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Superior Sun
Scofflaws beware! If you haven’t been paying the 2 percent transaction privilege tax on your income from residential rental property you could soon hear from the Town of Superior asking for back payments.
Few who have been contacted so far are happy to discover that they owe back taxes to Superior. At least one said he is considering his legal options in opposing the tax.
“Not everyone may realize that in Arizona a town can assess a 2 percent tax on rental income from residential property including both homes and apartments. But the law has been on the books for more than a quarter century,” said Superior Auditor Albert Holler.
The privilege tax on rental, leasing and licensing on real property is included in the Model City Tax Code enacted by the Arizona legislature in 1987. The code was proposed by the real estate industry that objected to the widely varying tax laws in towns statewide and wanted more uniformity in how these towns raised revenues. Not all incorporated Arizona towns collect the rental tax within their borders but a huge majority do, a spokesman for the Arizona Department of Revenue (AZDOR) told the Superior Sun.
At least the residential rental property tax is capped at 2 percent under the code, which the sales tax is not, Holler said.
Under the code, the rental income tax is a levy on the landlord rather than the tenant and municipalities require the landlord to pay for it. Owners of residential rental property are required to obtain from AZDOR a license identifying them as landlords so that the appropriate tax forms can be sent by the community in which the property is located.
In the letters sent by Superior, Holler noted that, “We are unable to locate a Town of Superior Transaction Privilege (Sales) Tax license related to your account… If you received income from the lease or rental of real property, we are allowing you an opportunity to voluntarily comply with the tax code. By doing so you may avoid additional penalties.”
Despite the tone of the letter, one Superior property owner returned the requested paperwork to Superior under protest.
In a letter sent to all Superior Town Government officers and copied to the Sun, Lynn H. Darr, a retired Master Chief Petty Officer with the US Navy, argued the unfairness of the tax.
“I do not believe that I owe the town any taxes. Currently I am paying taxes on this property to federal, state and county governments. To pay an additional tax to the town is in effect a Pyramid Tax,” Darr said.
When contacted by the Sun, Darr noted that the Superior Town Government website contains no information about the requirement to pay a 2 percent tax on rental proceeds. And when he complained he was told that “everybody knows it.”
A check by the Sun found that most states do not allow for a separate sales tax on rental payments, being content to collect income taxes paid on that income.
Darr further complained that he already pays a higher property tax on his rental house in Superior. Like a majority of states, owners pay a lower rate on properties in which they reside than on rental properties, thus assuring that the rent-paying tenants share in the cost of maintaining local government services. Landlords count these tax payments as part of the overhead used to compute rental or lease rates. So why should rental income be taxed a second time as if it were a commodity like milk, bread or gasoline?
“The town should be soliciting Pinal County for these funds rather than placing an unfair tax burden on property owners who live in Superior,” he emphasized.
Darr explained that he purchased the house (on which the claim for a transaction privilege tax for rental payments has been made) to rehab and resell, and since September 2013 has been in the process of selling the property under a lease including a “right to purchase agreement.”
“I’ve already benefited the community by hiring local people to do the renovating and buying local materials, thus contributing sales tax payments and providing taxable income to workers,” he said.
Darr emphasized that there is no pending litigation on this tax issue; that he only is considering it as he feels he is not alone in being upset at the apparent double taxation.
Superior has been sending out letters to possible scofflaws in hope of collecting all currently owed taxes to avoid having to cut local services due to revenue shortfalls.
James J. Hodl is a career journalist who has worked for newspapers, magazines and trade journals. A graduate of Southern Illinois University with a Bachelor of Science degree in Journalism, Hodl began his career as a reporter with the Palatine (IL) Herald and the Morton Grove (IL) Review before becoming editor of the trade publication Appliance Service News. In recent years, Hodl has had articles published in Consumers Digest, Good Housekeeping, Home Remodeling, Kitchens & Baths and Salute; and has contributed to trade publications serving the home furnishings, restaurant and casino markets. A native of Chicago, Hodl relocated to San Tan Valley in 2013.
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