Flat-Fee Tax Preparation for Arizona Residents

Arizona has one of the lowest flat income tax rates in the US at 2.5% (effective for 2023+) — down from a tiered system — making AZ very attractive for high-income earners compared to neighboring CA

Arizona does not tax Social Security benefits at the state level, and allows a subtraction for up to 100% of military retirement pay, providing significant savings for retirees and veterans

AZ Transaction Privilege Tax (TPT) is AZ's version of a sales tax, but applies at the seller level rather than the consumer level — AZ businesses with physical presence or economic nexus must obtain a TPT license and remit on qualifying transactions

Arizona's AZ PTET (Pass-Through Entity Tax) election became available in 2022, allowing partnerships and S-corps to elect entity-level taxation to work around the federal SALT cap

Arizona real estate investors benefit from AZ's relatively low transfer taxes (AZ does not have a traditional real estate transfer tax — only minimal recording fees) and no capital gains surcharge at the state level

AZ requires annual renewal of LLCs with the AZ Corporation Commission, and an annual report fee — failure to renew can result in administrative dissolution

Arizona's hot real estate market (Phoenix, Scottsdale, Tucson, Sedona) has generated significant appreciation and short-term rental activity — AZ imposes TPT on short-term rentals (including Airbnb) plus city-level taxes

AZ conformity to federal depreciation: Arizona generally follows federal depreciation elections including bonus depreciation, which benefits real estate investors doing cost segregation studies

Arizona Real Estate Tax

Arizona has become one of the fastest-growing real estate markets in the country, driven by strong population inflow from California and other high-tax states. AZ's 2.5% flat income tax makes it particularly attractive for high-income CA investors relocating to AZ. The absence of a real estate transfer tax (unlike most states) reduces transactional friction for investors. Short-term rental activity in Phoenix, Scottsdale, and Sedona triggers AZ TPT and city-level tax obligations.

Arizona Business Tax

Arizona's low flat income tax rate and relatively straightforward business tax structure make it attractive for business owners, particularly those relocating from California. The AZ PTET election provides SALT cap relief for pass-through business owners, and AZ's conformity to federal depreciation simplifies planning for asset-heavy businesses. The AZ TPT (transaction privilege tax) is a critical compliance consideration for any AZ business selling goods or taxable services.

I moved from California to Arizona — will I owe California taxes?

If you properly established AZ as your new domicile, CA should not tax your AZ-source income going forward. However, CA is known to challenge domicile changes by high-income earners. To defend your AZ domicile, you should change your driver's license, voter registration, and vehicle registration to AZ; file the AZ homestead declaration; spend fewer than 183 days in CA; and move the 'center of your life' — primary bank accounts, doctors, dentist, and professional relationships — to AZ. Any income derived from CA sources (CA rental income, CA business income) will still be taxable by CA.

What is the Arizona Transaction Privilege Tax (TPT) and do I need to collect it?

AZ's TPT is different from most states' sales taxes — it's imposed on the seller's privilege of doing business in AZ, not on the consumer directly. However, sellers typically pass the cost to consumers. If you sell taxable goods or services in AZ (including short-term rentals), you need an AZ TPT license from the AZ Dept of Revenue and must file and remit monthly or quarterly. AZ adopted economic nexus rules in 2019: remote sellers with over $100,000 in AZ sales must register and collect AZ TPT.

How much tax will I pay on investment income in Arizona?

Arizona taxes capital gains, dividends, and interest at the flat 2.5% state income tax rate. There is no separate AZ capital gains tax or surtax. Combined with federal rates, an AZ long-term capital gains taxpayer in the highest federal bracket pays 23.8% federal (20% + 3.8% NIIT) plus 2.5% AZ — a total of 26.3%, compared to 37.1% for a CA resident in the same situation. For high-income investors, this difference is a material financial advantage.

Does Arizona tax my retirement income or Social Security?

Arizona does not tax Social Security benefits. Arizona also provides a subtraction for up to 100% of military retirement pay, U.S. government pension income, and other qualifying retirement income. Private pension income and IRA distributions are fully taxable in AZ at the 2.5% flat rate. Given the low rate, AZ retirees generally pay significantly less state tax than retirees in higher-rate states — Roth conversions and other retirement income planning are still valuable, but the AZ tax cost is minimal.