Residential Rental Property Owners – Transaction Privilege Tax Update

Effective January 1, 2025, residential rental property owners should no longer collect and remit any city transaction privilege tax (sales tax) on residential rentals. Not all Arizona cities assess this tax and there is currently no  requirement to  collect state or county sales tax from residential rentals. The City of Tucson does not charge this tax, but South Tucson and Sahuarita do, along with many other towns and cities in Arizona.

The Arizona Department of Revenue was required to notify each person or business holding a residential rental license of this change electronically or by first class mail  by September 30, 2024, so if you will be affected by this change, you likely have been notified. Check with us if you aren’t sure this new law applies to you.

You should continue to collect, file, and pay residential rental sales tax for periods through December 31, 2024. You do not have to take any steps to cancel your business license after this date.  

Governor Katie Hobbs originally vetoed the law when it came to her desk in 2023 because it did nothing to ensure that landlords would pass along the tax savings to their tenants. The legislature added language to a separate section of the Arizona statutes providing that if a tenant sued a landlord challenging the lawfulness of a rental charge, the landlord would have to prove that no amount of the rent being charged was attributable to sales tax for rents paid after January 1, 2025.

This provision is set to be repealed on January 1, 2027, so tenants who think their landlords are still collecting a sales tax amount in their rent have a limited time to complain. Otherwise, neither the Arizona Department of Revenue nor the legislature have provided guidance on how landlords should adjust their rents to comply with this law.