Arizona Corporate Income Tax
Arizona does not impose a franchise tax on LLCs. However, you may need to register for industry-specific taxes. You also need to hire a statutory agent who will accept legal documents and correspond with government officials on your behalf.
Whether you’re forming an LLC in Arizona or another state, it is important to understand how the entity will be taxed. This will impact your ability to make financial decisions and preserve the limited liability protection an LLC offers its members. LLCs must also meet ongoing requirements, such as filing an annual report and obtaining a federal tax ID number (EIN).
Arizona Corporates are Taxed like Sole Proprietorships and Partnerships in Arizona
In Arizona, LLCs are taxed like sole proprietorships and partnerships. By default, the state taxes LLC members on their share of business profits. This is called pass-through taxation. Members must also pay self-employment tax, which covers Social Security and Medicare.
Some states impose a separate fee, known as a franchise tax, on LLCs for the privilege of doing business there. Arizona does not have a franchise tax.
However, if you have employees, you must pay employer taxes. These include federal and state unemployment insurance, social security, and Medicare. You must also pay sales tax on any products or services you sell. You may also be required to register for industry-specific taxes, such as the transaction privilege tax (TPT) on tobacco, alcohol and bingo.
Some LLCs choose to elect corporate tax status by filing IRS Form 8832. This allows them to take advantage of corporation tax deductions, but it is important to consult with a small business attorney before making this decision.
Arizona LLCs and Arizona TPT
Every LLC must have a physical address in Arizona and a statutory agent (an individual or company responsible for accepting correspondence on behalf of the LLC). The statutory agent can be you, another manager in your business, or a paid registered agent service.
The federal government assigns each LLC a nine-digit Employer Identification Number, or EIN. This number is required for opening bank accounts and filing taxes, and it is also used to identify the LLC online.
Arizona requires LLCs that sell goods or services to pay transaction privilege tax levied on the sales of certain items and business activities. These include retail sales, food service, hotels and motels, and construction contracting.
