By: Courtney LeVinus with Capitol Consulting

Buckeye eliminates business license fee, other Valley cities illegally mandate business licenses

The City of Buckeye recently eliminated the City’s requirement that residential rental property owners obtain a business license through the City. In the past the City would not only require the registration but they would also charge a $40 annual fee as part of the license.

The City of Buckeye made these changes to conform to Arizona law.

Arizona Statutes (9-1304 (B)) clearly state that “a city or town shall not adopt a residential rental licensing requirement for residential rental properties or property owners. This subsection does not prohibit a city or town that imposes a sales tax on rent from requiring a transaction privilege tax license for residential rental property owners.”

Some Valley cities however remain in violation of Arizona law as they require property owners to obtain a business license separate from the transaction privilege tax license noted in the above statute.

Cities like Casa Grande, El Mirage, Goodyear, Litchfield Park, Surprise and Yuma require a business license even though they technically do not administer or collect a transaction privilege tax (TPT). These cities levy TPT’s, but they are what are called “program cities.

A “program city” is a city that uses the Arizona Department of Revenue (ADOR) to administer and collect their TPT revenue. For the program cities, ADOR requires that a business (in our case rental property owners/managers) obtain a TPT license. The license in this case directly corresponds to the actual taxing entity, ADOR.

Most of the larger cities like Phoenix, Tucson, Mesa, Glendale and Chandler are considered “non-program” cities as they administer and collect their own TPT revenues. These non-program cities require a TPT license from the rental property owner. And in this case, they have been given authority to require the TPT license under ARS 9-1304(B); because again, they levy the TPT and most importantly they collect the tax “in-house.”

The issue arises when the program cities (cities contracted with ADOR) assess an additional business license and fee in addition to the ADOR license. In other words, rental property owners/ managers are assessed two fees for two licenses, one with ADOR and one with the city. Since these program cities don’t directly administer and collect the tax, they have no reason (or authority) to require a TPT or business license as provided in ARS 9-1304(B).

Capitol Consulting will be working with the nonconforming cities and the League of Cities and Towns to resolve this issue without the need for legislative action.