Tempe, AZ Local Taxes & Fees: Business Tax Classification (2026)
Key Facts
- Base rate
- 1.8% of gross income for most classifications
- Governing section
- Tempe City Code § 16-400, Article IV
- Classifications
- 14+ named activities (advertising, retail, hotels, etc.)
- Burden of proof
- Taxpayer must prove any claimed exemption
- Collector
- City Tax Collector administers and audits
- Base tax history
- Raised from 1% to 1.2% Dec. 1, 1993
Summary
Tempe taxes local businesses under a privilege (sales) tax system in Chapter 16 that sorts gross income into specific classifications, from advertising and amusements to retail sales and hotels, each carrying its own rate. Most classifications run 1.8%, and every dollar of gross income is presumed taxable unless the business proves otherwise.
(a)There are hereby levied and imposed, subject to all other provisions of this chapter, the following Privilege Taxes for the purpose of raising revenue to be used in defraying the necessary expenses of the City, such taxes to be collected by the Tax Collector:(1)A Privilege Tax upon persons on account of their business activities, to the extent provided elsewhere in this article, to be measured by the gross income of persons, whether derived from residents of the City or not, or whether derived from within the City or from without. ... (c)Presumption. For the purpose of proper administration of this chapter and to prevent evasion of the taxes imposed by this chapter, it shall be presumed that all gross income is subject to the tax until the contrary is established by the taxpayer.
Official source re-checked September 7, 2026: no newer edition of the code had been published (publisher’s edition: City Code: Supplement 33 Update 4 | Zoning and Development Code: Supplement 11 Update 2).
Full Breakdown
to be measured by the gross income of persons, whether derived from residents of the City or not,' collected by the Tax Collector, and layered on top of any other City license, fee or tax. Article IV then breaks that tax into named classifications, each with its own section and rate: Advertising under § 16-405, Amusements and exhibitions under § 16-410, Construction contracting under §§ 16-415 through 16-417, Job printing under § 16-425, Mining under § 16-432, Publishing under § 16-435, Hotels under § 16-444, Real property rental and leasing under § 16-445, Personal property rental under § 16-450, Restaurants and bars under § 16-455, Retail sales under § 16-460, Telecommunications under § 16-470, Transporting for hire under § 16-475, and Utility and wastewater services under §§ 16-480 and 16-485.
8% of gross income, though hotels and rentals carry their own exclusions and a separate transient lodging add-on under § 16-447. Section 16-400(c) sets a presumption that 'it shall be presumed that all gross income is subject to the tax until the contrary is established by the taxpayer,' so a business claiming an exemption or deduction under any classification carries the burden of proving it applies. 2% effective December 1, 1993, and later ordinances layered classification-specific rates on top of that base.
Violations & Fines
Chapter 16 does not carry its own criminal penalty section for misclassifying or underreporting privilege tax; unpaid or misreported tax is pursued through the Tax Collector's audit and collection authority under Chapter 16's administrative articles, and a business that misrepresents its classification or income can still face the general Tempe City Code penalty in § 1-7, up to $2,500 in fines or six months in jail, for the underlying Code violation.
Frequently Asked Questions
What tax rate does my Tempe business pay on gross income?
Do I have to prove I qualify for a tax exemption in Tempe?
Which Tempe code section lists all the business tax classifications?
Sources & Official References
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