How to Start an ADU and Casita Building Business in Arizona: ROC Licensing and State ADU Law

Accessory dwelling units (ADUs), also called casitas, granny flats or backyard cottages, are a steady source of residential work in Arizona. Since 2024, state law has required many Arizona cities and counties to allow them on single-family lots. That creates real demand for builders, but it also means you need three things in order before you bid a job: a properly formed business, a Registrar of Contractors license, and a permit for every project. This guide walks through that sequence and the state ADU rules you need to know first.

This article is informational, not legal or tax advice. Zoning, licensing and tax rules change, and your city, county or HOA may impose requirements stricter than state law. Talk to an Arizona business attorney and a CPA before you form your company or sign customer contracts.

What You Need Before You Start

Gather these items before you file anything or quote a job:

• A legal business entity, usually a limited liability company (LLC), with a name that meets Arizona naming rules
• A statutory agent with a permanent Arizona address
• A Registrar of Contractors (ROC) license that covers the residential building work you plan to perform
• A Transaction Privilege Tax (TPT) license from the Arizona Department of Revenue, if your activity is taxable
• Any business license required by each city where you will work
• The zoning, setback and floor area rules for each target city or county
• The CC&Rs for any HOA community where you plan to build
• A written contract template and a separate bank account for the business

Step 1: Confirm Which ADU Rules Apply Where You Build

Arizona’s ADU law does not apply the same way everywhere. It depends on the size of the city and whether the lot is in a county or a city.

HB 2720 (2024), codified at A.R.S. 9-461.18, requires cities with more than 75,000 residents to allow at least one attached ADU and one detached ADU as a permitted use on any lot where a single-family home is allowed. Those cities had a deadline of January 1, 2025. HB 2928 (Laws 2025, ch. 217, signed May 23, 2025), codified at A.R.S. 11-810.01, applies the same rules to counties starting January 1, 2026.

The rules a builder should design around are:

• Size: An ADU can be up to 75 percent of the main home’s floor area or 1,000 square feet, whichever is less. The 1,000 square foot cap is the number to design around, not 1,200.
• Second detached ADU: On a lot of 1 acre or more, a city must allow a second detached ADU if one of the two units is rent-restricted affordable at 80 percent of area median income.
• Parking: A city cannot require extra parking for the ADU.
• Design: A city cannot require the ADU’s exterior to match the main house.
• Occupancy: A city cannot require that the owner live on the property or that the occupants have a family relationship.
• Setbacks: A city cannot require rear or side setbacks greater than 5 feet.
• Rentals: An ADU can be leased long term, meaning 90 days or more.

Some limits still apply. ADUs on tribal land are excluded, and so are lots in areas near military or public airports. Ask the city or county planning department whether a specific lot falls in an excluded area. Building and fire codes still apply, but a city cannot require fire sprinklers or commercial code standards for an ADU. Private HOA CC&Rs also still apply, even when the city allows the unit. Read the covenants before you quote a job in a master-planned community.

Step 2: Choose Your Business Entity

Most small builders form an LLC. An Arizona LLC passes its income through to the members, who pay the state’s flat 2.5 percent individual income tax. An LLC that elects corporate treatment pays corporate income tax of 4.9 percent of net income or $50, whichever is greater (A.R.S. 43-1111). Arizona levies no LLC franchise tax and no annual report fee, so an LLC has no recurring state filing cost to stay in good standing.

A for-profit corporation is different. It must file an annual report each year, currently $45, in its anniversary month, on the date the Corporation Commission assigns (A.R.S. 10-1622). Choosing between an LLC and a corporation is a tax and liability decision. Confirm it with a CPA before you file.

To form an LLC, file Articles of Organization (Form L010) with the Arizona Corporation Commission through the Arizona Business Center. The regular filing fee is $50. Expedited review adds $35, for a total of $85. Accelerated service is an extra charge on top of the filing fee: $100 for next day (received by 5pm), $200 for same day (received by 10am) and $400 for two-hour service (available 8am to 3pm). Accelerated service guarantees examination within the stated window, not approval.

Plan your timeline around the Corporations Division processing times. The sheet posted December 29, 2025 showed about 9 to 11 business days for regular processing and 2 to 4 business days for expedited processing. Check the current sheet before you set a start date for your first job, because a rejected filing adds time.

Step 3: Get the Name Right and Appoint a Statutory Agent

Your LLC name must include “limited liability company,” “limited company,” or an abbreviation such as LLC, L.L.C., LC or L.C. It cannot include “association,” “corporation,” “incorporated” or an abbreviation of those words (A.R.S. 29-3112). It must be distinguishable from existing entity names, reserved names and registered trade names on the record. Search the Corporation Commission business search before you settle on a name. If you need time, you can reserve a name for 120 days for $10.

Arizona calls the registered agent a statutory agent (A.R.S. 29-3115 for LLCs). An individual statutory agent must be a permanent, full-time Arizona resident with a permanent, full-time physical address in Arizona. The agent can also be an entity authorized to transact business in Arizona, but an LLC cannot serve as its own statutory agent. The agent must accept the appointment in writing on Statutory Agent Acceptance form M002. The company must keep a valid statutory agent with a valid address on record at all times, or it risks administrative dissolution (A.R.S. 29-3708). Changing the statutory agent or principal address costs $5 for an LLC.

An LLC must publish notice of its formation unless its statutory agent’s county is Maricopa or Pima. If your agent is in another county, confirm the publication requirement, timing and cost with the Corporation Commission before you assume the formation is complete.

If you plan to bid under a brand name that differs from your LLC name, register a trade name with the Arizona Secretary of State, Business Services Division, at azsos.gov/business/tntm. Trade name registration is optional in Arizona and is separate from the Corporation Commission filing. Confirm the current fee on that page.

Step 4: Get Your Registrar of Contractors License

The Registrar of Contractors (ROC) licenses contractors in Arizona, and an ADU builder needs a license that covers the scope of work. Do not sign a contract or start work until you hold the classification that covers it. A permitted ADU requires a ROC-licensed contractor.

The $1,000 threshold below which some work does not require a license does not help you here. Every ADU requires a permit, and a permitted job requires a licensed contractor. Plan for licensing on every project.

Confirm the license classification you need, the qualifying requirements, the bonding requirements and the current fees directly with the Registrar of Contractors. Requirements change, so verify them with the agency rather than with a third-party course or licensing service.

Step 5: Register for the TPT and Check Local Licenses

Arizona has no general statewide business license. The closest thing most businesses need is a Transaction Privilege Tax (TPT) license from the Arizona Department of Revenue, which is a tax license and costs $12 per location. Apply through the ADOR TPT license page. Whether your ADU work is taxable under the TPT depends on how you bill and what you sell, so get that answer from ADOR or a CPA before your first invoice.

Cities and towns commonly require their own business or TPT license on top of the state license. Counties do not issue a general business license. Check the rules for every city where you plan to bid, including Phoenix, Tucson, Mesa, Gilbert, Chandler and any other city in your service area. Ask each city for its fee, because the amounts differ.

Step 6: Pull a Permit for Every ADU Job

Searches for “adu permit arizona” usually lead to one answer: the permit comes from the city or county building department where the lot sits. Do not begin site work until the permit is issued and posted. Permit applications generally include a site plan that shows setbacks and lot lines, floor area calculations, and building plans. Ask the jurisdiction for its checklist and its fee schedule, then price the job with those numbers in hand.

Measure floor area the way your jurisdiction defines it. The 75 percent and 1,000 square foot limits in state law are the ceiling, and a local rule can require less. Confirm the rear and side setbacks on the lot before you design the footprint, because the state cap of 5 feet only limits what a city can require, not what the lot survey shows.

Step 7: Check the Lot, the HOA and the Excluded Areas

Before you sign, pull the lot’s zoning designation, its recorded plat, and any HOA covenants. Ask the city or county whether the lot is near a military or public airport or on tribal land, since those lots fall outside the state framework. Document the answers in the file. A short note with the date and the name of the staff member who answered is worth the time.

Step 8: Write Contracts That Match the Rental Use

Many ADU owners plan to rent the unit. State law lets an ADU be leased long term, meaning 90 days or more. Your customer contract should state who handles permits, who is responsible for HOA approval, what the warranty covers, and what happens if the city inspection requires changes. An attorney familiar with Arizona construction contracts can review the template before you use it on a paying job.

Expected Results

Builders who follow this sequence may be able to bid ADU work in the jurisdictions covered by HB 2720 and HB 2928 without the design restrictions that older local codes sometimes imposed. The state framework may reduce some parking and design objections, but it does not remove permit review, inspections or HOA restrictions. Timelines depend on the entity filing, the ROC application, the TPT and city licenses, and the local permit queue, so plan for several months of administrative work before the first permit application is approved. Results will vary with your market, your crew and your jurisdiction.

Common Mistakes to Avoid

• Quoting before checking the HOA. A city may allow the unit while the CC&Rs prohibit it.
• Designing to 1,200 square feet. The state cap is the lesser of 75 percent of the main home or 1,000 square feet.
• Assuming the statutory agent is handled. An LLC without a valid agent on record risks administrative dissolution.
• Skipping publication in a non-Maricopa or non-Pima county. Confirm the requirement with the Corporation Commission.
• Treating the $1,000 threshold as a way around licensing. Permitted ADU work needs a licensed contractor.
• Using a name that conflicts with an existing entity or trade name. Search before you file or print signage.
• Skipping the city business license. Counties do not issue one, but many cities do.
• Starting site work before the permit is issued. Inspections and stop-work orders cost more than the wait.

Tips From the Field

• Keep one folder per city with the code citation, the permit checklist, the fee schedule and the name of the planning contact.
• Set up your books before the first draw. Keep business money separate, and ask your CPA how TPT collections should be recorded.
• Ask the building department whether it has a pre-application meeting. Those meetings can catch setback and floor area problems before you submit plans.
• Calendar the annual report date if you form a corporation, and the ROC renewal date for your license.
• Keep your statutory agent contract and your address current. Changing the address costs $5 for an LLC, far less than a dissolution.

Next Steps

Form the entity first, then secure your ROC license, TPT registration and city licenses, and only then start pricing permitted ADU work. Verify each fee and deadline on the agency page before you commit to a schedule. The Arizona Small Business Development Center Network (AZSBDC) offers free advising to help you work through the order of these steps.

Disclaimer: This article is informational only and is not legal, tax, construction or financial advice. Arizona statutes, agency fees and local ordinances change. Confirm every requirement with the Arizona Corporation Commission, the Registrar of Contractors, the Arizona Department of Revenue and your city or county before you act. For complex situations, consult a qualified Arizona attorney and a CPA.