Have you heard about the rental tax ban? In 2023, the Arizona legislature passed a law that abolished rental taxes. This law is set to go into effect on January 1, 2025. All landlords and tenants should be aware of this change in the law, as well as its implications and potential consequences in the event of non-compliance.
Arizona’s real estate laws are constantly changing. Whether you are a landlord or a tenant, you must keep abreast of these laws to understand your rights and responsibilities. Whether you have questions about your real estate transaction or have become involved in a real estate dispute, you should consult a top Arizona real estate lawyer at Provident Law®. Call our office today at (480) 388-3343 to schedule a real estate attorney consultation about your real estate matter.
Basic Obligations of Landlords Under the Rental Tax Ban
All landlords must comply with the new rental tax ban starting January 1, 2025. As of that date, they must decrease the amount that they are charging tenants because of the removal of the rental tax charge. The amount charged cannot contain a rental tax or any taxes that landlords previously added to other charges. For instance, if a landlord added taxes to a late charge, they can no longer charge the tenant for that tax.
The amount of the decrease from abolishing the rental tax varies according to the tax rate of the locality involved. For instance, Phoenix’s residential tax rate is 2.3%, whereas Mesa’s is 2%. Therefore, tenants in those communities should see a 2.3% or 2% reduction in housing expenses accordingly.
The change in the law applies only to residential leases that already are in effect or that begin on or after January 1, 2025. New leases should contain no references to rental taxes at all. If landlords wish to amend existing leases, they must amend the current leases through an agreement signed by both landlords and tenants. If landlords don’t amend existing leases, they must not collect any rental tax or other taxes outlined in the existing lease agreement.
The change is inapplicable to both existing and future commercial leases. Therefore, commercial property landlords must continue charging their tenants a rental tax and may charge other taxes.
Furthermore, the law specifically states that it does not apply to “health care facilities, long-term care facilities or hotel, motel or other transient lodging business.” The Arizona Department of Housing (ADOH) has already advised that it interprets this provision in the law to refer to only long-term residential dwellings of 30 days or more. Therefore, short-term residential dwellers’ proprietors must continue collecting the rental tax.
Notifying Tenants About the New Law
If landlords do not normally itemize the charges to the tenant, they may want to begin issuing itemized statements to tenants so that they are aware of the change. They also should take steps to advertise the change in the law to tenants by issuing notices to individual tenants and/or posting public notices.
ARS §33-1314 requires a landlord to serve a formal 30-day notice to change the tax rate that they are charging. As a result, when a landlord increases the tax, they must serve a formal notice to each tenant. However, since a change in state law is abolishing the tax and thereby decreasing the rental charges for the tenants, whether landlords must serve formal notices to tenants is unclear. Nonetheless, it is good practice for landlords to, at a minimum, notify individual tenants in the same way they provide other tenant notices.
Repercussions of Failure to Comply with the New Law
Landlords who fail to remove the rental tax and other taxes from rental charges as of January 1, 2025, subject themselves to potential legal action and negative publicity. Non-compliance with the new law allows tenants to pursue individual legal action against landlords, along with the potential for class-action lawsuits. The Arizona Attorney General also could become involved in enforcing this law in cases of non-compliance.
Implications of the New Law
A tax policy expert with Arizona Cities and Towns estimates that cities could lose a combined $230 million in revenue annually due to the elimination of the rental tax. Therefore, cities will be expected to continue providing the same services to residents that they are currently providing, but with less money to do so. As a result, residents can expect that cities will need to make up the shortfall in revenue from rental taxes elsewhere, which could lead to a cut in city services.
Call Us Today to Help with All Your Real Estate Issues
Our goal is to assist you in understanding your legal rights and responsibilities concerning Arizona’s real estate laws. We can help guide you through Arizona real estate transactions and represent your interests when legal disputes occur. Contact the offices of Provident Law® today at (480) 388-3343 or online and set up a time to talk with the best Arizona real estate attorney about your legal matter.