Tax Alert: Arizona Residential Rental Tax Changes Effective January 1, 2025

Effective January 1, 2025, Arizona property owners will no longer be required to collect and remit city Transaction Privilege Tax (TPT) on residential rental income for long-term stays of 30 consecutive days or more. This change stems from the amendment to A.R.S. § 42-6004(H), which eliminates the Arizona TPT on qualifying residential rental income.

What Is Changing?

Under current law, most residential rental properties in Arizona are subject to TPT in local municipalities, with rates varying depending on local jurisdictions. This law standardizes and simplifies the tax landscape by prohibiting the imposition of TPT on residential rental income across the state, as residential rentals were already excluded from state and county TPT. This change, however, does not affect commercial rentals or short-term residential rentals of 30 days or less.

Who Is Affected?

• Property owners currently paying TPT on residential rentals in applicable Arizona cities and towns.
• Tenants may also experience a reduction in overall costs as landlords adjust to the absence of TPT obligations.

What Does This Mean for Property Owners?

After January 1, 2025, property owners will no longer be required to collect and remit TPT on residential rental income to the Arizona Department of Revenue (ADOR). Property owners should continue to collect and remit municipal TPT on residential rental income earned through December 31, 2024. If property owners are charging residential tenants for the cost of the TPT, this practice should stop on January 1, 2025.

Next Steps for Property Owners

• Review current compliance requirements and ensure that all TPT filings and payments for 2024 are accurate and up to date.
• Prepare for the transition by updating lease agreements, billing systems, and accounting practices to remove TPT charges passed through to tenants effective January 1, 2025.
• Notify tenants of any changes in rent amounts, if applicable.

What to Expect from ADOR

The Arizona Department of Revenue will automatically cancel all TPT licenses that exclusively list Business Code 045 (Residential Rental) on the account. For licenses with other business activity codes, the residential rental code will be removed, but other business codes will remain active. Property owners do not need to take any action to close or cancel these TPT licenses. However, the cancellation of TPT licenses and/or business codes does not relieve taxpayers of any outstanding tax liabilities or filing obligations for periods before January 1, 2025.

To review frequently asked questions, please read the latest ADOR announcement here or visit  www.azdor.gov/business/residential-rental.

For more information about the elimination of the municipal residential rental TPT in Arizona, please contact Pat Derdenger, Karen Lowell, or Katherine Costella.