Arizona is not a tax-free state, but its overall tax burden is lighter than most. The state collects a flat 2.5 percent individual income tax, charges a transaction privilege tax that works like a sales tax, and bills property owners through their counties. What Arizona does not take is just as important: there is no estate tax, no inheritance tax, no tax on Social Security benefits, and no tax on military retirement pay.
Income Tax in Arizona
Every dollar of Arizona taxable income is taxed at 2.5 percent, no matter how much you earn. The state moved to this single flat rate starting with tax year 2023, replacing a graduated system that had topped out at 4.5 percent.1Arizona Legislature. SB1828 – 551R – Senate Fact Sheet
Your Arizona taxable income starts with your federal adjusted gross income, then the state applies its own standard deduction. For 2026, that deduction is $16,100 for single filers, $24,150 for head of household, and $32,200 for married couples filing jointly, with a higher amount for filers age 65 and older. If your income falls below the deduction that applies to you, you generally don’t need to file a state return, though self-employment income of $400 or more triggers a filing requirement.
If you earn income in another state and pay tax there, Arizona gives you a credit against your Arizona tax. The credit is capped at the smaller of two numbers: the tax you actually paid to the other state on that income, or the Arizona tax attributable to the same income.2Arizona Legislature. Arizona Code Title 43 Section 43-1071 – Credit for Income Taxes Paid to Other States; Definitions That keeps cross-border earners from paying twice on the same dollars.
Sales Tax: Arizona’s Transaction Privilege Tax
Arizona doesn’t technically have a sales tax. It has a Transaction Privilege Tax, charged to businesses for the privilege of operating in the state. The legal obligation sits with the seller, but the cost is nearly always built into the price, so shoppers feel it the same way they would a sales tax.
The state base rate is 5.6 percent. Counties and cities layer their own rates on top, so the combined rate you actually pay runs from roughly 6 percent in some unincorporated areas to about 11 percent in certain cities, with a statewide population-weighted average near 8.5 percent. The rate is set by where the transaction happens, not where you live.
Two exemptions matter for everyday spending. Groceries bought for home consumption are exempt from state TPT, although restaurant meals and other prepared food eaten on the premises are still taxable.3Arizona Legislature. Arizona Revised Statutes 42-5102 – Tax Exemption for Sales of Food; Nonexempt Sales Prescription medications are exempt from both TPT and use tax.4Arizona Department of Revenue. Understanding Use Tax
When you buy a taxable item from an out-of-state seller who didn’t collect Arizona tax, you owe use tax at the same 5.6 percent state rate, plus any local rates that apply. Most large online retailers now collect it for you. Out-of-state sellers with more than $100,000 in Arizona sales during a calendar year are required to get a TPT license and collect going forward.5Arizona Legislature. SB1325 – 561R – Senate Fact Sheet
Property Taxes
Property taxes in Arizona are run at the county level and fund schools, fire districts, cities, and other local services. Your annual bill from the County Treasurer splits into two pieces: primary taxes for general operations, and secondary taxes for voter-approved items like bonds and special districts.
The County Assessor sets two values for your property each year. The Full Cash Value reflects what the property would sell for on the open market. The Limited Property Value drives your primary tax bill and is capped by state law: it can’t climb more than 5 percent above the prior year’s Limited Property Value, and it can never exceed the Full Cash Value.6Arizona Legislature. Arizona Revised Statutes 42-13301 – Limited Property Value That cap keeps your bill from spiking when the housing market does.
The bill is paid in two installments. The first half is due October 1 and becomes delinquent after November 1. The second half is due March 1 and becomes delinquent after May 1. If your total annual tax is $100 or less, the full amount is due October 1 in a single payment.
Relief for Seniors, Widows, and Residents With Disabilities
Arizona offers two meaningful breaks that trim property tax bills for qualifying homeowners.
- Widows, widowers, and people with a total and permanent disability may qualify for a property tax exemption of up to $4,188. The property’s total assessed value must be no more than $28,459, and total household income must stay under $34,901, or $41,870 if dependent children under 18 or children with a permanent disability live with you. These figures are adjusted periodically for inflation.7Arizona Legislature. Arizona Code Title 42 Section 42-11111 – Exemption for Property; Widows and Widowers; Persons With a Total and Permanent Disability; Veterans With a Disability; Definitions
- Homeowners age 65 or older who have lived in their primary residence for at least two years can apply to freeze the Limited Property Value used to calculate primary taxes. Household income can’t exceed $47,712 for a single owner or $59,640 for two or more owners. Applications are accepted between January 1 and September 1, and the freeze has to be renewed every three years.
Vehicle License Tax
Arizona doesn’t charge a personal property tax on cars, but it does bill a Vehicle License Tax every time you register one. In a vehicle’s first year, the assessed value is 60 percent of the manufacturer’s base retail price, and the tax is $2.80 per $100 of that value. Each year after, the assessed value drops by 16.25 percent from the prior year’s value and the rate rises slightly to $2.89 per $100.8Arizona Legislature. Arizona Revised Statutes 28-5801 – Vehicle License Tax Rate; Definitions
A new car with a $35,000 base price would carry a first-year assessed value of $21,000, producing a VLT of about $588. In year two, the assessed value falls to roughly $17,588 and the tax drops to around $508. The bill keeps declining as the car ages, which rewards owners who hold vehicles for the long haul.
Retirement Income
Retirees do well in Arizona. Social Security benefits are fully excluded from state taxable income.9AARP. Arizona State Taxes: What You’ll Owe in the 2026 Tax Season Military retirement pay is also completely exempt from Arizona income tax.10Arizona Legislature. SB1331 – 551R – Senate Fact Sheet Railroad retirement benefits and pay for active service in the military reserves, including the National Guard, are exempt as well.
Other retirement income is still taxable. Pensions, 401(k) withdrawals, and IRA distributions are taxed at the standard 2.5 percent flat rate.
No Estate or Inheritance Tax
Arizona charges no estate tax and no inheritance tax. The state once had an estate tax, but it was pegged entirely to the federal credit for state death taxes. When Congress phased that credit out between 2002 and 2005, Arizona’s estate tax fell to zero because there was no longer a federal credit to absorb, and the state never replaced it with a standalone tax.11Arizona Joint Legislative Budget Committee. 2006 Tax Handbook History – Estate Tax The full value of an Arizona estate passes to beneficiaries without any state-level tax, no matter the size.