Registering a Business in Arizona
Most businesses in Arizona will be required to register with the Arizona Secretary of State, the Arizona Department of Revenue and the Arizona Corporation Commission. Links to each agency can be found at the bottom of this page.
S-Corporation Income Tax
Arizona recognizes the federal S-election, and—in most cases—Arizona S corporations are not required to pay corporate income tax to the state; however, individual S corporation shareholders will owe tax on their share of the company’s income. S corporations are required to file Form 120S.
There are exceptions to the rule that Arizona S-corporations are not required to pay state income tax, and that is when the corporation is subject to federal excess net passive income, capital gains tax, or built-in gains tax. In these cases, the corporation would have to pay Arizona corporate income tax on those items.
LLC/Partnership Income Tax
Not required to pay income tax to Arizona. Partners are required to report income from the business and pay income tax on their personal returns. Partnerships are required to file Form 165.
S corporations and partnerships may file composite returns on Form 140NR for nonresident shareholders/partners. There must be ten or more members for the Department to accept the return.
Individual Income Tax
Arizona conforms to the federal tax code as it existed in 2018. The calculation of individual taxable income starts with federal AGI.
They use the federal standard deduction amounts and removed all personal and dependent exemptions. The dependent exemption was replaced with a dependent credit of $100 for each dependent under 17 years old and $25 for dependents over that age. The credit is phased out if gross income is over a certain amount and the threshold amount is based on your filing status.
For anyone not itemizing but has charitable contributions, the standard deduction can be increased by 25%. Itemized deductions are similar to the federal itemized deductions but with a few minor differences:
There is no AGI floor when calculating medical expenses.
For any charitable donations claimed on the federal return for which an Arizona credit is claimed will have to be removed from the Arizona itemized deductions.
Arizona does allow a deduction for mortgage interest not allowed on the federal return due to claiming a federal mortgage credit.
It does not conform to the Internal Revenue Code (IRC) Section 199A, also known as the QBI deduction.
Individual income tax rates vary by income and filing status and range from 2.59% to 4.50%. Individual income tax is filed on Form 140.
S corporation and partnership returns are due on the 15th day of the third month following the close of the tax year. For most taxpayers, the date will be March 15th.
Individual income tax returns are due on the 15th day of the fourth month following the close of the tax year. For most taxpayers, the due date will be April 15th.
If the due date falls on a weekend or holiday, the due date will be extended to the next business day.
S corporations that expect an Arizona tax liability of more than $1,000 must make Arizona estimated payments.
Individuals have a certain criteria which they must meet to be required to file estimated tax payments. More information can be found in the Form 140 instruction booklet found in the forms link below.
Filing an Extension
Extensions for s corporations and partnerships can be requested using Form 120EXT.
Individuals use Form 204.
Late filing of a partnership return will be assessed a penalty of $100 per month up to a maximum of $500.
S corporation and individual income returns will be penalized at a rate of 4.5% of the tax, up to a maximum of 25%.
If your business was formed or is located in another state, but generates income in Arizona, it may be subject to Arizona taxes. The rules for taxation of multistate businesses, including what constitutes nexus with a state for the purpose of various taxes, are complicated. If you run such a business, you should consult with a tax professional.
Arizona Department of Revenue:
Arizona Secretary of State:
Arizona Corporation Commission:
Tax forms can be found here: