Glossary · Licensing & Bonding
Economic nexus
In short
A sales-volume test that makes remote sellers taxable. It does not reach contracting income.
In full
Economic nexus makes an out-of-state business taxable on the strength of how much it sells into Arizona, without any physical presence. A.R.S. § 42-5044 sets the test: a remote seller exceeding $100,000 in gross proceeds from Arizona customers in the previous or current calendar year, or a marketplace facilitator exceeding the same figure.
The reason it appears in a contracting glossary is to be ruled out. Section 42-5044 is scoped to a person conducting business "in an activity classified under section 42-5061" — the retail classification. Prime contracting is classified under § 42-5075. Contracting income is not within the section, and no dollar threshold makes an out-of-state contractor taxable or excuses one.
An out-of-state contractor is taxable because the work is performed on Arizona real property, which is physical nexus, and that applies to a single project of any size.
Where it can matter to a contractor is on the materials side rather than the contract side. A contractor also making retail sales into Arizona is doing something § 42-5061 classifies, and the thresholds are computed with all affiliated persons aggregated — a person holding more than five percent, directly or indirectly, in another.
Crossing the threshold partway through a year does not create immediate liability. The license is obtained once the threshold is met, and remittance begins on the first day of the month starting at least thirty days afterwards.
A.R.S. § 42-5044(A), (B), (C), (F); A.R.S. § 42-5061; A.R.S. § 42-5075