Calculate the Arizona transaction privilege tax owed by a contractor on a project with gross receipts of $125,000, assuming a combined state and local rate of 8.6%.
Correct Answer
A) $10,750
$125,000 × 0.086 = $10,750. Arizona contractors must collect and remit transaction privilege tax on their gross receipts.
Why This Is the Correct Answer
$125,000 × 0.086 = $10,750. Arizona's Transaction Privilege Tax (TPT) is a gross receipts tax levied on contractors for the privilege of doing business in Arizona. Unlike a sales tax collected from the customer, TPT is the contractor's tax obligation, calculated on their total gross receipts from the project at the combined state and local rate.
Why the Other Options Are Wrong
Option B: $10,250
$10,250 results from applying a rate of approximately 8.2% instead of 8.6%. This could stem from using the state rate only (currently 5.6%) and adding an incorrect local rate, or from a simple arithmetic error in the multiplication.
Option C: $11,500
$11,500 results from applying a higher rate of approximately 9.2%, or from incorrectly adding a surcharge or rounding the rate up. Neither step is indicated in the problem.
Option D: $9,750
$9,750 results from applying a rate of 7.8% — significantly below the stated 8.6%. This error likely comes from using the state-only TPT rate of 5.6% plus an incorrect local add-on, or from a decimal shift in the multiplication.
Memory Technique
TPT = Gross Receipts × Rate. Clean multiplication: $125,000 × 8.6% → $125,000 × 0.086 → $125 × 86 = $10,750. Shortcut: $125,000 × 0.1 = $12,500; subtract $125,000 × 0.014 = $1,750; result = $10,750.
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