Rental Tax Prohibition Bill Signed Into Law

August 2, 2023

By Daniel Stefanski |

One of the final pieces of the 2023 Arizona Legislative Session has been put into place.

On Tuesday, Governor Katie Hobbs signed SB 1131, which eliminates the rental tax for Arizona tenants.

According to Arizona Senate Republicans, “there are approximately 70 municipalities within our state charging this tax, while cities and towns continue to collect record revenues. From fiscal years 2019 to 2023, state-shared revenues from both sales and income taxes combined grew $733 million, or 59%. This increase is on top of any sales taxes or property taxes individually levied by each city. Between FY 2024 and FY 2025, those shared revenues are expected to grow by an additional $389 million.”

The Senate’s President, Warren Petersen, issued the following statement in conjunction with the announcement: “Charging a rental tax is bad tax policy. In fact, Arizona is one of only two states in the nation currently allowing this. While our first attempt at eliminating the tax passed out of the Legislature with solely Republican support and was eventually vetoed by the Governor, we’re grateful our Democrat colleagues came to the table with us and realized the real tangible relief this reform will provide.”

Senate Majority Whip Sine Kerr also released a statement explaining the need for the bill.

“Rental prices aren’t going down anytime soon, and Arizona tenants are agonizing over just how much more expensive it is now to rent an apartment or house than ever before. For Metro Phoenix, June of this year saw the second-highest monthly total of evictions since the 2008 Great Recession. According to Maricopa County records, landlords filed to evict nearly 7000 times last month,” said Senator Kerr. “We needed to act promptly. This bill will provide some help, and I’m proud the Majority Caucus spearheaded this change in tax policy.”

The Republicans’ press release noted that the new policy will “take effect on January 1, 2025…at the request of Democrats (to) allow cities and towns the leeway they desire to adapt to this tax reform.”

As Petersen referenced, the governor vetoed an earlier version of the rental tax prohibition back in February. Hobbs gave two reasons for her action, stating, “First this bill lacks any enforceable mechanism to ensure relief will be provided to renters. As noted by the legislature’s own attorney, provisions in the bill that purport to require that tax savings be passed on to renters face challenges under both the state and federal constitutions. If we are going to promise relief to renters, it’s important that we are able to ensure they actually receive it.”

The League of Arizona Cities & Towns – as well as several cities and towns across the state – opposed the updated bill, which was eventually signed by Hobbs, as it progressed through the state legislature. The Senate first passed the bill on March 2, then the House on May 15. The Senate then concurred with the amended proposal on June 13. SB 1131 was not transmitted to Governor Hobbs until July 31 – the same day that the Legislature approved the negotiated Prop 400 plan.

Daniel Stefanski is a reporter for AZ Free News. You can send him news tips using this link.

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