Gottlieb Law, PLC provides this article for information purposes only and nothing herein creates an attorney-client relationship. You should not take any actions in reliance on any of the information contained herein without consulting with qualified legal counsel first and reading this article is not a proper substitute for seeking legal advice of your specific situation. Laws change over time and you should seek counsel to discuss any specific legal questions.
A flourishing tourism sector underscores the vibrant market potential for short term rentals in Arizona. The legal framework governing this sector has undergone significant shifts in recent times, with legislation such as Senate Bill 1350 easing the constraints on vacation rental regulations, thereby catalyzing growth.
Yet, as the landscape continues to evolve, fresh legislative propositions have emerged, poised to grant cities enhanced regulatory authority over short-term rentals. These potential developments make it imperative for investors and property owners to stay informed about the changing statutes and requirements.
Business or property owners must traverse these legal intricacies with due diligence to capitalize on this lucrative market. The journey through the complexities of short term rental laws in Arizona will encompass understanding local ordinances, permits, taxation, and insurance obligations that are pivotal to a compliant and profitable operation.
It is vital to remain abreast of updates in the short-term rental space to avoid penalties and maximize opportunities within the vacation rentals domain. This guide will serve as a roadmap to the legalities of short term rentals in Phoenix, ensuring businesses are equipped with the knowledge to maneuver the prospects and responsibilities effectively.
Grasping the Regulatory Structure for Temporary Lodging in Arizona
The domain of temporary lodging in Phoenix, Arizona (as well as other cities and counties in Arizona) has evolved. The city of Phoenix has revised its Short-Term Rental (STR) Regulation, implementing fresh regulations that will considerably alter operating procedures.
Registration and Advertising:
- Mandatory Registration: Starting November 6, 2023, landlords in the city of Phoenix are required to register with the city before operating a short-term rental.
Advertisement Compliance: A permit number must be displayed on all advertisements. Neglecting to register can lead to a steep fine of $1,000 per month.
Insurance and Community Relations:
- Liability Insurance: A minimum of $500,000 in liability insurance coverage is mandatory for STR properties in Phoenix. This is a non-negotiable requirement to ensure protection against potential claims.
- Responsiveness to Police Calls: As an operator, landlords must be able to respond to police calls within an hour, a measure to maintain order and safety.
- Neighborhood Notification: Informing nearby residents and associations about the intent to operate an STR is now a prerequisite. This step is essential for fostering good community relations.
Prohibitions, Compliance, and Penalties:
- No Large Events: Short-term rentals cannot be used for events like parties or weddings, which helps to maintain neighborhood tranquility.
- Unlicensed STR Detection: Phoenix is collaborating with third-party vendors to identify and address unlicensed STRs. Additionally, STR marketplaces are required to ensure listed properties comply with city rules.
- Penalties for Non-Compliance: Violations may lead to penalties as high as $3,500. Additionally, the city holds the power to revoke an operator’s license following three minor infractions or a single major infraction within a year-long span.
Understanding Arizona’s broader legal context is equally important. The state mandates that STR operators possess a state transaction privilege tax (TPT) license, prominently displayed in all ads. Guests’ payments, encompassing the state transaction privilege tax and county excise tax, are required to be submitted to the relevant authorities.
While Arizona doesn’t require a state-level permit or license to start a short-term rental business, cities, including Phoenix, have the authority to impose local regulatory licenses or permits. Senate Bill 1168, passed in 2022, allows for such local governance, with a fee capped at $250 or the actual cost of issuing the license or permit.
In summary, the legal landscape for STRs in Arizona is evolving, with recent legislation empowering local governments to better regulate the industry. As a business owner, staying informed and compliant with these regulations is paramount for a successful and lawful operation.
The Permitting Process and Local Ordinances
Navigating the permitting process and local ordinances for vacation rentals in Phoenix is a critical step for ensuring that a short-term rental business operates within the legal bounds.
Registration and Licensing Requirements:
- Mandatory Registration: Must register with the city of Phoenix, providing a name, the address of the rental, and contact information for complaints.
- Permit Number Display: Once registered, the permit number must be prominently displayed on all advertisements to ensure compliance.
- Insurance Proof: Proof of at least $500,000 in liability insurance coverage for each property is not just recommended, it’s compulsory.
- Community Engagement: Informing nearby residents and associations of the intent to operate an STR is now a prerequisite, fostering good community relations.
Permit Process:
- Application Timeline: The permit application process kicks off on October 26, 2023, with both initial and renewal fees set at $250.
- Enforcement Date: The City of Phoenix new ordinance has taken effect, transitioning from a registration to a licensing system.
- Accountability: The Neighborhood Services Department will be investigating unpermitted STRs and verifying any STR violations.
Fees and Penalties:
- Non-Compliance Costs: Failing to register a short-term rental can result in fines up to $1,000 per month.
- Penalty Structure: Violations can attract fines ranging from $500 to $3,500, depending on the frequency and severity of the infractions.
- Permit Suspension: Three court-adjudicated violations or one conviction of serious crimes within a year will lead to a 12-month suspension of any short-term rental permit.
Remember, while the City of Phoenix has its specific regulations, including a combined tax rate of 12.57% for short-term rentals, local regulations can vary across Arizona cities. It’s essential to stay informed and ensure that all operations adhere to the most current legal requirements.
Taxation and Financial Obligations
Understanding the taxation and financial obligations for short-term rentals in Phoenix, is a crucial aspect of maintaining a compliant and profitable operation.
Comprehensive State Tax and Registration Requirements:
- Transaction Privilege Tax (TPT) License: It’s mandatory for operators of vacation rentals to obtain a TPT license. To legally rent the property out for short periods of time, this license is a prerequisite.
- Tax Collection and Remittance: The collection of state privilege and county excise tax from guests is the landlords responsibility. These taxes must then be remitted to the appropriate tax authorities.
- Online Marketplaces: Under Arizona legislation, platforms such as Airbnb and Vrbo are mandated to gather and submit state and local taxes for temporary rentals on behalf of their hosts.
Local Taxation in Phoenix:
- Combined Tax Rate: Short-term rental income in Phoenix is subject to a combined state and county rate ranging from 5.5% to 7.27%. This charge is supplementary to any local transient occupancy taxes that might be applicable.
- Seasonal TPT License: Renting out a residence for less than 30 days, specifically for events like the Super Bowl, landlords will need a seasonal TPT license. For those renting in February, this is distinctly pertinent.
Upcoming Changes in 2025:
- Elimination of Residential Rental Tax: Starting in 2025, Arizona will eliminate the residential rental tax. This significant change means landlords and short-term rental operators will need to adjust their financial and operational policies to remain compliant.
Insurance and Liability Coverage Requirements
Short-term rental operators should familiarize themselves with the requirements for insurance and liability coverage in Phoenix.
Mandatory Liability Insurance Coverage:
- Arizona mandates that all short-term rental (STR) operators must maintain liability insurance coverage of at least $500,000. This is a non-negotiable requirement aimed at protecting both the property owner and the guests.
- In Phoenix, the city regulations specifically require a minimum of $500,000 in liability insurance coverage for STR properties. This aligns with the state’s mandate, emphasizing the importance of adequate protection against potential claims.
Choosing the Right Insurance Provider:
- Insurance: Conduct due diligence. Research and select an insurance provider that aligns with any needs as a short-term rental operator. Policies should cover buildings, contents, business revenue, and liability, ensuring a wide-ranging protection plan for a rental business.
Exclusive Enhancements that Should be Offered:
- Property entrustment
- Pet & animal liability
- Bed bug & flea protection
- Squatter protection
- Amenities off-premise
- Liquor liability
Compliance and Safety Measures:
- In addition to insurance requirements, short-term rental operators in Phoenix are also required to undergo criminal background checks. This measure underscores the city’s commitment to safety, compliance, and ensuring a secure environment for both guests and the community.
- Understanding and adhering to these insurance and liability coverage requirements not only protects businesses but also contributes to the overall integrity and trustworthiness of the short-term rental market in Phoenix.
Prohibited Uses and Penalties for Non-Compliance
To avoid unnecessary fines and prosecution as a short-term rental owner in Arizona, understanding what is strictly prohibited and the penalties for non-compliance is essential. The city has outlined, within their ordinance, specific uses that are not permissible under any circumstances for vacation rentals, ensuring the safety and well-being of communities.
Prohibited Uses in Phoenix Short-Term Rentals:
- Nonresidential Use: Properties cannot be used for operating retail businesses, restaurants, banquet halls, or similar establishments.
- Restricted Activities: It’s illegal to use short-term rentals for housing registered sex offenders, operating a sober living home, selling alcohol, illegal drugs, or pornography.
- Adult-Oriented Businesses: Operating a nude or topless dancing business, engaging in obscenity, or running an adult-oriented business is strictly forbidden.
- Event Restrictions: Short-term rentals cannot be utilized as event centers, nor for hosting events such as parties and weddings.
- Accessory Dwelling Units: It is forbidden to use or occupy any part of an accessory dwelling unit for the purposes of short-term renting.
Penalties for Non-Compliance:
For those operating vacation rentals in Phoenix, it’s crucial to adhere to these regulations to avoid facing penalties.
The city enforces a structured penalty system for violations:
- First Violation: A fine of $500.
- Second Violation: The penalty increases to $1,000.
- Third Violation: A substantial fine of $3,500.
- License Suspension: The city has the authority to suspend short-term rental permits for multiple or serious violations. Specifically, the accumulation of three confirmed minor infractions or a single severe infraction within a 12-month timeframe can result in a suspension.
Enforcement and Compliance:
- Neighborhood Services Department: This department leads the enforcement efforts against unpermitted short-term rentals in Phoenix.
- Structured Penalty System: A clear system is in place for dealing with violations, emphasizing the importance of compliance to maintain operational status.
Final Thoughts on Arizona Short Term Rentals
As we look ahead, the landscape for short-term rentals in Phoenix and across Arizona is likely to continue evolving, with new laws and regulations emerging in response to the sector’s growth. Stakeholders must stay alert, flexible, and well-informed to successfully maneuver through these modifications.
For those seeking guidance and ease in steering through these complexities, Gottlieb Law comes with a proven track record in real estate and business law, offering unmatched experience and dedicated support to address the legalities involved. Ensure that short-term rental operations are both lawful and profitable by engaging with a trusted authority in the field.
Call our firm today at 602-899-8188 or schedule an initial consultation by submitting your information on our contact us page.
Gottlieb Law, PLC provides this article for information purposes only and nothing herein creates an attorney-client relationship. You should not take any actions in reliance on any of the information contained herein without consulting with qualified legal counsel first and reading this article is not a proper substitute for seeking legal advice of your specific situation. Laws change over time and you should seek counsel to discuss any specific legal questions.