Arizona Transaction Privilege Tax
Also referred to as “sales tax”, Arizona Transaction Privilege Tax (TPT) is a tax on the vendor (final user of the product) for the privilege of doing business in the state
Sales Tax for Retail Stores & Restaurants
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Transaction Privilege Tax is collected by retailers in the county or city they reside in. Here is a handy look up tool to look up the rate for your business location : https://aztaxes.gov/Home/Address/
Rates change occasionally and you should be aware to update your point of sale system.
TPT is charged to the final user of the product and the cost is passed along to the customer. Businesses are simply the middle man to collect the tax and then remit it to the AZ Department of Revenue.
There are a variety of retail categories subject to TPT, and also many exceptions. For example, sales of food items at grocery stores are not subject to TPT, however food purchased at restaurants are.
Sales Tax for Service Contractors
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“Service based contractors” only offer Maintenance, Repair, Replacement and Alteration construction activities, collectively referred to as MRRA activities, are specifically excluded from the prime contracting classification.
You may not need a TPT license or report to the AZ Department of Revenue. Instead:
1. Pay Retail TPT at the time of purchase from the retailer, for materials purchased for incorporation into a nontaxable maintenance, repair, replacement or alteration project.
2. When you are a subcontractor, fill out a W-9 form when working under a prime contractor.
This is important so you can give them a 1099 at the end of the year.
It doesn’t matter how much you pay them (ie under $600), have them fill out the form.
Penalties are high for not issuing a 1099 when needed. Protect yourself in case of an audit.
3. If you are a registered Contractor with the Arizona Registrar of Contractors (AZROC) obtain/maintain a TPT license.
Check with the AZROC for renewal requirements of your contractor’s license if you do not have a current TPT license.
4. When you are a subcontractor, if you have a TPT license, obtain a copy of Form 5005 Prime Contractor’s Certificate from the Prime contractor on a taxable (modification) project.
You will need this to be able to purchase materials exempt from tax for a project that is taxable to the prime contractor.
Keep this form in your records. This is what makes you “tax exempt” and is the Prime Contractor’s promise to pay the sales tax due on a job.
5. When you are a subcontractor, if you do not have a TPT license, obtain a copy of Form 5009 L Contractor’s Certificate from the Prime contractor on a taxable (modification) project.
You will need this to be able to purchase materials exempt from tax for a project that is taxable to the prime contractor.
This certificate is project specific. It may not be used to purchase materials for more than one project.
In order to obtain a Form 5009 L the prime contractor must provide:
a. The prime contractor’s name, address, transaction privilege tax number, Arizona Registrar of Contractor’s license number, the date the project will begin, and the estimated date of completion.
b. A list of the unlicensed (no TPT license) contractors hired as subcontractors, including their names and other information
c. A description of the project.
d. A copy of the contract with the client
The exempt subcontractor will be required to pay the applicable retail tax should the materials purchased under this special certificate be used for a service contract that is not taxable.
Keep this form in your records. This is what makes you “tax exempt” and is the Prime Contractor’s promise to pay the sales tax due on a job.
Learn more from the AZ Department Website about MRRA Contracting
Have more questions? Let’s talk.
Sales Tax for Prime Contractors
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1. Have subcontractors fill out the W-9 form.
This is important so you can give them a 1099 at the end of the year.
It doesn’t matter how much you pay them (ie under $600), have them fill out the form.
Penalties are high for not issuing a 1099 when needed. Protect yourself in case of an audit.
2. Get a “Certificate of Workman’s Compensation Insurance” for subcontractors
If they can not provide one, then you are supposed to cover them on your workman’s comp policy.
Protect yourself in case of an audit.
3. Obtain/Maintain a Transaction Privilege Tax (TPT) License
You must renew this license annually. There is no fee to renew.
If you are a registered contractor with the Arizona Registrar of Contractors (AZROC) you are required to maintain a TPT license. The AZROC will not renew your Contractor’s license if you do not have a current TPT license.
4. Obtain/Maintain a Form 5000 Transaction Privilege Tax Exemption Certificate from Arizona Department of Revenue (AZDOR)
This certificate is used to purchase job materials exempt from retail TPT for projects that are subject prime contracting TPT.
Depending on the supplier you may be required to have a separate Form 5000 for each job.
5. Obtain Form 5005 Prime Contractor’s Certificate from the Arizona Department of Revenue (AZDOR)
This is your promise that you will pay the sales tax due on a job. This is what makes subcontractors, without a TPT license, “tax exempt”.
Provide a copy to all subcontractors that have a TPT license. If the subcontractor does not have a TPT license they will need a Form 5009-L.
You will be required to have a separate Form 5005 for each subcontractor on each job.
6. Obtain Form 5009 L Contractor’s Certificate from the Arizona Department of Revenue (AZDOR).
This is your promise that you will pay the sales tax due on a job. This is what makes subcontractors, without a TPT license, “tax exempt”.
Provide a copy to all subcontractors that do not have a TPT license.
When you are the sub, be sure to get one! You will need this to be able to purchase materials exempt from tax for a project that is taxable to the prime contractor.
This certificate is project specific. It may not be used to purchase materials for more than one project.
In order to obtain a Form 5009 L the prime contractor must provide:
a. The prime contractor’s name, address, transaction privilege tax number, Arizona Registrar of Contractor’s license number, the date the project will begin, and the estimated date of completion.
b. A list of the unlicensed (no TPT license) contractors hired as subcontractors, including their names and other information
c. A description of the project.
d. A copy of the contract with the client
The exempt subcontractor will be required to pay the applicable retail tax should the materials purchased under this special certificate be used for a service contract that is not taxable.
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