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Editorial 9 MIN READ

Arizona in January 2018: a $50 LLC with a newspaper bill attached

A $50 filing at the Corporation Commission, no annual report, and a publication rule that still runs through three consecutive issues of a county paper

The Editors
Staff, Incorporator.org
9 min read Updated
Contents 7 sections
  1. What the Corporation Commission charges
  2. The publication requirement, explained
  3. Maintenance: the state that forgot to ask
  4. The tax map most founders miss
  5. The federal overlay, as of this filing season
  6. Who Arizona actually makes sense for
  7. Sources

n Arizona LLC costs $50 to form at the Corporation Commission and nothing per year after that. The catch is a 19th-century publication rule that makes every new LLC outside Maricopa or Pima county buy three consecutive weeks of legal notice in a local newspaper, which costs more than the state filing did.

This is a guide for someone filing Arizona LLC formation paperwork in January 2018. The numbers are the Corporation Commission's current schedule, the statute cites are the Arizona Revised Statutes in force, and the tax context is the one a founder actually has to plan around this filing season.

What the Corporation Commission charges

Formation paperwork goes to the Arizona Corporation Commission, not the Secretary of State. That trips people up who have filed in other states. The ACC runs eCorp, an online portal that accepts Articles of Organization, processes payment, and returns an approval package without a paper step. The fee is $50 for standard processing and $85 for expedited, which the Commission defines as a target of two to three business days ahead of the standard queue.

Standard processing in January 2018 is running several weeks. If you have a closing date or need the entity on file for a lender, the $35 delta for expedited is the one line item on this transaction where spending more buys you something measurable.

The Articles themselves are short. A.R.S. § 29-632 tells you the required contents: the name of the LLC (which must include "limited liability company," "L.L.C.," or "LLC"), the address of its known place of business in Arizona, the name and address of a statutory agent in Arizona, whether the LLC will be member-managed or manager-managed, and the names and addresses of the managers (if manager-managed) or the members (if member-managed and no managers are designated). The statutory agent's acceptance is filed on a separate form and is routinely the piece that gets forgotten and returned for correction.

You also need an EIN, which the IRS issues through the online SS-4 in the time it takes to fill it out. Arizona does not require an operating agreement to be filed, but A.R.S. § 29-682 makes clear that one will govern the members' relations if they write it and the default rules will govern if they don't. For a two-or-more-member LLC, writing one is not optional in any practical sense.

The publication requirement, explained

Arizona is one of a small handful of states that still enforces a newspaper publication rule for LLC formation. A.R.S. § 29-635 requires the LLC, within 60 days after the Commission approves the Articles, to publish a notice of the filing in a newspaper of general circulation in the county of the LLC's known place of business, for three consecutive publications. The notice must reproduce substantially the information in the Articles. Proof of publication does not have to be filed with the Commission, but the newspaper's affidavit should be kept in the LLC's records; the Commission's own guidance makes clear that failing to publish is a ground for administrative dissolution.

There is an important exception. If the known place of business is in Maricopa or Pima county, the Commission itself handles the publication by posting the notice on its website for the required period, and the LLC owes the newspaper nothing. The statute was amended to accomplish this because those two counties contain most of the state's population and the cumulative waste of paper notices no one reads had become hard to justify. Outside Maricopa and Pima, which is most of the map but a minority of formations, the newspaper fee is real.

What the newspaper actually charges depends on the paper. Rural Arizona legal-notice prices run roughly from $30 to $120 for a three-week run of a standard-length LLC notice, with most falling somewhere in the middle. Some papers are cheaper than the state fee; a few are several times it. A small industry of "publication services" will place the notice for you and handle the affidavit, typically charging a packaging premium on top of the paper's own rate. For most filers the right move is to call the county's recognized legal-notice paper directly and ask for a quote.

Budget, then, for an Arizona LLC outside Maricopa or Pima: $50 to the Commission, roughly $60 to $100 for publication, plus the statutory agent. Inside Maricopa or Pima: $50 and nothing else.

Maintenance: the state that forgot to ask

Arizona does not require LLCs to file an annual report. It does not charge an annual fee. It does not send a renewal notice. Once the entity is on file and the publication is done (or the ACC has posted it, for Maricopa and Pima filers), the Commission has no scheduled further contact with the LLC. This is genuinely unusual. Most states charge somewhere between $25 and $800 a year to keep an LLC in good standing; Arizona charges nothing.

Corporations are treated differently. A domestic Arizona corporation files an annual report with the ACC every year on the anniversary of its incorporation, currently at a fee of $45 for for-profit corporations. The split between LLCs and corporations is deliberate: the state recognizes that the LLC is the small-business default and has elected not to ride it for yearly revenue.

The quiet maintenance does create one risk. LLC members forget the entity exists, let the statutory agent's address go stale, miss a service of process, and discover the problem when a default judgment lands. The fix is to keep the statutory agent current. An agent change is filed on a short form and costs nothing. If the LLC has no Arizona-resident principal, a commercial statutory agent runs roughly $50 to $150 a year, and the peace of mind is worth more than the cheapest option.

The tax map most founders miss

Arizona's income tax is not the number that surprises people. For 2018, the state's individual income tax runs on a graduated schedule topping out at 4.54% for taxable income above $152,668 for single filers, and the corporate rate is a flat 4.9%, the final stop on a multi-year reduction that began in 2014. Those rates are middle-of-the- pack and, for a single-member LLC defaulting to disregarded treatment, flow straight through to the owner's Arizona Form 140.

The number that surprises people is the Transaction Privilege Tax. Arizona does not technically have a sales tax. It has a TPT, which is a tax levied on the privilege of doing business in the state, administered by the Department of Revenue, measured by gross receipts from certain business classifications. The vendor is legally the taxpayer, not the consumer, even though in practice the tax is passed through at the register. The state rate for the retail classification is 5.6%, and most cities impose their own TPT on top. Phoenix's retail rate, combined, lands at 8.6%; Tucson, roughly 8.7%; smaller cities vary widely.

What this means for a new LLC: if you are selling anything at retail, running a restaurant, renting out real property, or engaged in any of the other classifications in A.R.S. Title 42, Chapter 5, you need a TPT license before you transact. The license is issued by the Department of Revenue through AZTaxes.gov and costs $12 per location per year for the state license, with city license fees additional and set by each city. Skipping the license and collecting the tax is a fast way to accumulate penalties that dwarf the licensing cost.

The other Arizona wrinkle is use tax and the marketplace question. The state has been a plaintiff in litigation about online sales for most of the last decade, and in January 2018 the landscape is in motion: the United States Supreme Court has granted certiorari in South Dakota v. Wayfair, Inc. and will hear argument in the spring. A decision is expected by summer. Arizona's current rule still follows Quill Corp. v. North Dakota, 504 U.S. 298 (1992): TPT is owed on remote sales only where there is physical nexus in the state. If the Supreme Court rewrites that test, Arizona will be one of the states adjusting its nexus definitions quickly, and a newly formed LLC that sells out of state should watch the docket.

The federal overlay, as of this filing season

Arizona LLC owners are also filing their first 2017 federal returns under a tax code that was substantially rewritten three weeks ago. The Tax Cuts and Jobs Act, Public Law 115-97, was signed on December 22, 2017, with most provisions effective for tax years beginning after December 31, 2017. The provision that matters most for a pass-through Arizona LLC is new IRC § 199A, the 20% deduction for qualified business income. For a service-business owner under the income thresholds ($157,500 single, $315,000 joint), the deduction is effectively automatic; above the thresholds, the specified-service- trade-or-business and W-2-wage limitations start cutting into it.

The relevant point for formation is that § 199A is a pass-through provision. An Arizona LLC taxed as a partnership, S-corp, or disregarded entity is in; an LLC that elects to be taxed as a C-corp is out of § 199A and in under the new 21% flat federal corporate rate. The choice-of-entity math that made sense in December 2017 needs to be redone in January 2018, and most founders would benefit from running the numbers before committing to a tax election on the SS-4 or Form 8832. Arizona's own conformity to the federal code typically happens through legislative action each year; the Department of Revenue has signaled that TCJA conformity will be addressed in the 2018 session, which means the state return for 2018 income may initially diverge from the federal treatment in ways the tax software will not flag until late in the filing cycle.

Who Arizona actually makes sense for

Arizona is a cheap, low-maintenance state to form in if you operate there. The formation math is the best in the southwest, and the no- annual-report rule means the long-run cost of an Arizona LLC is nearly zero. Compared to the $800 California franchise tax floor across the border or the $300 Delaware annual tax further east, Arizona looks genuinely inexpensive.

Where Arizona stops making sense is as a jurisdiction of choice for a business that operates elsewhere. The publication rule, the TPT licensing footprint, and the absence of the kind of specialized business court Delaware offers through the Court of Chancery mean Arizona has no particular draw for a non-Arizona business. Pick Arizona if the business is here; pick somewhere else if the business is not.

The one population for whom Arizona is sometimes overlooked is real-estate investors with in-state property. A rental-property LLC with its known place of business in Tucson or a small town outside Maricopa or Pima still has the publication bill, but once that is paid, the ongoing cost is the statutory agent and nothing else. For a holder of a single rental unit, that compares favorably to Nevada (with its $350 combined annual list and business license) or California (with its $800 floor). The economics get interesting at the third or fourth property, where a series LLC in a state that authorizes one may still beat forming separate Arizona LLCs; but for one or two units held locally, Arizona is a quietly good answer.

If you are forming this month in Maricopa or Pima, file through eCorp, pay the $50, and move on; the Commission will handle the notice and you are done. If you are forming outside those counties, call the county's recognized legal-notice paper before you file and get the publication quote, so the real cost of the formation is on the table before the Articles go in.

Sources

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