Operating a business in Arizona requires a solid understanding of the state's tax framework. The base state sales tax rate is 5.6%, with local jurisdictions adding up to 5.6%. LLC formation costs $50 in 2026.
Economic Nexus in Arizona
Remote sellers must collect Arizona sales tax if they exceed $100,000 in annual sales within the state. This threshold has been in effect since 2019-10-01. Marketplace facilitators like Amazon and Etsy are also required to collect and remit tax on behalf of third-party sellers. The Arizona Department of Revenue enforces these provisions and provides registration guidance at https://azdor.gov.
LLC Formation in Arizona (2026)
Forming an LLC in Arizona costs $50 for the initial filing. There is no annual franchise tax, keeping ongoing costs low. Arizona imposes a state income tax, which affects pass-through LLC taxation.
The process involves filing Articles of Organization with the Secretary of State, obtaining a federal EIN, and registering for applicable state tax accounts. You will also need a sales tax permit from the Arizona Department of Revenue.
Key Tax Rules
• Arizona uses a Transaction Privilege Tax (TPT) instead of a traditional sales tax, taxing the seller's privilege of doing business.
• The state TPT rate is 5.6%, with local additions up to 5.6%.
• Groceries are exempt from state TPT but may be subject to local taxes.
• Economic nexus threshold is $100,000 in annual sales.
Sales Tax Exemptions
The following categories are generally exempt from sales tax in Arizona: groceries, prescription drugs, medical devices. Businesses should maintain proper documentation for exempt transactions.