Taxes

City Property Tax

None

Sales Tax

State of Arizona

5.6%

Navajo County

0.50%

City of Show Low

2%

Total

8.1%

 

 

 


Inventory Tax

None

Franchise Tax

None

State Personal Income Tax

Taxable Income

Tax Liability
(% of net taxable income)

$0

$10,000

2.59%

$10,001

$25,000

2.88%

$25,001

$50,000

3.36%

$50,001

$150,000

4.24%

$150,001

Above

4.54%

State Corporate Income Tax

Net income is currently taxed at a flat rate of 6.968% or $50 which ever is greater.  Beginning in 2014, the corporate income tax rate will decrease incrementally by the following schedule:

  • 2014: 6.5%
  • 2015: 6%
  • 2016: 5.5%
  • 2017 and thereafter: 4.9%

Corporations have the option to either use the Double Weighted or 80% Sales Factor apportionment to calculate taxable income for Arizona. Like the Double Weighted Apportionment, the 80% Sales Factor employs the same three factors to determine the percentage of income that is subject to taxation in the state of Arizona:

  • Payroll
  • Value (original cost) of real and tangible property
  • Sales (defined as manufacturing and selling or purchasing and reselling)

The 80% Sales Factor calculation assigns different weights to each factor, putting an emphasis on sales made in Arizona. The weight on sales increases over the three-year phase in period. The calculation for 2009 and subsequent years is as follows:

  • Payroll paid in Arizona divided by global payroll.
  • Value (original cost) of property situated in Arizona divided by the global value (original cost) of property.
  • Sales in Arizona multiplied by eight and divided by global sales.

The three percentages are added together and divided by 10 to produce a ratio to apportion total taxable income to Arizona.

Beginning in 2014, the weight of the sales factor in the optional enhanced sales factor apportionment formula for corporate income tax will increase incrementally by the following schedule:

  • 2014: 85%

  • 2015: 90%

  • 2016: 95%

  • 2017 and thereafter: 100%

State Income Tax Withholding

Individuals who earn wages by performing services in Arizona are liable for Arizona income tax.  Every employer who resides in Arizona and every non-resident employer who pays wages for services performed in Arizona must withhold Arizona income tax.

Withholding percentage options are: 0.8%, 1.3%, 1.8%, 2.7%, 3.6%, 4.2%, or 5.1% of gross taxable wages.

Unemployment Insurance

Arizona unemployment tax is paid on the first $7,000 in wages paid to each employee in a calendar year.  The unemployment tax is used solely for Unemployment Insurance benefits.  The actual taxes are calculated by multiplying the quarterly taxable wages by the tax rate. 

New employers are assigned a tax rate of 2% for a minimum of two calendar years.  After that, employers may be eligible for a higher or lower tax rate depending on:

  • Amount of taxes paid.
  • Amount of unemployment benefits paid to former employees and charged to the employer.
  • Average size of the annual taxable payroll.
  • Overall solvency of the Trust Fund.
  • These four factors are used to compute the tax rate using a "reserve ratio" system – basically a cost-accounting system.  The taxes paid minus the amount of benefits attributable to the business are divided by the firm’s average annual taxable payroll to produce a reserve ratio.  Therefore, the higher the reserve ratio, the lower the tax rates.

    Arizona employers also pay an annual FUTA tax, which funds the administrative cost of the Unemployment Insurance program.  The FUTA Tax is 6.2% on the 1st $7,000 in wages paid to each employee in a calendar year.  When state taxes are paid on time, a tax credit of 5.4% is awarded to reduce the FUTA Tax.  The credit is equal to the actual tax rate, plus the difference between that percentage and 5.4 %.  This means that Arizona employers who pay their state taxes timely pay a net federal tax of 0.8%.

    Worker's Compensation

    Arizona Worker’s Compensation is administered by the Industrial Commission of Arizona.  It is compulsory and may be provided through a competitive state fund, a private insurance carrier, or employers may self-insure.

     

     

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