Understanding Arizona Taxes

Sunset light on the mountains Scottsdale, Arizona
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In Arizona, some of the taxes assessed all depend on your personal situation. Many people are unpleasantly surprised by the personal property tax levied against automobiles in Arizona. It is paid along with your vehicle registration. Others are very pleasantly surprised that property taxes might be lower in Arizona.

Personal Income Tax

Residents and nonresidents that earn income in Arizona will pay state income tax. To compute your Arizona income tax, start with your federal adjusted gross income. Then you will be able to make certain additions and subtractions to arrive at the Arizona taxable income. For instance, you will have an addition to income if you have interest income from non-Arizona municipal bonds. You will have a deduction from income for state tax purposes for social security benefits you receive, and a portion of your income from a U.S. Government and Arizona state or local pension.

Arizona taxpayers may take a standard deduction or itemize. There is one personal exemption allowed per taxpayer, and some may be able to take additional exemptions if there are qualifying dependents. If you're receiving Social Security, you should know that Arizona is one of the states that doesn't tax those benefits

In December 2017, Congress passed a sweeping federal income tax overhaul that affects personal income tax rates from the tax year 2018 onward. Since Arizona income tax is based on your federal adjusted gross income, it may reflect this change as well.

Vehicle Tax

The fee to obtain a driver license is $25 for those 16 to 39 years old, $20 for people 40 to 44 years old: $20, and $15 if you're 45 to 49 years old. You can determine how much it will cost you at the Motor Vehicle Department website. The fee to register your vehicle is generally less than $15, but there is an additional vehicle license tax (VLT) assessed at the time of registration. This is the equivalent of the personal property tax charged by other states. The more valuable your vehicle, the higher the VLT will be.

 You can expect a newer model, high-end vehicle to have an annual fee of several hundred dollars. Arizona charges a vehicle license tax (VLT) at every registration and renewal. This tax is assessed for each $100 of your vehicle's value. The value of your vehicle is calculated as 60 percent of the original manufacturer's retail price, and that total will be lowered by 16.25 percent at every registration renewal.

For each $100 of the vehicle's value, you will be assessed as follows:

  • New vehicles: $2.80
  • Used vehicles: $2.89
  • Alternative Fuel Vehicle: $4

Gas Tax

in addition to the tax imposed by the federal government, Arizona adds a tax on gasoline for most non-commercial, non-diesel vehicles. Currently, the Arizona state gas tax is 18 cents per gallon but there is a movement to increase the tax to cover road improvements. Arizona has the sixth lowest state gas tax in the nation. 

Estate Tax

Since 2005 Arizona has not imposed an estate tax or a gift tax. Arizona has no estate tax as of 2018. If your estate is worth enough, though, there’s a chance you could owe the federal estate tax.

Property Tax

Arizona charges a property tax for an owner-occupied residential real property. There are several classes of properties with varying assessment ratios. The assessment ratio for an owner-occupied residential property is 10 percent of full cash (market) value. Tax jurisdictions set tax rates on the basis of the total assessed valuation within their boundaries and the amount of the levy to be raised. Phoenix is located in Maricopa County, and the Maricopa County Assessor is responsible for determining the assessed value of residential property here.

The tax rate applicable to each parcel of property is the sum of the state, county, municipal, school, and special district rates.

Arizona does not have a property tax on household goods or intangible personal property.

Sales Tax

The Arizona sales tax rate is 5.6 percent. Currently, all fifteen counties levy a tax in addition to the state tax. For Maricopa County, where Phoenix is located, that's 0.7 percent, making a sales tax of 6.3 percent. Incorporated municipalities also levy transaction privilege taxes which are generally in the range of 1.5 percent to 4 percent in Maricopa County. Hotel and taxi services have additional taxes charged.

The state of Arizona does not levy a state tax on drugs prescribed by a licensed physician or dentist. While the State of Arizona does not tax food for home consumption, many cities in Arizona do.