Hobbs signs rental tax ban, a GOP priority, after deal for Prop 400 backing

Arizonans can now look forward to relief from rental taxes, after Gov. Katie Hobbs signed a bill on Tuesday that bars cities from collecting them starting in 2025. 

The measure was at the top of Republicans’ legislative priorities for the recently concluded legislative session. A proposal sent to Hobbs in February was roundly rejected, but a revised version was quickly drafted and soon became a bargaining chip in the stalemate between GOP leadership and Hobbs over Proposition 400, a Maricopa County transportation funding tax that requires a legislative referral for voters to consider. 

And on Tuesday, a day after lawmakers pushed through a solution for Prop. 400 and ended a historically long legislative session, Hobbs delivered. 



Republicans celebrated the win, calling it a much needed reprieve for people struggling to pay their monthly bills. Arizona ranks in the five worst states in the country for affordable housing, and metro Phoenix is particularly hard-hit, with rents that have skyrocketed as much as 80% in the past decade

“Rental prices aren’t going down anytime soon, and Arizona tenants are agonizing over just how much more expensive it is now to rent an apartment or house than ever before” said Sen. Sine Kerr, R-Buckeye, in an emailed statement. “This bill will provide some help, and I’m proud the Majority Caucus spearheaded this change in tax policy.” 

Senate Bill 1131 bars cities and towns from levying a tax on residential rental properties beginning in 2025. The tax, commonly passed down to tenants from landlords, varies between municipalities but the average rate is 2.5%, which results in a $30 charge on a monthly rent of about $1,200. Landlords will also be required to lower the total rental bill starting in 2025 by the tax amount, but will only have to do so until 2027. 

Cities on the losing end

As many as 75 municipalities across Arizona collect rental taxes and the League of Arizona Cities and Towns, which lobbies on their behalf, along with a number of mayors, voiced fierce opposition to the first proposed ban and continued to denounce the second iteration. They warned that eliminating the revenue source would do nothing to help renters but instead force local governments to slash services or raise taxes elsewhere. 

And while that argument convinced Hobbs to veto the first bill, it appeared to fall short of inspiring a second rejection. 

“Governor Hobbs was proud to sign a bill that lowered taxes for Arizonans while securing key changes to the legislation,” her spokesman, Christian Slater, told the Mirror.

The new bill differs from its earlier iteration in pushing the ban back two years instead of one, and in putting the onus on landlords to prove their case if a tenant takes them to court for violating the mandate to lower the rent by the tax amount. 

Slater acknowledged the continued opposition leveled at the ban, and said Hobbs intends to work with lawmakers to address concerns in the next session. 

“She will work closely with the legislature in the coming year to ensure that any savings go to the renters, not landlords, and to help cities address funding gaps to deliver the services their residents need,” he said. 

Cities and towns stand to lose an estimated $230 million in 2025, and forfeited revenues will only increase in the following years. While Republicans have dismissed concerns about the funding loss by pointing out that cities are likely to benefit from an upcoming increase in state shared revenues, which come from Arizona’s income tax collections, the state is also bracing for a recession

Tom Savage, a lobbyist for the League of Arizona Cities and Towns, said the organization will work with state leaders and local governments to mitigate the effects of the rental prohibition before its implementation date. 

“We will endeavor to work with state leaders on finding alternative sources of revenue to replace the $230M loss that 75 cities and towns will have to address to balance their budgets,” he said in an emailed statement. “More than likely (it) will result in budget reductions for services we provide to residents. We will work with these communities to hopefully find long-term solutions so that these enormously difficult budgetary decisions minimize the burden on our residents.” 

Benefit for renters doubted

Ken Volk, a longtime advocate for renters’ rights and founder of the Arizona Tenant Advocates, which runs a hotline for renters in need, said the benefits of eliminating the tax are likely to be minimal. It’ll do away with some of the costs passed onto tenants, he said, but it doesn’t ease the yearslong struggle renters have been dealing with. 

“It’s not enough to really compensate for the harm that tenants have suffered from rents skyrocketing over the past couple years,” he said. “That’s what really needs to be addressed.”

Banning rental taxes, Volk said, is “papering over the real problem,” which in Arizona is an inability to afford to pay rent at all. The U.S. Department of Housing and Urban Development categorizes a person as rent-burdened if they spend more than 30% of their income on their living expenses. In 2021, a U.S. Census Bureau estimate found that’s the reality for 1 in 3 Arizonans

Rent control would be a more effective solution, Volk said. Landlords currently don’t have any limits on their ability to raise costs, and Arizona law prevents cities from taking any action to stabilize or control rent increases. The GOP-controlled legislature has been averse to changing that, with efforts from Democrats to repeal the ban on rent control failing to even be considered

“The only way you’re going to control greed is by compelling its reduction,” Volk said. “Landlords have been making money hand over fist the last couple years with enormous rent increases. I’m not trying to say they’re not entitled to some rent increases because ‘Hey, it’s business, let’s make some money’. But let’s make some money fairly. If everyone’s raising rent then where’s the competition?”

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