In August of 2023, the Arizona legislature and governor passed SB 1131. This law goes into effect as of January 1, 2025, and it bars cities and towns from assessing TPT rental taxes for residential properties statewide. Many cities and towns do not charge any TPT on residential rentals so those landlords will not be impacted. However, it is important to note, this does not affect landlords of transient lodging, hotels, motels, vacation rentals, commercial, or any other TPT tax. For those transient residencies, TPT tax will remain in place. However, in large part, residential landlords will no longer be required to charge TPT on leasing charges and renters will see a reduction in their monthly rent bills as a result.
For new leases that go into effect on or after January 1, 2025, landlords simply will not assess or calculate tax as part of the rent payment or make that TPT tax any part of the rent. For existing tenancies, landlords will no longer need to charge TPT on any residential leases. We have included with this update a basic notice template that you can use when informing your residents of their updated rental amounts that will start on January 1, 2025.
A.R.S. 33-1314(E) requires landlords to provide at least 30 days written notice of any tax adjustment, though some of your leases may have provisions that require a longer notice period. This statute was likely designed to account for tax increases rather than tax reductions, but nevertheless, we suggest that absent any other provisions of your leases you serve such a notice at least 30 to 60 days in advance of January 1, 2025.
Finally, for anyone using automated billing software, don’t forget to update the software that does your billing. You will also need to modify your new leases created on or after January 1, 2025 to remove this charge completely. So you may need to work with your IT to complete that process. It is critical that you continue to charge and collect all required TPT taxes through the end of the year but immediately cease those charges as of January 1, 2025. If you have any specific questions, feel free to reach out to any of the attorneys in this office.
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