Moderated by Sherry, Financial Technology Advisor at Hyperbots
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.
Moderated by Srishti, Digital Transformation Consultant at Hyperbots
Srishti: Hello, everyone! My name is Srishti Rajveer, and I’m a digital transformation consultant at Hyperbots. Today, I’m delighted to have Shaun Walker as my guest. Thank you so much, Shaun, for taking out the time today.
Shaun Walker: Absolutely, thanks for having me.
Srishti: Of course! A little bit about Shaun for our viewers here. He is the Sox compliance manager at Norfolk Southern, and today we will be discussing Arkansas sales and use tax compliance. So, let’s begin.
Shaun Walker: Let’s get started.
Srishti: Alright. To start with our first question, could you provide an overview of Arkansas sales tax and use tax rates, and how do these rates differ across goods and services?
Shaun Walker: Arkansas has a base state tax rate of 6.5%, which applies broadly to goods and most services. However, local jurisdictions—cities and counties—can add additional rates, leading to variations in the overall rate depending on the location. Some examples include general merchandise, which has a 6.5% rate, whereas food and groceries are generally taxed at a reduced rate of 1.5%.
Srishti: Understood. Are there any exemptions you’ve noticed across this?
Shaun Walker: There are exemptions, such as prescription drugs and certain medical devices, which are generally exempt from sales tax. The system requires businesses to carefully assess rates based on item types and locations.
Srishti: Understood. Could you discuss some of the jurisdictions in Arkansas with notably high or low tax rates? How does this affect businesses?
Shaun Walker: Some of the highest rates are in cities like Gould and Lakeview, which have a combined rate as high as 11.5%. Meanwhile, rural areas or smaller towns may have combined rates closer to 7%. For businesses, these differences mean they have to adjust rates based on their sales location. Businesses in high-tax areas may face increased costs, which can impact competitiveness, while companies in lower-tax areas may attract more price-sensitive customers.
Srishti: Makes sense. How often do Arkansas sales tax rates change? How do businesses keep up with these updates?
Shaun Walker: The state tax rate changes infrequently, but local rates can change annually or even more often, especially if local governments adjust for budget requirements. For example, recent local rate adjustments have taken place due to infrastructure improvements in various counties. To keep up, businesses rely on tools or resources provided by the Arkansas Department of Finance and Administration or third-party tax compliance solutions.
Srishti: Understood. What are some of the primary resources available to businesses to stay informed about sales and use tax changes in Arkansas?
Shaun Walker: The three main resources are the Arkansas Department of Finance and Administration (DFA), sales tax lookup tools, and third-party compliance solutions. Platforms like Avalara and TaxJar provide real-time updates on local sales tax rates across Arkansas with integration options for sales systems. These resources help businesses manage rate variability across jurisdictions and ensure accurate application of tax rates.
Srishti: I see. What challenges do companies face when managing compliance with Arkansas sales and use tax rules? Could you share some examples for our viewers?
Shaun Walker: Challenges include jurisdiction variability, as numerous counties and cities each have their own tax rates ranging from 7% to 11.5%. Frequent local changes require businesses to stay constantly updated, especially if they operate statewide. Additionally, complex taxability rules make it challenging to determine which goods and services are exempt or partially exempt, like the reduced rate of 1.5% for food items.
Srishti: Understood. Since artificial intelligence is so prevalent, how can AI help businesses manage sales tax and use tax compliance more efficiently, especially in Arkansas’s complex local tax structure?
Shaun Walker: AI can simplify compliance in several ways. Automated rate updates pull in tax rates from government sources and update them for each jurisdiction, ensuring compliance. Location-based rate applications calculate the exact sales tax rate based on the customer’s location, eliminating errors. AI also monitors and applies exemptions, like Arkansas’s reduced rate for groceries, based on transaction details. For example, Hyperbots AI offers advanced solutions that automate local tax rate applications and ensure accurate calculations, reducing errors and saving time.
Srishti: That’s really interesting. How can AI support companies during audits for sales and use tax compliance in Arkansas?
Shaun Walker: AI supports quick document retrieval and error detection. Hyperbots AI systems help businesses prepare for audits by generating compliance reports and organizing transaction records by jurisdiction. This reduces the time and effort required for documentation, making audits less stressful and more transparent.
Srishti: That’s amazing, especially with the advancements AI has brought into this space. This makes me curious—what do you see as the future role of AI in handling Arkansas sales and use tax compliance?
Shaun Walker: AI’s role will continue to expand with predictive analytics to forecast the impact of upcoming rate changes, real-time compliance monitoring through live dashboards, and proactive alerts for rate changes. Hyperbots AI is pioneering these solutions with predictive and real-time capabilities, helping Arkansas businesses anticipate changes and manage tax compliance seamlessly.
Srishti: Thank you so much for sharing your insights. That was really helpful. This brings us to the end of our discussion today. Thank you so much for joining us. It’s been a pleasure talking to you, Shaun. A big thanks to our viewers as well. See you around—goodbye and have a great day!
Shaun Walker: Awesome, thank you.
