General Arizona Property Taxes

Annual property taxes are relatively low; figure less than 1% of the market price. In general, Arizona is considered a “wealth friendly” state ranking in the bottom quadrant among states when one considers the overall combined tax burden.

• Based on local taxes, Arizona has the seventh lowest effective property tax rate at 0.6696. In other words, the annual property tax for a $100,000 home in Arizona would be $660 versus $1,150 on a national average.
  
• Counties, cities and community colleges are limited to an increase in total property tax levies of 2% over the previous year’s level, plus new construction.
  
• The valuation of locally valued property is limited to a 10% growth over the prior year’s limited value or an amount equal to one-fourth of the difference between the previous year’s value and the full cash value of the property for current tax year, whichever is greater.
  
• The maximum primary tax liability for owner-occupied residential property is 1% of primary value. Secondary property taxes (i.e. bonds, school overrides) have no cap.
  
• Owner-occupied residential properties and residential rental property are assessed at 10% of full cash value. The average tax rate on homes in Arizona before exemptions and rebates is approximately 1.3% of market value

Individual Income Tax

A personal income tax is levied on residents and nonresidents earning income in Arizona. Income tax credits are allowed for elderly low-income taxpayers. Personal taxes have been substantially reduced for the last nine years.

Arizona’s personal income tax rate ranges from 3.8% to 7% of taxable income. No municipality imposes an earnings tax.

Sales Taxes

The state levies a 5% sales and use tax. Food for home consumption, prescription drugs, and machinery and equipment directly used in manufacturing, processing and in certain other industries are exempt.

Eighty-three municipalities impose an additional 1% to 2% sales tax.

Estate Taxes

A return must be filed with the federal government as well as the Arizona Department of Revenue when the gross estate exceeds $600,000. The tax rates imposed on the remaining estate are designed to absorb the maximum credit for state death taxes allowed by the federal government. Returns on taxable estates must be filed with the Department of Revenue Estate Tax Division within nine months after death.

Corporate Income Tax

Corporate Income Tax is levied for all firms at 9%. The minimum filing amount is $50.

The gasoline and diesel motor vehicle license tax is an ad valorem tax levied in lieu of property taxes. The assessed valuation is computed at 60% of the manufacturer’s list price, without options. This valuation is reduced thereafter by 15% each year. The tax rate is $4 per $100 of assessed value with a minimum tax of $10. Payments are due upon purchase of a vehicle with annual renewals on a staggered system throughout the year.

• Gasoline and diesel fuel are taxed at 18 cents a gallon. Commercial vehicles have an additional weight-distance charge.
  
• There is an annual vehicle registration fee of $8 per vehicle (an additional $4 fee is charged for new registrations).

Arizona Tax Links

General Tax Information
An excellent resource for potential Arizona residents! Provides information covering personal income taxes, deductions, exemptions, taxes that apply to automobiles, vehicle registration, and gift taxes.

Tax Forms
Arizona Department of Revenue
Moving to Arizona
Assessor’s Calculations
Maricopa Online
Assessor’s Property Tax Info
General Tax Information

Important Changes to U.S./Canada Tax Convention

(September 18, 1998), by Debra Silver CPA

If you are a U.S. resident receiving old age security and/or any payment under the Canada Pension Plan or the Quebec Pension Plan, there is good news for you. According to the changes made in the U.S./Canada treaty, for 1998 and subsequent years, there will be no withholding or filing requirements in Canada for these payments received by the U.S. residents. These benefits will only be taxed in the U.S. and changes will be retroactive to January 1, 1996.

As these changes have been made retroactively, all Canadian taxes withheld from the benefits paid to you in 1996 and 1997 will be available for refund. Note, changes in the tax treaty cannot result in more tax payable than what has already been paid. It is up to the individual to choose to be taxed in the country with the lower rate of tax.

If the tax you would be required to pay in the U.S. is less than the Canadian tax withheld in 1996 or 1997, you can choose to report your Canadian benefits on your U.S. tax return for each year, and apply to Revenue Canada for a refund of the Canadian tax withheld.

How to calculate

If the tax you would be required to pay in the U.S. is more than the Canadian tax withheld in either or both years, you would not choose to report your Canadian benefits on your U.S. tax return. In this case you will not apply for a refund of tax paid in Canada.

If you are eligible for a refund of the tax withheld, you should apply within three years from the date the treaty changes entered into force, December 16, 1997.

If you choose to be taxed in the U.S. and receive a refund of the Canadian tax withheld for one or both years, and later determine that the U.S. tax is higher than the Canadian tax, the treaty gives you three years to revoke, the election. If you decide to revoke the election, you would be required to repay the Canadian tax previously refunded. In that case, Revenue Canada would advise the IRS that you have revoked your election and your social security benefits would become non-taxable in the U.S.

If you filed Form NR5 and were approved for zero percent withholding rate by Revenue Canada, you would not choose to be taxed in the U.S. as the tax payable in the U.S. would always be a higher amount and you would remain taxable in Canada. Since there was no withholding from your benefits, you would not be able to apply for a refund.

Changes to the U.S./Canada tax treaty are becoming common place. For those receiving Canadian payments, it is important to consult with your advisor on an ongoing basis.