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Taxes for Canadian Businesses in the USA – Arizona

This is the fourth FAQ of this series on taxes for Canadian businesses in the USA.

Question:

What state taxes does a Canadian business pay in Arizona?

Answer:

Sales Tax

The Arizona state sales tax rate is 5.6%. Depending on local municipalities, the total tax rate can be as high as 11.2%.

Use Tax

The Arizona state use tax rate is 5.6%.

Unemployment Insurance (Payroll Taxes)

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 number of unemployment benefits that were charged to you or paid to your former employees and the average size of your annual taxable payroll.

Withholding Tax (Payroll Taxes)

If you have an employee earning an 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 employee’s gross pay and the number of withholding allowances/exemptions claimed on their Form A-4.

Corporate Taxes

The corporate income tax rate is 4.9% on taxable income.

Discussion:

If you remain under certain thresholds you are not responsible for taxes. However, understanding those thresholds that change from state to state and industry to industry can be challenging.

TaxThreshold
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 doing business in the USA, for example, sales over $100,000 to residents and businesses in the USA, please contact a member of the EPR tax team by completing the contact form below. Our tax experts can advise on the best structure to reduce or minimize the impact of the taxes.

Canadian and foreign tax laws are complex and have a tendency to change on a frequent basis. As such, the content published above is believed to be accurate as of the date of this post. Before implementing any tax planning, please seek professional advice from a qualified tax professional. EPR Maple Ridge Langley, Chartered Professional Accountants will not accept any liability for any tax ramifications that may result from acting based on the information contained above.


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