Arizona Tax and CPA Services: State, County and City Taxes

Arizona is a flat-tax state for individuals, but the part of its system that surprises most newcomers is not income tax at all. The state taxes the vendor's privilege of doing business through the transaction privilege tax (TPT), cities add their own rules, and the state is a community property state. Whether you are retiring to Scottsdale, working remotely from Tucson, or opening a business in Maricopa County, the points below explain what applies.

Individual income tax

The Arizona Department of Revenue states that for tax year 2023 and beyond, the tax rate for Arizona taxable income is 2.5 percent. Residents are taxed on the same income they report federally, subject to Arizona modifications, and that includes income earned in other states. Arizona excludes interest on U.S. government obligations, Social Security retirement benefits, Railroad Retirement benefits, active duty military pay and uniformed services retired pay. A subtraction of up to $2,500 applies to pensions from Arizona state and local governments or U.S. government service.

For the 2025 tax year, a single resident with gross income over $15,750, a married couple filing jointly over $31,500, and a head of household over $23,625 must file. Residents use Form 140, or the short Form 140A when taxable income is under $50,000 and the return is simple. Nonresidents with Arizona-source income, and part-year residents, have their own forms and prorating rules, and residents taxed by two states may claim a credit on Form 309.

Because Arizona is a community property state, a married person who files separately must report half of the community income plus their own separate income. That matters for couples where one spouse lives or works in another state.

Business and pass-through taxes

Corporations must file Arizona income tax returns electronically for 2025, and those owing $500 or more must pay by electronic funds transfer, with a 5 percent penalty for payments not made electronically. C corporations with a valid federal extension can get up to seven months, while S corporations are limited to six.

S corporations may elect entity-level tax under the Arizona Pass-Through Entity program, assessed at 2.5 percent of certain shareholder income. The election must be made by the return's due date, including extensions, and some shareholders (such as entities that are not individuals, estates or trusts) cannot participate. It is one way to address the federal SALT deduction limit; see SALT deduction and property taxes.

Transaction privilege tax and use tax

The department explains that although it is commonly called a sales tax, the TPT is a tax on the vendor for the privilege of doing business in the state. The department collects the tax for counties and cities, and rates differ by business activity, city and county. A business with multiple locations may license each separately or combine them, at $12 per location license.

Some cities and counties use a tiered rate for large single-item purchases, with a different rate above a price they set. A monthly rate table is available from the Department of Revenue. Sellers also typically need a city license or city TPT account for the cities where they operate, in addition to the state license.

Consumers owe use tax when a retailer does not collect tax on goods they use in Arizona. For remote sellers with no physical presence, economic nexus applies once Arizona gross sales exceed $100,000 in the previous or current calendar year. Marketplace facilitators have their own threshold. Our sales tax nexus guide and sales tax service explain how to track this.

Payroll in Arizona

• Withholding: new employees subject to Arizona withholding complete Form A-4 within five days of employment, choosing a percentage from 0.5 to 3.5 percent of gross wages. They can elect zero if they expect no Arizona tax.
• Work in Arizona: if you physically work in Arizona, Arizona withholding is required, regardless of where the employer is based. A nonresident who works in Arizona generally has withholding required after 60 days, or sooner if both sides agree.
• Residents working elsewhere: an Arizona resident working outside the state can ask the employer to withhold Arizona tax using Form A-4V.
• Unemployment insurance: administered by the Department of Economic Security, which sets the wage base and rates each year; check its current notice. See state unemployment insurance.
• Paid sick time: Arizona's earned paid sick time law is enforced by the Industrial Commission of Arizona; rules vary by employer size, so verify the current requirements.

Employers with workers in several states should review multi-state payroll.

Cities, counties and local licensing

Local taxes in Arizona are mostly transaction-based. Maricopa County, Pima County and cities such as Phoenix, Tucson and Scottsdale each add their own TPT rates, and their rate codes appear on the department's rate table. City business licenses are separate from the state license. Property taxes are administered by counties, with local assessors setting values and treasurers collecting. Our local payroll taxes guide explains how to check what a city requires of employers. See our Phoenix metro page for more.

How we can help

We prepare Arizona resident, part-year and nonresident returns, advise on whether the S corporation pass-through election makes sense, help sellers register for TPT and track nexus, and set up Arizona payroll. If you get a notice from the Arizona Department of Revenue, see state tax notices and representation. Contact us to begin; this is general information, not individual advice.

Frequently asked questions

General information only, not tax, legal or accounting advice for your situation. Rules, limits and deadlines change; confirm the current rules with the official source or a qualified professional before you act. Reading this page does not create a professional relationship with CPA Tax Payroll and Accounting Corp.