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At a glance. The main takeaway: An Arizona court concluded that licensing software to customers in Arizona on a subscription basis is subject to the state's Transaction Privilege Tax as a rental of tangible personal property.
The main takeaway: An Arizona court concluded that licensing software to customers in Arizona on a subscription basis is subject to the state's Transaction Privilege Tax as a rental of tangible personal property.
Arizona transaction privilege tax (TPT), commonly referred to as a sales tax, is a tax on vendors for the privilege of doing business in the state. Various business activities are subject to transaction privilege tax and must be licensed.
Among 23 states that impose sales tax on SaaS, Arizona is an outlier ? it is one of only three states that tax SaaS without any clear statutory authority. See COST, Best and Worst of State Sales Tax System (December 2022), available here.
Tangible Personal Property: The personal property which may be seen, weighed, measured, felt or touched or is in any other manner perceptible to the senses (A.R.S. § 42-5061(17)). Next, both computer hardware and software are subject to TPT under the retail classification.
Contractors engaging in taxable construction projects or activities are required to obtain a TPT license. New contractors and out-of-state contractors are required to be licensed with the Registrar of Contractors and, in most cases, must post a bond with the Arizona Department of Revenue (ADOR).
Owner/Operator/Property Manager An online lodging operator or short-term/vacation properties may not offer for rent or rent a lodging accommodation without first obtaining a current TPT license. This is true whether or not the owner or operator offers the accommodation through an online marketplace (OLM) i.e. AirBnB.
If a remote seller or out-of-state marketplace facilitator meets the economic threshold for sales into Arizona, it will need a transaction privilege tax (TPT) license. By contrast, marketplace facilitators and retailers with a physical presence in Arizona must obtain a TPT license, irrespective of any threshold.
In February 2011, the California superior court held that royalties for licensing of computer software to California licensees constituted receipts from the sale of tangible personal property, and sales of tangible property are sourced to the state the property is shipped to (Microsoft Corporation v.
Sales tax applies to the retail sales of hardware, miscellaneous supplies, repair parts, and pre-written and sub-licensed software.