The cost of owning a rental home in Tempe is about to go up for
some, as an extended city sales tax goes
into effect Oct. 1.
In June, the City Council eliminated a tax exemption that allowed
landlords to own one rental unit free of
sales tax obligations. Previously, only
rental owners with more than one unit
were required to pay a sales tax on
income from each unit.
That exemption, however, created a loophole allowing landlords with
multiple properties to circumvent the
tax by using different company names for
each home owned.
“There were people that would set up LLCs to not have to pay
taxes,” said Dean Doubraza, tax license
administrator with the city of Tempe.
“Each rental house would be (owned by) a separate LLC.”
Starting next month, all Tempe rental units are subject to the same
1.8 percent sales tax.
City staff will explain Tempe’s residential rental taxation
policies at three hour-long seminars
Sept. 13, scheduled for 10 a.m., 2 p.m.
and 7 p.m., at the Tempe City Hall’s
Garden Level, 31 E Fifth St.
Based on the new procedure, rental-property owners must file for a
“transaction privilege tax license” from
the city’s Tax and License Division and
pay the application and license fee by
Oct. 1. The fee varies by the number of
properties owned, starting at $45 for a
single rental unit. Applications and
further information are available online
Property owners with vacant rental homes still must file the
license application, even though they
aren’t currently earning revenue from
their property, according to the law.
The city expects the change to generate $200,000 to $300,000 in
additional annual revenue, according to
a staff report.
The change is just one of several recommendations made by the
city’s Ad Hoc Rental Housing Task Force,
established a year ago to address
homeowners' concerns about rental
property in neighborhoods and to update
the city’s rental housing code in a
Previously, changes to the code were decided issue-by-issue in a
“piecemeal approach,” said Shauna
Warner, Tempe’s neighborhood
That made the process cumbersome, she said, because small tweaks to
the code would sometimes have larger
ramifications that required more changes
down the road.
About half of Tempe’s residences are rentals, Warner said.
The committee’s recommendations are now under review by the City
Council and its various subcommittees.
One proposed change would eliminate a city ordinance that makes it
illegal to house more than three
unrelated residents in a single-family
"[The law] doesn't make a lot of sense to me when a house is plenty
big," said Ed Hermes, a Tempe
renter and task force member.
The proposed change would not cap unrelated roommates at any
specific number. Instead, the maximum
number of occupants would be tied to the
square footage of the house, allowing
larger homes to accommodate more
The Development Review Commission will go over the
unrelated-resident cap in October before
forwarding the proposal to the entire
"The current law is just so incredibly hard to enforce," Hermes
said. "I think we should have laws on
the book in Tempe that make sense and
The task force also recommended—and the City Council adopted—a
resolution requiring the city to notify
all parties involved when a rental
property or its tenants violate a city
Now, the tenants, landlords and agents all must be informed of
violations like litter and noise.
The council also left room in the latest city budget for an
additional 10 part-time code obedience
inspectors to monitor obedience to the
The task force's last meeting was in January. Warner said the group
is scheduled to reconvene in about six
months, assess the success of its work
and decide if more work is needed.
"It could be the end, it could be more work," she said.
"They won't know until they revisit it."