Arizona Sales and Use Tax Compliance

Find out interesting insights with Jon Naseath, CFO/Founder Cantu Capital Inc.

Moderated by Sherry, Financial Technology Advisor at Hyperbots

Don’t want to watch a video? Read the interview transcript below.

Sherry: Hello, and welcome to all our viewers on CFO Insights. I am Shelly, a financial technology consultant here at Hyperbots. And I’m very excited to have Jon Nassith here with me, who is an accomplished executive with expertise in AI, machine learning, and computer vision driving impactful technology solutions in education, healthcare, and business. Thank you so much for joining us today, Jon. We’ll be discussing a very niche topic today, which is Arizona sales and use tax compliance. To get us started with the interview, could you provide an overview of Arizona’s state sales and use tax rates? How do these rates differ across goods and services?

Jon Naseath: Yeah, absolutely. Arizona does something unique. Like other states, they have their own way of treating it. As opposed to just traditional sales tax, which is based on sales, and the consumer pays them when the sale happens, it really puts the burden of paying the transaction back on the business. They call it a transaction privilege tax. One of the main differences is where the burden sits. The practical outcome for the consumer may feel the same, but businesses embed that TPT, that transaction privilege pricing, into the price. You don’t usually see it as an additional line item when you’re doing local sales, even though the prices are higher. These transactional privilege taxes can be on general merchandise and on things like contracting services or leases. Really, anything the business is doing can have the transaction privilege tax. There are some exemptions and caveats. Like any other good tax policy, it’s complicated but generally, the shift is from the consumer to the business, having to pay the tax.

Sherry: To add to your answer, could you also discuss some of the jurisdictions in Arizona with notably high or low TPT rates? How does this affect businesses?

Jon Naseath: Sure, so just one more layer of complication. As opposed to having a generic fee for the different taxes across the state, they have different rates for the different cities within Arizona. As an example, if you’re in Phoenix or Tucson, they could have a rate that exceeds 8.6%. Phoenix’s overall TPT rate could be 8.3%. Other rural areas around Arizona could be closer to 6%. Where you’re doing business in Arizona as a business could impact the rate you have to pay for services or leases you’re providing. Doing business in the low-tax areas can potentially attract more customers and more companies wanting to operate there.

Sherry: How often do these TPT rates change in Arizona? How do businesses keep up with these updates?

Jon Naseath: They usually change with each fiscal year or tax season. So, it’s annually at the state level. However, local jurisdictions, like Maricopa County or Pima County, can adjust their rates more frequently based on budget adjustments or economic initiatives.

Some areas have seen rates that support infrastructure projects. Businesses often rely on local government websites or third-party tax software to track these changes, but it’s constantly changing throughout the state.

Sherry: What are some primary resources available to businesses to stay informed about sales and use tax changes in Arizona?

Jon Naseath: The typical resources include the Arizona Department of Revenue, which is the primary source for TPT rates, guidelines, and updates. They also have transaction privilege tax lookup tools. The Department of Revenue website includes tools you can use to look up rates by city, state, or zip code. Other compliance solutions like Avalara or the Sales Tax Handbook provide alerts and updates.

Sherry: What challenges do companies face when managing compliance with Arizona’s sales and use tax rules? Could you share some examples?

Jon Naseath: Sure. The complexity of the rate structure is a big challenge. It changes by jurisdiction, and businesses need to apply the correct combined rate accurately. For example, a company operating in Phoenix at 8.3% and Mesa at 8.05% must adjust based on their activities and locations. Rates change frequently, and temporary rates may apply for specific projects. Additionally, figuring out what activities require taxes can be challenging—it’s not just sales transactions. It could be something like a lease on a building.

Sherry: Since AI is revolutionizing the finance industry, how can artificial intelligence help businesses manage sales and use tax compliance more efficiently, especially with Arizona’s complex TPT structure?

Jon Naseath: First, I should say I’m not a tax advisor, and I recommend everyone watching consult their tax specialist. Neither is your AI. AI can help provide information, but you shouldn’t rely solely on it. AI can assist with automated rate updates, geolocation for rate applications, monitoring and adjusting for changes and minimizing errors. It can pull data from various databases and local websites to keep businesses informed.

Sherry: How can AI support companies during audits for sales and use tax compliance in Arizona?

Jon Naseath: AI tools like Hyperbots can assist during audits by providing efficient document retrieval and error detection. They can help quickly organize and present the required data to auditors. Having an AI assistant during an audit streamlines the process, allowing businesses to focus on presenting accurate information rather than manually searching for it.

Sherry: What do you see as the future role of AI in handling Arizona’s TPT compliance?

Jon Naseath: I don’t think the complexity will change, but AI will continue to help businesses handle it more efficiently. I see it expanding to include predictive analysis of costs, real-time compliance dashboards, proactive compliance alerts, and more.

AI will allow businesses to focus their resources on strategic goals rather than manual tax compliance.

Sherry: It’s been great speaking with you today, Jon, and learning more about Arizona sales and use tax compliance. Thank you so much for indulging us in these conversations and being as insightful as you always are.

Jon Naseath: Pleasure.