Start a business in Arizona

Take the mechanic in the only form that matters. You issue a $5,000 invoice for taxable work in Phoenix and — a new template, a customer who pushed back, a quote given before you registered — no tax line appears on it.

The third row is the one worth sitting with. There is no version of this in which the state chases the customer, because the state never had a claim against the customer. That is what “privilege tax” means — it is charged to the vendor for the privilege of carrying on a business activity, and passing it on is you recovering your own cost rather than collecting somebody else's.

Which makes the quoting habit the thing to fix, not the invoicing habit. Put the tax in the price from the first conversation, the way you would a delivery charge. Pricing with tax inside the number is a great deal easier than retrofitting it onto a client who has already agreed a figure.

Arizona's tax is not organised around what you sell. It is organised around what you do. Each business activity is licensed and rated as its own thing, measured on gross receipts, with its own rules — so there is no general base to fall inside or outside of, which is why intuitions imported from another state go wrong here so quickly. The classifications that catch small businesses are these:

Most professional services sit in none of them, so a consultant, an accountant or a designer in Phoenix often has nothing to license and nothing to file. That is the reverse of the position one state east, where New Mexico's gross receipts tax reaches services as a matter of course — so if you are moving a services business across that border in either direction, do not carry the answer with you.

Rates stack: 5.6% state, county between 0.25% and 1.1%, and city rates commonly between 1.5% and 4%. The average lands near 8.4%; Phoenix is about 8.6% — 5.6% state, 2.5% city, 0.5% county. Contractors get a softener rather than an exemption, in that prime contractors are taxed under the contracting classification on a reduced share of gross receipts to reflect the materials component. It is still your tax, and it still has to be in the bid.

The TPT licence is a tax licence under A.R.S. §42-5005 rather than a general business licence, but for a trading business it is unavoidable, and it has two features that catch people out.

First, it is per location and per city. The state portion is $12 per location; each city sets its own licence fee on top, and you need one for every city in which you have a taxable place of business. Not one for Arizona — one for Phoenix, one for Tempe, one for Scottsdale. Applications and renewals run through AZTaxes, so at least the paperwork sits in one place even though the licences do not.

Second, renewal is on a fixed calendar date: due by 1 January, every year, not on your anniversary. So a business formed in November renews six weeks later, and a business that traded not at all last year renews anyway. It is the single most common Arizona penalty precisely because it is the one obligation that refuses to follow your own dates.

Two more Arizona particulars, one irritating and one excellent.

The irritating one: Arizona still requires publication. Within 60 days of formation you publish notice for three consecutive weeks in a newspaper in your county — unless the county is Maricopa or Pima, where the Corporation Commission publishes for you and you do nothing at all. Since most of the state's population lives in those two counties, most founders never meet this rule; in Yavapai, Coconino, Pinal or anywhere else it is typically $30 to $300 and it has a deadline attached.

The excellent one: Arizona has no annual report for LLCs. None. After publication the Corporation Commission asks for nothing recurring — no report, no fee, no anniversary date — so after the $50 articles the registrar never charges you again. Set against the 1 January TPT renewal, this is a state that wants to hear from its revenue department and never from its registrar. The formation hub has how that compares with the other forty-nine.

One caution on timing: Corporation Commission processing of standard online LLC filings runs into weeks when the queue is busy. Expedited service exists for an additional fee, but the Commission's current expedite pricing could not be confirmed from a primary source when these figures were checked — ask before you plan a launch date around it.

Workers' compensation is required from the first employee, full-time or part-time, family members included, enforced by the Industrial Commission of Arizona, with no small-employer exemption. An employee may reject coverage in advance in writing — but the employer still has to carry the policy, so that rejection changes the employee's position rather than your premium.

Unemployment tax registration goes to the Department of Economic Security once you pay $1,500 in wages in a calendar quarter, or employ at least one worker for some part of a day in each of 20 different weeks in a calendar year. Tax applies to the first $8,000 of each employee's wages.

And then the reason a lot of people are reading this at all: Arizona's individual income tax is a flat 2.5%, the lowest flat rate in the country, applied to every dollar of pass-through profit however large it gets. No local income tax anywhere in the state claws any of it back — the cities take their share through TPT instead, which is to say out of your sales rather than out of your earnings. On a strong year that is a materially different outcome from any graduated-rate state, and it is the deliberate trade Arizona has made: tax the transaction, leave the profit alone.

First ninety days, realistically: $200–$1100, and the biggest single step inside that range is the workers' compensation premium at your first hire.