Arizona Transaction Privilege Tax Procedure TPP 08-1 provides guidance on four separate transaction privilege tax “exemptions” (technically: deductions from the seller’s tax base) that may apply to an Arizona seller’s sale of a motor vehicle to a nonresident of Arizona. All four of these exemptions rely upon the purchaser qualifying as a nonresident of Arizona. Some exemptions depend on the particular state of residence of the purchaser. One exemption requires the seller’s documented out-of-state delivery of the motor vehicle to the nonresident. Qualification for all of these exemptions and documentation requirements are thoroughly discussed in TPP 08-1.
Arizona Revised Statutes (A.R.S.) § 42-5061(U) provides the exemption that applies to an Arizona seller’s sale of a motor vehicle to a nonresident who is from a state that has both tax reciprocity with Arizona (meaning that the state will provide a credit against its tax for the Arizona transaction privilege tax paid by the nonresident purchaser) and a state tax rate (applicable to vehicle purchases or registrations) that is lower than Arizona’s 5.6% transaction privilege tax rate. This statutory tax base deduction has the effect of making the amount of Arizona state transaction privilege tax that is due on the sale equal to the state tax that would be due in the nonresident purchaser’s state on a nonexempt sale. (Exemptions from tax in another state’s tax code do not apply in Arizona.) Because the nonresident’s state will allow credit for the state tax paid in Arizona, there should not be a state tax liability when the vehicle is registered by the nonresident in his or her home state. A.R.S. § 42-5061(U) allows the nonresident to take possession of the vehicle in Arizona, but applies only to state transaction privilege tax and “piggybacking” county excise taxes. City privilege taxes apply in full to sale of a motor vehicle to a nonresident when the purchaser takes possession of the vehicle in Arizona.
The Nonresident State Tax Rate Schedules lists the states that have lower state tax rates than Arizona’s 5.6% transaction privilege tax rate and provide a credit for tax paid in Arizona. Also listed are the states that do not impose a sales or excise tax; nonresidents from these states also qualify for the A.R.S. § 42‑5061(U) exemption and will pay no state or county tax in Arizona.
For the reduced transaction privilege tax rate to apply under A.R.S. § 42-5061(U), the nonresident purchaser must complete Arizona Form 5011 to establish residency in another U.S. State; obtain a Special 90-Day Nonresident Registration Permit from the seller; and allow the motor vehicle seller to make a copy of the nonresident’s valid out-of-state driver’s license.
To assist Arizona motor vehicle sellers to compute the reduced amount of state transaction privilege tax and county excise tax that will apply to the sale of the motor vehicle to a nonresident and also compute the correct deduction amount to be taken on the transaction privilege tax return (Form TPT-1), the Department of Revenue has created two versions of a tax computation worksheet. The Nonresident State Tax Rate Schedules, which also includes a listing of Arizona county tax rates, are provided for use with both Worksheet A/B and Worksheet C to determine the correct amounts of state transaction privilege tax and county tax applicable to the sale of a motor vehicle that qualifies for full or partial tax exemption under A.R.S. § 42-5061(U). These worksheets will also compute the deduction amounts to be placed on Form TPT-1 for each sale. NOTE: The Department advises double-checking the numbers and the calculations on this worksheet as the Department cannot be held responsible for erroneous calculations.
On Worksheet A/B, the nonresident state and Arizona county tax rates must be transferred to the blank or fillable worksheet, but all of the mathematical calculations must be completed by the seller. On Worksheet C, after inserting the sales price of the motor vehicle, drop-down menus allow the seller to choose the nonresident state and Arizona county, and this worksheet will automatically compute the tax and deduction amounts.
- Worksheet A/B is a blank worksheet that can be either printed blank and completed manually, or completed online and then printed. The motor vehicle seller must insert the sales price, nonresident state and Arizona county tax rates, and complete all mathematical calculations. An example of completing the worksheet and Arizona Form TPT-1 (for this one sale) is included on this worksheet.
- Worksheet C is a computational worksheet that can be printed. By simply entering the motor vehicle’s taxable sales price and selecting the nonresident’s state and the Arizona county in which the seller’s business is located from the drop-down menus, the worksheet will calculate the tax and provide the amounts to place on Form TPT-1 for this sale. (Arizona is included as one of the states in the state drop-down menu in order to compare the tax savings.)
The Nonresident State Tax Rate Schedules also provide taxability information about sales of motor vehicles to nonresidents from all other states and the District of Columbia, when the motor vehicle is delivered to the purchaser in Arizona. The rate schedules also lists the states whose residents qualify for the following separate statutory exemption under the retail classification:
A.R.S. § 42-5061(A)(28)(a) provides an exemption from state transaction privilege tax and county excise tax for sales of motor vehicles to nonresidents from states that do not provide a credit for taxes paid in Arizona. (This exemption prevents the nonresident purchaser from having to pay full tax in both states.) This exemption and the documentation requirements for qualification are explained in TPP 08-1.