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Greater Phoenix and Arizona offer a competitive operating-cost environment compared to California, Nevada, New Mexico and Texas. For 11 consecutive years, Arizona’s legislature has reduced taxes and passed legislation favorable to business. Recent pro-business measures include:
- A state property tax suspension (for three-years) providing over $200 million in annual relief for businesses and homeowners.
- A reduction from 25% to 20% of the assessment ratio for real and personal property taxes on commercial and industrial properties over the next 10 years.
- An angel investment tax credit allowing eligible tech-company investors a 30% credit on state taxes over a three-year period (biotech company investors can receive a 35% credit).
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Corporations have the option to either use the Double Weighted or 80% Sales Factor apportionment to calculate taxable income for Arizona. The 80% Sales factor will be phased in over a three-year period. 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 2007 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 six and divided by global sales (the multiple on sales will increase by one over the three-year phase in period).
The three percentages are added together and divided by 8 (the denominator will increase by one over the three-year period) to produce a ratio to apportion total taxable income to Arizona.
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| Arizona does not have a traditional sales tax imposed on the purchaser of goods. Instead, the tax is levied directly on the seller or vendor for the privilege of engaging in business within Arizona. Whether the seller includes the tax in the purchase price or absorbs the tax, the seller is responsible for remitting the entire amount of the tax to the state and/or local taxing jurisdiction. The tax is applied to gross proceeds of sales or gross income derived from a taxable business. |
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| Local Sales Tax Rates |
City |
Tax Rate |
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| Apache Junction |
2.2% |
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| Avondale |
2.5% |
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| Buckeye |
2.0% |
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| Chandler |
1.5% |
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| Fountain Hills |
2.6% |
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| Gilbert |
1.5% |
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| Glendale |
1.8% |
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| Goodyear |
2.0% |
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| Maricopa |
2.0% |
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| Mesa |
1.75% |
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| Peoria |
1.8% |
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| Phoenix |
1.8% |
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| Queen Creek |
2.0% |
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| Scottsdale |
1.65% |
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| Surprise |
2.2% |
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| Tempe |
1.8% |
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| Tolleson |
2.0% |
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| Wickenburg |
1.7% |
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| Maricopa County |
0.7% |
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| State of Arizona |
5.6% |
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| Source: Arizona Department of Revenue, 2007; The respective city departments of finance, 2006. |
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| Arizona ’s property tax system classifies property according to its usage. Each class of property is assigned an assessment ratio, ranging from 1% to 25%. The assessment ratios are applied to both primary and secondary values of a property and determine the property’s net assessed value. The same tax rates apply to net assessed value for all property classifications. |
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| Class |
Description |
Assessment Ratio |
| Class 1 |
Mines, mining claim property, standing timber |
24% |
| Class 1 |
Local telecommunications, utilities, pipelines, oil and gas-producing properties |
24% |
| Class 1 |
Commercial and industrial real property not included in other classes |
24% |
| Class 1 |
Commercial and industrial personal property |
0% of first $59,099 24% of remaining value |
| Class 2R |
Agricultural real property and vacant land |
16% |
| Class 2P |
Agricultural personal property |
0% of first $59,099
16% of remaining value |
| Class 3 |
Residential non-rental property |
10% |
| Class 4 |
Residential rental property |
10% |
| Class 5 |
Railroads, private car companies, airline flight property |
22% |
| Class 6 |
Non-commercial historic property, foreign trade zones, military reuse and enterprise zones, environmental technology and remediation property. |
5% |
| Class 7 |
Improvements to commercial historic property |
1% for up to 10 years |
| Class 8 |
Improvements to historic residential rental property |
1% for up to 10 years |
| Class 9 |
Possessor Interests |
1% |
| Source: Arizona Tax Research Association, 2006 |
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Single |
Married |
2006 Rate |
First $10,000 |
First $20,000 |
2.73% |
Next $15,000 |
Next $30,000 |
3.04% |
| Next $25,000 |
Next $50,000 |
3.55% |
| Next $100,000 |
Next $200,000 |
4.48% |
| Amount over $150,000 |
Amount over $300,000 |
4.79% |
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Single |
$2,100 |
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Married |
$4,200 |
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Head of Household (not married) |
$4,200 |
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Head of Household (married) |
$3,150 |
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Dependents |
$2,300 |
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Age 65 and over |
$2,100 |
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| Source: Arizona Department of Revenue, 2006. CCH Tax Research Database |
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Greater Phoenix 
