Arizona cities and towns prepare for the effects of the rental tax ban

Cities and towns across the state are planning for anticipated revenue shortages after a residential rental tax ban was signed into law last fall. 

In August, Gov. Katie Hobbs signed a bill that would prevent cities and towns from collecting rental tax on residential rental properties.

And that could hit some cities hard. Lee Grafstrom is the tax policy analyst for the League of Arizona Cities and Towns. He says the city of Tempe is projected to lose out on about $20 million to $25 million.

“When you take away a small amount of tax paid by an individual, you know, $20 a month or what have you, the impact, the negative impact on the city or town is much greater because of the cumulative effect of all those taxpayers not paying $20 each. Twenty dollars to me is not a big deal. Twenty million dollars to the city of Tempe is a big deal," he said. 

The law goes into effect January 2025.

While the ban is supposed to help mitigate soaring rental costs, it’s also projected to take away $240 million to $250 million from city and town revenue.

"We wish there would be some sort of replacement for that as opposed to just forcing the cities to raise their own taxes and go through all of those issues," he said.

As KJZZ News  reported in February, Phoenix City Council members have been told not to add services or programs because of the estimated revenue shortfall.