Tuesday, January 20, 2009

Landlords, Do You Owe Rent Tax?

The recession has hit everybody in their wallets, even city governments. The Arizona Republic reported recently that the Valley's cities are getting tougher in tracking down landlords who aren't paying the rental tax they owe the city.

Didn't even know that Arizona landlords pay rent tax? You're not alone. The Arizona Republic reports,

"Laws that vary by city make tax requirements confusing to novices. In Chandler, Tempe and Glendale, an owner's first rental is subject to tax. But in Scottsdale, Phoenix and Gilbert you can own two rentals in Arizona without paying a tax but must pay on the third one."

State law requires landlords to register their rental properties with the tax assesor. You can reach the Maricopa County Tax Assesor online. Use this link to register your rental property online. Use this link to download a printable form you can mail or fax to the Assesor.

While the state government sets the requirements that landlords register rental properties, it's the city governemnts that are responsible for enforcement. Chandler is among several Valley cities that is actively conducting audits of property records to find unreported rental properties.

Here's a few methods cities use to find landlords who "forget" to pay their rent tax. City employees can cross-check the names on utility bills against the owner's names recorded at the County Recorder's office. Interns can conduct research on the property transfer records. The City of Mesa even goes so far as to question relatives living in a family member's home and rules that if you pay rent, the owner is a landlord and liable to the rent tax.

What are the penalties for not paying rent tax when it's owed? Chandler gets really tough, filing liens against the property when they find a landlord flouting the law. Tempe allows a 10-day grace period but after that the errant landlord is liable to a $10,000 fine. The City of Phoenix plans to send employees to Chandler to learn new get-tough methods.

My research into the MLS rental listings show that rent tax is usually about 1% to 2% of the rent collected. Most landlords add it on to the monthly rent amount and, in effect, make their tenant pay the tax.

However you arrange to have rent tax paid landlords, don't neglect to register your rental property with the state! Check out this online publication from the Maricopa County Assessor for more information on the registration requirements and penalties for non-registration of your rental property.