Key figures
1099s, withholding and use tax
Arizona wants 1099s that show Arizona withholding, filed with the A1-R annual reconciliation by January 31. There is no required withholding on payments to nonresident contractors.
Use tax is due on taxable purchases from vendors that didn’t charge TPT. Because Arizona classifies SaaS as a personal property rental, software subscriptions from out-of-state vendors are part of that.
Contractors
Arizona has a statutory declaration of independent business status: a signed declaration, in the form the statute sets out, creates a rebuttable presumption that the worker is an independent contractor. DES still decides status for unemployment insurance on the facts, starting from who controls the work.
The federal baseline
This page covers what Arizona adds. The federal rules underneath it apply here too.
Common questions
Do we owe use tax on software subscriptions?
Possibly. Arizona treats SaaS as a rental of tangible personal property, and an Arizona business that buys it from a vendor that doesn’t charge TPT owes use tax, at the state rate, plus city use tax where the city levies one.
How does Arizona decide contractor status?
Arizona law lets a company and a contractor sign a declaration of independent business status that creates a rebuttable presumption the worker is a contractor. It helps, but it doesn’t override the facts if the company controls the work.
Payables next door
- CACalifornia payablesCalifornia classifies workers under the ABC test, wants contractors reported to EDD on Form DE 542, and requires 7% withholding on California-source payments to nonresidents over $1,500.
- NVNevada payablesNo state 1099s and no contractor withholding. What reaches payables in Nevada is use tax on tangible goods bought without Nevada tax.
- UTUtah payablesUtah wants 1099s that show Utah withholding by Jan 31, has no contractor withholding, and charges use tax on software, SaaS included, used in Utah.
- COColorado payablesColorado wants only 1099s that show Colorado withholding, by Jan 31. Use tax applies to untaxed purchases, and home-rule cities can tax software the state doesn’t.
- NMNew Mexico payablesVendors pass gross receipts tax through on services, and purchases without it owe compensating tax. 1099s with New Mexico withholding go to TRD.
Founder guides on this
- PeopleContractor or employee? Classification for startupsContractor or employee depends on control, not the contract. The IRS test, state rules, 1099s, payroll registration and the cost of getting it wrong.
- Sales taxSales tax nexus for startups: when you owe tax in a stateSince Wayfair, selling into a state can create a sales tax obligation. How economic nexus works, why SaaS is taxable in some states and when to register.
More of the Arizona guide
- AccountingAccounting and state tax in ArizonaCorporate tax, conformity to federal rules, apportionment and what it does to your books
- ReceivablesReceivables and sales tax in ArizonaSales tax registration, economic nexus, whether SaaS is taxable, and collecting from customers
- PayrollPayroll taxes and employer rules in ArizonaWithholding, unemployment insurance, paid leave, minimum wage and the rules on paydays
- ComplianceCompliance and filings in ArizonaRegistering to do business, annual reports, franchise tax and the filing calendar
- AdvisoryAdvisory: credits and decisions in ArizonaCredits, incentives and the decisions that are cheaper to get right the first time
Sources
Checked against each agency’s own page on . Rates and thresholds change, usually on January 1.
General information for US companies, not tax, legal or accounting advice for yours. Rules and thresholds change; confirm the specifics with a CPA or the agency before you act on them.