As the new year approaches, Arizona cities are bracing for a significant financial shift due to a law that will prevent municipalities from imposing sales taxes on residential rentals. Effective January 1 next year, a legislative decree will cease the collection of transaction privilege tax (TPT) on rental properties within the state's jurisdiction, as per an article from FOX 10 Phoenix. Renters, already burdened by climbing living costs could observe reductions ranging from 1.5% to 3.5% across 75 cities.
The city may face immediate financial challenges, with annual losses estimated at $230 million. The loss of this tax revenue could lead to higher taxes or cuts in city services. Lee Grafstrom, a policy specialist, expressed concerns to FOX 10 Phoenix, saying, "you're not cutting any of the services that citizens are requesting and requiring, so, we still have to do all the same amount of work. We just have this much less money to do it."
The legislation, initially vetoed by Gov. Katie Hobbs in 2023, was modified before being signed into law later that year. A key change, mentioned in an interview with KJZZ, requires landlords in civil suits to prove that reduced rents are not benefiting from the eliminated levy. Despite earlier concerns about enforceability, this provision aims to ensure tenants receive the proper rent reductions.
Mark Stapp, from Arizona State University's Center for Real Estate Theory and Practice, conversed with FOX 10 Phoenix and advised continuous building to meet housing demands in expanding economies. "It takes two or three years to build an apartment complex and put it into the marketplace. If you stop now, two to three years from now, we continue to grow, we're going to have a very big problem," Stapp projected.
Meanwhile, lawmakers who championed the measure such as Senate President Warren Petersen and House Majority Whip Teresa Martinez have weighed in, acknowledging potential challenges for the cities but emphasizing the need to support struggling renters in the current economic climate. "This is (money) to help people put food on the table, give them an extra tank of gas in the car," said Petersen. As reported by KJZZ, Martinez noted the impact to cities like Casa Grande which anticipates a $1.2 million annual revenue drop.
