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Q: What is Transaction Privilege Tax vs Sales Tax?

A:

The Arizona transaction privilege tax (TPT) is commonly referred to as a sales tax; however, the tax is on the privilege of doing business in Arizona. Although TPT is usually passed on to the consumer, it is actually a tax on the vendor. 

Types of business activities subject to TPT include, but are not limited to: retail sales, restaurants/bars, hotel/motel (transient lodging), commercial leasing, advertising, amusements, personal property rentals, real property rentals, construction contracting, owner/builders, manufactured buildings, transportation, printing, publishing, utilities, telecommunications, and use tax.

The Arizona Department of Revenue (AZDOR) administers the tax for the Cities/Towns and Counties. Tax rates vary depending on the type of business activity, the city and the county.

If you are selling a product or engaging in a service subject to transaction privilege tax, you will need to obtain the State transaction privilege tax (TPT) license from AZDOR (commonly referred to as a sales tax, resale, wholesale, vendor or tax license) and a City of Surprise issued business license.

Q: Is a Business License and a Transaction Privilege Tax License the same?

A:

No, they are different. A City business license is issued and required by the City of Surprise to conduct business in the City. A Transaction Privilege Tax license is issued and required by the Arizona Department of Revenue to engage in or continue to engage in business in Arizona.

Q: How do I obtain a Transaction Privilege Tax License?

A:

There are three different ways you can obtain a TPT license:

1. Apply online at AZTaxes.gov. This option enables businesses to register, file and pay transaction privilege taxes online.
2. Download and complete the Residential Rental Tax Application, or a Joint Tax Application (JT-1) and follow the instructions.
3. Go to one of the AZDOR offices to deliver the completed paper application.

NOTE: When applying in person, only the owner or principal officer of the business who has signed the application can receive the license. Proof of identity will be required. Otherwise, the license will be mailed to the applicant unless a Power of Attorney is provided. https://azdor.gov/forms/poa-and-disclosure-forms

Q: How do I add the City of Surprise to my Transaction Privilege Tax License?

A:

If you are selling goods at an event in Surprise and already have a State TPT license, add the region code, “SP”, to your return when time to file. Updates to the licensed business can also be made in advance by completing a Business Account Update form to add, close, or change your information or by logging into your account at AZTaxes.gov.

Each separate physical location must have a license for display. If the ownership is the same, the locations can be consolidated under one license number to allow you to file a single return. If you do not wish to consolidate, you can complete separate license applications and have different license numbers issued for each location. Filing of tax return and payment of tax is required for each license issued.

Q: How do I report and pay my TPT taxes?

A:

The Arizona Department of Revenue (AZDOR) administers the tax program for all municipalities in Arizona. Once you have your TPT license number, you can report and pay online through AZTaxes.gov

Q: What codes do I use when reporting City of Surprise TPT to the Arizona Department of Revenue?

A:

There are four types of codes that you will use when reporting your taxes:

Location Code – Each business location in the state is assigned a location code by AZDOR. It is the 3-digit number located on the left side below the address on the TPT license certificate. This location code is important as it allows the AZDOR to properly collect and disperse taxes generated by businesses in a specific area to the correct City/Town. If you own more than one location in the same city, make sure that you are reporting to the correct location code.

Region Code – Every City/Town and County is represented by a two or three letter code; City of Surprise is SP, and the State/Maricopa County is MAR.

Business Code – Types of taxable business activities are represented on the return by a three digit number. For example, residential rental business code is 045. The codes for the City/Town and the State/County are usually the same; however, sometimes they are different as is the case with Commercial Property Rentals. City of Surprise is 213, and the State/Maricopa County is MAR 013. Refer to the Transaction Privilege Tax Rate Chart for the appropriate City of Surprise business code. For a statewide list click https://azdor.gov/transaction-privilege-tax/tax-rate-table here

Deduction Code – Transaction privilege tax deduction codes are used in Schedule A of Form TPT-2 and TPT-EZ to deduct income exempt or excluded from tax, as authorized by Arizona Statute and or Model City Tax Code. The same region codes used in reporting income are used in Schedule A to claim deductions of nontaxable or exempt income.

For instance, a pharmacy’s income from sales of prescription drugs is specifically exempt from both state and city transaction privilege tax. The pharmacy will report all of its gross income under each correct region code and deduct the income from sales of prescription drugs on Schedule A. Appropriate taxes will then be paid on all of the pharmacy’s income not deducted on Schedule A.

Q: What if I don’t collect the tax from my customers?

A:

It is the responsibility of the business to remit transaction privilege tax. Whether you collect it from your customers or not, the tax liability for all taxable business conducted in the City of Surprise must be remitted.

When tax has not been separately billed to your customer, you may factor the tax out of your gross income before calculating tax due to the City of Surprise, as well as the State and County. When a business “factors” transaction privilege tax, it means the tax is included in the total price rather than shown as a separate charge. If you choose to factor the tax, the tax must be calculated using a factoring formula. For additional information, click here.

Q: How do I calculate my taxes due?

A:

Taxes are calculated by stating the gross receipts for the reporting period on the tax return, entering the itemized deductions, then multiplying the resulting net taxable amount by the combined (City/State/County) rate. Refer to the Transaction Privilege Rate Chart for the combined rate.

Q: Which Local Options has the City of Surprise adopted?

A:

Local options add or substitute language to the Model City Tax Code.

Local Option H – Imposes tax on membership fees for health spas, fitness centers, and includes instruction and lesson fees for dance studios and karate.

Local Option P – Imposes tax on sales of feed at wholesale.

For a list of Model City Tax Code Local Options click below

https://modelcitytaxcode.az.gov/Option_Charts/local.htm

Q: Which Model Options has the City of Surprise adopted?

A:

Model Options omit language from the Model City Tax Code.

Model Option 3 – Does not exempt job printing for publishers.

Model Option 5A – Exempt only single-unit residential lodging rental.

Model Option 7 – Do not exempt gross income from coin-operated washing, drying, car-wash, and dry-cleaning machines from the tax on rental of tangible personal property.

Model Option 10 – Do not exempt livestock, feed, and agricultural chemicals purchased by ranchers, farmer, etc.

Model Option 11 – Do not allow tax credit against telecommunications tax for franchise and license fees paid the City.

Model Option 13 – Do not allow tax credit against utility tax for franchise fees paid the City.

For a list of Model City Tax Code Model Options click below.

https://modelcitytaxcode.az.gov/Option_Charts/model.htm

Q: If I rent my house or building, is it taxable?

A:

Yes, residential rentals are taxable at 2.2% for the City of Surprise (unless you meet the exemption below). Residential rentals are not taxed by the State or County. You will need an Arizona TPT License in order to report the rental tax collected for the City of Surprise. Please note that you are only applying for a city TPT license, so you will pay the fee that corresponds with that particular city. The fee for the City of Surprise is $10.00. You will need to submit a Transaction Privilege Tax City Only Application.

Exemption: If you have less than 2 residential rentals within the State and no commercial rental properties within the state, you are not deemed to be in the rental business, and are therefore exempt from the tax.

However, if your rental property is leased through a Property Manager, every residential rental property located in the City of Surprise is subject to tax. In addition, each property owner is required to have a tax license, regardless of the City of Surprise minimum number of rentals.

Note: If you also own a commercial rental anywhere in the State, every residential rental property located in the City of Surprise is subject to tax, regardless of the City of Surprise minimum number of rentals.

Note: If you are renting out for short-term, or vacation rentals (less than 30 days) than the activity falls into the hotel/motel/transient lodging classification. The combined rate is 13.99% for the State/County and City of Surprise.

Q: What are the registration and tax requirements for residential rentals?

A:

You must register the property with the County Assessor’s office as a rental property. Failure to do so could result in a daily fine of up to $150.00. Information and forms are available at: https://mcassessor.maricopa.gov/faq/faq-rental-registration.php

Q: Are sales to the City of Surprise taxable?

A:

Yes, all sales (except sales for resale) that you make to the City of Surprise are taxed in the same manner as other taxable sales.

Q: Are internet sales taxable?

A:

Yes, items sold by a business located in the City of Surprise via the internet to Arizona residents are taxable at the State/County rate and the City of Surprise rate and must be reported on the TPT-2 form.