Business Taxes in Greater Phoenix

For the past 11 years, businesses in Greater Phoenix have seen decreases in the average employer and individual tax rates. The individual tax rate in Arizona is currently 3.55%, compared to other Southwest markets, which range from 4.6% to 9.3%. Plus, the state does not levy the following taxes:

80% Sales Factor

Corporations have the option to either use the Double Weighted or 80% Sales Factor apportionment to calculate taxable income for Arizona. The 80% Sales factor will be phased in over a three-year period. Like the Double Weighted Apportionment, the 80% Sales Factor employs the same three factors to determine the percentage of income that is subject to taxation in the state of Arizona:

• Payroll
• Value (original cost) of real and tangible property
• Sales (defined as manufacturing and selling or purchasing and reselling)

The 80% Sales Factor calculation assigns different weights to each factor, putting an emphasis on sales made in Arizona. The weight on sales increases over the three-year phase in period. The calculation for 2007 is as follows:

• Payroll paid in Arizona divided by global payroll.
• Value (original cost) of property situated in Arizona divided by the global value (original cost) of property.
• Sales in Arizona multiplied by six and divided by global sales (the multiple on sales will increase by one over the three-year phase in period).

The three percentages are added together and divided by 8 (the denominator will increase by one over the three-year period) to produce a ratio to apportion total taxable income to Arizona.

Transaction Privilege Tax

Arizona does not have a traditional sales tax imposed on the purchaser of goods.

• Instead, the tax is levied directly on the seller or vendor for the privilege of engaging in business within Arizona.
• Whether the seller includes the tax in the purchase price or absorbs the tax, the seller is responsible for remitting the entire amount of the tax to the state and/or local taxing jurisdiction.
• The tax is applied to gross proceeds of sales or gross income derived from a taxable business.

To see local sales tax rates, click here.

Arizona Property Classification and Ratios

Arizona’s property tax system classifies property according to its usage. Each class of property is assigned an assessment ratio, ranging from 1% to 22%. The assessment ratios are applied to both primary and secondary values of a property and determine the property’s net assessed value. The same tax rates apply to net assessed value for all property classifications. Click here to see Arizona’s property tax classifications and ratios.

Arizona Personal Income Tax

Arizona offers an average competitive tax rate of 3.55%, in comparison to other Southwest markets, ranging from 4.6% to 9.3%. Personal exemptions range from $2,100 - $4,200 depending on taxpayer filing status.

Taxable Income

_{Source: Arizona Department of Revenue, 2006. CCH Tax Research Database}

For additional information on business taxes and for related downloads, click here.