Other than the State/Fed Tax forms and I9 and documents to support legal right to work in US, are there any other forms that MUST be in a personnel file? My company does not use applications; hire based on resumes and interviews. It is a small company so not much in the way of written processes yet, but need to know that we have everything that MUST be there as required by law.

There are no documents that MUST be in a personnel file. Unless AZ law is very different than most states, there is not even a requirement that there be a personnel file at all.

It is considered best practice to file I-9's separately from the personnel file; W-4's can be filed in payroll and you can dispense with personnel files altogether if you want to. I don't recommend it; there are very valid reasons for keeping a personnel file. But they aren't required by law in most states.

Why is it best practice to file the I-9s seperately?

Two reasons.

1.) There is information there that could very definitely be used to discriminate, should a future manager choose to do so. Better that such information be filed where only HR can get to it.

2.) If the employer should ever be audited by the INS or Homeland Security or whatever agency is currently in charge of such things, if the I-9 is in the personnel file the employer has to give them access to the entire file, which is not necessarily in the best interest of either employer or employee. If the I-9's are filed separately, the employer only has to give the auditing agency the file containing the I-9s themselves.