Assigned to COM AS PASSED BY COW
ARIZONA STATE SENATE
Fifty-Sixth Legislature, First Regular Session
AMENDED
FACT SHEET FOR S.B. 1184
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).
Background
Transaction privilege tax (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 (JLBC) fiscal note estimates that there would be
no fiscal impact to the state General Fund since the state does not impose TPT on the business of
residential rentals. JLBC 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).
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. FACT SHEET – Amended
S.B. 1184
Page 2
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. FACT SHEET – Amended
S.B. 1184
Page 3
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.
Senate Action
COM 2/2/23 DP 4-3-0
Prepared by Senate Research
February 9, 2023
MG/sr