ARIZONA DEPARTMENT OF REVENUE
ARIZONA WITHHOLDING TAX RULING
WTR 93-3
This substantive policy statement is advisory only. A substantive policy statement does not include internal procedural documents that only affect the internal procedures of the agency and does not impose additional requirements or penalties on regulated parties or include confidential information or rules made in accordance with the Arizona administrative procedure act. If you believe that this substantive policy statement does impose additional requirements or penalties on regulated parties you may petition the agency under Arizona Revised Statutes § 41-1033 for a review of the statement.
ISSUE:
How does the Arizona Department of Revenue determine whether a worker is an employee or an independent contractor for Arizona withholding tax purposes?
APPLICABLE LAW:
Arizona Revised Statutes (A.R.S.) § 43-401 requires every employer to withhold from wages, salary, bonus or other emolument paid to any employee, for services performed within the state, a percentage of federal withholding as specified or a greater percentage as elected by the employee.
DISCUSSION:
Every employer is required to withhold Arizona income tax from compensation paid to any employee for services performed in Arizona. The Arizona income tax which is required to be withheld is a percentage of the federal income tax withheld.
Since the amount of Arizona tax required to be withheld depends on the amount of federal tax withheld, the determination of whether a worker is subject to Arizona withholding (i.e., whether the worker is an employee) depends on whether the worker is subject to federal withholding. If the Internal Revenue Service determines that a worker is an independent contractor not subject to federal withholding, there can be no Arizona withholding. The federal determination, in effect, controls the Arizona determination with respect to a worker's employment status for withholding tax purposes.
RULING:
For withholding tax purposes, the Department of Revenue will follow the determination of the Internal Revenue Service with respect to a worker's status as employee or independent contractor.
Harold Scott, Director
Signed April 23, 1993
Explanatory Notice
The purpose of a tax ruling is to provide interpretive guidance
to the general public and to department personnel. A tax ruling
is intended to encompass issues of law which are not adequately
covered in statute, case law or administrative rules. A tax
ruling is a position statement which provides interpretation,
details or supplementary information concerning the application
of the law. Relevant statute, case law, or administrative
rules, as well as a subsequent ruling, may modify or negate any
or all of the provisions of any tax ruling. See GTP 92-1 for
more detailed information regarding documents issued by the
Department of Revenue.