Arizona Business License Basics

After finalizing your business idea, the next stage in starting your business in Arizona is officially registering it. There is a lot of ground to cover, as there are several essential choices to make and paperwork to file.

Related: Starting A Business In Arizona Checklist

Step 1: Choose a Business Structure

The next step in starting a business in Arizona is selecting a business structure (also called a business entity), which refers to how a business is legally organized to operate. There are four primary business entities to choose from: sole proprietorship, partnership, corporation, and limited liability company (LLC). A brief description of each is below.

Related: Comparison of Business Structures

Sole Proprietorship

Sole proprietorships are the most simple and common type of business structure where an individual owns, manages, and operates the business. In a sole proprietorship, the business owner is personally responsible for all aspects of the business, including liabilities, debts, and taxes.

No registration is required to set up a sole proprietorship in Arizona; however, some businesses will want to register for an Arizona Trade Name with the Arizona Secretary of State.

Related: How to Start a Sole Proprietorship in Arizona

General Partnership

A general partnership is a type of business structure where two or more individuals agree to carry on a business together, sharing profits, losses, and management responsibilities. Unlike corporations or Limited Liability Companies, general partnerships do not require registration with the state and are not considered separate legal entities.

Related: What is a partnership?

Corporation

A corporation is a business structure that is a separate legal entity from its owners (shareholders). Corporations provide limited liability protection to shareholders and have specific requirements for formation, taxation, and management. This liability protection separates the owner’s personal assets and the business’s assets, so if the business is sued, their personal assets are generally safe.

The downsides include compliance requirements and administrative burdens of holding annual meetings for directors and shareholders, taking minutes at the meetings, issuing stock certificates, appointing a registered agent, and more.

Related: How to form a Corporation in Arizona

Limited Liability Company (LLC)

The Limited Liability Company is a popular business structure that combines the limited liability protection of a corporation with the flexibility and pass-through taxation of a partnership or sole proprietorship. An LLC is a separate legal entity from its owners (called members) and is governed by Arizona state law.

Related: How to Form an Arizona LLC

Step 2: Select a Business Name

In Arizona, the process of registering a business name varies depending on the type of entity you’re forming. Corporations and Limited Liability Companies (LLCs) are required to register a unique name as part of their formation process. This name becomes the legal name under which the business operates.

Sole proprietorships and general partnerships in Arizona can but are not required to register for an Arizona Trade Name. Even though it’s optional, registering a business name with the Secretary of State can be beneficial because:

• It secures the name for your use and makes it harder for others to use it
• It can sometimes be difficult to enter into contracts under the business name without registration
• Opening a business bank account often requires a registered name certificate
• It prevents other businesses from registering the same name

For all business types, the first step in name registration is to ensure the chosen name is available and not already in use by another Arizona business. This involves searching the Arizona business name database through the Arizona Corporation Commission.

Step 3: Federal Employer Identification Number (FEIN)

The Federal Employer Identification Number (FEIN), also known as a Federal Tax Identification Number, is a unique nine-digit number assigned by the Internal Revenue Service (IRS) to businesses operating in Arizona. It is used for tax filing and reporting purposes, similar to how an individual uses a Social Security number. Companies can apply for an EIN at no cost through the IRS website or by submitting a paper form.

Step 4: Arizona Transaction Privilege Tax License (TPT)

There is no general state of Arizona business license; however, the Arizona Transaction Privilege Tax License (often referred to as a sales tax license or seller’s permit) is a state registration needed for most businesses operating in Arizona. This license is issued by the Arizona Department of Revenue (ADOR) and is required for businesses that sell physical goods, rent or lease tangible personal property, or provide certain services.

Step 5: Resale Certificate

After obtaining the TPT, businesses that purchase inventory or materials intended for resale will want to obtain an Arizona Resale Certificate. The primary function of a resale certificate is to exempt businesses from paying sales tax on items they intend to resell. This helps avoid double taxation, as the end consumer will ultimately pay the sales tax.

Step 6: Occupational Licensing

Arizona regulates numerous professions and occupations to ensure public safety, maintain quality standards, and protect consumers. Many individuals offering specialized services must obtain proper licensing before they can legally operate in the state.

Common professions and occupations requiring licenses in Arizona include:

• Construction: Contractors, electricians, plumbers, and other building trades
• Transportation: Taxi drivers, rideshare operators, and commercial drivers
• Healthcare: Massage therapists, nurses, doctors, and other medical professionals
• Childcare: Daycare operators and in-home childcare providers
• Home inspection: Individuals who assess residential properties for buyers or sellers
• Pest control: Professionals who handle and apply pesticides
• Real estate: Agents, brokers, and property managers
• Cosmetology: Hairstylists, estheticians, and nail technicians
• Education: Teachers and school administrators
• Legal services: Attorneys and paralegals

Additional information, fees, and licensing requirements for professions are available from the Arizona One Stop.

Step 7: City Business Licenses

Arizona doesn’t have a state business license, but many cities require businesses to be licensed in order to operate. Rules for business registration vary depending on location and the business’s activities.

Below are a few cities that have licensing requirements.

• Phoenix: The City of Phoenix requires licensing for several types of businesses, such as amusement businesses, massage establishments, vending machines, and mobile food vendors.
• Tucson: The City of Tucson requires a license for businesses operating within City limits, including businesses operating out of personal residences.
• Mesa: Common businesses requiring a business license in Mesa include; pawn shops, antique dealers, massage establishments, scrap metal dealers, and more. Licensing is through the City of Mesa.
• Chandler: The City of Chandler requires a Business Registration Application for each business with a physical location operating within City limits.
• Flagstaff: A business license is required for any business operating in or providing a service within the City of Flagstaff. Home-based businesses must also complete the Application for Home Occupation Permit.
• Prescott: City licensing is required for special events, liquor sales, and peddlers or solicitors who sell products and services door-to-door.

Step 8: Local Building & Zoning Permits

When setting up a business in Arizona, there may be local building and zoning regulations to comply with. These rules vary by city and county and can significantly impact where and how you operate your business.

A few common building and zoning requirements include:

• Zoning Laws: These determine which areas are designated for residential, commercial, industrial, or mixed-use. Ensure your business location aligns with local zoning ordinances.
• Building Permits: These are often required for new construction, renovations, or changes in a building’s use. The process typically involves submitting plans for review and inspection.
• Occupancy Permits: These are needed before you can begin operating in a new or renovated space. This certifies the building meets safety standards and zoning requirements.
• Home-Based Businesses: Many municipalities have specific regulations for businesses operated from residential areas. These may limit factors like signage, customer traffic, or types of allowed activities.

To navigate these requirements, contact your local city or county planning department for specific information about zoning and building codes in your area.