Arizona Retail Definition and Exemptions Standardized Across All Municipalities as of June 30, 2021

The provisions of House Bill 2757, signed by Arizona Governor Doug Ducey on May 31, 2019, that allowed municipalities to delay adopting sections of the state’s standardized definition of taxable retail sales have expired. The state allowed a phase in period for municipalities to adopt the new definition, requiring those with populations greater than fifty thousand to comply with the state definitions as of December 31, 2019, and requiring all to comply as of June 30, 2021. Now that this phase in period has passed, all city or town ordinances relating to retail sales have been superseded by the state definition.

Cities are now required to exempt sales of the following:

  • propagative materials for use in commercial crop production;
  • implants used as growth promotants and injectable medicine for livestock to farms; and
  • neat animals for breeding or production.

The state still allows municipalities to use discretion to impose tax on specified items, including:

  • packaged and grocery food items;
  • state university or community college textbooks;
  • nonmetalliferous mined materials;
  • fine art sold for use outside of the state; and
  • motor vehicles sold to nonresidents and residents of Indian reservations.

Municipalities also have the option to exempt sales of fine art sold by the original artist.

With House Bill 2757’s final provisions coming into effect, Arizona joins a movement of “home rule states”, states which allow their local taxing authorities to administer their own sales and use tax, that have begun homogenizing statewide rules to more effectively collect tax on online sales. While other states, including Louisiana and Colorado, have moved to simplify sales tax reporting, and Alaska’s independent jurisdictions have adopted joint rules under the Alaska Remote Seller Sales Tax Commission, Arizona has standardized the definitions for imposing a tax on retail sales, not only the process of collecting it. As online sales become an ever-bigger part of consumption, home rule states are likely to continue to tweak their laws to encourage more online retailers to comply with sales tax collection requirements. (Arizona HB 2757, Arizona Revised Statutes 42-6017)

Posted on July 26, 2021