In a significant development for Arizona's rental market, Governor Katie Hobbs recently signed SB 1131 into law, effectively prohibiting municipalities from imposing taxes on residential rentals.
This move comes as part of a broader legislative session that has seen both Republicans and Democrats achieve their desired outcomes.
Background of SB 1131
SB 1131, sponsored by Senator Petersen, aims to address the issue of taxation on residential rentals in Arizona. Before the passing of this bill, residential rental properties were subject to transaction privilege tax (TPT) under the Model City Tax Code.
Some cities opted to tax residential rental income, which added a burden on tenants. However, SB 1131 brings about a significant change by prohibiting municipalities and counties from levying taxes on residential rentals.
Key Provisions of SB 1131
The newly signed bill, SB 1131, includes several essential provisions that will shape the taxation landscape for residential rentals in Arizona.
Prohibition of Rental Taxes: The primary objective of SB 1131 is to prohibit counties, cities, and towns from levying taxes on rentals, offering relief to both landlords and tenants. This prohibition takes effect on January 1, 2025, allowing municipalities ample time to adjust their tax policies.
Tenant Relief: Landlords affected by the elimination of TPT in municipalities that previously imposed it on rentals are required to stop charging tenants the amount of repealed TPT by October 1, 2024. This provision aims to alleviate the financial burden on tenants and improve affordability.
Burden of Proof: In any civil action challenge, landlords have the burden of proving that a challenged charge or assessment is not attributable to any portion of a city's or town's TPT on a rental. This provision ensures transparency and fairness in resolving disputes related to rental charges.
Implications of SB 1131
With the prohibition of rental taxes, tenants can expect relief from the financial burden associated with additional taxes on residential rentals. The potential savings of up to $200 per month, as highlighted by the Arizona State Senate Republican Caucus, can be allocated to essential expenses such as medical bills, food, and transportation costs.
The elimination of rental taxes is likely to make the rental market more attractive for both tenants and landlords. The removal of these taxes may contribute to increased demand for rental properties, leading to a more vibrant and competitive market.
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