Arizona Residential Rental Tax Ban: What Landlords Must Do Now
Arizona eliminated the residential rental transaction privilege tax (TPT) statewide effective January 1, 2025. If you own or manage long-term residential rental property in a city that used to charge this tax, you are no longer allowed to collect it, and you needed to have already stopped. Here's exactly what changed, what you still owe for periods before the ban, what's still taxable, and what to update on your leases right now.
Key takeaways
- Arizona cities can no longer levy TPT, sales, gross receipts, use, franchise, or any similarly denominated tax on long-term residential rentals (stays of 30 or more consecutive days), effective for periods on and after January 1, 2025.
- The ban comes from Laws 2023, Chapter 204 (SB1131), which amended A.R.S. § 42-6004(H). There was never a state or county tax on residential rentals; only city-level TPT is affected.
- Landlords must stop charging tenants this tax on rent collected for January 2025 and later, and must still file and pay any tax owed for periods through December 31, 2024 (no refunds for tax properly paid before the ban).
- The statutory provision shifting the burden of proof onto landlords in a tenant dispute (A.R.S. § 33-1332) is temporary and repeals January 1, 2027, but the tax ban itself is permanent.
- Short-term and transient lodging (stays under 30 days, hotels, motels, vacation rentals) are unaffected and remain fully taxable.
- Property owners still must register rental property with the county assessor under a completely separate law. That obligation did not go away.
What was the Arizona residential rental tax
Before 2025, some Arizona cities, not all, taxed landlords under the residential rental classification of the Model City Tax Code at rates that typically ran between 1% and 4% of gross rental income. This was always a city-level tax. Arizona has never imposed a state or county transaction privilege tax on long-term residential rentals. Landlords in taxing cities were required to register for a TPT license under business code 045, collect the tax from tenants along with rent, and remit it to the Arizona Department of Revenue (ADOR) monthly, quarterly, or annually depending on filing frequency.
Taxable gross income under the old rules wasn't limited to base rent. It included non-refundable deposits, late fees, pet fees, HOA fees passed through to tenants, and other charges paid to or on behalf of the landlord. Some categories were already carved out before the ban ever took effect: charges by hospitals, licensed nursing care institutions, kidney dialysis facilities, and licensed assisted living or other health care facilities for patient rooms were exempt under the Model City Tax Code, since that income was treated as a healthcare charge rather than residential rent.
SB1131 and the January 1, 2025 rental tax ban
The rental tax ban originated as Senate Bill 1131 during the 2023 legislative session. Governor Katie Hobbs vetoed an earlier version in February 2023, citing concerns that the bill didn't guarantee savings would reach tenants. The Legislature amended the bill to put the burden of proof on landlords in any legal challenge over whether a charge still includes residential rental TPT, and delayed the effective date to give cities time to adjust. Hobbs signed the revised bill on August 1, 2023.
The law amended A.R.S. § 42-6004(H) to prohibit a city, town, or other taxing jurisdiction from levying a transaction privilege, sales, gross receipts, use, franchise, or other similarly denominated tax or fee on the business of renting or leasing real property for residential purposes, defined as lodging stays of 30 or more consecutive days. The prohibition took effect for tax periods beginning January 1, 2025. Roughly 70 to 75 of Arizona's 91 cities and towns had imposed this tax, and the statewide revenue loss to municipalities is estimated at around $230 million a year.
What landlords must stop charging tenants
If your rental property was in a city that taxed residential rentals, you must not charge tenants any amount attributable to residential rental TPT for rent covering January 1, 2025 or later, regardless of when the lease was signed. This applies whether you collect rent directly or use a property management company to do it for you. If a lease signed before 2025 still lists a separate tax line item, that charge is no longer valid and should not be billed going forward.
Because SB1131's rent-reduction provision puts the burden of proof on the landlord in any dispute, you want documentation showing the tax was actually removed rather than folded into a higher base rent under a different label. Keep records of your rent roll before and after January 1, 2025 so you can demonstrate compliance if a tenant or the city ever raises the issue.
The burden-of-proof mechanism itself is a temporary provision (A.R.S. § 33-1332) that is scheduled to repeal on January 1, 2027. The underlying tax ban in A.R.S. § 42-6004(H) does not sunset, and cities remain permanently barred from re-imposing this tax, but the specific legal shortcut that puts the proof burden on you rather than the tenant goes away at that point. Good recordkeeping still matters after 2027, just under ordinary evidentiary rules instead of a statutory presumption against you.
What landlords must do now
- Confirm your TPT license status. If your only business activity was residential rental under business code 045, ADOR has likely already canceled your license with an effective date of December 31, 2024. No action is required to cancel it yourself.
- File and pay everything through December 31, 2024. You still owe city TPT for any period before the ban took effect, and those periods remain subject to audit. If you had a license but underreported taxable income, file amended returns rather than waiting to be caught. The repeal is not retroactive: tax you properly collected and remitted for periods before 2025 is not refundable simply because the classification no longer exists.
- Stop collecting the tax from tenants for rent covering 2025 and beyond, and update your lease templates and rent statements so no residential rental TPT line item appears.
- Keep your county assessor registration current. This requirement is unrelated to TPT and did not change (more on that below).
- Watch your other business codes. If you use business code 045 alongside other taxable activity on the same license, you're responsible for removing the residential rental locations from your account when filing your first 2025 return.
- Update your bookkeeping. If your rent roll, chart of accounts, or automated invoicing still calculates a rental tax line, that needs to come out. This is exactly the kind of cleanup our accounting and bookkeeping team handles for landlords transitioning off the old system.
What's still taxable: short-term and transient lodging
The ban applies only to residential rentals of 30 or more consecutive days. If you rent a property for shorter stays, nothing changed. Short-term and transient lodging, including hotels, motels, vacation rentals, and other bookings under 30 days, remains fully taxable under the state transient lodging classification (business code 025) and the hotel/motel classification at the city level (business codes 044 and 144 where an additional hotel tax applies). If you switch a property between long-term and short-term use during the year, you need to track which classification applies to each rental period.
Do you still need to register with the county assessor?
Yes. Registering residential rental property with the county assessor is a completely separate legal requirement under A.R.S. § 33-1902, and the rental tax ban did nothing to change it. Every owner of residential rental property must keep current contact information on file with the assessor in the county where the property sits, and out-of-state owners must designate an in-state statutory agent to accept legal service. Failure to register can trigger a civil penalty of $150 per day per violation, and unregistered property generally cannot legally be occupied. If you've been assuming that losing the TPT obligation also ended your paperwork with the county, it didn't.
What changes for property management companies
Property management companies (PMCs) that only handled residential rental filings on behalf of owners no longer need to maintain that TPT registration purely for long-term rentals. If a PMC also manages short-term rentals or commercial property for any of its clients, it still needs an active TPT license and Power of Attorney on file to file and remit tax on that activity. PMCs that manage a mix of long-term and short-term units for the same owner should confirm which properties were removed from the account and which remain active, since ADOR's PMC guidance makes owners, not PMCs, ultimately responsible for the tax.
What this means for real estate investors and landlords
For most landlords, the ban is a straightforward win: less paperwork, one fewer filing obligation, and a small reduction in the effective cost of holding rental property in a taxing city. For real estate investors weighing acquisitions, this can shift the numbers slightly (a lower carrying cost) but it doesn't change how the sale of a rental property is taxed down the road; capital gains, depreciation recapture, and 1031 exchange planning all still apply exactly as before. If you hold multiple properties across several entities, this is also a reasonable moment to review whether your current entity structure still makes sense now that one layer of city-level compliance has been removed.
The Arizona residential rental tax ban is simple in concept but easy to get wrong in the details: stopping the charge going forward is only part of the job. You still need to close out pre-2025 liabilities, confirm your TPT license was actually canceled (or should have been), keep your county assessor registration current, and make sure your leases and bookkeeping reflect the change accurately. None of that happens automatically just because the law changed.
Not sure whether your rental property filings are fully cleaned up, or whether your entity structure still makes sense post-ban? K&R's Strategic Tax Advisory and Preparation team helps Arizona landlords and real estate investors sort out exactly what's owed, what's changed, and what to do next. Book a free discovery call and we'll walk through your specific properties.
Frequently asked questions
When did Arizona's residential rental tax ban take effect? January 1, 2025. Residential rental income for periods on or after that date is no longer subject to city transaction privilege tax anywhere in Arizona. Periods through December 31, 2024 remain fully taxable and subject to audit.
Which law banned the residential rental tax in Arizona? Laws 2023, Chapter 204 (Senate Bill 1131), which amended A.R.S. § 42-6004(H) to prohibit cities, towns, and other taxing jurisdictions from levying TPT or any similarly denominated tax on long-term residential rentals.
Do short-term rentals still have to pay this tax? Yes. The ban only applies to residential rentals of 30 or more consecutive days. Short-term and transient lodging, including hotels, motels, and vacation rentals under 30 days, is still taxable under the transient lodging and hotel classifications.
Do I still need a TPT license if I only do long-term residential rentals? No, as long as residential rental is your only taxable activity. ADOR has been canceling licenses that were used solely for business code 045. If you engage in other taxable business, such as short-term rentals or commercial leasing, you still need an active license for that activity.
Do landlords still have to register with the county assessor? Yes. County assessor registration under A.R.S. § 33-1902 is a separate landlord-tenant compliance requirement, not a tax filing, and it was not affected by the rental tax ban. Failing to register can result in civil penalties.
What should I update on my lease agreements? Remove any line item, clause, or rent calculation that references residential rental TPT for periods after January 1, 2025. If a tenant's lease was signed before the ban and still lists the tax separately, stop billing that charge and keep documentation showing when and how it was removed.
