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ARIZONA STATE SENATE
Fifty-Sixth Legislature, Second Regular Session
TPT; sourcing; validation
Purpose
Requires, by January 1, 2026, the Arizona Department of Revenue (ADOR) to establish a certification process for third-party providers who offer sourcing services to taxpayers for transactions involving tangible personal property and outlines how liability is determined for sourcing errors. Directs ADOR to establish a Taxpayer Assistant Team and Taxpayer Education Campaign.
Background
Transaction privilege tax (TPT), commonly referred to as a sales tax, is a tax on vendors for the privilege of doing business in Arizona. A person who desires to engage or continue in business and who receives gross proceeds of sales or gross income subject to TPT must annually apply to ADOR for a TPT license.
Current statute requires retail sales of tangible personal property to be sourced to: 1) the seller's business location, if the seller receives the order at a business location in Arizona; or 2) the purchaser's location in Arizona, if the seller receives the order at a business location outside the state of Arizona or, if there is no delivery address, to the purchaser's billing address. An order is received when all the information necessary to accept the order has been received by or on behalf of the seller, regardless of where the order is accepted or approved. The place of business or residence of the purchaser does not determine where the order is received. Tangible personal property is personal property that may be seen, weighed, measured, felt or touched or that is in any other manner perceptible to the senses (A.R.S. §§ 42-5001; 42-5005; and 42-5040).
The Joint Legislative Budget Committee (JLBC) fiscal note for H.B. 2382 estimates the prescribed certification administration, reporting requirements and program implementations would generate additional workload for ADOR. ADOR projects a fiscal impact of $3,600,000, however, JLBC believes H.B. 2382 could be implemented at a dollar level comparable to prior initiatives since there are no substantive changes to tax collection processes (JLBC Fiscal Note).
Provisions
Taxpayer Assistance Team
1. Requires ADOR to establish and maintain Taxpayer Assistance Team to ensure taxpayers are levying the correct TPT rate and sourcing the transaction to the correct jurisdictions.
2. Requires the Taxpayer Assistance Team to select a random sample of TPT licenses and municipal privilege tax licenses to verify that the business location identified on the license corresponds to the TPT rate and source of the transaction used by the taxpayer.
3. Directs the Taxpayer Assistance Team, upon identifying a taxpayer is not levying the correct TPT rate or sourcing the transaction to the correct jurisdiction, to notify the taxpayer and provide resources to assist the taxpayer in determining the correct TPT rate and sourcing information for that taxpayer.
4. Prohibits information collected by the Taxpayer Assistance Team from being used for enforcement purposes.
Sourcing Transactions Involving Tangible Personal Property
5. Revises the requirements for the sourcing of certain transactions involving tangible personal property to specify that retail sales of tangible personal property must be sourced to:
a) the seller's business location, if the seller receives the order at a business location in Arizona and the seller regularly conducts retail sales at that business location; or
b) the purchaser's delivery address in Arizona, if the seller does not receive the order at a business location in Arizona where the seller regularly conducts retail sales.
6. Clarifies that an order is received when all the purchaser's information necessary to process, rather than accept, the order has been received by or on behalf of the seller, regardless of from where the order is accepted, approved or delivered.
7. Removes the specification that the purchaser's place of business or residence does not determine where the order is received.
Third-Party Service Provider Certification
8. Requires ADOR, by January 1, 2026, to establish a process that authorizes third-party providers who offer sourcing services to taxpayers for transactions involving tangible personal property to obtain certification in Arizona.
9. Requires a certified third-party service provider to meet all ADOR-established requirements.
10. Allows a taxpayer to use a certified third-party service provider to assist the taxpayer in sourcing transactions involving tangible personal property.
11. Requires the Director of ADOR to:
a) supervise and regulate all third-party providers required to obtain certification;
b) establish minimum standards for certification and a quality assurance program for authorized third parties to ensure that a certified third-party service provider complies with minimum standards;
c) post a list of certified third-party service providers on ADOR's website; and
d) adopt rules for certification administration and enforcement.
12. Allows the Director of ADOR to:
a) investigate and audit third-party service providers as necessary to ensure compliance; and
b) require that a certified third-party service provider or any employees or agents of the provider be certified by ADOR to perform certain functions.
13. Allows a person to apply to ADOR to be a certified third-party service provider on a form prescribed and furnished by the Director of ADOR and requires a certification applicant to submit all documents and fees with the application containing:
a) the applicant's name, telephone number and address and the primary contact person;
b) verification that the applicant meets the Director-prescribed requirements; and
c) other information required by the Director of ADOR.
14. Immunizes a taxpayer that uses a certified third-party provider for sourcing transactions involving tangible personal property from liability for failing to pay the correct amount of tax due to an error in sourcing the transaction.
15. Deems a taxpayer liable for failing to pay the correct tax amount if the failure was due to an error other than an error in sourcing the transaction.
16. Subjects a certified third-party service provider to liability for the amount of tax a taxpayer failed to pay due to an error in sourcing the transaction, unless the error was due to incorrect information the certified third-party provider received from ADOR.
Miscellaneous
17. Requires ADOR, by December 31, 2024, to conduct a Taxpayer Education Campaign to educate and obtain feedback from remote sellers and marketplace facilitators and other TPT license holders located in unincorporated areas on issues related to the correct use of TPT rates and transaction sourcing methods.
18. Requires ADOR, by March 31, 2025, to submit a report on the Taxpayer Education Campaign to the Governor, the President of the Senate and the Speaker of the House of Representatives and provide a copy to the Secretary of State.
19. Makes technical and conforming changes.
20. Becomes effective on the general effective date.
House Action
WM 1/24/24 DPA 8-1-0-1
3rd Read 2/21/24 55-0-4-0-1
Prepared by Senate Research
March 14, 2024
MG/AB/cs