Arizona LLC Taxes

Arizona’s warm climate and positive economic growth prospects make it a popular spot for new businesses. Still, figuring out all the business taxes and obstacles to setting up a business can prove challenging for some business owners.

Regardless of the size of your business, if you operate a limited liability company (LLC) in Arizona, you will need to ensure you stay up to date on your finances and pay federal, state, and local taxes. Our guide will help you understand which taxes you will need to pay for your Arizona LLC.

Recommended: Schedule a free consultation with an accountant to stay on top of your taxes. 

Arizona LLC Taxes Owed

In most states, LLCs will have pass-through taxation, which means that the profits of the business will pass through to the members’ individual tax returns. This means that the LLC as an entity will not pay federal or state taxes. Instead, the owner of the LLC will pay taxes on their portion of the income made from the LLC.

In Arizona, LLC owners can expect to pay the following taxes:

Federal Taxes

Regardless of where your business is located, if you have an LLC within the United States, you will have to pay federal income taxes and federal self-employment taxes. These taxes are reported on your Form 1040.

Federal Self-Employment Taxes

It doesn’t matter if your LLC is a single-member LLC or a multi-member LLC; all LLC members must pay self-employment taxes on their share of the LLC’s profits. The self-employment tax rate is 15.3%. 

Federal Income Taxes

Your federal income taxes will depend on your tax bracket, and the cutoffs for individual tax brackets, as well as the percent owed, will change each year.

Arizona State Taxes

Each state has its own laws dictating how individuals and businesses are taxed, with Arizona being no exception to this. Something to keep in mind is that if your LLC is not taxed as a partnership, S corp, or C corp, it will not be subject to corporate taxes from the state of Arizona. 

Below we have outlined tax information for the state of Arizona that will be useful to know when starting or operating your LLC.

Arizona Income Taxes

The state income tax for businesses in Arizona is 4.9%. Remember that you will need to pay both federal and state income tax for your LLC. 4.9% puts its income tax rate just below the nationwide average of 5%. Some even have income tax rates higher than 10% making Arizona an excellent place to start an LLC.

Arizona Sales and Use Tax

Instead of having a traditional sales tax, Arizona has a Transaction Privilege Tax (TPT) of 5.6%. This is a tax on vendors for the privilege of conducting business in the state. 

Though the state’s Department of Revenue collects the tax, some counties and cities implement their own tax rate onto this number. The average local tax rate sits at 2.77%.

Register for Transaction Privilege Tax in Arizona

If your business sells taxable goods or services, the Arizona Department of Revenue requires you to have a TPT License. Businesses must renew their license annually, or they may be subject to penalties. 

The Arizona Department of Revenue has a large section on its website that explains TPT Licenses in more detail.

Additional State Taxes

Arizona’s Department of Revenue oversees the collection of various taxes that businesses may have to pay depending on their location, industry, and number of employees. 

These are a few taxes that LLCs in Arizona may be responsible for paying:

  • Liquor Tax
  • Tobacco Tax
  • Marijuana Taxation
  • Jet Fuel Tax
  • Transient Lodging Tax

Information on these taxes, as well as tax credits that may be available to your business, can be found on the Arizona Department of Revenue website.

Arizona Local Taxes

Local taxes, laws, and ordinances are likely to vary between different locations in Arizona. No matter where your business operates, we recommend you check with your local jurisdiction to ensure your business has the proper permits and adheres to local regulations so that your LLC doesn't run into any problems down the line.

Arizona LLC Compliance

You must obey Arizona’s state and local laws to maintain your business's compliance and good standing. Remember that your Arizona LLC will need to file taxes on the state, federal, and local levels.

Arizona LLC Annual Report

Most states require LLCs to file a yearly report, but Arizona does not require LLCs to submit an annual report to the state. Of course, you will still need to pay taxes on your personal income made from the business, but your LLC does not need to file any annual documentation with the state of Arizona.

LLC taxes are complex. While our guide can provide you with important information, we recommend you schedule a free consultation with an accountant to ensure that you handle your business taxes correctly.