How to Register for a Sales Tax Permit in Arizona

Running your own business is probably the dream and the ultimate goal of every aspiring entrepreneur. But often the step forward into the entrepreneurial world is hindered by doubt and insecurities, and even the people closest to you, your family, friends or colleagues. Yes, doubts can be a major hindrance, but this is nothing that can’t be overcome. But let’s take it one step at a time. This article will work towards showing you the steps you need to take in order to prepare for running your own company, registering it with the relevant authorities in the state of Arizona and registering for a sales tax permit.

However, it has to be stressed that this is not a legal document and so we urge you to consult with your local authorities, an attorney or a business advisor to avoid any potential issues.

Preparing to Register a Business in Arizona

The preparation is often half the job. If done correctly, it can greatly increase your chances of success. It all starts with addressing the issues we noted above. You might be hindered by doubts about your qualifications and skills, but this is never a reason to quit, rather a reason to work on your skills. In that process, ask yourself a series of questions. Why do you want to start your own business? What are the skills you possess? What is your previous experience? What do you plan for your business? Is the model you propose sustainable?

Let’s try to answer these questions one by one. The reasons for starting your business can vary. Some see it as a natural progression from working for someone else to working for themselves. Some would like to eliminate time constraints and work when they want, with whom they want, for as long or short a period as they want. Some want the financial freedom while others simply want to turn their hobby into a business and watch it grow from scratch. Whatever the reason may be, it should be enough to justify the step you plan on taking.

While some might say you are late to the game, or you don’t have the skills required, a doubt you might have yourself, this should not be the decisive factor. Instead, look at your previous jobs, and experience. Remember all the jobs you had previously and take all the tricks you learned. This is something that can be used to push your business forward. If you still think you still lack something, make sure you work on yourself and acquire all the skills and knowledge necessary. Remember you will be learning along the way, but more on that later.

The real work starts once you do make the call to start your own business. The first step after that is to identify the product or the market you’d like to operate in. Maybe you would like to purchase cheap wholesale merchandise to resell online. Whatever it may be, you have to look deeper into that market and devise a business plan. This requires thorough research of the market conditions, whether there is an oversupply or whether the demand outweighs the supply: all aspects of the market have to be investigated.

This is because the results will form the basis of your business plan, a roadmap to establishing your business. It will show you whether your business is sustainable in the current market conditions. It will also show you the costs related to your business model, allowing you to project your costs, revenue, net income and all other aspects of your business. This will all be included in a business plan. And this part is important also if you are looking to secure funds to get your business off the ground. No financial institution, be it a bank or an investment company, will even consider talking to you, let alone investing in your business, if you don’t have a strong business plan.

One more thing the market research will show you are the potential gaps, niche segments of the market in which the demand outweighs the supply. It is often advised to look for such undersupplied markets to start a company in. There are several reasons behind that suggestion, one of them being the lack of competition. Jumping into a competitive market, especially as a newcomer, could lead to failure because the players are already established and it is very hard to capture a market share easily. An undersupplied market allows you to work with less pressure from the competition.

This will allow you to grow your business slowly but steadily, gathering the experience along the way and learning the ways of running a business. And if you pair the products with quality services, you will be able to build a customer base that will stay loyal to your company. This will, in turn, make any decision to expand to into a new market easier since you have built up a customer base that will follow your business anywhere.

If you manage to find the right market, build a strong business plan and secure funds to start your business, it is time to look into the legal side of the process. This involves filing applications and forms with the relevant authorities in the state of Arizona to formally register your business.

Registering a New Business in Arizona

The registration process in the state of Arizona starts with the Arizona Corporate Commission. You are required first to choose a name for your business and then choose the business structure or entity type. Once you have chosen the name, check for its availability with the Arizona Corporate Commission. If available, you may proceed to either reserve the name for your business or to file with the Arizona Secretary of State to register the name, or simply file the forms with the ACC in order to form your entity.

The entity options you have available start with the sole proprietorship, which is the simplest and most common form of business as it is owned by a single individual. No formal filing in Arizona is required to form a sole proprietorship. The advantages of this structure are the ease of setup, full control of the business and low reporting requirements. However, the downside is that the owner is liable for all the debts of the business.

Next is the general partnership, which is an association of two or more individuals joining forces to conduct business. Such partnerships don’t require formal filing with the state of Arizona; however, they can be formalized through a written agreement between its partners. Such an agreement outlines the obligations of each partner as well as the shares of the income or losses. General partnerships are also easy to set up and the taxation is done through individual partners, similar to the sole proprietorship, avoiding double taxation. However, all partners are liable for business debts.

Next, you might want to look at limited partnerships. This type of entity allows for liability limitation as well as the limitation of each partner’s involvement in the company. Such business structures make it easier to secure funds as you might find investors who are interested in sharing profit but don’t want to take part in managing the company. On the downside, general partners are liable for all the debts of the company while limited partners enjoy liability protection, although they don’t have a say in managing the company. There are also other forms of partnership, all differing in the amount of liability protection they can give to general or limited partners.

The next two business structures are filed with the Corporation Division of the Arizona Corporation Commission. These include the Limited Liability Companies (LLCs) and Corporations. You do not have to register for a trade name with the Secretary of State as this process is included in your filing with the ACC.

Corporations are the largest structures and are the most complicated to set up and run. However, corporations provide the highest level of liability protection. The downside of a corporation is the fact that it is a separate entity, meaning it is taxed separately and then the shareholders/owners are taxed on dividends.

A Limited Liability Company sits somewhere in between the corporations and the partnerships. It takes the best of both worlds, namely the liability protection of a corporation and the single taxation of the general partnerships.

With this process complete, it is time to look at whether there are any specific permits or licenses your business needs to obtain before commencing operations. One such permit is the Transaction Privilege Tax permit, usually known as the sales tax permit, that has to be filed with the Arizona Department of Revenue. Let’s look at what Transaction Privilege Tax permit is and who is required to obtain it.

Arizona Sales Tax Permit

According to the Arizona Department of Revenue, the “transaction privilege tax (TPT), commonly referred to as a sales tax, is a tax on vendors for the privilege of doing business in the state.” The DoR notes that if a business is selling a product or engaging in a service subject to TPT, that business is required to file for the tax permit.

To be eligible for the transaction privilege tax permit, you must have a sales tax nexus in the state of Arizona which means having an office or a place of business in the state, an employee, merchandise in a warehouse and the delivery of said merchandise in the state, owning a real property or having independent contractors.

After you determine that you have a tax nexus, you should check whether your products or services are subject to TPT. In general, services are not taxable, while dealing with tangible products is. But there are some exemptions, which we will cover later.

Now that you have determined that you have a sales tax nexus and the products you plan on selling are taxable, you should apply for the transaction privilege tax permit. This process is completed through the Arizona Department of Revenue. You can either download The Arizona Joint Tax Application (JT-1) or file online through the AZTaxes platform.

When applying for a transaction privilege tax permit, you will have to provide information about the type of ownership and you will require a Federal Employer Identification Number (EIN), issued by the Internal Revenue Service (IRS) or a social security number (SSN), a legal business name, phone number, mailing address and email address, the physical location of the business, employee information and the date the business started. You are also required to provide the North American Industrial Classification System (NAICS) code and identify all owners, partners, and other managing members of the company.

A specific issue about the tax system in Arizona is that even though the transaction privilege tax, which is fairly similar to the sales tax, is valid across the state, you are required to file for another permit in the city you do your business in. The Department of Revenue will charge you $12 per application while cities can impose their own fees of up to $50.

Once you’ve filed your application with the Department of Revenue, you will receive your permit within four to six weeks. Once you receive it, keep in mind that you have to renew the permit by January 1 the next year.

Sales Tax Exemptions in Arizona

While the tax system in Arizona might seem a bit more complex than in other states, there are still exemptions, allowing you to make sales tax exempt. As the DoR says the TPT is “a tax on vendors for the privilege of doing business in the state,” you as a purchaser are required to provide a certificate in order to complete that transaction tax exempt.

There are two forms you should be interested in: the TPT Exemption Certificate – General, and the Arizona Resale Certificate. The first is issued by the Department of Revenue and has to be issued by the buyer to the vendor at the time of the purchase and covers certain exempt categories. The Arizona Resale Certificate is used when making a purchase with the intention to resell the merchandise. In both cases, the document has to be completely filled out and signed by the buyer.

Contact Details

Arizona Secretary of State

Business Services, Trade Name Division

State Capitol Executive Tower
1700 W. Washington Street
1st floor, Room 103
Phoenix, Arizona 85007
Phone: 602-542-4258

Arizona Corporation Commission, Corporations Division

1300 W. Washington Street
Phoenix, Arizona 85007
Phone: 602-542-3026

Arizona Department of Revenue

1600 West Monroe Street
Phoenix, AZ 85007
Phone: 602-255-3381

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