Arizona Preempts Local Sales Tax on Rental Properties

The legislation will take effect in 2025.

By Joe Riter |

August 23, 2023 |

Updated August 23, 2023

2 minute read

Arizona housing providers can expect to see relief from local sales taxes levied by municipalities on residential rentals beginning in 2025. Arizona Governor Katie Hobbs signed legislation that preempts a local governing body’s authority to collect sales tax on rental properties.

While not all cities and towns impose such fees, there is an estimated $230 million impact in 2025 on revenues to 75 of the 91 cities in the state that do collect such taxes.

Detractors of this legislation argue that this measure—designed to provide relief to residents—will not produce the desired result, alleging that housing providers will continue at current rents without reduction despite requirements in the law that such savings are passed on to the residents.

While the preemption legislation offers potential relief for housing providers, it also provides a civil right of action for residents to enforce the savings provision and places the burden on the operator to demonstrate that none of the rent being charged is associated with the tax once it disappears in 2025.

The League of Arizona Cities and Towns vehemently opposed this legislation and for good reason with a projected fiscal impact of $230 million in 2025 alone; additional measures to backfill this revenue loss will need to be explored. The National Apartment Association (NAA) continues to support its affiliate partners with their advocacy efforts and monitor trending tax policy and its impact on the rental housing industry.

To learn more about tax policy impacting the rental housing industry, please contact Ben Harrold, NAA's Manager, Public Policy.