Arizona cities can't charge rental taxes after Jan. 1

Arizona renters in cities with rental taxes are in for a bit of a break, if a new law works as advertised.

Effective Jan. 1, cities can no longer charge sales taxes on residential rentals. While not all communities now have such a levy — Tucson, for example, does not — 75 of the 91 cities in the state do, at rates ranging from 1% to 4%.

In the Tucson area, South Tucson and Sahuarita have rental taxes.

Come January, the affected cities collectively will lose about $230 million a year.

Democratic Gov. Katie Hobbs vetoed the repeal the first time it came to her desk in 2023, saying it suffered from defects.

One of the biggest, she said, is there is no “enforceable mechanism’’ to ensure that landlords, who remit the tax payments to cities, will pass along the savings to their tenants rather than just keep collecting the same amount every month and pocketing the difference.

The measure’s language would have required landlords to reduce the rent due by an amount equal to what they are no longer paying to cities. But Hobbs noted that even an attorney for lawmakers said such a provision might not withstand a challenge understate or federal constitutions.

But by August, Hobbs had changed her mind.

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So what’s different?

The measure still has the same language as the version she vetoed about landlords being required to pass along the tax savings to tenants. But it also includes a provision saying that if there’s a civil suit — presumably filed by an unhappy tenant who says they’re being overcharged — the burden is on the landlord to show that none of the rent being charged is attributable to the levy once it disappears.

Then there’s the timing.

Acknowledging the concerns about lost city revenues, the law included a delay to give communities a chance to figure out how to either make up the difference from other sources or find places to cut their budgets. That’s why the repeal doesn’t take effect until Jan. 1.

Another factor was a link to the debate over extension of the transit sales tax for Maricopa County.

State law requires only one county, Maricopa County, to get legislative approval to seek an extension of the half-cent levy that pays for roads and mass transit.

Republican legislative leaders say they struck a deal with Hobbs, that if lawmakers allowed the tax extension to go a public vote, she would sign the measure they wanted repealing the rental tax.