What is Arizona's income tax rate for LLC owners?

Arizona uses a flat individual income tax rate of 2.5%. Members of a pass-through LLC pay 2.5% on their share of the LLC's Arizona taxable income on Form 140. An LLC taxed as a C corporation instead pays the 4.9% corporate rate (minimum $50) on Form 120.

Arizona LLC Tax Filing: Forms & Rates (2026)

Q: Does an Arizona LLC pay state income tax?

Usually indirectly. A default Arizona LLC is a pass-through, so it pays no entity-level income tax; instead its members report their share on their Arizona individual return (Form 140) and pay Arizona's flat 2.5% income tax. Only an LLC that elects C-corporation treatment pays the 4.9% corporate income tax on Form 120.

Q: How is an Arizona LLC taxed by default?

By federal default, a single-member Arizona LLC is a disregarded entity reported on the owner's Schedule C, and a multi-member LLC is a partnership that files federal Form 1065 and Arizona Form 165. Arizona follows the federal classification, so profits pass through to the members.

Q: What is Arizona's transaction privilege tax (TPT)?

TPT is Arizona's version of a sales tax. It is a tax on the privilege of doing business in the state, imposed on the seller. An LLC selling taxable goods or services must obtain a TPT license from the Arizona Department of Revenue, which costs $12 per business location, and file TPT returns.

Q: Can an Arizona LLC elect S-corp taxation?

Yes. An Arizona LLC can elect S-corporation treatment by filing IRS Form 2553. It then files federal Form 1120-S and Arizona Form 120S. The election mainly affects federal self-employment tax; the income still passes through to owners, who report it on Form 140.

Q: Does an Arizona LLC file an annual report or franchise tax?

No. Arizona does not require LLCs to file an annual report, and Arizona has no franchise tax on LLCs. The main recurring obligations are income tax through the members and, for sellers, transaction privilege tax filed with the Department of Revenue.

Fact-checked by the LegalGlass editorial team against primary sources · Published Aug 6, 2026 · Last updated Aug 6, 2026

By default an Arizona LLC is a pass-through: it pays no entity-level income tax, and its members report their share on their Arizona return (Form 140), taxed at Arizona's flat 2.5% individual rate. A multi-member LLC files Form 165; an LLC that elects C-corporation treatment owes 4.9% on Form 120. Any LLC making taxable sales must obtain a Transaction Privilege Tax (TPT) license from the Arizona Department of Revenue.

Quick Answer

Individual income tax: Flat 2.5% on members' share (Form 140), collected by the Dept. of Revenue
Corporate income tax: 4.9% (min $50) - only if the LLC is taxed as a C corp (Form 120)
Federal default: Disregarded (single-member) or partnership (multi-member)
Partnership return: Arizona Form 165 for multi-member LLCs; S-corp files Form 120S
Sales tax: Transaction Privilege Tax (TPT); $12 license per location via AZTaxes
Annual report / franchise tax: None - Arizona LLCs file neither

How Arizona Taxes an LLC

Arizona taxes an LLC in layers that depend on how the business is classified for federal tax purposes. Arizona conforms to the federal classification of the entity, so the first question is always how the IRS treats your LLC. A standard LLC is a pass-through: its profits flow to the owners, who report them on their own returns. Arizona then taxes those owners under its flat 2.5% individual income tax. On top of income tax sit two other layers that catch many LLCs: the Transaction Privilege Tax (TPT) - Arizona's version of a sales tax - for businesses that sell taxable goods or services, and employment taxes for LLCs with workers. Importantly, Arizona imposes no franchise tax on LLCs and requires no annual report from them, which sets it apart from many states. This page walks through each layer. For the national picture, see our business tax overview and how to file business taxes.

Federal Default Classification

Your LLC's tax treatment starts at the federal level, because the IRS - not Arizona - decides how an LLC is classified, and Arizona follows that classification. By default:

A single-member LLC is a disregarded entity: its income and expenses are reported on the owner's Schedule C with Form 1040, and the same income flows onto the owner's Arizona Form 140.
A multi-member LLC is a partnership: it files federal Form 1065, issues each member a Schedule K-1, and files Arizona Form 165, the Arizona Partnership Income Tax Return. Each member then reports their share on their own Form 140.

In both cases the profit "passes through" to the owners, so the LLC itself generally pays no Arizona income tax at the entity level. Every member on active business income also owes federal self-employment tax (Social Security and Medicare), and most owners make quarterly estimated tax payments to both the IRS and Arizona. The default classification rules are set out in the federal "check-the-box" regulations.

Arizona Income Tax on Pass-Through Owners (2.5%)

Arizona levies a flat individual income tax of 2.5%. For a pass-through LLC, this is the tax that actually applies to business profits: each member includes their distributive share on the Arizona resident return, Form 140 (part-year and nonresident owners use Form 140PY or Form 140NR), and pays 2.5% on their Arizona taxable income. Arizona also offers an optional small business income (SBI) tax on Form 140-SBI, which lets an individual elect to report qualifying small-business income separately, also at a 2.5% rate; whether it helps depends on the taxpayer's overall situation. Because the individual rate is flat, most LLC owners can estimate their Arizona income tax simply as 2.5% of their share of profit, though credits, additions, and subtractions can change the final figure. Arizona income tax is administered by the Arizona Department of Revenue (ADOR).

S-Corp and C-Corp Elections

An LLC can change its federal tax classification by election, and Arizona follows the change. It can elect to be taxed as a C corporation by filing IRS Form 8832, or as an S corporation by filing IRS Form 2553:

Electing S-corp status keeps the business a pass-through. The LLC files federal Form 1120-S and Arizona Form 120S, and income still flows to the owners' Form 140 at the 2.5% rate. The practical benefit of an S election is usually on federal self-employment tax, not Arizona income tax. Compare S-corp vs LLC and see the S-corp election guide.
Electing C-corp status makes the LLC a taxpaying corporation. It files federal Form 1120 and Arizona Form 120, and pays Arizona's corporate income tax described below.

See Form 1120 vs 1120-S vs 1065 for how these returns differ.

Arizona Corporate Income Tax (4.9%)

Arizona imposes a corporate income tax under A.R.S. § 43-1111. The rate is 4.9% of Arizona taxable income, subject to a $50 minimum tax - a corporation pays the greater of 4.9% of its taxable income or $50. This tax applies only to entities taxed as corporations for federal purposes, so a standard pass-through LLC does not pay it, but an LLC that has elected C-corporation treatment does. A corporate LLC reports and pays the tax on Arizona Form 120, the Arizona Corporation Income Tax Return, filed with the Department of Revenue. Because Arizona ties its corporate tax to federal classification, the decision to elect corporate status is the single biggest factor in whether your LLC faces entity-level Arizona income tax at all.

Transaction Privilege Tax (Arizona's Sales Tax)

Arizona does not have a conventional sales tax. Instead it imposes the Transaction Privilege Tax (TPT) - a tax on the privilege of doing business in the state, legally owed by the seller rather than the buyer (though sellers generally pass it on to customers). If your LLC sells taxable goods or provides taxable services, you must obtain a TPT license from the Arizona Department of Revenue before making sales. The state TPT license fee is $12 per business location, and you apply through the AZTaxes.gov portal or with the Joint Tax Application (Form JT-1); cities and counties add their own rates, which ADOR collects on their behalf. You then file and remit TPT on a schedule ADOR assigns based on your volume. TPT is a trust-type tax on business activity, so filing on time matters even in slow months. See our business licenses in Arizona guide for related registrations.

Employer and Withholding Taxes

If your Arizona LLC has employees, additional taxes apply. At the federal level you withhold income tax and the employee share of Social Security and Medicare, pay the employer share, and pay federal unemployment tax (FUTA). At the state level, because Arizona has an income tax, you must withhold Arizona income tax from employee wages and remit it to ADOR (using Arizona Form A1-QRT and related returns), and you pay unemployment insurance tax to the Arizona Department of Economic Security. You will need a federal EIN to run payroll and to register as an Arizona withholding agent. Single-owner LLCs with no employees generally skip payroll taxes but still owe self-employment tax federally.

No Annual Report and No Franchise Tax

A point that surprises many owners: Arizona does not require LLCs to file an annual report, and Arizona has no franchise tax on LLCs. Corporations in Arizona file an annual report with the Arizona Corporation Commission, but LLCs do not - so there is no recurring state filing fee comparable to the annual reports many other states charge. That means the main recurring obligations for an Arizona LLC are (1) income tax, paid through the members on Form 140 (or by the entity on Form 120 if it elected corporate status), and (2) TPT, if the LLC makes taxable sales. See Arizona annual report for a fuller explanation of why LLCs are exempt, and Arizona LLC cost for the one-time formation fees.

Filing Deadlines and Forms Summary

Filing	Who files it	Form	Agency
Sole-prop-style return	Single-member LLC (disregarded)	Schedule C + Form 1040; AZ Form 140	IRS / ADOR
Partnership return	Multi-member LLC	Form 1065 + K-1s; AZ Form 165	IRS / ADOR
S-corp return	LLC with S election	Form 1120-S; AZ Form 120S	IRS / ADOR
Corporate return	LLC taxed as C corp	Form 1120; AZ Form 120 (4.9%, min $50)	IRS / ADOR
Transaction Privilege Tax	LLC with taxable sales	TPT license + TPT return	Arizona Dept. of Revenue
Withholding	LLC with employees	AZ Form A1-QRT	Arizona Dept. of Revenue

Arizona income tax returns generally follow the federal calendar: individual returns (Form 140) are due in mid-April, and partnership and S-corp returns are due the 15th day of the third month after the tax year ends (mid-March for calendar-year filers). TPT returns follow the schedule ADOR assigns. Confirm current-year dates with the IRS and ADOR, and see when business taxes are due.

Frequently Asked Questions

Does an Arizona LLC pay state income tax?

A default LLC pays no entity-level income tax; its members pay Arizona's flat 2.5% rate on their share via Form 140. Only an LLC taxed as a C corporation pays the 4.9% corporate tax on Form 120.

How is an Arizona LLC taxed by default?

A single-member LLC is a disregarded entity reported on Schedule C and Form 140; a multi-member LLC is a partnership filing federal Form 1065 and Arizona Form 165. Profits pass through to the members.

What is Arizona's transaction privilege tax?

TPT is Arizona's sales-tax equivalent, imposed on the seller. An LLC making taxable sales needs a TPT license ($12 per location) from the Department of Revenue and files TPT returns.

What is the income tax rate for Arizona LLC owners?

Arizona's flat individual rate is 2.5%, so members pay 2.5% on their share of profit on Form 140. A C-corp LLC pays 4.9% (minimum $50) on Form 120.

Can an Arizona LLC elect S-corp taxation?

Yes, by filing Form 2553. It then files federal Form 1120-S and Arizona Form 120S; the election mainly affects federal self-employment tax.

Does an Arizona LLC file an annual report or franchise tax?

No. Arizona requires no annual report from LLCs and has no franchise tax on them. Income tax and, for sellers, TPT are the main recurring obligations.

Sources

Arizona Revised Statutes - A.R.S. § 43-1111, Tax rates for corporations (4.9%; $50 minimum).
Arizona Revised Statutes - A.R.S. § 43-1011, Individual income tax rate.
Arizona Department of Revenue - Corporate Income Tax (4.9% rate; Form 120).
Arizona Department of Revenue - Transaction Privilege Tax (TPT) (seller-based; licensing).
Arizona Department of Revenue - TPT License ($12 per business location; AZTaxes / Form JT-1).
Arizona Department of Revenue - Form 140, Resident Personal Income Tax Return.
Arizona Department of Revenue - Form 120, Arizona Corporation Income Tax Return.
Arizona Department of Revenue - Withholding Tax (employer Arizona withholding; Form A1-QRT).
Arizona State Legislature - A.R.S. Title 42, Taxation (Transaction Privilege and Use Tax).
IRS - Limited Liability Company (LLC) (default classification).
IRS - About Form 1065 (partnership return).
IRS - About Form 2553 (S-corp election).
IRS - Self-Employment Tax.
Cornell Legal Information Institute - 26 CFR § 301.7701-3, Classification of certain business entities.

LegalGlass provides general information for educational purposes and is not a law firm or a substitute for advice from a licensed attorney or tax professional. This page is general information, not tax advice. Rates, thresholds, and forms change; verify current requirements with the IRS and the Arizona Department of Revenue before acting.