So, you lease commercial property to another party in Arizona and you thought it was enough to pay income tax to the IRS and Arizona every year. Well, not so fast … you are also responsible for paying county and city transaction privilege taxes (TPT) on the commercial lease. How do I do that, you ask … well, read on!
What’s a commercial lease?
First, the definition of a commercial lease … Per the Arizona Department of Revenue (ADOR), a commercial lease is “real property leased or rented for commercial purposes.” This includes but is not limited to:
- Office buildings
- Farm land
- Parking/storage facilities
- Banquet halls
- Meeting rooms
Furthermore, a taxpayer is in the commercial lease business and considered taxable if such taxpayer rented or had available for rent:
- One or more units of real property (does not include residential or agricultural property)
- More than three units of real property used for agricultural purposes
Certain commercial leases are exempt from TPT, such as leasing to affiliated corporations, licensed nursing care institutions and leasing to entities for religious worship to name a few. Please review Publication 608 for a complete list of exemptions.
What is TPT?
What is TPT? … Simply put, this is a tax on the privilege of doing business in Arizona.
Effective July 1, 1997, the State of Arizona itself does not tax commercial leases, but the ADOR does collect the TPT for county and city taxes. Not all Arizona counties tax commercial leases; there currently are five counties in Arizona that assess a tax on commercial leases:
Each county may have a different tax rate, so check out this chart:
|County tax rates|
|County||County code||Tax rate|
If you are wondering if you should report county taxes, click here. This is a slick application that will give you a breakdown of the taxes to report along with the business, county and city codes needed to fill out the TPT returns. All you do is input the commercial property’s address and choose “Rent/Lease Space” from the drop-down menu.
First, the ADOR strongly encourages taxpayers to file their TPT online. Enroll here. You can link your existing TPT license to this new business account. Once you’re enrolled, you can file your TPT at this website. There is one exception to the ADOR’s encouragement to voluntarily electronically file the TPT to required electronic filing. A business that has more than one location is required to electronically file their TPT online. If you only have one location, you may file form TPT-EZ and mail it in.
At first, you may find the TPT form difficult to prepare. Keep in mind that you need to use the proper code for the type of tax being paid and have the proper county code(s) and city code(s). You can also have deductions that you may take advantage of to reduce your TPT, but make sure you are using the correct deduction code when doing so.
The good news is that you no longer need file various TPT reports to various cities for every reporting period. For online tutorials to prepare your TPT tax, click here.
Sahar T. Clancy, CPA