Sales Tax FAQ's
We are a manufactured housing dealer and want to sell one of your sheds to one of our customers. Aren't we exempt from paying sales tax? Yes. We need you to complete only one form before scheduling construction of your building: an Arizona Form 5005 indicating you are a prime contractor who will pay the tax from your gross reciepts.
We are a 501(c) non-profit organization, so aren't we exempt from paying sales tax? Arizona does not provide an overall exemption from transaction privilege tax (commonly referred to as a sales tax) for non-profit organizations. Generally, sales made to churches, schools and other non-profit organizations are subject to transaction privilege tax.[1] ARS 42-5075 requires a qualifying organization to provide its current letter of exemption and Form 5000 completed by an authorized representative of the organization, to any business from whom they request tax exemption.
What is a letter of exemption? Arizona's Transaction Privilege and Use Tax Audit Section issues an exemption letter, which includes exempt business classifications, to qualifying organizations on an annual basis in order to assist in the determining whether the organization is exempt from paying sales tax.[2] Because of our business classification (015 Contracting - Prime), a shed purchase typically does not meet this requirement, even for a tax-exempt organization. ARS 42-5075 places the burden of proof for exemption from sales tax on the purchaser, stating if the purchaser cannot establish the accuracy and completeness of the information, the purchaser is liable to pay the tax. We ask that you help us meet these statues by completing an Arizona Form 5000, and a copy of your exemption letter which includes exempt business classifications, before scheduling construction of your building.
But as a 501(c), we don't pay federal or state income tax, so doesn't that make us exempt from paying sales tax? Exemptions exist for federal and state income tax, property tax, state or city transaction privilege tax. The Arizona Revised Statutes imposes the Transaction Privilege Tax on Arizona businesses in Title 42, Chapter 5, and grants exemptions differently than other government agencies. Because an entity is exempt from one type of tax, does not mean it is exempt from all types of taxes.[3] The Arizona Administrative Code Title 15 specifically states that construction projects (we're a prime contractor, business classification 015) performed for a school, church or other non-profit organization, are subject to the tax.
Are you saying we may still need to pay sales tax? Probably. Please note that these exemptions are available for sales by the tax-exempt organizations, not for sales to the tax-exempt organization. Additionally, Arizona tax law provides that certain specifically delineated organizations are exempt from transaction privilege tax under some business classifications.[4] Again, because of our business classification (015 Contracting - Prime), a shed purchase typically does not meet this requirement, even for a tax-exempt organization.
So we're not exempt. How much sales tax do we have to pay? According to ARS 42-5075, we are a prime contractor (business classification 015 Contracting - Prime), which means you still pay less than the retail tax rate. We collect state sales tax on only 65% of the price of the building. 35% of the price of our sheds is tax-free to all our customers. If you're in the city limits, we must add their sales tax, again on only 65% of the price of the building. Additionally, our prices are very competitive to begin with!
Where can we look further information? ARS 42-5075, the Arizona Administrative Code Title 15, Arizona Transaction Privilege Tax Procedure TPP 00-4 and Publications 500 and 501 that we cite are all available on-line. Go to www.azleg.state.az.us, www.azsos.gov, and www.revenue.state.az.us (for the last three), respectively. All these websites list phone numbers if you'd like to call them with questions regarding your particular situation.
[1] Arizona Department of Revenue Pub 501
[2] Arizona Department of Revenue Pub 500
[3] Arizona Department of Revenue Pub 501
[4] Arizona Transaction Privilege Tax Procedure TPP 00-4