Tax in Arizona: a complete guide
Staying on the front foot with your taxes is critical to carefully managing your finances. But there can be a lot to keep up with, particularly when each state in the USA has its own taxation laws.
Compared with much of the US, Arizona has been widely known for having lower tax rates. It has lower-than-average income and property tax rates and one of the lowest gas tax rates in the country. However, its sales taxes are higher than average.
Below, we take a more in-depth look at Arizona's various tax rates, so you’ll be well-equipped to plan your finances accordingly.
Arizona income tax
As of 2023, Arizona has a flat income tax rate of 2.5 percent.
According to former Arizona Governor Doug Ducey, they implemented the change a year ahead of schedule due to the state’s “continued economic growth and record surplus.”
Adopted as part of last year’s fiscal year budget, it was originally meant to be phased in over three years from January 2024. However, since the Governor’s Office of Strategic Planning and Budgeting, alongside the Joint Legislative Budget Committee, found that Arizona’s General Fund revenues already exceeded the statutory threshold needed to implement the flat tax, they decided to bring it forward.
The 2023 change saw the previous tax rates, which ranged from 2.59 percent to 4.5 percent, removed in favor of a universal flat tax rate – a step undertaken by 11 other states in the US. However, Arizona’s flat tax rate is the lowest among these states.
Arizona sales tax
Arizona’s state sales tax sits at 5.6 percent. In addition, it also allows local governments to add an additional “local option” sales tax of up to 5.3 percent.
With 99 jurisdictions in Arizona, the average collection of local tax sits at 2.4 percent – making the average local sales tax a little over eight percent.
In addition, the state of Arizona also has a transaction privilege tax (TPT). This applies to vendor purchases, who can then pass this tax, or at least a portion, on to consumers.
While items like groceries and prescription drugs are exempt from Arizona’s sales tax, purchases like cars or real estate are not. Whether it is implemented can vary between jurisdictions.
Arizona property tax
Arizona's property tax is fairly low compared to other US states.
This is partly thanks to the law that places a cap on the state's total tax rate for owner-occupied properties. While the national average is 0.99 percent, Arizona's average effective tax rate is 0.51 percent.
What does this mean in real terms? On average, the Arizona homeowner will pay $1,707 in annual property taxes, which is $1,088 less than the national average. The system requires property owners in the state to pay their property taxes twice a year in installments, on October 1 and March 1 each tax year.
Taxes vary from location to location across Arizona since they are based on your city and county, your school district, and whether your house sits inside a special tax district.
The table below demonstrates the variations across the state, with the median home value of each county in Arizona alongside its effective property tax rate. You can also consult a financial expert to talk you through the sort of taxation that you may incur yourself.
| County | Median Home Value | Median Annual Property Tax Payment | Average Effective Property Tax Rate |
|---|---|---|---|
| Apache County | $61,800 | $1,018 | 1.65 percent |
| Cochise County | $150,100 | $1,204 | 0.80 percent |
| Coconino County | $299,100 | $1,899 | 0.63 percent |
| Gila County | $174,300 | $1,259 | 0.72 percent |
| Graham County | $146,600 | $934 | 0.64 percent |
| Greenlee County | $91,800 | $361 | 0.39 percent |
| La Paz County | $84,600 | $679 | 0.80 percent |
| Maricopa County | $278,700 | $1,797 | 0.64 percent |
| Mohave County | $172,100 | $1,210 | 0.70 percent |
| Navajo County | $135,800 | $1,024 | 0.75 percent |
| Pima County | $199,400 | $1,993 | 1.00 percent |
| Pinal County | $200,200 | $1,511 | 0.75 percent |
| Santa Cruz County | $152,700 | $1,160 | 0.76 percent |
| Yavapai County | $273,300 | $1,577 | 0.58 percent |
| Yuma County | $139,200 | $1,172 | 0.84 percent |
Arizona estate tax
Arizona is one of the US states that does not implement inheritance or estate taxes. However, there are other tax filings involved in the death of a loved one. These include:
Federal estate tax return: this must be submitted within nine months after an individual’s death, although you can request a six-month extension before the end of the initial deadline. This tax return is only required if an individual estate exceeds a gross asset and prior taxable gift value of $12.06 million for individuals or $24.12 million for couples.
Federal estate/trust income tax return: this must be submitted by April 15 of the tax year of an individual’s death.
Final individual federal and state income tax returns: this must be submitted by tax day during the tax year of the individual’s death.
Arizona motor tax
Arizona’s Vehicle License Tax is a fluid annual tax rate. It changes yearly with the age of a vehicle, levied on a diminishing percentage of your vehicle’s assessed value.
New cars are taxed at a rate of 2.8 percent on 60 percent of their manufacturer’s suggested retail price (MSRP). Used cars are taxed at a higher rate of 2.89 percent on 60 percent of the MSRP, with a yearly deduction of 16.25 percent.
Gas in Arizona is taxed at $0.18 per gallon.
Arizona retirement tax
Arizona is fairly tax-friendly when it comes to retirement taxes.
It doesn’t place any tax on Social Security benefits, which will be music to the ears of those hoping to retire in the state.
It applies taxation to other sorts of retirement income, including IRA distributions or a 401(k). However, $2,500 of retirement income earned from federal, state, and local government plans will remain tax-exempt.
Combining all the various taxations that residents may incur, Arizona is fairly tax-friendly. It ranks 19th overall on Tax Foundation’s 2023 State Business Tax Climate Index. Taking taxation into consideration when undertaking your financial planning is a positive step in ensuring you’re prepared for the future.
A financial advisor can help you handle all your tax queries and ensure you’re not paying more tax than needed. Find your financial advisor with Unbiased.
Senior Content Writer
Rachel is a Senior Content Writer at Unbiased. She has nearly a decade of experience writing and producing content across a range of different sectors.