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Expanded rental tax facing owners Oct. 1

By: Jonathan J. Cooper

Sept. 9, 2006

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 at

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 comprehensive manner.

Previously, changes to the code were decided issue-by-issue in a “piecemeal approach,” said Shauna Warner, Tempe’s neighborhood services director.

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 home.

"[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 residents.

The Development Review Commission will go over the unrelated-resident cap in October before forwarding the proposal to the entire council.

"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 are enforceable."

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 code.

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 city’s policy.

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."


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