How Much Is the Rental Tax in Arizona?
Understand Arizona's Transaction Privilege Tax for rentals. This guide covers how to determine location-based rates and manage your compliance obligations.
In Arizona, the taxation of income from long-term residential property has undergone a major change. Previously, many municipalities levied a Transaction Privilege Tax (TPT) on this income, a cost commonly passed to tenants. Effective January 1, 2025, state law prohibits any city or town from levying a TPT on the business of renting real property for residential purposes for stays of 30 days or more. This change does not affect tax requirements for short-term rentals.
As a result, a TPT license from the Arizona Department of Revenue (AZDOR) is no longer required for landlords whose only business was long-term rentals. AZDOR automatically canceled these licenses at the end of 2024, so landlords no longer need to file TPT returns for income earned from that point forward. Landlords remain responsible for filing and paying any taxes due on rental income earned up to December 31, 2024.
What Is Taxable?
For properties where TPT still applies, such as short-term or commercial rentals, the tax is calculated on the gross income from the rental activity. Gross income includes more than just the base rent. Any charges passed on to the tenant, such as city taxes or administrative fees, are also considered part of the gross income subject to TPT.
Taxable income sources include:
- Rent
- Non-refundable deposits
- Pet fees
- Other mandatory charges
Refundable security deposits are not considered income and are not taxable.
Short-Term and Vacation Rentals
The legislative changes eliminating TPT on long-term rentals do not apply to short-term rentals, defined as properties rented for fewer than 30 consecutive days. Owners of short-term rentals, including those on platforms like Airbnb or Vrbo, must continue to hold a TPT license and remit the applicable taxes.
The total tax rate for short-term rentals combines the state TPT rate of 5.5% with any county and city taxes. Because local rates can vary significantly, property owners should use the tax rate lookup tools on the AZDOR website to determine the correct combined rate for their property’s location.
TPT License Requirements
While a TPT license is no longer required for property owners whose sole business is long-term residential rentals, some landlords must maintain their license. If a landlord is also engaged in other business activities subject to TPT, such as commercial or short-term rentals, they must keep their license active.
In such cases, they will continue filing TPT returns but will report zero income from the long-term residential rental portion of their business. New property owners who will be exclusively engaged in short-term rentals must obtain a TPT license from AZDOR before commencing business.
Filing and Paying Taxes
For any rental income earned through December 31, 2024, landlords were required to file TPT returns and remit the tax due based on their assigned filing frequency. While this requirement is eliminated in 2025 for long-term-only rentals, the obligation continues for those with short-term rentals.
Taxes are reported and paid to AZDOR, which then distributes the local portions to the respective counties and cities. Landlords with ongoing filing requirements should adhere to their assigned frequency to avoid penalties and interest.