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Effective January 1, 2017, the Arizona Department of Revenue (DOR) becomes the single point of administration and collection of transaction privilege tax (TPT). The transition to centralized licensing, reporting, and payment of state and city TPT to the DOR begins with the January 2017 tax return (due in February). When filing the January 2017 TPT return, all activity needs to be filed on a single return with the DOR regardless of where the taxable activity is located in Arizona. This results in a broadening of local nexus in Arizona since many cities previously were considered home rule authorities.  Previously, businesses may have filed two or more TPT returns, one with the DOR and another with the city or cities where taxable activity occurred. If a business needs to file TPT returns but has an outstanding balance for tax periods prior to its January 2017 activity, those returns and payments must be filed and paid directly with the city where the business had taxable activity. To aid in the transition, the DOR has prepared deduction code bridges that link local codes with the standardized state codes. In addition, if your business previously used a TPT license number issued by a non-program city, that number will no longer be valid after December 31, 2016. Failure to renew the license may be subject to penalties. All fees are payable to ADOR using the license number issued by the department. The renewal fee is due at the time of renewal. The fees can be paid via AZTaxes.gov with e-check or ACH Debit if that option is already set up on the account. The effective date of Arizona’s TPT simplification had previously been delayed several times. For our previous news item, click here. (News Release, Arizona Department of Revenue, December 29, 2016)

(01/03/2017)

The Arizona Department of Revenue has issued a ruling stating that a business that operates an online marketplace and makes online sales on behalf of third-party merchants is a retailer conducting taxable sales. The ruling states that gross receipts of that marketplace business derived from sales of tangible personal property to Arizona purchasers are subject to Arizona transaction privilege tax (TPT), provided that the business already has nexus for Arizona TPT purposes. The ruling states that a taxpayer operating an online market place is a retailer making taxable sales on behalf of a third-party merchant if it does the following:

 

  • provides a primary contact point for customer service, 
  • processes payments on behalf of the merchant, and 
  • provides or controls the fulfillment process

 

This appears to indicate that online marketplace providers that otherwise have nexus in Arizona will be deemed the seller for third party retailers that sell on its platform and that the online marketplace has the responsibility to collect and remit tax on all taxable sales.  This is the first state to take this position directly and not through a legislative change.  We will continue to monitor this to determine if a challenge is filed to the constitutionality of this position.  (TPR 16-3, Arizona Transaction Privilege Tax Ruling, Arizona Department of Revenue, September 20, 2016) (TPR 16-3, Arizona Transaction Privilege Tax Ruling, Arizona Department of Revenue, September 20, 2016)

(10/28/2016)

Arizona hasmodified the exemption criteria for the "qualified manufacturing or smelting business"exemption as it applies to the state’s transaction privilege and use tax deduction of electricity and natural gas sales. A "qualified manufacturing or smelting business" means a business that does one of the following:

 

  • manufactures or smelts tangible products in this state, of which at least 51% of the manufactured or smelted products will be exported out-of-state for incorporation into another product or sold out-of-state for a final sale;
  • derives at least 51% of its gross income from the sale of manufactured or smelted products manufactured or smelted by the business;
  • uses at least 51% of its square footage in Arizona for manufacturing or smelting and business activities directly related to manufacturing or smelting;
  • employs at least 51% of its workforce in Arizona in manufacturing or smelting and business activities directly related to manufacturing or smelting; or
  • uses at least 51% of the value of its capitalized assets in Arizona, as reflected on the business's books and records, for manufacturing or smelting and business activities directly related to manufacturing or smelting.

 

The definition of manufacturing has also been modified to include processing or fabricating but it now excludes publishing and packaging.  

 

Effective August 6, 2016, a vendor must accept a certificate establishing a deduction in good faith. If the purchaser cannot establish the accuracy and completeness of the information provided in the certificate, then the purchaser is liable for the transaction privilege tax that the vendor would have been required to pay if the vendor had not accepted the certificate.If however, the vendor has reason to believe that a certificate is not accurate or complete, the vendor will not be relieved of the burden of proving the exemption applies.  (H.B. 2676, Laws 2016, effective January 1, 2017 unless otherwise specified)

(10/13/2016)

Arizona has enacted a tax amnesty program that will run from September 1, 2016 through October 31, 2016. The amnesty program applies to individual income, corporate income, and transaction privilege (sales) taxes, but not non-program city transaction privilege taxes. Interest and civil penalties that were or could have been assessed for the periods covered by the application will be waived or abated for qualifying participants. The taxable periods that are eligible for tax recovery are for those taxes due on an annual basis for any tax year ending before January 1, 2014. Eligible taxable periods for monthly and quarterly filings are for tax periods ending before February 1, 2015. Taxpayers can elect to pay the tax liability in full on or before October 31, 2016 or pay the full tax liability in installments over a 24-month period, ending no later than October 31, 2018. To see who are eligible and ineligible to participate in the program visit https://www.azdor.gov/TaxRecovery.aspx. It is important to note that taxpayers currently under audit are not eligible to participate.  It also requires tax for any prior period to be remitted – there is no limit to the lookback period.  For monthly and quarterly returns such as sales tax, all periods after February 2015 are also not included so these periods would need to be filed and would incur interest and penalty.  An evaluation of the Arizona Voluntary Disclosure program as contrasted with the Amnesty program should be conducted before entering the Amnesty program. (Arizona Tax Recovery Program, Arizona Department of Revenue, August 2016)

(09/08/2016)

On August 25, 2016, House Judiciary Committee Chairman Robert Goodlatte released a discussion draft of the Online Sales Simplification Act of 2016. The legislation would implement a “hybrid origin” approach for remote sales. Under the legislation, states could impose sales tax on remote sales if the origin state participates in a clearinghouse.In this case, the tax is based on the origin state’s baseand taxability rules. The rate would be the origin state rate, unless the destination state participates. In that case, the rate used would be a single state-wide rate determined by each participating destination state. A remote seller would only remit sales tax to its origin state for all remote sales. Only the origin state would be able to audit a seller for remote sales. Non-participating states would not be able to receive distributions from the clearinghouse. Sellers would be required to provide reporting for remotes sales into participating states to the Clearinghouse so it can distribute the tax to the destination state. We will continue to monitor activity and update when the official bill is introduced.  (Discussion draft of Online Sales Simplification Act of 2016)

(09/08/2016)

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