurant classification. 

Accordingly, it is important for a business to carefully examine what they are doing to determine whether the activity qualifies as a retail sale or some other activity taxable under a different classification. This is important because each tax classification has its own deductions and exclusions which are not interchangeable with other classifications.

What are gross receipts?

Generally, Arizona TPT is a tax on the gross receipts of a taxable activity unless a statutory exemption or deduction applies. 

Gross receipts is everything that you receive from your customer before any deductions are taken. This includes any tax collected. 

Are credit card fees included in a retailer's gross receipts?

There is no deduction from the tax base of the retail classification for costs of doing business. Therefore, the fees would be part of taxable gross income.

Are finance, carrying charges, and interest charges part of gross receipts?

Gross receipts from finance, carrying charges, or interest charges incurred in connection with a retail sale of tangible personal property are not subject to tax if the charges are separately stated as part of the sales transaction; and the charges result from the sale of such property on credit or under an installment contract. See Arizona Administrative Code (A.A.C.) R15-5-106.