The repeal of the regressive rental tax went into effect across dozens of local municipalities across the state Jan. 1. Affordable housing remains top of mind for many Arizonans, and without the repeal, this harmful tax would have further decreased housing affordability, especially for lower income families and individuals.
The Arizona REALTORS was adamantly against this tax and fought for its repeal in 2023. Incredibly, only two states, Hawaii and Arizona, still imposed this tax as it is widely recognized that it causes more harm than good.
There were 75 different municipalities that imposed this tax across the state, meaning renters in more than 80% of Arizona cities suffered from this regressive system. The Arizona REALTORS is thankful the Legislature realized the burden of this tax and worked tirelessly for its eventual repeal.
Our state’s housing market has been marked by limited supply and rising prices over the last several years. When Gov. Katie Hobbs signed the rental tax repeal into law in August 2023, median rent in the Phoenix Metro area had risen $595 from four years prior, according to data from Rent.com.
Varying residential transaction privilege tax rates across the Valley added anywhere from $100 to $250 a year on top of that 38% rent increase. For example, the current median rent in the Phoenix metro area is $2,179, potentially costing renters up to an additional $900 a year on residential transaction privilege tax.
While Arizona has done a great job attracting new jobs and companies to the Grand Canyon State, this, too, has created housing challenges. As our population increases because of economic growth, it is critically important that housing remains affordable to sustain these new workers and families who choose to make Arizona their home.
The obvious solution is increasing supply to match the demand caused by our population increase, but this does not happen overnight. In the meantime, while our state and local government officials work to get more shovels in the ground, we must battle the rising housing costs in other ways.
The truth is inflation is hitting all aspects of daily life. Families are spending more money at the grocery store, at the gas pump and on utilities. The rental tax repeal puts dollars back in the pockets of those most hurt by these rising prices. With one less bill to pay and more resources to put into saving, the American dream of homeownership can become reality.
Some city officials have claimed that taxing renters is necessary to fund emergency services. That is simply not true. Research showed that at the time the repeal was signed into law by the governor, cities utilizing this tax had budget surpluses in excess of the revenue collected from the rental tax. A delayed effective date was even added to give local government officials over a year to financially plan for the removal of this tax.
If the regressive rental tax was necessary to fund city services, wouldn’t every Arizona city have implemented it? Bullhead City, Flagstaff, Quartzsite, Snowflake, Tucson and Willcox all have proven that regardless of budget size, service area or number of constituents, it is possible to thrive without taxing renters.
The rental tax was a logistical nightmare to implement and assess. Feedback from property managers and housing providers consistently said that the collection system for the rental tax was broken and would often not accurately record payments. This caused fines due to incorrect records of nonpayment. As a result, the collection system disincentivized many property owners from considering renting out their affordable housing units, thereby decreasing the housing stock in Arizona.
Now that the rental tax has been eliminated on long-term rentals, we hope to see an influx of rental units back into the market. This possible increase in supply would further assist housing affordability in Arizona.
Editor’s note: Tim Beaubien is senior director of government affairs for the Arizona REALTORS, a nonprofit trade association based in Phoenix. Please send your comments about this submission to AzOpinions@iniusa.org. We are committed to publishing a wide variety of reader opinions, as long as they meet our Civility Guidelines.
