Subscription to Use Data is Taxable Under Arizona’s Transaction Privilege Tax

August 30, 2021

Student hands typing on laptop in the night at home

By Betsy Goldstein, SALT Manager

At a glance

  • The main takeaway: Arizona recently ruled that subscription fees to use data will be considered as a taxable rental of tangible personal property under its Transaction Privilege Tax.
  • Impact on your business: The ruling demonstrates that states may take a broad view of what constitutes as tangible personal property, which businesses need to be aware of.
  • Next steps: Aprio’s State and Local Tax (SALT) team can make sure you properly treat transactions as taxable or nontaxable, so that you don’t incur unexpected liabilities and penalties.

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The full story:

The Arizona Transaction Privilege Tax (TPT) differs from the traditional sales tax in that it is a tax on the privilege of doing business and levied on the gross proceeds of sales derived by the seller. Although the TPT is legally imposed on the seller, the seller is allowed to pass along the economic expense of the tax to the purchaser.[1]

There are 16 separate business classifications, one of which is the personal property rental classification.  In a recent Private Taxpayer Ruling, LR 21-003, Arizona ruled that the income derived by the taxpayer in question from the sale of temporary use of digital information and data should be income subject to the rental of tangible personal property TPT classification.

Here are some of the key facts in this ruling:

  • The taxpayer was based outside of Arizona but had salespeople working from home in Arizona;
  • The taxpayer compiled publicly available information and data and put it into its centralized data repository located outside Arizona;
  • Customers pay a subscription fee to access the repository and they can use the data (for example, filter and extract it into a spreadsheet), but they do not have access to the actual software;
  • Customers may request for specific data points to be added, but that data, once compiled, will become available to all users.

Arizona defines tangible personal property as any property “which may be seen, weighed, measured, felt or touched or is in any other manner perceptible to the sense.”[2] Arizona cases have applied a broad interpretation of this definition to items other than physical goods, such as electricity, electronic delivery of software and SaaS, and music played from a jukebox. Therefore, the ruling concluded that data, whether delivered electronically or in a physical form, is tangible personal property and that data rental is taxable under the TPT’s personal property rental classification.

Other key aspects of the ruling

The ruling also analyzed whether the taxpayer’s transaction could be viewed as a nontaxable service (i.e., a data collection service) as opposed to the rental of property. Similar to the “true object test” used by other states, Arizona applied what it refers to as the “dominant purpose test” and the “common understanding test.”

The dominant purpose test provides that a transaction is determined to be “all taxable or all nontaxable by identifying the dominant purpose of the transaction.” Based on the facts, the state determined that the dominant purpose of the transaction was for the taxpayer to provide its customers with unrestricted access to the data for the term of the subscription.

The purpose of the common understanding test is to determine whether the taxpayer is providing a nontaxable service or a taxable rental of tangible personal property, as these activities are commonly understood. A taxpayer is more likely to be understood as having engaged in a nontaxable service if a transfer of tangible personal property during the transaction is merely incidental to the services or skills provided. In this case, the ruling determined that the customer is primarily seeking the rental and use of the data, not the service of collecting the data, since the taxpayer likely would not pay for the service without receiving access to the data. Therefore, the data is not merely incidental to service, and accordingly, the taxpayer is in the business of renting tangible personal property subject to the Arizona TPT.

The bottom line

It is important to remember that, for tax purposes, not all states will define terms, such as tangible personal property, based on their commonly understood meaning. Aprio’s SALT team has experience analyzing the nuances of each state’s rules in order to determine if a transaction is taxable. We can assist your business to make sure that it properly treats its transactions as taxable or nontaxable, so that you comply with your tax obligations and do not incur unexpected liabilities and penalties.

We constantly monitor these and other important state tax topics, and we will include any significant developments in future issues of the Aprio SALT Newsletter.

Contact Betsy Goldstein, SALT Manager, at or  Jeff Glickman, partner-in-charge of Aprio’s SALT practice, at for more information.

This article was featured in the August 2021 SALT newsletter.

[1] In this sense, the economics of the TPT are similar to a sales tax.

[2] A.R.S. § 42-6103


Any tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or under any state or local tax law or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. Please do not hesitate to contact us if you have any questions regarding the matter.

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About the Author

Jeff Glickman

Jeff Glickman is the partner-in-charge of Aprio, LLP’s State and Local Tax (SALT) practice. He has over 18 years of SALT consulting experience, advising domestic and international companies in all industries on minimizing their multistate liabilities and risks. He puts cash back into his clients’ businesses by identifying their eligibility for and assisting them in claiming various tax credits, including jobs/investment, retraining, and film/entertainment tax credits. Jeff also maintains a multistate administrative tax dispute and negotiations practice, including obtaining private letter rulings, preparing and negotiating voluntary disclosure agreements, pursuing refund claims, and assisting clients during audits.