Residential Rental

Attention property owners and property management companies: Remember even if you did not rent the property for a filing period, you must still file a $0 TPT return.

Residential Rental is the rental of real property for a period of 30 or more consecutive days for residential purposes only and not commercial. Residential rental properties are also subject to tax, known as transaction privilege tax (TPT), and imposed when engaged in business under the residential rental classification by the Model City Tax Code. Some cities, not all, opt to tax residential rental income.

TPT is imposed when renters or property management companies engage in business under the residential rental classification by the Model City Tax Code. Individual owners of taxable rental properties are required by law to obtain a TPT license with ADOR regardless if the owners rent the property themselves or employ a property management company (PMC). A license is only required for cities that impose a tax on residential rental activity. To determine if a city tax license is required, taxpayers can use the Residential Rental Licensing Matrix.

For more information, please see What residential rental income is taxable?

Short-Term Rentals for Winter Events

Short-term residential rentals are lodging rental stays for less than 30 days. The income from short-term rental stays is subject to Arizona transaction privilege tax (TPT). See Arizona Revised Statutes (A.R.S.) § 42-5070 and the Model City Tax Code (MCTC) -444 and -447.

If a property owner is only renting their residence for the Super Bowl, they will need a seasonal Arizona TPT license. They may also need a business license for the city where the residence is located, which is different from a TPT License. Please contact the specific city for the business license, as the Arizona Department of Revenue does not issue city business licenses. A seasonal TPT license is obtained from the Department’s website, AZTaxes.gov, and choosing the seasonal filing frequency option on the application. The license should be active for the month of February (the TPT return would be due in March) or the length of renting the home. This license will be active until it is cancelled. In addition, a property owner/operator is required to include the TPT license number on any advertising associated with the short-term rental.

An owner/operator or property manager of the short-term rental that takes bookings directly should use business code 025 to report lodging bookings for fewer than 30 days for the state/county. The business code used to report these types of transactions for the cities is 044 for Hotels. Some cities impose an additional hotel tax; please use business code 144 to report the additional hotel for those cities. See the Arizona Department of Revenue’s Tax Rate Table for more information on which city has an additional hotel rate.

An owner/operator or property manager of a short-term rental that uses an online lodging marketplace (OLM) should report income using the business codes as outlined above for reporting to the state/county and the city where the property is located. However, 100% of the income received from the OLM should be deducted using deduction code 775. The OLM is responsible for collecting and remitting the TPT due from the rental income. For more information, please see the OLM Factsheet.

After the Big Game, owners who will not continue in the short-term rental business should cancel their seasonal TPT license.

Information and Resources

Glossary of Terms:

ADOR: Arizona Department of Revenue

PMC: Property Management Company

PO: Property Owner

POA: Power of Attorney – A POA establishes a PMC as the appointee to act on behalf of the PO in all matters concerning the collection and remittance of TPT. This document must be completed and maintained in the PMC file.

TPT: Transaction Privilege Tax

Engage: When a PMC adds property owners to its AZTaxes Property Management license to file and pay on their behalf.

Disengage: When a PMC deletes a property owner from its AZTaxes Property Management license to sever the relationship.

Linking: A process where a PMC connects transaction privilege/use, withholding or corporate tax accounts to its AZTaxes account.

Workshops

ADOR offers workshops dedicated for property owners and property management companies. Check out the next event here.

For more information and resources on residential rentals, visit the following links:

If you need further assistance, please call (602)716-RENT(7368), or email [email protected].

You can register, file and pay online at www.AZTaxes.gov. It is fast and secure.

Note: Pursuant to A.R.S. § 42-6013, ADOR has developed a new consolidated return that separately identifies the gross income and deductions for each owner’s property location.