The big-ticket item tax in Phoenix – Wacky Tax Wednesday

On the surface, a sales tax rate change seems straightforward: A rate can go up or a rate can go down. How hard can that be? But of course, not all sales tax rate changes are quite so simple. At least not in Arizona.

Arizona sales tax isn’t sales tax

For starters, sales tax in Arizona isn’t actually a sales tax — it’s a transaction privilege tax (TPT) on vendors for the privilege of doing business in the state.

Next, TPT rates aren’t based solely on location. On top of the city and county, they’re influenced by business activity. There are more than 30 “taxable activities” in Arizona, each of which has a unique business code and tax rate in each jurisdiction.

There are 30+ taxable activities in Arizona

Taxable activities include publication, retail, online lodging marketplace, peer-to-peer car sharing (new!), telecommunications devices, and my favorite — severance–metalliferous mining. The Arizona Department of Revenue’s TPT rate table for December 1, 2021, gives a pretty good idea of what Arizona retailers are up against.

A retailer engaged in just one or two taxable activities may not need concern itself with the rest: A person whose activity is “jet fuel tax” probably doesn’t need to track rate changes for “communications.” Then again, you never know.

The big-ticket item tax

There are separate tax rate tables for remote sellers and marketplace facilitators. These contain far fewer “taxable activities” than the general TPT rate table, but they have a special twist; remote retailers have a business code for “retail” and another code for “retail-single item portion over $10,000,” while marketplace facilitators have codes for the following:

• Marketplace facilitators in Arizona retail sales
• Marketplace facilitators in Arizona retail sales-single item portion over $10,000
• Marketplace facilitators in Arizona third-party sales
• Marketplace facilitators in Arizona third-party sales-single item portion over $10,000

It seems some local tax jurisdictions in Arizona have one TPT rate for the first $10,000 of a retail sale of a single item priced above $10,000, and a different rate (usually lower) for any amount over $10,000. Douglas, Arizona is one such place.

Phoenix takes the big-ticket-item tax up a notch.

Through December 31, 2021, the cut-off for a big-ticket item in Phoenix for tax purposes is not $10,000 but $10,968, before taxes, add-ons, or sales price adjustments. The amount equal to or less than $10,968 is taxed at 2.3%; any amount over that threshold is taxed at 2%.

Starting January 1, 2022, the threshold for a single big-ticket item in Phoenix moves from $10,968 to $11,631. Any amount up to and including $11,631 is subject to the 2.3% tax rate, and any additional value is taxed at 2%.

Phoenix has a few separate business activity codes for Level 1 sales (≤ $11,631) and Level 2 sales (> $11,631):

• Retail sales, Level 1: Code 017
• Retail sales, Level 2: Code 162 (new)
• Marketplace facilitated or remote retail sales activity, Level 1: Code 605
• Marketplace facilitated or remote retail sales activity, Level 2: Code 626 (new)

The city also has separate business activity codes, and therefore tax rates, for Level 1 and Level 2, use taxable purchases. And interestingly, Phoenix has business activity codes for two levels of adult use marijuana retail sales, as well as the two levels for medical marijuana retail sales (?!?). See the city notice for those codes and more details.

To an idle spectator such as myself — and probably affected businesses — the $11,631 threshold seems absurd. Why not simply make a threshold of $10,000, like Douglas?

It turns out Phoenix started with a $10,000 threshold for its two-level tax rate structure. However, the city is required to adjust the threshold for inflation on a biennial basis starting January 1, 2018. So, here we are nearing January 2022 when there will be a threshold of $11,631.

Sales tax rate changes aren’t simple after all

I take back what I said at the top of this post about how hard can a sales tax rate change be. What’s happening in Arizona in general, and Phoenix in particular, shows that sales tax rate changes can be tricky indeed.

Avalara helps businesses of all sizes calculate tax rates wherever you do business. Even if that’s in Arizona.