Arizona Enacts Economic and Marketplace Nexus Legislation

Effective Date: October 1, 2019

Threshold: $200,000 in 2019; $150,000 in 2020; and $100,000 in 2021 and thereafter

Measurement Date: Previous or current calendar year

Includable Transactions: Gross sales; Marketplace sales are not included towards the threshold for individual sellers

When You Need to Register Once You Exceed the Threshold: The seller must obtain a TPT license once the threshold is met and begin remitting the tax on the first day of the month that starts at least thirty days after the threshold is met for the remainder of the current year and the next calendar year.

Arizona has enacted legislation with economic and marketplace nexus provisions, effective October 1, 2019. Remote sellers must apply for a transaction privilege tax (TPT) license to collect TPT if, in the previous or current calendar year, they have gross proceeds from sales or gross income derived from business with Arizona customers more than the following:

• For calendar year 2019: $200,000
• For calendar year 2020: $150,000
• For calendar year 2021 and each calendar year thereafter: $100,000

Arizona is the first state to use a graduated approach for their economic nexus threshold. Marketplace sales are not included towards the threshold for remote sellers that make both direct sales and sales through a marketplace into Arizona. However, all sales by affiliated persons shall be aggregated together.

If a remote seller meets the threshold partway through the current calendar year (and not in the previous year), the seller must obtain a TPT license once the threshold is met and begin remitting tax on the first day of the first month that starts at least thirty dates after the threshold is met for the remainder of the current year and the next calendar year. However, cities and towns may not require remote sellers or marketplace facilitators to obtain a business license for the city or town if the only reason they are required to pay tax is because of economic nexus. But remote sellers and marketplace facilitators must collect the transaction privilege tax and not the use tax which will require the collection of local taxes.

A remote seller is not liable for failing to pay the correct amount of TPT if the failure is due to an error other than a sourcing error. Liability relief for remote sellers will not exceed:

1. 5% of the total tax due on taxable sales during calendar year 2019
2. 3% for calendar year 2020
3. 0% for calendar year 2021 and each year thereafter

A separate threshold is set for marketplace facilitators. Marketplace facilitators with more than $100,000 in gross proceeds of sales or gross income derived from its own sales or sales facilitated on behalf of at least one marketplace seller must obtain a TPT license and to collect and remit tax on behalf of its marketplace sellers.

Remote sellers do not need to collect TPT on transactions when a marketplace facilitator is collecting and remitting TPT for them.

The state defines a “marketplace facilitator” as a person that facilitates a retail sale by listing or advertising a marketplace seller’s tangible personal property in a marketplace and, either directly or indirectly, through agreements or arrangements with third parties collects payment from the purchaser and transmits that payment to the marketplace seller, regardless of whether the marketplace facilitator receives compensation for the marketplace facilitator’s services. Marketplace facilitators do not include payment processor businesses that handle payment transactions from various channels, such as charge cards, credit cards and debit cards, and whose sole activity with respect to marketplace sales is to handle transactions between two parties.

A marketplace facilitator is not liable for failing to pay the correct amount of TPT for a marketplace seller’s sales if the marketplace facilitator and seller are not affiliated and:

1. The failure to pay the correct amount is due to incorrect information given to the marketplace facilitator by the seller; or
2. The failure to pay the correct amount is due to an error other than an error in sourcing the sale

Liability relief for marketplace facilitators will not exceed:

1. 5% of the total tax due on taxable sales facilitated by the marketplace facilitator for calendar year 2019
2. 3% for calendar year 2020
3. 0% for calendar year 2021 and each year thereafter

The Arizona Department of Revenue is in the process of modifying its TPT systems and will provide additional guidance to remote sellers and marketplace facilitators on when they should begin the TPT licensing process. (H.B. 2757, Laws 2019, effective October 1, 2019)

UPDATE: Arizona has issued final rules pertaining to the state’s economic and marketplace nexus provisions, which took effect October 1, 2019. The final regulations contain a number of notable clarifications:

• Regarding a retailer’s inventory of goods stored in Arizona, such inventory is only relevant to physical presence nexus in Arizona if it is stored under the retailer’s direction and control. If a third party is storing the out-of-state retailer’s inventory in Arizona, it is not relevant to determining the retailer’s physical presence in the state.
• The final regulations state that the Department follows the statutory definition of “retailer.” The regulation specifically clarifies that that the term “retailer” includes wholesalers, manufacturers, and any other seller of tangible personal property to Arizona purchasers.
• For purposes of determining whether a remote seller meets the economic nexus threshold requirements, only the remote seller’s sales that are not facilitated through a marketplace provider should be counted towards the threshold.

(Regs. Sections R15-5-101 et al., and Regs. Sec. R15-10-301, R15-10-302, R15-10-501 et al., Effective October 1, 2019; Arizona Department of Revenue)