Transaction Privilege Tax (AKA Sales Tax)
When is a sales tax not a sales tax? When it’s a transaction privilege tax.
Looking back in history, we can see that the practice of collecting sales tax for online purchases had some public relations problems. Advocates pointed out that everyone was supposed to pay that tax anyway, but plenty of consumer voters saw it as a tax increase.
Then the question of nexus came up (all the way up to the Supreme Court) and plenty of business voters saw it as an unreasonable burden.
Arizona didn’t face this particular problem, because they have a transaction privilege tax. You’re not being required to collect sales tax in a state where you have no physical nexus — you’re paying for the privilege of doing business in Arizona. Arizona has had a transaction privilege tax (fondly called the TPT) since 1935.
The origins of the TPT
The Great Depression hit Arizona as much as any other state. They saw a grave loss in property taxes. California responded to their similar problems by imposing a sales tax, but Arizona felt this would be unpopular with voters.
Instead, they came up with the TPT. It was just one per cent of a transaction, and it applied only to a few goods and services. It let Arizona get her feet wet without committing to a sales tax.
Sellers are required to pay the TPT, and they are allowed to pass iron to their customers. That means that you can charge your customers the TPT and remit it to the state of Arizona just as you would a sales tax. However, you don’t have to. You can pay it yourself if you prefer.
Arizona admits that the TPT is “commonly called a sales tax” but they are adamant that it isn’t in fact a sales tax.
Remote sellers still have to comply and pay the TPT. The threshold for annual gross retail sales into Arizona was $200,000 in 2019, $150,000 in 2020, and is $100,000 in 2021 and thereafter.
In theory, this gave SMB sellers a chance to ease into the TPT. If you haven’t paid TPT in Arizona before but you expect to meet the new threshold this year it’s time to register for the TPT.
Sales tax is complicated
Whether it’s historical complexities like the TPT or frequent changes like the economic nexus thresholds, sales tax is complicated. The concept of economic nexus was accepted under the assumption that sales tax software would make it easy to comply in every state. Most sales tax software doesn’t do this.
Sales Tax DataLINK provides calculation and filing in every state for a predictable, affordable cost. We can also take on your entire sales tax compliance burden.
Our software is affordable and accurate, and we have American CPAs on hand who will help you any time you need support. Call 479-715-4275 to discuss your needs.
Sales tax calculations and filing can be done by hand. When you make a sale, you figure out whether the goods and services are taxable and whether you have nexus in the buyer's tax jurisdiction. More on that later. Once you've determined that you need...
Sales tax is complicated. We've just gone through the annual flurry of back to school tax holidays, for example. If you're a remote seller of clothing, you probably sell mostly through retail. But you might have some direct to consumer sales. In some...
A lot of our clients are manufacturers, contractors, or in some other industry that doesn't usually have to think much about sales tax. Retailers know they have to collect sales tax, and usually plan for it. We often hear from people who had no idea...