This is the 4th FAQ of this series on taxes for Canadian businesses in the USA.
What state taxes does a Canadian business pay in Arizona?
The Arizona state sales tax rate is 5.6%. Depending on local municipalities, the total tax rate can be as high as 11.2%.
The Arizona state use tax rate is 5.6%.
Unemployment Insurance (Payroll Tax)
Arizona employers are required to pay both a federal and a state unemployment excise tax. Arizona uses a “reserve ratio” system to determine the tax rates. If you are a new employer, you are assigned a tax rate of 2% for a minimum of two calendar years. After that, your rate may change depending on the amount of taxes you have paid, the amount of unemployment benefits that were charged to you or paid to your former employees and the average size of your annual taxable payroll.
Withholding (Payroll Tax)
If you have an employee earning income while in Arizona you must withhold a certain percentage of their income from each payroll. The amount of tax you withhold from an employee depends on the length of your pay period, the employees gross pay and the number of withholding allowances/exemptions claimed on their Form A-4.
Corporate Income Tax
The corporate income tax rate is 4.9% on taxable income.
If you remain under certain thresholds you are not responsible for taxes. However, understanding those thresholds that change by state to state and industry to industry can be challenging.
|Sales||$100,000 or $150,000 if a remote seller|
|Use||$100,000 or $150,000 if a remote seller|
Availability of Treaty Benefits
Use taxes are often treated as income taxes by the Canadian government when calculating income in Canada and applying for foreign tax credits. Meaning if you pay use tax in the USA but have no net profit, you will not benefit from a tax credit theoretically. The actual application is a bit more complex.
Income taxes in the USA are almost always treated as income taxes by the Canadian government. Thus, in the majority of cases, if you pay tax in the state you don’t pay tax again in Canada unless the Canadian rate is higher.
If you are considering business in Arizona, including sales over $100,000 to residents and businesses in Arizona, please contact us and we can advise on the best structure to reduce or minimize the impact of the taxes.