I’m considering buying rental property in Arizona. What is a “rent tax?”
Arizona residential rental property owners with taxable rental property are required to obtain an Arizona transaction privilege tax license from the Arizona Department of Revenue for each location where residential rental income is taxable. This applies regardless if the owner rents the property themselves or employs a property management company. There are some cities in Arizona that also tax residential rental income.
Residential rental is defined as the renting of Arizona real property for more than 30 days for residential purposes only.
If you rent your Arizona residential real estate, all payments made by the tenant or on behalf of a landlord are taxable. The types of payments received from tenants that are taxable rental income include:
- Rent
- Non-refundable and forfeited deposits
- Late payment fees
- Pet fees
- Federal rent subsidies such as HUD
Also considered taxable rental income are fees passed on to the tenant including the following:
- Common area fees
- Homeowner association fees
- Maintenance fees
- Landscaping maintenance fees
- Pool service fees
- Repairs and improvements charges
Under Arizona state law, if a landlord wishes to pass through taxes charged on rent to the tenant, it must be clearly stated in the landlord’s written lease. The tenant must be given 30 days’ prior written notice for any change in the amount of taxes charged to the tenant and the change cannot occur until the new tax rate is effective.