Arizona levies income tax on both individuals and businesses. Legal residency or the receipt of income from an Arizona source may necessitate the filing of Arizona individual income taxes. Likewise, merely having operations in the state of Arizona may necessitate filing Arizona business taxes. Residents who are members of American Indian tribes or in the U.S. military may not have to file individual income taxes, nor does an individual need to file if her income is sufficiently low.
Filing Requirements for Individual Income Tax
State and federal filing requirements are separate. For individuals, there are four main issues to consider when it comes to Arizona individual income taxes. First, you must determine whether you count as being an an Arizona resident, part-year resident or nonresident. Second, even if you are a nonresident, you must consider whether you have income from an Arizona source. Third, you must consider your gross or total taxable income. Fourth, you must consider your self-employment income: If you have more than $400 in Arizona self-employment income in one tax year, you must file Arizona taxes.
Income requirements change every year, so check with Arizona Department of Revenue to see if your income is low enough to avoid having to file. Even if your gross income is low, Arizona self-employment income of more than $400 may require you to file Arizona taxes. Even if you do not have to file a tax return, you may want to--you may get a tax refund. The general rule is to file if you are a resident or part-year resident, or have income from an Arizona source, such as work physically done in Arizona for an employer operating in Arizona (whether your employer is based in Arizona may not be relevant for your tax situation). Avoid filing only if you find a reason not to, such as having a sufficiently low income. There may be penalties for failing to file when it is required.
Exemptions for American Indians
Arizona hosts portions of very large Native American reservations, such as the Navajo reservation. If you are an American Indian living on the reservation, you do not have to pay Arizona income taxes on income earned on the reservation.
Exemptions for Military
Military pay from U.S. sources is not subject to Arizona state income tax. But even nonresident members of the military receiving nonmilitary Arizona income while stationed in Arizona may have to pay Arizona taxes on the income.
Filing Requirements for Business Income Taxes
Sole proprietors report income as individual income. Individuals in a partnership doing business in Arizona must file Form 165 to clarify what partnership income is subject to tax. Corporations based in Arizona must file.
If your business is not based in Arizona, it may still be necessary to file Arizona income taxes. At a first level of analysis, any type of business activity involving Arizona may create a tax liability in the state's perception. But obviously there are a number of safeguards and laws in place that limit tax liability, so that merely selling to Arizona residents or merely having an employee resident in Arizona does not require filing Arizona taxes.
If you have a business engaged in multistate commerce, you need to be knowledgeable about multistate tax law. This applies not only to Arizona but also to all states, and the laws are very complex. Owning business property in a state or renting offices there may create a tax liability and thus filing requirements. So may employing individuals in a state who do business there, such as selling to the state's residents on your behalf.
- Arizona Society of Enrolled Agents: Frequently Asked Questions About Taxes
- National Conference of State Legislatures: Piecing Together the State-Tribal Tax Puzzle
- Arizona Republic: Tax Break for Aiding Military Families
- Military.com: State Tax Information
- Arizona Department of Revenue: Business Basics
Marcus Verhaegh has been published in numerous journals, with his first article appearing in 2001. His writing has been featured on the Ludwig von Mises Institute and the LibertyForum.org websites, among others. Verhaegh has a Ph.D. in philosophy from Emory University.