Phoenix residents and businesses should be aware of an upcoming change to the City of Phoenix Transaction Privilege and Use Tax (TPT) rates. This tax, often thought of as similar to sales tax though it’s actually a tax on the business doing activity within the city, is scheduled to increase.
On March 18, 2025, the Phoenix City Council approved Ordinance G-7369. This ordinance amends the city’s tax code to increase the TPT and Use Tax rates by 0.5%.
The new rates will take effect on July 1, 2025. The City Council specifically approved this effective date to provide ample time for all taxpayers to make the necessary changes needed to implement the new tax rate.
What does this mean for you? This increase affects the tax rate on various business activities within the city. While the current rate for many activities is 2.3%, the new rate effective July 1, 2025, will be 2.8% for these classifications.
This change will impact the tax collected on many common purchases including:
- Shopping at Retail Stores
- Eating at Restaurants and Bars
- Visiting Amusement venues
- Staying at Hotels/Motels
- Renting Commercial Real Estate or Tangible Personal Property (like equipment or furniture)
- Using Transporting for Hire services
- Certain types of Construction Contracting
For business activity that takes place before July 1, 2025, it should generally be reported at the current 2.3% tax rate.
There are specific considerations for Construction Contracting. For contracts that were formally agreed upon (executed) before July 1, 2025, the old tax rate will continue to apply to that original contract. However, if any changes or amendments are made to the contract after July 1, 2025, those changes are taxed at the new rate, and this could subject the rest of that contract to the new rate moving forward.
To get detailed tax information directly from the source, you can contact the Arizona Department of Revenue (ADOR) via their website. For specific questions regarding construction contracting, you can contact the City of Phoenix Tax Compliance and Education Division offices at (602)-262-6785, Option 5.
