Jul 17, 2023 - Politics

Rent tax, Prop. 400 still on the table before legislative session ends

Illustration of a house key covered in price stickers.

Illustration: Aïda Amer/Axios

It's still possible that Arizona Gov. Katie Hobbs could sign legislation this year barring cities from taxing rent.

Flashback: Hobbs vetoed an anti-rent tax bill in February, citing the fiscal impact on cities and concerns that landlords wouldn't actually pass savings on to their tenants.

State of play: Before adjourning for an extended break in June, lawmakers gave final approval to SB1131, which prohibits cities from levying sales tax on rent.

  • Lobbyist Tom Farley, who represents the Arizona Association of Realtors, which supports the bill, told Axios Phoenix that lawmakers made two changes last month in the House to alleviate Hobbs' concerns.
  • The bill requires landlords in cities that tax rent to stop imposing it on tenants, and puts the legal burden of proof on the landlords if they're sued for failing to comply.
  • They also delayed the effective date until the beginning of 2025, which Farley said was requested by the governor's office.

Yes, but: The Legislature hasn't sent the bill to Hobbs though the final vote was June 13.

  • The Arizona Constitution requires the Legislature to transmit bills to the governor after passage, and the state Supreme Court ruled in 2009 the Legislature can't withhold them.
  • Lawmakers will transmit the bill to Hobbs when they return to session July 31, per Senate GOP spokesperson Chierstin Susel.

The intrigue: Farley said Hobbs expressed a willingness to sign SB1131 in conjunction with a deal on Proposition 400, the expiring half-cent sales tax for transportation projects in Maricopa County.

  • Hobbs and Republican legislative leaders have been unable to reach an agreement on Prop. 400, and the governor vetoed a plan they sent her last month.
  • The governor, Senate President Warren Petersen and House Speaker Ben Toma are still negotiating a plan to send Prop. 400 to the ballot so voters have a chance to renew it before it expires at the end of 2025.
  • Farley hopes Hobbs will sign SB1131 even without an agreement on the transportation tax but said, "I think chances are enhanced if there's a deal on 400."

The other side: The League of Arizona Cities and Towns opposes the bill, as it did with the vetoed version, despite changes supporters made to appease the governor.

  • Tom Savage, the League's legislative director, said there's no replacement for the $230 million that'll be lost annually to the 75 cities that tax rent.
  • He told Axios Phoenix the League is aware that legislative leaders were negotiating with Hobbs, but doesn't support it given the impact the sales tax ban would have on cities outside Maricopa County, which don't benefit from the transportation tax.

What they're saying: Little to nothing. Hobbs spokesperson Christian Slater had no comment on the rental tax bill, lawmakers' refusal to send it to the governor's desk, or its relationship to Prop. 400 negotiations.

  • Toma didn't respond to a message from Axios Phoenix, while a spokesperson for Petersen declined to comment, referring instead to a press statement that said their "common objective" is to pass a Prop. 400 extension before sine die.
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