House panel OKs limit on rental taxes

PHOENIX — A House panel voted Wednesday to limit how much cities and towns can charge renters in taxes.

As it now stands, HB 2348 has no immediate effect as it limits the tax rate on residential rentals to no more than 5 percent. No community has a rate that high; only Fredonia and San Luis have 4 percent rates.

But Nick Ponder, lobbyist for the League of Arizona Cities and Towns, told members of the Ways and Means Committee that what local governments charge is strictly a matter of local concern. And he pointed out that existing law already requires a public vote to change the rate.

More worrying, Ponder said, is the fear that once the Legislature starts discussing a cap it would be easy to ratchet that limit down. And at that point, he told members of the House Ways and Means Committee, it would cut into local revenues.

His fears are not entirely misplaced. In fact Rep. Ben Toma, R-Peoria, who chairs the panel, said he personally wants to lower the cap in the bill to 4 percent.

And Rep. Pamela Powers Hannley, D-Tucson, said she, too, wants a lower limit.

“These are taxes on the poor,’’ she said, voting against the measure.

Rep. Cesar Chavez, DPhoenix, said what’s behind his legislation are problems with housing affordability.

“As we see rent costs elevate in the state of Arizona we see more and more people being displaced from their homes,’’ he told committee members. “This is a very small solution to a very enormous problem that we have here in the state of Arizona.’’

Chavez suggested that if it were up to him he would eliminate rental taxes entirely.

“I don’t feel that it is fair that we are charging a tax on people who don’t own the property,’’ he said.

But Chavez acknowledged that a move to deny cities the revenues they already are collecting likely would be an insurmountable political hurdle. This bill, he said, imposing a cap — and one higher than any city now charges — ensures that no city loses money.

None of that blunted Ponder’s opposition. He said cities use those proceeds to provide needed services.

Anyway, he questioned whether any move to limit taxes — or even a rollback — actually would benefit renters. Ponder argued that if the tax bill which technically is paid by landlords and passed on to tenants goes down, the landlords will simply increase the rents and the bottom line for tenants will stay the same.

“The market will bear what it can,’’ he said.

“That’s an assumption,’’ countered Toma who as the owner of a real estate firm handles some rentals.

Rep. Mitzi Epstein, DTempe, also voted against the measure.

“I don’t think it’s a solution that’s going to help,’’ she said of affordable housing.

The measure now needs approval by the full House.