State Tax Primer from A to W: Arizona

Welcome to my third in a series on state taxes! For information about what I’m trying to do, read my introductory bit. Next on the agenda: Arizona!

ARIZONA

Population: 6,338,755 (16th)

Capital: Phoenix

Largest City: Phoenix

Gross Domestic Product: $232 billion

GDP per capita: $27,232 (39th)

2004 election winner: George W. Bush

web site: http://www.az.gov/

Income Tax

Arizona collects personal income taxes if your Arizona gross income is at least $15,000, or if your Arizona adjusted gross income is at least $11,000 for married filing jointly ($5,500 for those filing as single, head of household or married filing separately).

Arizona residents are taxed on the same income that they report for federal income tax purposes. This includes unemployment compensation; to the extent that unemployment compensation is taxable for federal purposes, it is also taxable for Arizona purposes. This also means that income earned in other states is taxable in Arizona; if you pay taxes in two or more states, you may be able to take a credit for taxes paid to other states.

There are five income tax brackets in Arizona: 2.87%, 3.20%, 3.74%, 4.72% and 5.04%. Income is income: Arizona has no special treatment for capital gains. Capital gains are taxed at the regular tax rate.

Social Security and Railroad Retirement benefits are exempt from Arizona income tax. Up to $2,500 total of military, civil service, and Arizona state/local government pensions are also exempt from Arizona income tax. All out-of-state government pensions are fully taxed, as well as retirement benefits paid by other states.

Arizona does participate in the Set Off program. An Arizona state tax refund will be taken to satisfy any outstanding liabilities owed to the State of Arizona or to the Internal Revenue Service; a federal refund will be taken for same.

Sales Tax.

Arizona sales tax is 5.6%. Some cities may add a local sales tax, bringing the rate to an average of about 6-6.5%, and as high as more than 10% across the state.

Arizona does not charge sales tax on food purchased at grocery stores, although cities are allowed to do so. Prescription drugs are also exempt from sales tax.

Tobacco Tax

Arizona’s tax rate on cigarettes is $2.00 for a package of twenty cigarettes, ranking them 4th in the country. It’s one of the few taxes in Arizona that is well above the national average.

The rates on other tobacco products like snuff, smoking tobacco, chewing tobacco, and cigars vary based on weight and retail selling price of the products.

Gas Tax

The gas tax rate in Arizona is $.19 per gallon (the 10th lowest in the country).

Property Taxes

Arizona does not impose a flat rate state property tax on real estate. Rather, local jurisdictions set tax rates, which can be significant in some areas. Seniors may be eligible for a property tax credit or property assessment freeze.

Arizona also taxes personal property. Personal property is considered to be tangible property which is not attached to real estate.

Inheritance and Estate Tax

Arizona does not impose an inheritance tax or a gift tax. Like most states, Arizona no longer has an estate tax since it was tied to the federal estate tax state death tax credit.

Overall Tax Burden

The overall tax burden in Arizona, taking into account taxes paid by individuals, results in a ranking as 41st most-tax burdened state in the country, according to Tax Foundation.

taxgirl says

Arizona is a conundrum. It’s a relatively low tax state but does not rely on federal funds to pay the bills. In fact, Senator McCain may have had a lot of things in common with Governor Palin, but earmarks are not one of them. Arizona will receive $18.70 per capita in federal earmarks this year the least of any state (though in prior years, they ranked much higher). In comparison, Alaska received the most per capita, a total of $506.34 per capita. (source and source)

Why so low? Senator McCain and Representatives Jeff Flake and John Shadegg have refused to seek federal money for state projects. That’s awfully impressive when you consider that Arizona is the second fastest growing state in the country – which means that the infrastructure and programming is also increasing.

It’s interesting to consider, then, that Arizona has a relatively low state tax burden and a relatively low GDP per capita. This is similar to the situation in Alabama.

In fact, at first blush, Arizona initially looks a lot like Alabama. By rank, Alabama is 7th in the country in residents living at or below poverty; Arizona is just behind at 11th. But unlike Alabama, Arizona’s sales tax is not very regressive, exempting food from grocery stores and prescription drugs. And the state seems to be providing adequate services: considering the poverty rates, the infant mortality rate is relatively low (31st) and the high school graduation is more than the US average, unlike Alabama.

So if Arizona isn’t taking much federal money, and it’s not taxing its citizens very much, how does the state manage to stay afloat? Corporate taxes. Arizona ranks near the top of the charts for its tax burden on businesses (source), a fact that many are highly critical of. Currently, Arizona businesses pay more corporate taxes and corporate capital gains tax than half of US states. (source)

Funding individual taxpayers on the backs of businesses… Is it good policy? I don’t know. What do you think? Is it better to tax citizens at the expense of business? Or is it better to lower tax burdens of businesses and hope that it trickles down to the citizen?

(Note: tax rates were current as of 11-30-2008 and were taken from the AZ Department of Revenue web site)

Comments

  1. Pingback: Safe Real Estate Info » Blog Archive » State Tax Primer from A to W: Arizona | taxgirl

  2. Bruce

    I am enjoying the series. I am looking forward to the state by state info – I am planing on forwarding certain states to a few clients-.

    Just curious, where is the info coming from? State DOR web sites or??????

  3. Mary Kay Foss

    The staff at Arizona Department of Revenue are difficult to deal with. They will not accept a federal power of attorney form. You must complete the state form.Also there telephone system is very confusing. It takes a long time to reach a real person and then they’re probably in the wrong department.

  4. Author
    Kelly

    Bruce,

    For the most part, the information comes from DOR, DOS and official state web sites. I also rely on additional reports or studies, which I try to cite either as (source) or a link in the text.

    The Tax Foundation has a bunch of good info. I also check the Census reports, Poverty Center reports and similar government and agency sources. I try to verify anything that doesn’t come from an official govt cite through a primary source.

    I’m glad that you are enjoying the series!

  5. Pingback: More Arizona Tax Facts | taxgirl

  6. Urbie

    The DoR in Arizona takes several weeks to cash checks. This I know because my wife and I always owe something on April 15th. Last year, it took them at least 3 weeks to cash my check! My old mentor in business school works for the state Auditor General — I told him about that, in hopes he’d get ‘em to tighten it up a bit.

    I also note that Coconino County (where my wife and I still own a piece of land — it’s on the market, but we’re not holding our breath) has not yet cashed the property tax check I sent them on November 1st. I guess they don’t like to collect interest, either!

    Urb

  7. Author
    Kelly

    Pennsylvania is the same way. I have noticed, however, that the US Treasury apparently sprints to the bank to cash my checks! ;)

  8. Pingback: A Federal Tax Holiday? | mySBSteam Blog

  9. VF

    Not quite sure where you are getting your info from, and if it is from the AZ Dept of Revenue you should let them know that they have outdated info. I live in Arizona, in Surprise to be exact, and I pay sales tax on food, and the tax here is 8.5% for food and anything else. I moved her from Queens NY, where the sales tax was 8.65%. Not much of a difference. Additionally, car registration is outrageous at $300-400 per year, whereas in Queens it was $40, and my monthly electric/gas bills are ridiculuous at 200-300 per month, whereas in queens in was $60. Also, you pay for water in Arizona, whereas in NY you don’t. All in all, I’d say that people in Arizona are paying quite a bit more than other states, but yet wages are the one of the lowest in the country!

  10. Author
    Kelly

    The rates were accurate as of last year (and according to the web site, it’s the same for this year so far). The state rate is supplemented by local rates – that could be what’s driving up your costs. In some areas, it’s actually lower than the state – by agreement. You can see all of the state+local rates on the web site by clicking here.

  11. Marius

    This is so helpful… the information on this site. I just browsed on the last link I got from you Kelly – awesome information. I’m on my way to start hunting for a house, and God willing, I’ll get one soon. Searching for the best not very populated and best rated in beauty city, then the house will come in my hands. :)

    Thanks a lot.

  12. Kevin

    Just curious about the Sales tax rebate programs I heard about over the last few years, in this time of budget crunch and amid all this talk of continued spending cuts, (like the police force and emergency personnel reductions)have they rescinded the sales tax rebates to retailers yet? Maybe they could balance the budget if they actually kept the sales tax already being collected, instead of supporting some company’s profit margins? Just curious to see what you think or know about this.

  13. Eric

    I purchased a used RV in Phoenix and they collected the sales tax there
    and told me I would get the difference when I registered the vehicle in
    Kansas. I am due $120 back and have not been able to get a call back from
    the dealer as how to get it. I found this site but nothing else and hope you
    can tell me who I need to get in touch with about this.
    Thanks, Eric

  14. Sara

    I live in Surprise as well and want to clear up a misconception from an earlier person’s post. There is no sales tax on grocery items in Surprise, but there is a sales tax of 11 something percent on restaurant meals.

    Yes, vehicle registration fees are a sticker shock for those not used to them – in my case about $750 for initial registration (and it slowly decreases in following years), but I’ve heard that out registration fees are somewhat cheaper than veh reg fees in California, so I suppose everything is relative.

    Property taxes are far less expensive than California’s and those of many other states as well.

  15. Gary

    I live in Sun City AZ next door to Surprise. Sun City tax is 7.5% because we have no school taxes. So if we eat in Sun City it is 7.5% and if we venture out into Surprise 11%. Housing is down 1/2 from 2006. All considered AZ and especially Sun City is a bargin.

  16. Pingback: Arizona Tax gifts – Arizona Tax | Move to Arizona » Blog Archive

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