By Mark Zinman | Zona Law
Hopefully, this is not news to you, but Arizona is one of only a few states that charges tax on residential rentals. This means that if you have been renting our residential rentals, you should have been charging your residents rental tax, and remitting such tax to the state. Thankfully, starting in 2025, that will be changing.
Governor Hobbs just signed a bill getting rid of residential rental tax in Arizona. However, don’t change your policies and procedures just yet, the change doesn’t go into effect until January 1, 2025. If you are in a city, such as Tucson, or a county island that doesn’t charge a rental tax, this will not impact you.
Here is what you need to know and what you need to do:
The law does not go into effect until January 1, 2025. Therefore, you have at least one year before you do anything.
On and after January 1, 2025, landlords are prohibited from charging the rental tax. In other words, landlords should actually decrease the amount they are charging residents at that time. The law creates a basis for a tenant to sue over the tax amount if it’s still being collected by the landlord.
Remember, it’s not just the tax on rent that is decreased. All previous charges that had taxes on them should also be decreased. For example, if late fees were $5.00 plus $.09 in tax, that part that is tax should be removed in 2025.
For all new residential leases starting on January 1, 2025, or later, the lease should not include rental taxes.
Starting in late 2024, landlords should plan for the change in not charging rental tax and starting to notify tenants of the reduction in the amount owed.
This ban does not apply to commercial rentals (meaning cities can charge a rental tax).
This ban does not apply to “health care facilities, long-term care facilities or hotel, motel or other transient lodging business.” Therefore, it appears cities can tax short-term rentals.
Remember, this just came out and it won’t go into effect for a while. between now and then, we will learn more information and put out more advice to clients about how this impacts specific areas, such as MH and RV, as well as when apartments rent out commercial spaces.