One of the last items out of the recent session of the Arizona State Legislature was a prohibition on local governments imposing a Transaction Privilege Tax (TPT), or sales tax, on long-term housing rentals. Governor Katie Hobbs signed the bill after changes were made to a law she had vetoed earlier in the session. The ban will take effect as of Jan. 1, 2025.

“The statewide loss of revenue to municipalities that collect rental sales tax on leases over 30 days is expected to be around $230 million,” Fountain Hills Mayor Ginny Dickey said. “Fountain Hills’ reduction in revenue based on current numbers would be about $650,000, likely more every year.”

For some larger municipalities the projected annual loss of revenue totals over $1 million, leaving everyone to cope with the revenue loss in budgeting.

“Locally and in concert with the League (of Arizona Cities and Towns) and the administration, we will look for options to mitigate that effect when it hits January 2025,” Dickey said. “However, if there isn’t some way to help communities cope with this annual loss of what had been reliable revenue, some cities and towns will be faced with hard decisions that will affect services to residents and businesses.”

Dickey noted that for Fountain Hills the tax rate of 1.6% and the prohibition equals a monthly savings to renters of $32 on rent of $2,000.

Hobbs did get language in the bill that assures renters will see the reduction from the sales tax. There was no assurance of that in the original bill she vetoed. The bill (SB1131) includes a provision that the landlords show they had not simply raised the rent and had indeed cut the tax. According to a State Senate fact sheet related to SB1131, the bill “specifies that the landlord has the burden of proving by a preponderance of evidence, in any civil action challenging the lawfulness of a charge, assessment of other amount, that the challenged amount is not attributable to and does not represent all or any portion of a city’s, town’s or other taxing jurisdiction’s residential rental TPT.”

“Due to the challenge finding affordable housing, the concept had some bipartisan support for easing the burden on rents, though it was passed mostly on party lines,” Dickey said.