Flagstaff, AZ Local Taxes & Fees: Business Tax Classification (2026)

Section 3-05-004-0400 imposes 'privilege taxes for the purpose of raising revenue to be used in defraying the necessary expenses of the City,' measured by the gross income of persons on account of their business activities, whether that income comes from residents or non-residents and whether it is earned inside or outside the City; the Tax Collector collects the tax. The section also sets a presumption that all gross income is taxable until the taxpayer proves otherwise, and it caps every exemption, deduction or credit in the chapter to the specific activity or transaction it names, so a deduction earned in one classification cannot be stretched to cover a different one.

Rather than a single rate, Division 3-05-004 lists a separate classification section for each kind of business, from § 3-05-004-0405 Advertising through Amusements, Construction Contracting, Job Printing, Manufactured Buildings, Timbering, Mining, Publishing, Hotels, Rental/Leasing of real and personal property, Restaurants and Bars, Retail Sales, Telecommunication Services, Transporting for Hire, Utility Services and Wastewater Removal Services, among others, each with its own rate and its own list of deductions and exemptions. Section 3-05-004-0405, for example, taxes 'local advertising' income at 2.486% of gross income but exempts multi-state franchise advertising that names no single business, out-of-state-only services, and political advertising for U.S. presidential and vice-presidential candidates.

A business must first determine which classification section its gross income falls under before it can compute the tax due, and Flagstaff most recently amended the classification rate schedule by Ordinance 2025-11 on May 20, 2025.