Arizona LLC Taxes

LLC Pass-Through Taxation

By default, LLCs don't pay taxes directly. Instead, the LLC members report the income (or losses) on their personal Form 1040 tax return. This is called pass-through taxation — tax responsibility "passes through" the LLC to its owners.

How Are LLCs Taxed in Arizona?

By default, a Arizona LLC is taxed by the IRS based on the number of members:

• An LLC with 1 owner (Single-Member LLC) is taxed like a Sole Proprietorship
• An LLC with 2+ owners (Multi-Member LLC) is taxed like a Partnership

These are the "default" statuses — automatically applied based on member count. You can also elect to have your LLC taxed as a Corporation (S-Corp or C-Corp) by filing extra paperwork with the IRS.

Single-Member LLC (default)

The IRS treats Single-Member LLCs as Disregarded Entities — the LLC doesn't file its own federal return. Instead, the owner reports LLC income on their personal Form 1040 (Schedule C if owned by an individual).

Multi-Member LLC (default)

Multi-Member LLCs file a Form 1065 Partnership Return and issue a Schedule K-1 to each member. Each member then reports their share of profits on their personal Form 1040.

Husband & Wife LLC

Electing Corporate Taxation

• S-Corporation: File Form 2553 with the IRS. Can reduce self-employment taxes once the LLC has consistent profits (generally $70,000+ net income per member). Speak with an accountant first.
• C-Corporation: File Form 8832 with the IRS. Uncommon for small LLCs. Primarily useful for large employers offering healthcare fringe benefits.

Arizona State Income Tax

Arizona has a state income tax at rates of 2.5% flat rate. LLC members report their share of LLC profits on their Arizona state tax return.

Single-Member LLC owners file Arizona Form 140 and report LLC income on their personal return. Multi-Member LLCs file Arizona Form 165 (Partnership Return) and issue AZ Schedule K-1s to members.

Contact the Arizona Department of Revenue at 602-255-3381 for more information.

Arizona Special LLC Taxes

Arizona Transaction Privilege Tax (TPT)

Arizona does not have a traditional sales tax. Instead, it imposes a Transaction Privilege Tax (TPT) on the privilege of doing business in the state. The TPT applies to the seller (not the buyer), though it is typically passed on to customers.

• State TPT rate: 5.6%
• Additional city/county rates apply
• Register for a TPT license at azdor.gov if your LLC sells taxable goods or services

Local Income Tax

You and/or your LLC may also need to file and pay income taxes with your local municipality (city, county, etc.). Contact your local government or hire an accountant to confirm local requirements.

Arizona Sales Tax

If your LLC sells taxable products (and sometimes services) in Arizona, you may need to collect sales tax and register for a Seller's Permit (also called a resale license or sales tax permit).

Arizona uses a Transaction Privilege Tax (TPT) instead of a traditional sales tax. The state TPT rate is 5.6%, with local rates adding several more percent. Register for a TPT license at azdor.gov if your LLC sells taxable goods or services.

Register for Arizona Seller's Permit →

Contact the Arizona Department of Revenue at 602-255-3381 with questions.

Arizona LLC Payroll Taxes

If your Arizona LLC has employees, you must handle payroll taxes, which include:

• Federal income tax withholding
• Arizona state income tax withholding
• Social Security and Medicare taxes (FICA)
• Federal unemployment tax (FUTA)
• Arizona state unemployment tax (SUTA)

Payroll calculations are complex — most LLC owners hire a payroll service or accountant.

Arizona Tax Agency Contact

Arizona LLC Taxes — FAQs