The current sales tax in Arizona is 5.6 percent on most sales. Businesses must also collect taxes for Phoenix (or the city in which they operate) and Maricopa County. For most retail sales in Phoenix, the total sales tax is 8.6 percent, but different products or services, like rent, the cost of hotels, telecommunications and utilities, can vary. The rates have been relatively unchanged since 2016, when the combined state, county and city rate increased from 8.3 percent to 8.6 percent.
The city, county and state sales tax are not seasonal and don’t change in the summer. However, your sales might change in the summer, or the tools and POS systems you use might be a little different, depending on your business.
In many cases, seasonal changes in revenue or sales activity won’t have any impact on your POS system and the collection of sales tax, but there may be scenarios where transaction volume or varying methods of sales could lead to inconsistencies in tracking, reporting or collecting sales tax. If that’s the case for your business, having a POS system that is capable of handling fluctuations without mistakes may be important during the summer, if that’s a busy season for your business.
Arizona does not have any sales tax holidays. Although that might not seem ideal for consumers, it does at least simplify the collection of sales tax for businesses. You don’t need to worry about sales tax holidays unless you sell products or services in states where sales tax holidays are present.
The collection and reporting rules for sales tax holidays are specific to the state in which they are collected. Businesses are usually required to comply with the state’s sales tax laws, including sales tax holidays, if they have a physical presence or an “economic nexus” in the state. Whether there’s an economic nexus often depends on transaction volume. If your business sells through a marketplace facilitator, like Amazon or eBay, the marketplace is typically responsible for handling sales tax, including honoring sales tax holidays.
While businesses in Arizona benefit from relatively straightforward sales tax collection rules, the story can be more complicated if your business operates in other states. If you have concerns about out-of-state sales tax collection, you may want to discuss sales tax implications, including sales tax holidays, with an experienced accounting professional.
If you do run summer discounts, you might wonder whether sales tax should be calculated on the normal retail price or the discounted sale price. Sales tax should be applied after discounts are considered. In other words, the sales tax for a $10 item should be $0.86. If the product is 50 percent off, the sales tax would be $0.43. Accurate calculation of sales tax based on the actual sale price rather than the normal retail price is vital for properly documenting revenue and tax preparation.
If your business does any kind of summer sales at events, like having a vendor booth at a Phoenix convention or festival, it’s important to have your point of sale (POS) system set up properly in advance. You may want to run tests in the days or weeks ahead of your first outing with a new POS system to ensure prices are correct and state, county and city sales tax are being correctly calculated for the inventory you plan to sell.
If your business does participate in off-site events at which sales are made, you may want to confirm your Transaction Privilege Tax (TPT) license set up properly. The sales tax you charge at the event should be for the city in which the sale is made.
On your TPT return, you will need to report the sales made in different cities separately. For example, if a business located in Glendale has a booth at an event held in the Phoenix Convention Center, they’ll need to collect Phoenix sales tax at the event and report it using the appropriate city code (PH) on their TPT return. The Arizona Department of Revenue will then ensure the tax revenue collected at the event is appropriately allocated to the right city.
H&H Accounting Services provides comprehensive business bookkeeping and tax preparation for businesses throughout the Phoenix metro area. If your business makes sales in different cities in The Valley, or you just have concerns about accurately reporting sales tax, give us a call at (480) 561-5805.
