PHOENIX

Arizona cities line up to fight for rental-homes tax

Chris Coppola
The Republic | azcentral.com
  • Impact to Phoenix alone would be about %2430 million a year
  • Proposal comes as some cities are adding more apartment complexes
  • Arizona Multifamily Housing Association has supported effort for several years

A bill that would phase out local sales taxes imposed on residential rentals in Arizona has become the focus of a feverish lobbying campaign by cities and towns, which would stand to lose millions in revenue generated by the tax.

The measure, House Bill 2254, is the latest attempt to do away with the sales tax, an effort backed by the Arizona Multihousing Association. The bill, sponsored by Rep. Darin Mitchell, R-Litchfield Park, would phase out municipal sales taxes on residential rentals such as apartments over four years.

Association lobbyist Courtney Levinus said the group has worked for years to eliminate the tax, which, she said, is among the most regressive taxes in place, hurting renters who often are in lower-income brackets and can least afford another $20 or more on their monthly rent. In 2011, the Legislature passed a bill that requires cities to ask voters for any increase in the tax. Cities that don't have the rental tax also would have to go to voters to enact one.

"Arizona and Alaska are the only states that allow their municipalities to impose this tax," she said. "We think it's more regressive than a food tax. At least a food tax is levied on everyone equally."

The tax is collected by cities from property owners, who typically pass the cost on to their renters in the monthly rent.

The amount can be significant. According to the Arizona League of Cities and Towns, which has lobbied against the bill, the total annual impact on cities that impose the tax would be roughly $87 million a year once it is phased out.

In Phoenix alone, it amounts to about $30 million in annual revenue, said Neal Young, the city's chief financial officer.

Phoenix imposes a 2 percent sales tax on rentals. Among the areas that would be impacted are funds for police, fire and block watch efforts, parks and preserves, public transit and public safety expansion, Young said. Of the total amount collected, $18 million would impact the general fund that pays for a variety of city services, he added.

Chandler Mayor Jay Tibshraeny, whose city would lose close to $5 million in annual revenue from the tax, singled out the bill in his state of the city address late last month.

"That is the most important bill for the city, and the biggest threat to the city,'' he said.

The impact comes as several Valley cities have been authorizing construction of more apartment buildings, a trend that is expected to continue. Chandler added 540 multifamily units in 2013 and projects its percentage of apartment, condo or townhouse units to make up about 37 percent of its overall housing stock when it reaches build-out, compared to the current 27 percent.

In Scottsdale, permits for about 4,000 new multifamily residential units, including both apartments and condos, have been approved since the start of 2013. The city has seen an uptick in revenue from the tax, from $4.4 million in 2012 to $5.4 million last year, according to Scottsdale officials.

In Mesa and Tempe, the bill's annual impact would be about $9.9 million and $8.4 million respectively, according to the Arizona League of Cities and Towns

"It's the biggest dollar impact (to cities) of any policy bill I've ever seen,'' said Ken Strobeck, the league's executive director.

He said arguments about the regressive nature of the tax fail to recognize the fact that Arizona cities are highly dependent on sales taxes to fund city services instead of municipal property taxes, which are comparatively low. If property taxes were more of a factor, that too would be passed on to renters in their monthly rents, he said.

"That's been the policy for decades. To just say we don't like it, or want to eliminate it, is completely ignoring the impact on cities and our entire tax structure,'' Strobeck said, adding that rental-property owners could choose not to include the sales tax in rents if they wanted.

Mitchell did not respond to calls and e-mails seeking comment on his bill. The measure passed the House Committee on Ways and Means in early February and was scheduled for debate on the House floor last week but was held from discussion.

Strobeck said the league believes there are enough members of the Republican majority opposed to the bill that could lead to its defeat if it came back for a floor vote.

Levinus, the multifamily housing lobbyist, said Monday she was not sure if or when it would come up before the full House. However, she said the AMA would support two amendments that might help win votes from any lawmakers who remain unsure. The amendments could be offered during floor debate if the bill comes before the full House, she said.

One of those would extend the period of phase-out from four to six years for cities with populations of 50,000 or more, while extending it to 10 years for cities under that population threshold. The second would require that property owners pass along the tax decrease to residents in their rents, which would address concerns expressed by some lawmakers, she said.

"We fully understand the economic hit to the cities and we sympathize with that, but our renters have been suffering with this tax,'' Levinus said. "I don't know if it'll get across the finish line this year ... If it's not this year, I anticipate it will be a point of discussion for years to come.''