Arizona's Residential Rental Tax Repeal Takes Effect

As of January 1, 2025, Arizona renters are catching a much-needed break as the state puts an end to residential rental taxes. This new tax law, signed by Governor Katie Hobbs, is designed to ease the financial strain on renters struggling with soaring housing costs. With rents climbing by 72% in recent years and a housing shortage gripping the state, this tax repeal brings welcome savings for many Arizonans. Here's how the new law works and what it means for renters in Arizona.

What’s the deal with Arizona’s rental tax?

For years, Arizona renters have been paying a little extra each month due to a residential rental tax. This tax is officially called a Transaction Privilege Tax and it works like a sales tax on rent. Landlords typically pass the cost along to tenants, which adds to their already high expenses. On average, rental tax rates hover around 2.5%, though they vary by city. For a renter paying $1,400 a month, this tax has meant an additional $35 tacked onto their rent (or $420 a year).

With this repeal, Arizona renters can say goodbye to this extra cost. Landlords must now stop charging the tax and adjust rent bills to reflect the change. That said, renters should stay vigilant because there’s a catch. The law includes a clause allowing landlords to reinstate equivalent charges in 2027. It’s worth keeping an eye on how this plays out in the coming years.

Which Arizona cities will see the residential rental tax ban?

The rental tax ban will benefit renters across Arizona, including in major cities such as Phoenix, Mesa, Chandler, Gilbert, Glendale, Scottsdale, and Peoria. While these cities are among the most affected, the law applies statewide. Renters curious about their specific situation can check their city’s tax status using an online tool provided by the State Department of Taxation.

However, not every rental scenario qualifies. The repeal only applies to long-term rentals of 30 days or more. If you’re staying in a hotel, Airbnb, or other short-term lodging, you’ll still face transient lodging taxes. Renters with unique agreements should double-check their lease terms to see how the repeal impacts them.

Does the residential rental tax ban affect Arizona's housing challenges?

While the tax repeal brings relief, it doesn’t solve Arizona’s broader housing challenges. Over the past few years, the state has seen a perfect storm of rising housing costs, a tight housing market, and delays in new construction. The Common Sense Institute of Arizona estimates the state faces a housing shortage of over 65,700 units.

Inflation has driven up prices, and many homeowners have chosen to stay put, which has limited the number of homes available for sale. At the same time, delays in construction permits have slowed the pace of building new homes. As a result, Arizona is nearly a decade behind in meeting demand, and it could take more than three years just to return to pre-pandemic home prices.

For renters, this shortage has made finding affordable housing increasingly difficult. While the rental tax repeal puts some money back in renters’ pockets, it’s unlikely to address the root causes of the state’s affordability crisis.

What opposition has the rental tax ban faced?

Not everyone supports the rental tax repeal. Local governments, represented by the League of Arizona Cities and Towns, have raised concerns about the financial impact. They estimate the change will cost municipalities about $230 million in lost revenue in 2025 alone. These funds typically support road maintenance, public safety, infrastructure, and other important public services.

The League has already begun discussions with Governor Hobbs’s office to explore alternative ways to make up for the lost revenue. While no new taxes have been announced yet, renters should stay aware of potential changes down the road.

How else can Arizona renters save money?

The rental tax repeal isn’t the only way Arizonans can cut costs. The state offers several other tax relief programs that can benefit both renters and homeowners. These include:

• Property tax credit: Residents aged 65 or older with low incomes may qualify for this credit. If you earn less than $3,751 annually (or $5,501 if you live with others), you could get some extra help with housing costs.
• Family income tax credit: Arizona offers a $25 exemption per family member or dependent, up to $100 per household. While small, this credit provides families with a little extra relief.
• Public school and tuition tax credits: If you donate to public schools or tuition organizations, you can claim a credit on your taxes. Combined, these credits can offset up to $1,859 in taxes.

Facing rental tax issues? Consult with The Law Firm of Brown & Jensen

If you’re struggling with Arizona rental tax issues, turn to the experienced team at The Law Firm of Brown & Jensen. Our law firm has the knowledge and resources to develop a tailored solution that works for you, whether you’re dealing with unpaid taxes, tax liens, or planning for future compliance.

When you consult with us, you’ll gain a clear understanding of your legal options and receive a customized plan to address your tax concerns. Our legal team handles several types of tax issues, from audits and payment plans to tax appeals and debt settlements. We’ll work directly with you to ensure your rental tax situation is resolved efficiently and with integrity.

Contact us online or call one of our law offices to schedule a consultation. During your meeting, we’ll review your case, answer your questions, and help you take control of your tax issues. With offices in Mesa, Tucson, Scottsdale, Chandler, and beyond, we’re here to provide the legal guidance you need.

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