Rent tax ban: Arizona cities could lose millions when new law comes into effect

PHOENIX - Starting on Jan. 1, 2025, Arizona cities will no longer be able to charge a rental tax, as a result of a bill that was signed into law.

Renters will see a small percentage of relief in the new year, but how big of a relief will differ, depending on the city.

The backstory

Currently, 75 cities across Arizona charge the TPT rental tax, and they range from 1.5% to 3.5%.

Per the Arizona Department of Revenue, there are no state or county tax imposed on residential rentals.

The current TPT rental tax adds to the burden of some renters.

"I make money from tutoring students. So even 20, $30 is a lot," said one person.

"40 to $50 a month, depending on how many years that you rent, it's a lot of money," said another person.

Renters speak out on cost of living

Rental costs are still rising across the Phoenix area, and renters are looking at saving money, wherever possible.

"I think my rent is equivalent to – I probably pay a $400,000 mortgage," said Courtney Fitzke.

"Just being able to support your family, having even if it's just a little bit more, I think it'll help," said one renter.

End of TPT Rental Tax could spell trouble for some cities

While the end of the TPT rental tax brings a degree of relief to some renters, it could also result in a loss for cities.

Lee Grafstrom, a tax policy expert with Arizona Cities and Towns, says cities can expect a combined loss of $230 million annually.

"you're not cutting any of the services that citizens are requesting and requiring, so, we still have to do all the same amount of work. We just have this much less money to do it," said Grafstrom.

The impact could be felt by all residents by increasing taxes in other areas.

"We have to find a way to either cut services or make up that shortfall," said Grafstrom. "This is a minor piece of a solution to a much larger problem, in terms of housing affordability."

In terms of taxes, Grafstrom expects to see other areas increase in 2025.

Not all may see a rental bill adjustment

Mark Stapp with Arizona State University's Center for Real Estate Theory and Practice says some renters may not even see the adjustment.

"It’ll be interesting to see, as you negotiate rent in the next year, if you actually end up seeing any change," said Stapps.

Stapp's solution is to keep building.

"The economic expansion is such that we need housing," said Stapp. "It takes two or three years to build an apartment complex and put it into the marketplace. If you stop now, two to three years from now, we continue to grow, we're going to have a very big problem."

In terms of rental costs, Stapp expects rent prices to soften, but doesn’t expect a drastic decrease without more intervention.