In Arizona, physical nexus is established by having a tangible presence within the state. This includes:

• Owning or Leasing Property: Having offices, warehouses, or retail locations in Arizona.

• Employing Staff: Maintaining employees who perform services or work within Arizona.

• Inventory Storage: Storing inventory in Arizona fulfillment centers or warehouses.

• Trade Show Participation: Regularly attending or participating in trade shows, which can establish a temporary physical presence.

• Property Ownership: Owning or leasing real or tangible personal property in Arizona.

Implications for Businesses:

1. Registration Requirements: Businesses with physical nexus must register for a Transaction Privilege Tax (TPT) license with the Arizona Department of Revenue (ADOR).

2. Tax Collection and Remittance: These businesses are required to collect TPT on taxable sales and remit it to ADOR, adhering to state and local tax rates.

3. Compliance Obligations: Physical presence necessitates adherence to Arizona’s tax laws, including accurate tax calculation, timely filings, and comprehensive record-keeping.

4. Multi-Jurisdictional Compliance: Businesses operating in multiple Arizona municipalities must comply with varying local tax rates and regulations, increasing administrative responsibilities.

5. Penalties for Non-Compliance: Failure to comply with physical nexus obligations can result in penalties, interest, and potential legal actions, impacting business operations and finances.

Understanding and managing physical nexus ensures businesses remain compliant with Arizona’s tax requirements, avoiding financial and legal repercussions while supporting state and local revenues.