Arizona’s Regulatory Tax Environment is Business-Friendly

Greater Phoenix Arizona has received considerable recognition for its progressive, business-friendly attitudes, including one of the nation’s lowest combined state and local tax burdens. The state legislature lowered taxes during each of the last nine years and aids businesses through tax credits for research and development and an absence of unitary, inventory and franchise taxes. There is no municipal income tax and no sales tax on direct sales to state or federal government. Certain transactions between related companies are exempt from any taxes. Lower taxes coupled with the government’s emphasis on an easy permitting process makes relocating or expanding business in Greater Phoenix a comparatively quick and low-cost proposition.

Maricopa County Assessor Keith Russell says: “Tax district budgets for things like schools and fire protection will increase far less than the housing market has appreciated in 2005.”  If the combined property value in a tax district increases 50 percent over two years, and new properties are added to the tax roll, then school, fire and library districts, for example, can lower their rates and still collect enough money to operate, according to Keith Russell.

You can check out News/Press Release page for important information from the Assessors office, designed to serve the public with a variety of factual and information items.

General Arizona Property Taxes

• Based on local taxes, Arizona has the seventh lowest effective property tax rate at 0.6696. In other words, the annual property tax for a $100,000 home in Arizona would be $660 versus $1,150 on a national average.
• Counties, cities and community colleges are limited to an increase in total property tax levies of 2% over the previous year’s level, plus new construction.
• The valuation of locally valued property is limited to a 10% growth over the prior year’s limited value or an amount equal to one-fourth of the difference between the previous year’s value and the full cash value of the property for current tax year, whichever is greater.
• The maximum primary tax liability for owner-occupied residential property is 1% of primary value. Secondary property taxes (i.e. bonds, school overrides) have no cap.
• Owner-occupied residential properties and residential rental property are assessed at 10% of full cash value. The average tax rate on homes in Arizona before exemptions and rebates is approximately 1.3% of market value.

Individual Income Tax

A personal income tax is levied on residents and nonresidents earning income in Arizona. Income tax credits are allowed for elderly low-income taxpayers. Personal taxes have been substantially reduced for the last nine years.

Arizona’s personal income tax rate ranges from 3.8% to 7% of taxable income. No municipality imposes an earnings tax.

Sales Taxes

The state levies a 5% sales and use tax. Food for home consumption, prescription drugs, and machinery and equipment directly used in manufacturing, processing and in certain other industries are exempt. Eighty-three municipalities impose an additional 1% to 2% sales tax.

Estate Taxes

A return must be filed with the federal government as well as the Arizona Department of Revenue when the gross estate exceeds $600,000. The tax rates imposed on the remaining estate are designed to absorb the maximum credit for state death taxes allowed by the federal government. Returns on taxable estates must be filed with the Department of Revenue Estate Tax Division within nine months after death.

Corporate Income Tax

Corporate Income Tax is levied for all firms at 9%. The minimum filing amount is $50. More information on taxes.

Arizona offers a favorable tax environment for existing businesses and for those moving into the state. Arizona follows the federal laws for accelerated depreciation and the depreciation expense election. Subtractions from federal income are allowed for such items as dividends received from corporations doing 50 percent or more business in Arizona and interest received on U.S. obligations. Numerous credits are allowed against tax including the Research and Development Credit, the Enterprise Zone Credit, the Pollution Control Credit, the Alternative Fuel Credit and the Summer School and Jobs Credit.

Gasoline and Motor Vehicle License Taxes

The gasoline and diesel motor vehicle license tax is an ad valorem tax levied in lieu of property taxes. The assessed valuation is computed at 60% of the manufacturer” list price, without options. This valuation is reduced thereafter by 15% each year. The tax rate is $4 per $100 of assessed value with a minimum tax of $10. Payments are due upon purchase of a vehicle with annual renewals on a staggered system throughout the year.

• The State tax is $.18 per gallon for gasoline, and either $.18 or $.26 per gallon for diesel, depending on whether a diesel vehicle is light class/exempt or use class. The tax rate is required to be posted on each pump using decals issued by the Arizona Department of Transportation, Motor Vehicle Division (MVD). MVD enforces fuel tax laws, and violations involving tax rate decals may be reported to MVD online
• There is an annual vehicle registration fee of $8 per vehicle (an additional $4 fee is charged for new registrations).