Arizona tenants no longer have to pay taxes on rent
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Most Arizona renters will see a slight decrease in their monthly payments now that a new law outlawing taxes on rent is in effect.
Why it matters: Housing and rent prices have skyrocketed over the past decade and supporters of the tax ban say even slight relief can help families struggling to make ends meet.
Catch up quick: Gov. Katie Hobbs signed the bill in 2023 forbidding cities from charging taxes on rent.
- She initially vetoed a similar bill, citing concerns about the impact it would have on city budgets but later signed it as part of a compromise with legislative Republicans on the continuation of a Maricopa County transportation tax.
- The tax ban didn't take effect until Jan. 1, giving cities a chance to prepare for the lost revenue.
How it works: More than 80% of Arizona cities and towns, including all of the Valley's largest, previously charged rental tax ranging from 1% to 4%. The average was 2.5%.
- Landlords passed along that tax to renters, and it usually showed up as a surcharge on top of their monthly rent payments.
- The new law requires landlords to deduct the tax from renters' statements moving forward and creates a pathway for renters to sue if they believe they've not been given the appropriate deduction.
By the numbers: The average Phoenix-area apartment costs about $1,500 per month, according to RentCafe. Assuming a 2.5% tax rate, the typical renter will receive a $38 monthly discount.
The other side: Collectively, cities will lose about $230 million per year in tax revenue because of the new law, the League of Arizona Cities and Towns estimates.
- Smaller cities could be especially impacted because they have fewer revenue streams to make up the difference.
What we're watching: "You have to find some other way to make up that revenue — either through raising another tax or raising property taxes," Lee Grafstrom, a tax policy analyst with the League, told ABC15 last month.
- "The other alternative, which is one that citizens don't want, is you end up having to cut services."