The sub-chapter S corporation of the Internal Revenue Code is made up of entities that are not liable for taxation as business entities such as partnerships and limited liability companies.

The Internal Revenue Services states that an S corporation is not liable to pay federal taxes, but is simply passes the profits and losses to the owners who report the income from an S corporation in their tax filings.

The salaries an S corp pays to its employees are subject to social security and medicare tax even though the S corporation does not pay federal taxes. The state laws regulate the formation of an S corporation while federal laws regulate the taxation of the corporation.

In Arizona, the state laws of the state of Arizona will regulate the formation of the company from registration to the other aspects required by the state laws of Arizona.