Disclaimer: I am not a licensed tax expert; I am solely commenting on the process from experience and am linking the specific state-sponsored websites for further research.
Starting a business is exciting. You have a great idea, the passion to pursue it, and then you reap the benefits of your hard work and sleepless nights. But one thing that holds a lot of entrepreneurs back, or makes many budding-entrepreneurs hesitate is the legal and tax side of starting a business.
While the exact details vary state to state, a lot can be learned from looking at one state in particular. In this blog post I will go over what a TPT license is in Arizona: Where do you get it; why you need it, and what you do with it. It’s a long read, but at the end is a summary of the steps to take to make sure your business is ready to go in Arizona.
If you also have experience in Arizona, or if you are from another state and the system is similar, or different, we would love to hear from you. Let us know your thoughts in the comments below!
What is a TPT license in Arizona?
Transaction Privilege Tax License or TPT looks and sounds like a sales tax. In reality, it is the license for vendors (your business) for the privilege of doing business in the state (in this example, Arizona). Then, every quarter you are taxed on the use of the license based on the amount of business you do each quarter in your licensed location within Arizona.
From ADOR Website:
“The tax commonly referred to as a “sales tax” is in reality two distinct taxes. The first is the transaction privilege tax (TPT), which is a tax on the privilege of doing business in Arizona. It is measured by the value of tangible personal property (TPP) sold by the vendor in Arizona. The vendor is liable for the tax, even though the vendor may pass on the tax to the consumer.
The second is use tax, which is a tax on any TPP bought from an out-of-state vendor that is stored, used or consumed in Arizona, and no tax was paid to the state of sale. The consumer is liable for use tax if TPP was purchased with no tax paid to the state of sale. If there is no nexus with the state, a vendor may collect use tax for the convenience of the customer.”
Where do I get a TPT?
The Arizona Department of Revenue (ADOR) issues these licenses through the city you are doing business, in our case, we applied at the ADOR office in downtown Tucson.
ADOR has moved many of their services online and actually prefers business owners to file online at AZTaxes.gov.
If you have more than one location that you regularly do business (for example Tucson and Phoenix), you can report for each location separately OR you can consolidate those licenses. Each location within Arizona has a three-digit code that you need to remember each quarter when you fill out your taxes. This code often has different rates of taxes.
These tax rates are updated monthly here. The updates are based on the type of business (the first column which shows the business codes, for example, Retail Sales is 017) and by location (for example Tucson code is TU and it is in the Pima County which is PMA).
If you are running your business out of your home, you are required to use your home address as your business address when filling out the application for a TPT license.
For every license that you hold (either the consolidated or for each location) there is a $12 fee.
What Forms Do I need to fill out?
On this page here you can find the specific forms that you need to get started. The first form on the list is the “Joint Tax Application for a TPT License” or the JT-1 Form. It is slightly confusing title, however, n Arizona you must use this form to register your business and apply for the TPT License. It is a joint registration by ADOR and the Department of Economic Security (DES)- it makes it simple to get everything done at once.
That form is all you need to get started.
Why do I need one?
It’s the law.
If you are unsure if you need one or not visit here to see what types of business require them.
(Note: most businesses require a TPT license.)
What do I do with it?
After every quarter, your business is required to log into AZtaxes.gov and file your tax return based on the amount you used your TPT license. The information you will need when filing:
- A calculator
- Your Business code (for example we are Retail Sales, or 017)
- Your City and/our County code (for example Tucson: TU and Pima County: PMA)
- Your TPT License number
- The total Dollar amount of sales for the quarter
- The total Dollar amount of exemptions for the quarter
- A cookie of your choice to get you through it
The online process is painless, the only difficult part is factoring out the discount for filing early, and choosing the correct deduction.
There is a long list of deduction codes ranging anything from “business with a foreign diplomat” to “using renewable energy to produce your product”. Once you find the deductions you use, they won’t change much. We use the following deduction code:
- 708: Vendor Discount and Customer Returns
Every time you file early, and online you receive a small (really small) percentage off of the total that you owe every quarter. As of December 2018, that total percentage was 0.0672%.
After the first time you file your TPT it gets to be a routine. The type of deduction you use and the places you do business only change as often as you want them to. If you want to do business in another city, that’s great! Just don’t forget that when filing your taxes. If you want to stay all in one city, that is also great! No need to worry about locations when filing your taxes.
The online filing walks you through each step so you don’t have to worry about missing a section of the form- really you don’t have to deal with the form at all, just enter the numbers and calculate your discount. Done.
Okay, let’s do this! Where do I start?
- Go online to AZDOR.gov and select the hyperlink “Apply for a TPT License” and it will instruct you to do one of three options:
- Set up your account and file online;
- Download an application and mail it into a location listed on the application; or,
- Walk into one of ADOR’s three locations in Arizona to file in person.
(Note: all three options talk 3-5 business days to process)
- Obtain your TPT License number and begin doing business within the district that you are licensed to do business.
- Record all sales and deductions throughout the quarter
- Quarter 1: January 1- March 31
- Quarter 2: April 1- June 30
- Quarter 3: July 1-September 30
- Quarter 4: October 1- December 31
- At the end of the quarter, log onto gov with the items listed above to fill out your tax return. You usually have 20 days after the end of the quarter to file your taxes.
- File your taxes and repeat!
It is a lot of information to digest. The best way to understand it is to begin the process and walk through all the steps. The best part about all of it is that once you’ve done it once or twice it is simply just repeating every quarter. The more money your business makes the more options you have for how often you file your taxes. Since we are a small business just starting out we have only discussed the quarterly filing here.
Are you from a state other than Arizona? What kind of license do you need for your state? Is it easier or harder? Let us know in the comments!
- Updates to Retail Sales and TPT Licenses effective 01/01/2015
- Applying for an Arizona TPT License through AZDOR