Title Tag: Maricopa County Commercial Lease Tax Exemption | KR Taxes
Meta Description: Maricopa County still charges a commercial lease tax — but several exemptions apply. See who qualifies and how to file the exemption.
Target Keyword: maricopa county commercial lease tax exemption
If you heard that Arizona eliminated its rental tax, you heard half the story. The 2023 law that got all the attention only killed the tax on long-term residential rentals, effective January 1, 2025. Commercial leases were never touched, and Maricopa County is one of just five counties in Arizona that still charges tax on them. This guide covers how the tax actually works, which leases are genuinely exempt, and a couple of misconceptions that trip up landlords and business owners alike.
Key Takeaways
- Arizona's state-level tax on commercial leases is 0%, but counties can still tax them, and Maricopa County does.
- Only five Arizona counties tax commercial leases at all: Coconino, Gila, Maricopa, Pima, and Pinal.
- The most valuable exemption for small-business owners covers leases between affiliated companies, such as an operating business leasing its building from an LLC the same owners control.
- Leasing commercial space to a nonprofit or government agency does not make the lease tax-exempt. That's a common and costly misconception.
- This is a completely different tax from the county's business personal property tax, which has its own, unrelated $500,000 exemption administered by the County Assessor rather than ADOR.
Is Arizona's rental tax going away?
Only part of it. Arizona's 2023 law, which took effect January 1, 2025, prohibits cities and counties from taxing long-term residential rentals of 30 days or more. It says nothing about commercial property. Commercial leases, hotels, and long-term care facilities remain fully taxable with no changes, and there's no pending legislation that would extend the residential elimination to commercial space. If you're a landlord who assumed the change applied to your office building or retail space because you heard "Arizona killed the rental tax," that assumption is the single most common mistake in this area.
What is the commercial rental tax in Arizona, exactly?
Arizona's transaction privilege tax (TPT) statute technically still includes a commercial lease classification, but according to ADOR's own commercial lease guidance, the rate at the state level has been set to zero. Counties, which piggyback on the state's tax classifications, aren't required to follow the state down to zero, and five of them still impose their own tax on commercial leases: Coconino, Gila, Maricopa, Pima, and Pinal. Cities and towns layer their own rate on top, reported separately under city business codes, and some cities don't tax commercial leases at all. The tax applies to office buildings, retail stores, factories, farmland, parking and storage facilities, and banquet or meeting space, and the taxable income includes not just rent but property tax reimbursements, common area maintenance charges, and payments for leasehold improvements passed through in the lease. A landlord still needs an active TPT license to report this activity even in a year the tax happens to come out to zero, so licensing and filing obligations don't disappear along with a rate.
How much is the Maricopa County commercial lease tax?
Maricopa County's own portion is a relatively small piece of the total rate, but the city portion on top of it varies significantly. The Town of Gilbert's own tax guidance confirms a combined rate of 1.5% for Gilbert plus 0.5% for Maricopa County, for a total of 2.0%. Tempe's own published rate table lists 1.80% for commercial lease and licensing activity, which combines with the same Maricopa County portion. Because every city sets its own rate independently, and rates change, the reliable way to confirm the exact combined rate for a specific address is the lookup tool on AZTaxes.gov rather than any number quoted in an article, including this one.
The exemption that matters most: leases between affiliated companies
Under A.R.S. § 42-5069, leasing real property between affiliated companies, businesses, persons, or reciprocal insurers is excluded from the commercial lease classification entirely. "Affiliated" is defined broadly: the lessor holds a controlling interest in the lessee, the lessee holds a controlling interest in the lessor, the same person or entity controls both, or an unrelated party controls both, with controlling interest generally meaning at least 80% ownership. This exemption used to apply only to leases between corporations, but a 2013 legislative change broadened it to cover any type of affiliated entity, which matters for the very common structure where a business owner holds real estate in a separate LLC and leases the building to their own operating company. If that's your setup, confirming this exemption applies, and documenting the ownership relationship correctly, can eliminate the tax on that lease entirely.
Other statutory exclusions cover leases under written agreements entered before December 1, 1967 (with several carve-backs for hotels and similar uses), subleases where the tenant in possession is already taxed under the commercial lease or transient lodging classification, and a handful of narrow nonprofit exemptions tied to specific event types, such as exhibitions sponsored by organizations affiliated with major league baseball or professional golf associations. Arizona is not alone in taxing commercial rent at all, but it's also not the direction the trend is moving: Florida phased out its statewide sales tax on commercial rent entirely in 2025, and no comparable proposal for Arizona's commercial lease classification is currently pending. If you're weighing how a lease is structured against your broader real estate holdings, this is worth folding into the same conversation as your entity structure planning rather than treating it as a standalone filing question.
A common misconception: leasing to a nonprofit or government tenant
Property owners sometimes assume that renting commercial space to a nonprofit or a government agency automatically makes the lease exempt, since so many other taxes carve out nonprofits and government entities. That assumption doesn't hold here. According to the City of Surprise's own commercial rental tax guidance, rental of commercial property to nonprofit organizations and government agencies is taxable, full stop. The tenant's tax-exempt status doesn't transfer to the landlord's obligation to collect and remit tax on the rent.
This is not the same tax as the business personal property exemption
Search results on this topic tend to blend two entirely different taxes, and it's worth being explicit about the difference. The commercial lease tax discussed above is a transaction privilege tax administered by the Arizona Department of Revenue, based on rental income. Business personal property tax is a separate, county-administered property tax on the equipment, furniture, and fixtures a business owns, assessed by the Maricopa County Assessor's Office, which carries its own statutory exemption, currently $500,000 in full cash value for tax year 2026. According to the Assessor's own FAQ, a tenant whose leasing company bills them separately for both personal property tax reimbursement and TPT isn't being double-taxed; they're two different taxes collected by two different levels of government for two different reasons. Nonprofit organizations that qualify for a property tax exemption on real estate they own generally apply through the Assessor's Organizational Exemptions program, a separate process from anything discussed above that doesn't affect a landlord's obligation to collect commercial lease tax on rent a nonprofit pays as a tenant.
Getting this right on your Maricopa County commercial lease
Whether you're a landlord confirming what to charge, a business owner leasing your building from your own holding LLC, or a tenant trying to understand a bill, the details here (which classification applies, which exemption you actually qualify for, and which of two unrelated taxes you're even looking at) determine whether you're paying correctly, overpaying, or exposed to an assessment later.
Talk to K&R about your commercial lease tax situation, whether that means confirming an affiliated-entity exemption applies to your setup or making sure your TPT filings match what Maricopa County and your city actually require. Our accounting team can also help build this into your regular bookkeeping so nothing falls through the cracks at renewal or filing time. Book a consultation or learn more about our firm to get started.
Frequently asked questions
What is the commercial rental tax in Arizona? It's a transaction privilege tax on the business of leasing real property for commercial purposes. The state rate is 0%, but five counties, including Maricopa, still impose their own tax, and cities add their own rate on top.
Is Arizona rental tax going away? Only for long-term residential rentals, which became tax-exempt statewide starting January 1, 2025. Commercial leases were not part of that change and remain fully taxable.
Who qualifies for property tax exemption in Arizona? This depends on which tax you mean. For business personal property tax, most small businesses qualify for a statutory exemption if their equipment's full cash value stays under the annual threshold, $500,000 for tax year 2026, set by the Maricopa County Assessor. This is separate from commercial lease tax exemptions and is administered by a different agency.
What is the City of Phoenix commercial rent tax? Phoenix charges its own city-level tax on commercial leases in addition to Maricopa County's portion, and the combined rate should always be confirmed through ADOR's rate lookup tool since city rates can change with notice throughout the year.
Are leases to nonprofits or government agencies exempt from commercial lease tax? No. Renting commercial property to a nonprofit organization or a government agency is still taxable. The tenant's tax-exempt status does not exempt the landlord from collecting and remitting commercial lease tax on the rent.
Can I avoid this tax by leasing my business's building from my own LLC? Possibly, if the ownership structure meets Arizona's affiliated-entity exemption, generally at least 80% common ownership or control between the lessor and lessee. This exemption applies to any type of affiliated entity, not just corporations, but the ownership relationship needs to be documented and structured correctly to qualify.
