The repeal of the regressive rental tax went into effect in dozens of local municipalities across the state on January 1, 2025. Affordable housing remains top-of-mind for many Arizonans and this harmful tax would further decrease housing affordability, especially for lower income families and individuals. The Arizona REALTORS® was adamantly against this tax and fought for its repeal in 2023. Incredibly, only two states, Hawaii and Arizona, still imposed this tax as it is widely recognized that doing so causes more harm than good. There were 75 different municipalities that imposed this tax across the state, meaning renters in more than 80% of Arizona cities suffered from this regressive system. The Arizona REALTORS® is thankful that the Legislature realized the burden of this tax and worked tirelessly for its eventual repeal.

Our state’s housing market has been marked by limited supply and rising prices over the last several years. In August of 2023 when the governor signed the rental tax repeal into law, median rent in the Phoenix metro area had risen $595 from four years prior, according to data from Rent.com.  Varying residential transaction privilege tax rates across the Valley added anywhere from $100-$250 a year on top of that 38% rent increase. For example, the current median rent in the Phoenix metro area is $2,179, potentially costing renters up to an additional $900 a year on residential transaction privilege tax.

While Arizona has done a great job attracting new jobs and companies to the Grand Canyon State, this, too, has created housing challenges. As our population increases because of this economic growth, it is critically important that housing remains affordable to sustain these new workers and families who choose to make Arizona their home.

The obvious solution is increasing supply to match the demand caused by our population increase, but this does not happen overnight. In the meantime, while our state and local government officials work to get more shovels in the ground, we must battle the rising housing costs in other ways. The truth is inflation is hitting all aspects of daily life. Families are spending more money at the grocery store, at the gas pump, and on utilities. The repeal of the rental tax puts dollars back in the pockets of those most hurt by these rising prices. With one less bill to pay and more resources to put into saving, the American dream of homeownership can become reality.

Some city officials have claimed that taxing renters is necessary to fund emergency services. That is simply not true. Research showed in 2023, at the time the repeal was signed into law by Gov. Katie Hobbs, that cities utilizing this tax had budget surpluses in excess of the revenue collected from the rental tax. A delayed effective date was even added to give local government officials over a year to financially plan for the removal of this tax. If the regressive rental tax was necessary to fund city services, wouldn’t every Arizona city have implemented this tax? Cities from across Arizona have opted not to tax renters. Cities like Bullhead City, Flagstaff, Quartzite, Snowflake, Tucson, and Willcox have proven that regardless of budget size, service area or number of constituents, it is possible to thrive without taxing renters.

The rental tax was a logistical nightmare to implement and assess. Feedback from property managers and housing providers consistently said that the collection system for the rental tax was broken and would often not accurately record payments. This caused fines due to incorrect records of non-payment. As a result of these persistent issues, the collection system disincentivized many property owners from considering renting out their affordable housing units, thereby decreasing the housing stock in Arizona.

The Arizona REALTORS® is a nonprofit trade association that supports common sense legislation that protects private property rights, improves housing affordability, and fights for homeownership. The association is proud to have championed this effort to repeal the regressive rental tax in Arizona and will continue to fight for the best interests of Arizonans and the real estate industry moving forward.

Now that the rental tax has been eliminated on long-term rentals, we hope to see an influx of rental units back into the market. This possible increase in supply would further assist the housing affordability issue we are facing in Arizona.

Tim Beaubien is senior director of government affairs for the Arizona REALTORS®.