In 2023, Arizona passed a law abolishing rental tax, which will take effect on January 1, 2025, allowing cities and towns time to adjust to the loss of revenue. With this law placing responsibility on landlords to pass savings on to tenants, tenant advocates and news media will be watching closely to ensure compliance and that tenants benefit from rent reductions.
Key Points to Note:
- Effective Date: The law takes effect on January 1, 2025. Landlords must plan now to stop all rental tax charges by that date.
- Required Rent Reduction: On January 1, 2025, landlords are prohibited from charging the rental tax, which should result in a lower rent amount for residents.
- Legal Action for Non-Compliance: Tenants have grounds to sue if landlords continue collecting the tax. Landlords risk legal action, potential class-action suits, and public scrutiny if they do not pass on these savings.
- Removal of Taxes on Additional Charges: Charges that previously included taxes, such as late fees, should have these taxes removed by 2025. For example, a $5.00 late fee previously taxed at $0.09 should revert to $5.00 only.
- New Leases After January 2025: Leases beginning on or after January 1, 2025, should not include rental taxes.
- Tenant Notifications: Landlords are advised to notify tenants of rent reductions, though it’s unclear if a formal 30-day notice is required when the change benefits tenants. Notices may be issued via community communications and email.
- Applicability: This ban does not apply to commercial rentals, healthcare facilities, long-term care facilities, or transient lodging businesses like hotels and short-term rentals.
This rental tax elimination will impact city revenues, and there has been public concern that landlords might keep extra funds rather than passing savings on. To ensure compliance, landlords must reduce rent as required by law starting January 1, 2025. For landlords with questions about how this change affects billing practices, consulting a tax accountant may be helpful.
