An Arizona “sole proprietorship” is the least expensive and a very common form of business organization. Basically, a sole proprietorship consists of a business owned by one (1) person (or by a married couple). Although there are no contracts or other legal documents required to start a sole proprietorship, there are many legal requirements for proper operation of a business owned by a sole proprietorship.
Many small businesses in Arizona are regulated. Examples are: dealers in precious items; pawnbrokers; scrap metal dealers; dance studios; health spas; mobile home dealers; jewelry auctioneers, home solicitation sellers; consumer reporting agencies; mini-storage businesses; discount buying services; and sellers of Indian arts and crafts. Before engaging in business operations, it is important to verify that your business is either not subject to special regulation or has complied with state and local regulatory requirements.
Fictitious Business Name. An Arizona business may use a name, other than its own, so long as the name is not substantially similar to any other company and provided that the name is not used for an improper purpose. While filing a fictitious name statement is not an absolute requirement of Arizona law in every instance, it is a good idea to fulfill this requirement. A business that does not have a valid fictitious name statement on file may be deprived of the right to sue on a debt.
Employer Taxes. In Arizona, every employer is responsible for certain employer taxes. In some cases, the employer pays the tax directly. In other cases, the employees will pay the tax, but the employer is responsible for withholding the tax payment from their wages and making periodic deposits of these funds in an authorized bank. You may wish to obtain a copy of the “employer’s Tax Guide” and the “Tax Guide for Small Businesses” from the IRS.
Permit requirement. All parties engaged in the business of selling tangible personal property at retail in Arizona must obtain a transaction privilege (sales tax) license from the Arizona Department of Revenue. Certain cities and towns, such as the City of Prescott and the City of Phoenix also require a sales tax license. Any retailer engaged in business in Arizona is required to collect sales and use taxes and remit them to the state.
Personal and Real Property Taxes. Property owners must pay annual property taxes based on the value of the taxable real property and the taxable personal property which is owned or possessed. The assessment usually occurs in the Spring of each year, and the taxes are due in the Fall. The county assessor determines the value of the property and the county treasurer collects the taxes which are due. The county has a priority tax lien on the property as of the lien date. Paying the tax removes the lien. If real property taxes go unpaid, the county will sell a tax lien. The purchaser of the tax lien may foreclose on the lien, thereby obtaining title to the property. Redemption is expensive and must be accomplished within certain specified statutory deadlines. It is important to note that the county will tax items of personal property which are used in a business. The county sends a form which asks for information about property acquisitions, dispositions and values. Using this form, the assessor values the property on a separate personal property tax roll.
Hiring practices and employee termination. Many federal and sate laws regulate employment practices and prohibit discrimination on the basis of sex, age, race, color, national origin, religion, or mental or physical handicaps. These anti-discrimination laws apply to almost every aspect of the employer-employee relationship, including: hiring; compensation; promotions; work assignments; working conditions; and termination of employment. Additionally, if the corporation will be contracting with the federal government, the corporation may be required to establish an affirmative action program.
The United States Department of Labor and the United States Equal Employment Opportunity Commission are the principal federal agencies in this area. The Attorney General’s office and the Industrial Commission have been known to become involved in employment matters.
In Arizona, an employer may adopt a drug testing policy for employees. The statutory requirements are lengthy and complex. Suffice it to say, if you are considering a requirement for drug testing, you should consult with us prior to taking any action.
Wage, hour and working conditions. The federal government, through the Wage and Hour Division of the United States Department of Labor, sets minimum wages and also regulates overtime and other aspects of working conditions for nearly all employees of firms engaged in interstate commerce. The definition of “interstate commerce” is extremely broad. A good rule of thumb is to consider that you will be subject to these requirements, until you are specifically advised, in writing, to the contrary. Notable exceptions to the overtime rules include executives, administrators, professional personnel and outside salespeople.
The Arizonans with Disabilities Act (“AzDA”) and the Americans with Disabilities Act (“ADA”) require that employers with more than fifteen (15) employees provide disabled employees with “reasonable accommodation” in the workplace.
In Arizona, the Industrial Commission is charged with responsibility for enforcement of the state’s wage and hour laws. Arizona law requires that an employee be paid his or her wages in full upon termination of employment.
The Federal Occupational Safety and Health Administration of the United States Department of Labor and the Arizona Industrial Commission’s Occupational Safety and Health Administration division conduct safety inspections of Arizona private sector industries to ensure that standards of safety and health are enforced and that unsafe conditions and practices are corrected in the state.
Worker’s compensation. Arizona law requires that nearly every employer obtain worker’s compensation insurance for its employees. There are penalties for non-compliance. The worker’s compensation laws impose liability upon the employer for any work-related accident, injury or death, regardless of the employer’s negligence. Worker’s compensation insurance provides a schedule of benefits to an injured employee or to his or her heirs if the employee is killed.
Notices. Employers are required to post, in a conspicuous location, a number of notices regarding employee’s rights. Some of the notices most commonly required, and the agencies from which copies may be obtained, are as follows: constructive discharge notice; worker’s compensation coverage (State Compensation Fund); acquired immunodeficiency disease (State Compensation Fund); federal minimum wage notice (United States Department of Labor); notice entitled “Safety and Health Protection on the Job” (for private sector industries, the United States Department of Labor, Occupational Safety and Health Administration); federal civil rights notice (United States Equal Opportunity Commission; and polygraph protection act (United States Department of Labor, Employment Standards Administration).
Federal licenses. Most businesses do not require any type of federal license. A federal license, may be required, however, if your company engages in one of the following activities: the licensing of technology; the manufacture or sale of munitions; the preparation of meat products; the rendering of investment advice; the manufacture of alcohol or tobacco; the manufacture of drugs; radio or television broadcasting; providing ground transportation as a “commercial carrier,” or engaging in certain hazardous activities.
State and local licenses. State and local licenses are required for a wide variety of businesses, regardless of their form. Some cities and towns require a business license before a company may begin to operate. License requirements change from time to time. At one point in time, the State of Arizona required certain businesses to obtain an environmental hazards license. Many Arizona businesses require operating permits to use hazardous chemicals, transport fuel or chemicals, operate mines, burn waste products, or conduct professional operations. Some of the businesses required to have a state-issued license are as follows: banks, insurance companies, realtors, physicians, veterinarians, morticians, opticians, architects, engineers, barbers, cosmetologists, certified public accountants, podiatrists, chiropractors, collection agencies, contractors, dentists, nurses, pharmacists, physical therapists, psychologists, pest control operators, private investigators, title insurance companies, security guards and architects.