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ARIZONA STATE SENATE
Fifty-Sixth Legislature, First Regular Session
VETOED
AMENDED
FACT SHEET FOR s.b. 1184/H.B. 2067
municipal tax exemption; residential leases
Purpose
Prohibits, beginning January 1, 2024, a city, town or other taxing jurisdiction from levying a tax or fee on the business of renting or leasing real property for residential purposes (business of residential rentals). Directs the State Treasurer to proportionately distribute a total of $269,020,800 over 18 months from the state General Fund portion of transaction privilege tax (TPT) revenues to cities and towns that levied a residential rental TPT during FY 2022.
Background
TPT on the business of residential rentals is imposed at the city-level and TPT rates vary by municipality. The Model City Tax Code (MCTC) is a uniform sales and use tax act that has been adopted by most Arizona cities and towns as the basis for imposing tax. Regardless of MCTC adoption, a city or town that levies a TPT, sales, gross receipts, use, franchise or other similar tax or fee may impose or increase the rate of tax applied on residential rentals, if approved by the qualified electors at a regular municipal election. Health care facilities, long-term care facilities and hotel, motel or other transient lodging businesses are excluded from the statutory requirements for taxing residential rentals (A.R.S. §§ 42-5014 and 42-6011).
On 30 days' written notice to the tenant, a landlord may adjust the rental amount to equal the difference caused by a municipal change to the municipality's TPT on residential rentals, if the adjustment occurs after the effective date of the new TPT rate and the landlord's right to adjust the rent is disclosed in the rental agreement (A.R.S. § 33-1314).
The Arizona Department of Revenue (ADOR) transmits TPT revenues to the State Treasurer, separately accounting for certain categories with dedicated uses. A portion of TPT is designated for distribution to counties, incorporated municipalities and the state General Fund and is referred to as the distribution base. Monies in the distribution base are allocated monthly with 25 percent being paid to incorporated municipalities in proportion to their population to be used for any municipal purpose (A.R.S. § 42-5029).
The Joint Legislative Budget Committee estimates that S.B. 1184, as introduced, may reduce municipal TPT revenues by $75.3 million in FY 2025, which would grow to $282.7 million by FY 2029 (JLBC fiscal note). The Senate Engrossed version of S.B. 1184 includes distributions totaling $269,020,800 from the state General Fund portion of TPT revenues to cities and towns that levied a residential rental TPT in FY 2022.
Provisions
1. Prohibits, beginning January 1, 2024, a city, town or other taxing jurisdiction from levying a tax or fee on the business of residential rentals.
2. Directs the State Treasurer, from January 1, 2024, until June 30, 2025, to proportionately distribute $14,945,600 each month from the state General Fund portion of TPT revenues to cities and towns that levied a residential rental TPT during FY 2022 based on the city’s or town’s average monthly TPT collections during FY 2022.
3. Requires, by January 1, 2024, a property owner in a city or town that levies TPT on the business of residential rentals and that is affected by the TPT elimination to reduce their rent amount by an amount equal to the difference caused by the elimination.
4. Requires ADOR to separately account for revenues collected from remote sellers when depositing TPT revenues in the state General Fund.
5. Requires municipalities to use monies paid from revenues collected from remote sellers and paid to the municipality as part of the distribution base for public safety purposes before any other purpose.
6. Requires ADOR, retroactive to October 1, 2023, and by October 31, 2023, to post on its website and electronically notify each residential rental TPT licensee that a municipality will no longer levy the tax beginning January 1, 2024.
7. Requires ADOR, if they are unable to send the TPT licensee notices electronically, to send the notice by first class mail to:
a) the address on the TPT license;
b) the address of any residential rental property delegates; and
c) the address of each residential rental property.
8. Excludes health care facilities, long-term care facilities or hotel, motel or other transient lodging businesses from the prohibitions.
9. Specifies that the prohibitions apply regardless of whether the city or town has adopted the MCTC.
10. Applies the prohibition to taxable periods beginning January 1, 2024.
11. Contains a statement of legislative intent.
12. Makes technical and conforming changes.
13. Becomes effective on the general effective date, with a retroactive provision as noted.
Amendments Adopted by Committee of the Whole
1. Accelerates the date of the city and town residential rental tax prohibition to January 1, 2024, for all residential rentals, regardless of the number of units.
2. Directs the State Treasurer, from January 1, 2024, until June 30, 2025, to proportionately distribute $14,945,600 each month from the state General Fund portion of TPT revenues to cities and towns that levied a residential rental TPT during FY 2022 based on the city’s or town’s average monthly TPT collections during FY 2022.
3. Applies the prohibition to taxable periods beginning January 1, 2024.
4. Make technical and conforming changes.
Governor's Veto Message
The Governor indicates in her veto message that S.B. 1184 lacks enforceability to ensure that relief will be provided to residential renters and that the $269,020,800 distribution from the state General Fund portion of TPT revenues should be part of a comprehensive, bipartisan budget agreement.
Senate Action House Action
COM 2/2/23 DP 4-3-0 WM 2/1/23 DP 6-4-0-0
3rd Read 2/9/23 16-14-0 3rd Read 2/14/23 32-28-0
(S.B. 1184 was substituted for H.B. 2067 on 3rd Read)
Prepared by Senate Research
February 24, 2023
MG/sr