Arizona Tax Rates

This post provides an overview of the primary taxes levied at the state level in Arizona. The information contained here is intended for general reference. For individuals or businesses seeking comprehensive support with tax filings, compliance, or strategic planning, indinero offers expert services. We encourage all who utilize this summary to explore the tailored tax support available through indinero.

Individual Income Tax

Arizona has recently consolidated its tax brackets into a single, flat rate individual income tax system.

  • Tax Rate: The state income tax rate is a flat 2.50% of Arizona taxable income. This uniform rate applies to all taxpayers, regardless of their income level, making it one of the lowest state income tax rates in the U.S.
  • Retirement Income: Social Security benefits are not taxable in Arizona. The state also allows a deduction of up to $2,500 for certain U.S. government civil service and Arizona state or local government pensions.
  • Capital Gains: The state allows a subtraction of 25% of long-term capital gains from taxable income, effectively reducing the state tax rate on that income to 1.875%.

Transaction Privilege Tax (TPT) and Use Tax

Arizona does not have a conventional sales tax. Instead, it uses a Transaction Privilege Tax (TPT), which is legally a tax on the vendor for the privilege of doing business in the state, though it is generally passed on to the consumer.

  • State Rate: The state TPT rate is 5.60% on the gross receipts from retail sales, certain services, and other business activities.
  • Local Taxes: Local jurisdictions (cities and counties) impose their own TPT, which can be significant. The average combined state and local TPT rate is approximately 8.52%, but the total rate can be as high as 11.2% in some localities.
  • Exemptions: Essential items like most groceries (unprepared food for home consumption) and prescription drugs are exempt from the state TPT.
  • Use Tax: A state use tax of 5.60% applies to taxable goods purchased from an out-of-state vendor that were not subject to the Arizona TPT. Individuals are responsible for self-assessing and remitting this tax.

Property Tax (Ad Valorem Tax)

Property taxes in Arizona are collected at the local level by counties, school districts, and cities, and they are among the lowest in the U.S.

  • Effective Rate: Arizona has one of the lowest effective property tax rates on owner-occupied housing value in the nation, averaging around 0.44%.
  • Assessment: Property is first appraised at its full cash value. This value is then converted into a limited property value (LPV), which is used for tax calculation and limits the amount the value can increase annually.
  • Assessment Ratio: The assessed value is calculated by applying a state-mandated assessment ratio to the LPV. Residential property is assessed at 10% of its LPV, while commercial and industrial property is assessed at a higher percentage. The tax owed is calculated by applying the local mill rate to this assessed value.

Corporate Income Tax

Arizona imposes an income tax on C corporations that conduct business in the state.

  • Tax Rate: The corporate income tax rate is a flat 4.9% of the corporation’s Arizona taxable net income. This rate is competitive among the states that impose a corporate income tax.
  • No Franchise Tax: Arizona does not impose a corporate franchise tax or business privilege tax based on net worth, simplifying the tax obligations for most corporations operating there.
  • Apportionment: For multi-state corporations, Arizona generally uses a single sales factor apportionment method.

Key Excise Taxes

  • Cigarette Tax: The state imposes a high excise tax on cigarettes, currently $2.00 per pack of 20 cigarettes.
  • Motor Fuel Tax: A per-gallon tax is levied on motor fuels, set at 18 cents per gallon for gasoline.

Alcoholic Beverage Taxes: Specific excise taxes are levied on liquor, wine, and beer based on volume, in addition to the TPT that may apply to the retail sale.

R&D Offer Quiz

Step 1 of 3

Answer to find out if you're eligible for R&D tax credits.

Do the activities performed relate to a new or improved business component’s function, performance, reliability, quality, or composition?(Required)
For Example: A mid-sized packaging company develops a slightly modified cardboard box design to improve its stacking strength (reliability) for warehouse storage, involving minor adjustments to the corrugation pattern to reduce collapse under standard weight loads.
Is your company trying to discover information to eliminate uncertainty concerning the capability or method for developing or improving a business component?(Required)
For Example: A furniture manufacturer investigates whether a cheaper wood adhesive can hold joints as effectively as the current one during assembly, testing bond strength to resolve doubts about its capability in standard production lines.
Do the activities performed constitute a process of experimentation?(Required)
For Example: An auto parts supplier runs a series of bench tests on different lubricant formulations to find one that reduces friction in engine bearings more effectively, systematically comparing wear rates over simulated operating cycles.