Glossary · Institutions & Instruments
Transaction Privilege Tax
In short
Not a sales tax, despite the nickname. TPT is a tax on the business for the privilege of doing business in Arizona, owed whether or not anything is collected from the customer.
In full
Transaction privilege tax is commonly called Arizona sales tax, and the difference the name hides is the one that matters most to a contractor.
A sales tax is owed by the buyer and collected by the seller. Transaction privilege tax is owed by the business itself, for the privilege of doing business in Arizona. A.R.S. § 42-5008(A) levies privilege taxes "measured by the amount or volume of business transacted by persons on account of their business activities", and (C) designates that levy the transaction privilege tax.
Measured by is not the same as collected from. A contractor may build the cost into the price, though on a prime contracting receipt the statute requires the tax to be stated separately (see Separate line item). A contractor who collects nothing from the customer owes the tax regardless. There is no unpaid buyer to pursue, because the buyer never owed it.
The tax applies to gross proceeds of sales or gross income from a taxable business activity, under separate business classifications that each carry their own tax base and rate. Construction work is either taxed under the prime contracting classification or excluded from it and taxed on materials instead.
State, county and city tax are separate layers reported on a single return.
A.R.S. § 42-5008(A), (C); A.R.S. § 42-5075; ADOR Contracting FAQs