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Motor Vehicle Sales to Nonresidents
When it comes to selling motor vehicles to nonresidents of Arizona, there are five separate transaction privilege tax exemptions (or deductions from the retail seller’s tax base) under the retail sales classification that may apply to an Arizona seller’s sale of a motor vehicle. All five of these exemptions rely upon the purchaser first qualifying as a nonresident.
Effective October 1, 2022, an exemption was added for the sales of commercial motor vehicles, trailers, or semitrailers with a gross vehicle weight rating of more than ten thousand pounds and is used or maintained to transport property in the furtherance of interstate commerce per A.R.S. § 42-5061(A)(14)(b). Form 5011 has been updated to reflect the exemption. Dealers can verify the purchaser’s USDOT #, MC/MX/FF #, and authority to operate in interstate commerce on the USDOT Federal Motor Carrier Safety Administration Safety and Fitness Electronic Records (SAFER) System at https://safer.fmcsa.dot.gov/CompanySnapshot.aspx. The dealer must also retain a copy of the 90-day nonresident registration permit and a copy of the nonresident driver’s license. See A.R.S. § 42-5009(H).
Two exemptions are based on the purchaser’s state of residence, and two exemptions require the seller’s documented out-of-state delivery of a motor vehicle to a nonresident. For more information on these exemptions and documentation requirements, including sales to nonresident military personnel stationed in Arizona and to Native American purchasers, refer to Arizona Transaction Privilege Procedure (TPP) 08-1 (Note – TPP 08-1 will be updated to reflect the addition of the exemption for commercial motor vehicles sold to nonresidents per A.R.S. § 42-5061(A)(14)(b)).
Overall, Arizona statute provides an exemption for the sale of a motor vehicle to a nonresident who is from a state that has both:
This exemption makes the amount of Arizona TPT due on the sale equal to the state tax due in the nonresident purchaser’s state on a nonexempt sale. Please note that exemptions from tax in another state’s tax code do not apply in Arizona. Because the nonresident’s state will allow credit for state tax paid in Arizona, there should not be a state tax liability when the vehicle is registered by the nonresident in his or her home state.
Arizona statute also allows the nonresident to take possession of the vehicle in Arizona, but this exemption applies only to TPT and “piggybacking” county excise taxes. City privilege, on the other hand, fully applies to motor vehicle sales to nonresidents when the purchaser takes possession of a vehicle in Arizona. The sole Arizona city privilege tax exemption for the sale of a motor vehicle to a qualifying nonresident requires the seller to deliver the vehicle to the nonresident purchaser outside the state.
Nonresident State Tax Rate Schedules
The Nonresident State Tax Rate Schedules list the states that both have a lower state tax rate than Arizona’s 5.6 percent TPT rate and provide a credit for state tax paid in Arizona. Also listed are the states that do not impose a sales or excise tax; nonresidents from these states also qualify for an exemption thanks to Arizona statute, and will pay no state or county tax. For nonresidents from all other states with a higher state tax rate than Arizona’s 5.6 percent TPT rate and allow credit against their state excise taxes for the state tax paid in Arizona, the state TPT and all local taxes apply to the sale if the nonresident takes delivery of the vehicle in Arizona.
For the reduced TPT rate to apply, the nonresident purchaser must complete Arizona Form 5011 to establish residency in another U.S. state; obtain a special 90-day nonresident registration permit from the seller; and allow the motor vehicle seller to make a copy of the nonresident’s current out-of-state driver’s license.
Calculation of Reduced Transaction Privilege Tax
To assist Arizona motor vehicle sellers, ADOR created two versions of a tax computation worksheet. This worksheet computes the reduced amount of state TPT and county excise tax that will apply to the sale of the motor vehicle to a nonresident and also compute the correct deduction amounts to be taken on the Transaction Privilege, Use and Severance Tax Return (Form TPT-2).
Worksheet A/B is a blank worksheet taxpayers can print and complete manually; or, they can complete online and then print. The motor vehicle seller must insert the sales price, nonresident state and Arizona county tax rates and complete all mathematical calculations. An example of completing the worksheet and Arizona Form TPT-2 (for a single sale) is included on this worksheet.
Worksheet C is an automatic computational worksheet available for print. By simply entering the motor vehicle’s taxable sales price and selecting the nonresident’s state and the Arizona county in which the seller’s business is located from the drop-down menus, the worksheet will calculate the tax and provide the amounts to place on Form TPT-2 for this sale. Arizona is included as one of the states in the state drop-down menu to compare the tax savings.
The Nonresident State Tax Rate Schedules also list the state whose residents qualify for the following separate statutory exemption under the retail classification:
A.R.S. § 42-5061(A)(28)(a) provides an exemption from state TPT and county excise tax for sales of motor vehicles to nonresidents from states that do not provide a credit for taxes paid in Arizona. This Arizona TPT exemption prevents the nonresident purchaser from having to pay tax in both states. This exemption and the documentation requirements for qualification are explained in TPP 08-1.
The Nonresident State Tax Rate Schedules, which also includes a listing of Arizona county tax rates, are provided to determine the correct amounts of state TPT and county tax applicable to a motor vehicle sale that qualifies for full or partial tax exemption under Arizona statute.
Please note: ADOR advises double-checking the numbers and the calculations on this worksheet, for the department cannot be held responsible for erroneous calculations.
On Worksheet A/B, the tax rates of the nonresident’s state and Arizona county must be transferred to the blank or fillable worksheet, but all of the mathematical calculations must be completed by the seller.
On Worksheet C, after inserting the sales price of the motor vehicle, drop-down menus allow the motor vehicle seller to choose the nonresident’s state and the Arizona county in which the sale takes place. This worksheet will automatically compute the tax and the deduction amounts taken on Form TPT-2.