TAXES
A few items to consider about taxes and Short Term Rentals (STRs):
Property taxes – SB 1350 gave STRs special treatment so they pay residential property tax rates when they should clearly be paying higher commercial rates.
All “transient public lodging accommodations” in Arizona, such as hotels, motels, inns, resorts and even lodging houses where the owner is not an actual resident are classified as commercial Class 1 properties and pay commercial property tax rates.
STRs with no resident clearly fit this commercial classification, but are granted the lower tax rates of residential Class 4 as if they had a resident. Why should STRs have preferential residential treatment when there is no resident?
You need a resident to be residential.
Sales and Use Tax Loophole – With “Voluntary Collection Agreements”, Airbnb, VRBO, etc collect sales and use taxes when an STR is booked and paid for online. However, there is nothing in place to collect taxes from “Direct Bookings”, that is, when a host and guest make a side deal offline and don’t go through Airbnb or an online platform. Direct Bookings can save 20% in booking fees to Airbnb and about 13% in taxes, so they are quite common and can be a large percentage of revenues for an STR operator. Not having a collection mechanism in place for Direct Booking revenues is an invitation for abuse and unreported income, especially when audits are prohibited (see below).
Can’t Be Audited – This should outrage every Arizona taxpayer. SB 1350 included a provision (ARS 42-1108.F) “Audits…may not be conducted directly or indirectly on any individual online lodging operator”. Why on earth should STR operators be immune from being audited? Especially with a giant loophole on taxes for Direct Bookings? How is this fair to every other taxpayer in Arizona?
No Net Gain – A true resident will pay about as much in Arizona income taxes as an STR would pay in sales and use taxes for the same house. (assumes home of 2.5x resident income, STR revenue 2.5x regular rent.) There is no net gain in taxes from STRs, and with loopholes and no audits, STRs might even cause a decline in tax revenues.
STRs are given preferential tax treatment, loopholes and immunity from tax audit while providing no increase in tax revenues and destroying Arizona neighborhoods.
Having visitors stay in hotels instead of STRs creates more jobs, pays more in taxes and protects Arizona neighborhoods.
IT’S TIME TO FIX SB 1350