Collection & Calculating of Tax (Tax Factoring)

You may choose to charge the tax separately or you may include tax in your sales price. If you include tax in your sales price, you may factor in order to “compute” the amount of tax included in your gross income for deduction purposes and obtain the “Net Taxable”. To determine the factor, add one (1.00) to the total of state, county, and city tax rates. If you over charge any tax to your customers, you must remit the excess tax when reporting.

Example of a $1000 sale with tax included: (Combined Tax Rate for State/County & City 8.3%):
1.00 + .0630 + .0200 = 1.0830

$1000/1.0830 = $923.36 (net taxable)
The tax factor deduction is $76.64 ($1000 - $923.36)
Tax Due Mesa: $923.36*2% = $18.47
Tax Due State/Maricopa County: $923.36*6.3% = $58.17
Total Tax = $76.64 (the total tax due should match the tax factor deduction)

NOTE: The above example reflects a general retail sale. For certain categories of tax, the state and county tax rates may differ from the 6.3% rate used in the example above; as such the computation should be adjusted accordingly.  For specific tax rates, please see the Arizona Department of Revenue Tax Rate Table: https://azdor.gov/transaction-privilege-tax/tax-rate-table

Construction Contracting Tax Factoring
If you have income from construction contracting, the computation of the factored tax is different. This is due to the standard 35% deduction that is allowed against construction contracting income. 

Example of construction contracting with total income of $100,000.00: (Combined Tax Rate for State/County & City 8.3%*65% = 5.395%; this is the tax rate accounting for the 35% standard deduction)
1.00 + .05395 = 1.05395
$100,000/1.05395 = $94,881.16 (net sales amount)
The tax factor deduction is $5,118.84 ($100,000.00 - $94,881.16)
The standard 35% deduction = $94,881.16 * 35% = $33,208.41
Net Taxable = 100,000.00 – 5,118.84 – 33,208.41 = $61,672.75
Tax Due Mesa: $61,672.75*2% = $1,233.46
Tax Due State/County = $61,672.75*6.3% = $3,885.38
Total Tax = $5,118.84 (the total tax due should match the tax factor deduction)

NOTE: Additional deductions may be allowed per state statutes and/or the city tax code and regulations, not reflected above. The sale of improved land and speculative builders should contact the city for specific deductions and the appropriate tax factor.

Further information regarding Tax Factoring may be found on the Arizona Department of Revenue website: https://azdor.gov/transaction-privilege-tax/tax-factoring