The rules where you work $17
A first 30 days checklist, everyday forms, licenses, workers’ comp and taxes for Arizona, with a yearly calendar. Instant PDF download.
Buy the packet: $17Digital product, all sales final. Informational only, not legal, financial, tax or business advice.
What Arizona expects from a new trade business
Arizona puts nearly every trade under one agency, the Registrar of Contractors, and the side-job exemption stops under $1,000. If you needed a license and didn't have one, you lose both your right to sue for payment and your lien rights. Sales tax also works differently here: the state taxes the contract on new construction and the materials on repair work.
One agency licenses almost everybody, and the handyman limit is under $1,000
In Arizona the Registrar of Contractors (ROC) licenses general and specialty contractors, residential and commercial alike. Electrical and plumbing are ROC license classifications too, so you don't go to a separate trade board for the contractor license.
The handyman exemption is narrow. It covers casual or minor work where the whole job, labor and materials together, comes in under $1,000. It's gone if the job needs a local building permit, is part of a bigger job, or gets split into small contracts to stay under the number. If you advertise, the ad has to say "not a licensed contractor."
A bid counts as contracting. Bid a project worth more than $1,000 without the right license, and ROC may not issue you a license for one year after the bid date. On a project under $20,000, ROC has to give you a written warning first if you haven't had one.
Working without a required license is a class 1 misdemeanor with a fine of at least $1,000 on a first offense. You also can't sue to collect pay on work that needed a license, unless you can prove you were licensed. A construction attorney can tell you where your work falls.
Source: A.R.S. 32-1121, persons not required to be licensed · A.R.S. 32-1102, license classifications · A.R.S. 32-1153, proof of license to sue · A.R.S. 32-1164, unlicensed contracting penalty · A.R.S. 32-1151, unlawful acts, including bidding · A.R.S. 32-1123, one-year license bar after a bid
Who to call: an attorney near you
Workers' comp: one regular employee puts you in
Arizona has no employee-count cutoff. The law covers anyone who employs workers regularly in the business, and part-year work still counts as regular.
Your subs can become your employees. If you keep supervision or control over a contractor's work and that work is part of your regular trade, the contractor and their crew count as your employees for comp. A written independent contractor agreement that meets the statute creates a presumption the other way, but the facts can still beat it.
A sole proprietor isn't automatically covered but can ask the carrier to add them. A working LLC member who owns less than 50% counts as an employee.
Go without coverage and an injured worker can sue you, and you lose key defenses. Or the worker can file with the Industrial Commission, and you owe what the state pays out plus the greater of 10% or $1,000. An insurance agent who writes contractors can price it.
Source: A.R.S. 23-902, employers subject to the act · A.R.S. 23-901, definitions · A.R.S. 23-907, failure to secure compensation
Who to call: an insurance agent near you
Getting paid: the 20-day notice comes first
Arizona's lien clock starts early, and it applies to almost everyone:
- Preliminary 20-day notice: everyone except wage workers serves it within 20 days of first furnishing labor or materials to the jobsite. It goes to the owner, the original contractor, any construction lender, and whoever hired you. No notice, no valid lien. Prove it with a signed acknowledgment or your affidavit of mailing.
- Record the lien under oath with the county recorder within 120 days after completion. Attach the notice and proof of mailing, and serve the owner a copy.
- Completion means the earlier of 30 days after final inspection and written final acceptance, or 60 straight days without labor. With no permit, it's the last day anything was furnished.
- Notice of completion: if the owner records one, you get 60 days from recording. But the owner must mail it within 15 days to the original contractor and everyone who gave a preliminary notice, or they keep 120 days.
- Sue to enforce within 6 months of recording, and record a notice of the suit.
- Owner-occupied homes: on a one- or two-family home the owner lives in, only someone with a written contract directly with the owner can lien it. The owner can't waive this.
A lien waiver works only if it follows the statute's forms. An owner can bond off your lien for 150% of your demand. Once paid, release the lien within 20 days or owe $1,000 plus damages. No required license, no lien rights. A construction attorney can set up your forms.
Source: A.R.S. 33-981, lien rights · A.R.S. 33-992.01, preliminary 20-day notice · A.R.S. 33-993, perfecting a lien · A.R.S. 33-998, time limit to foreclose · A.R.S. 33-1002, owner-occupied dwellings · A.R.S. 33-992.02, proof of mailing · A.R.S. 33-1004, bond to discharge a lien · A.R.S. 33-1006, release of a lien · A.R.S. 33-1008, waivers and releases
Who to call: an attorney near you
Sales tax: repair work and new work are taxed differently
Arizona has a transaction privilege tax (TPT), and it splits contractors' work in two:
- MRRA work (maintenance, repair, replacement, and smaller alterations on existing property) is outside the prime contracting tax. You generally pay retail TPT on your materials and treat it as a cost of doing business. Don't add tax as a line on the invoice for this work. If you do, you have to send it to the state.
- Modification work (building new from the ground up, and alterations over the limits) falls under prime contracting. A licensed prime contractor generally buys materials tax-exempt, and the tax runs on the contract income. The tax base is 65% of your gross and the state rate is 5% of that, which works out to 3.25% of the contract before county and city rates. On this work you must state the tax separately on your receipt.
An alteration turns into modification when the contract passes 25% of the most recent full cash value on residential-use property, using the higher of the value at bid or at contract, or $750,000 on other property. You can't split a project to get under the line. Jobs that mix the two have their own test, so a CPA who works with contractors can show you how to sort them.
Source: Arizona DOR, MRRA contracting · Arizona DOR, modification contracting · A.R.S. 42-5075, prime contracting · A.R.S. 42-5010, state rates
Who to call: a CPA or tax pro near you
LLC: cheap to form, and watch the publishing rule
Forming an LLC with the Arizona Corporation Commission costs $50, or $35 more to expedite. There's no annual report and no franchise tax for an LLC.
The catch is publication. If your statutory agent's street address is in Maricopa or Pima County, the Commission posts your notice for you. Anywhere else, you pay a newspaper to run it after your articles are approved, and the approval letter explains how.
An LLC's profit normally lands on your personal return. Ask the Arizona Department of Revenue for the current individual rate. When an S-corp election pays off is a numbers question, so bring your real numbers to a CPA who works with contractors.
Source: Arizona Corporation Commission, Articles of Organization instructions · Arizona Corporation Commission, LLC FAQs · Arizona DOR, single-member LLCs on the owner's return
Who to call: a CPA or tax pro near you
Education, not legal or tax advice. Rules change. Confirm anything here with a licensed pro in Arizona before you rely on it. Last updated November 2026.