Gottlieb Law, PLC provides this article for informational purposes only. Nothing herein creates an attorney–client relationship. Reading this article is not a substitute for seeking advice tailored to your situation. Laws change over time, and you should consult qualified legal counsel regarding any specific questions.
Understanding Arizona’s Rental Tax Ban and What It Means for 2025
Starting January 1, 2025, Arizona will eliminate the residential rental transaction privilege tax (TPT). For years, many cities and towns required landlords to collect this local tax—often 2–4%—on rent payments.
The new statewide ban applies only to residential rentals of 30 days or more (not commercial leases). It overrides local city and town authority, meaning landlords across Arizona can no longer collect or remit residential rental tax, even if their municipality previously required it.
For tenants, this means monthly rent bills should drop by the amount of the former rental tax. For landlords, it simplifies compliance and reduces reporting obligations, but it also requires careful adjustments. Lease agreements that currently say “plus applicable rental tax” must be updated, and landlords should stop charging the tax immediately as of January 1. Landlords will also need to file their final December 2024 TPT return and close out their rental TPT license if it applied only to residential properties.
Legislative Background: The Foundation of the Rental Tax Ban
Amendment to A.R.S. § 42-6004(H)
Recently, the Arizona Legislature amended A.R.S. § 42-6004 to add subsection (H). The statute provides that “from and after December 31, 2024, a city, town, or other taxing jurisdiction may not levy a transaction privilege, sales, gross receipts, use, franchise or other similar tax or fee on the business of renting or leasing real property for residential purposes.”
In practical terms, this means that starting with January 2025 rent, municipalities can no longer collect residential rental TPT. The prohibition applies statewide.
What the Amendment Means for Cities and Towns
This statutory change eliminates more than $230 million in annual municipal revenue once generated by taxing residential rentals. Cities and towns will need to adjust their budgets accordingly. For tenants, the benefit is direct — rental bills should drop by the amount of the repealed tax.
For landlords, the law simplifies compliance but requires attention to lease language, billing systems, and tax filings during the transition.
Key Changes for Landlords to Implement
Automatic Cancellation of TPT Licenses
Effective December 31, 2024, the Arizona Department of Revenue (ADOR) automatically canceled TPT licenses that were limited to business code 045 (Residential Rental, Leasing & Licensing for Use).
- Landlords who only rented residential property no longer need a license.
- Landlords who also lease commercial property must maintain their license for those activities.
Ceasing Collection of TPT Charges
From January 2025 forward, landlords must stop charging residential rental TPT. Continuing to bill tenants for the repealed tax violates state law and may lead to penalties or tenant disputes. Gottlieb Law recommends that landlords audit their billing systems immediately to ensure no residual tax charges appear on rent statements.
Updating Lease Agreements and Billing Systems
Residential leases signed before 2025 may include language such as “plus applicable rental tax.” Landlords should:
- Amend leases to remove TPT references.
- Update property management and accounting software to reflect the elimination.
- Notify tenants so expectations are clear.
These updates are essential to maintain compliance and avoid over-collection.
Exemptions to Keep in Mind
The ban applies only to residential rentals of 30 days or more. The following remain taxable under Arizona’s TPT system:
- Commercial leases
- Short-term rentals under 30 days
- Health care and long-term care facilities
- Hotels, motels, and other transient lodging
What Tenants Should Know About the Rental Tax Ban
Expected Rent Savings Starting in 2025
With the elimination of the residential rental TPT, tenants statewide are projected to save more than $230 million annually. Rent payments that previously included a city tax should decrease beginning with January 2025 rent.
Tenants should carefully review rent statements to confirm that no TPT charges appear after December 31, 2024.
Reviewing Rent Statements and Lease Terms
Even though the tax ban is automatic, oversights can occur. If a tenant sees TPT still listed on a rent bill in 2025, the first step is to notify the landlord in writing and request correction.
If the charge continues, tenants may seek help from a qualified attorney or file a complaint with the Arizona Department of Revenue (ADOR). The law places the burden of proof on landlords to show that any additional charges are not improperly tied to repealed TPT.
Tenant Rights and How to Act
Arizona tenants have the right to pay rent without being charged a tax that no longer applies. Tenants who believe they are being billed unlawfully should:
- Document rent statements and lease provisions.
- Contact the landlord promptly for clarification.
- Seek legal counsel or assistance if the problem persists.
Gottlieb Law assists renters with understanding their options, enforcing compliance, and protecting tenant rights under Arizona’s new framework.
Compliance and Enforcement in 2025
Legal Risks of Non-Compliance
Landlords who continue to collect residential rental TPT after January 1, 2025 risk:
- Enforcement actions from ADOR.
- Audits and penalties for improper billing.
- Potential tenant disputes or litigation if overcharges are not corrected.
Government Oversight and Resources
The Arizona Department of Revenue is responsible for implementing the new rules and provides official guidance online. Both landlords and tenants can access compliance updates, FAQs, and support resources through AZTaxes.gov and the ADOR Residential Rental team.
Registering with County Assessors
Although the TPT requirement is eliminated, landlords must still register residential rental properties with their county assessor. This separate requirement remains in force, and penalties can apply for failing to register. Tenants may also check public assessor records to confirm that their rental property is properly registered.
Preparing for Arizona Rental Tax Changes: What You Need to Do Next
The elimination of residential rental TPT in Arizona reshapes how landlords, tenants, and property managers handle rental transactions. Here’s what to keep in mind moving forward:
- Landlords should update lease agreements, remove TPT billing, and confirm that all property management and accounting systems reflect the new tax rules beginning January 2025.
- Tenants should carefully review rent statements in 2025 and understand their rights if unlawful TPT charges appear.
- Property managers should train staff and revise internal procedures to maintain compliance with Arizona’s updated requirements.
- All parties must understand the statutory exemptions and remember that rental properties must still be registered with county assessors.
Stay Compliant with Legal Guidance
From and after December 31, 2024, cities and towns can no longer impose TPT on residential rentals under A.R.S. § 42-6004(H). While the change reduces costs for tenants and simplifies compliance for landlords, proper preparation is key to avoiding errors, penalties, or disputes.
Gottlieb Law’s real estate attorneys are available to guide landlords, tenants, and property management companies through these changes. Proper legal advice ensures you stay compliant, avoid penalties, and fully benefit from Arizona’s new rental tax ban.
If you want personalized support navigating these updates or need help updating lease agreements and billing systems, call our firm today at 602-899-8188 or schedule a consultation with Gottlieb Law to meet with our experienced real estate attorneys.
This article is provided by Gottlieb Law, PLC for general informational purposes only. It does not create an attorney–client relationship, and it should not be relied on as legal advice. Laws change, and every situation is different. You should consult qualified legal counsel about your specific circumstances.