The Fate of Vacation Rentals in Tucson with the onset of Commercial Taxation

Through the years, vacation rentals in many locations including Tucson have been popular for people who desire a private vacation experience or prefer a convenient short-term rental. However, developments in the last year brought what some considered a rather disturbing possibility to the forefront.

Property Taxes

During 2015, the Pima County Assessor reclassified hundreds of short-term rentals from residential to commercial. As a result, the property tax assessment went up from 10% to 18% – a significant increase for many small vacation rental operations. Short-term properties renting for a period of less than 30 days are now considered transient lodging establishments and therefore, fell victim to this assessment. Websites such as have proven to be enormously helpful for people who want to connect with potential tenants, but this has also allowed the legal authorities to find and reclassify vacation homes from residential to commercial.

Transaction Privilege Taxes

The City of Tucson has been discussing whether these rentals should be subject to the Transaction Privilege Tax (TPT), similar to what hotels and bed and breakfast establishments are required to collect. Many of these transient lodging taxes are already being assessed in the range of 6% to 15% for hotels. Further, the per bed surtax has been increased from $2.00 to $4.00. Hotels and other commercial lodgings have welcomed this possible change because they believe it will make things fair for everyone. In addition to maintaining a health standard on the premises, hotels and bed and breakfast establishments must apply for a commercial license, pay the Transaction Privilege Tax and be burdened with increased property taxes. Vacation rentals do not typically require additional taxes simply because they are private endeavors managed by sole owners. However, due to increased competition and many travelers preferring quiet and calm vacation rentals, hotel businesses see this requirement as a just and necessary amendment to the law.

Current Status of Vacation Rentals

Luckily for those with vacation or other short-term rentals, the Arizona Revised Statutes included a new amendment with regards to transient lodging which will take effect in 2017. This change affirms that transient lodging is now included under the non-primary residence classification of property taxes and only subject to a 10% assessment ratio – the same percentage imposed on a primary residence. This has certainly been a victory for many homeowners who otherwise would have been forced to sell their secondary homes due to the increased costs. In the meantime, the City of Tucson maintains that the 6% (plus 6.05% in Pima County so totaling 12.05%) transient rental sales tax only applies to hotels (establishments with accommodations for more than five persons). The outcome appears to be positive for vacation rentals, but owners shouldn’t get too comfortable if Pima County and the City of Tucson receive pressure in the near future.

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Eric Freeman
Eric Freeman

Eric Freeman is a Tax Senior Manager for BeachFleischman PC and has been with the firm for 7 years.