Arizona vacation rental tax guide

With a bounty of popular destinations including Sedona, Phoenix, and Flagstaff, the Grand Canyon State offers ample opportunity for short-term rental (STR) businesses.

But these opportunities come with tax obligations. Like hotel stays, STR stays in Arizona are subject to lodging taxes. Tax authorities require STR operators to collect applicable taxes from their guests and remit them to the proper authorities.

Failure to comply with state and local tax laws can result in fines and penalties. Tax jurisdictions are increasingly making STR tax compliance a priority, so it’s important to address compliance before tax authorities address it for you.

Avalara MyLodgeTax put together this guide to help you comply with Arizona lodging tax laws at the state level. For more information on the tax rates and jurisdictions that apply to your rental’s specific location, use our lodging tax lookup tool.

No STR tax guide is a substitute for professional tax advice. Consider this an asset to help you understand and prioritize your vacation rental questions and concerns. Questions pertaining to specific situations or out-of-the-ordinary conditions are best solved with a certified tax professional familiar with Arizona tax laws.

In Arizona, lodging taxes operate a bit differently than in other states. Income from short-term rental stays is subject to Arizona transaction privilege tax (TPT). Business owners may pass the tax on to their guests, but owners are responsible for tax compliance. Arizona STRs may also be subject to local lodging taxes.

What’s the definition of “short-term rental” in Arizona?

For tax purposes, STRs in Arizona are defined as reservations of less than 30 days.

Who’s required to collect and file lodging taxes on short-term rentals in Arizona?

If you collect payment from short-term guests renting out a room, apartment, house, or other dwelling, you’re likely responsible for collecting, filing, and remitting lodging taxes to Arizona tax authorities.

Location is key to compliance

The location of your rental is a crucial piece of information for lodging tax compliance. Your address determines which tax jurisdictions you’re required to report to, which taxes you need to collect, and the appropriate tax rates.

Use our lodging tax lookup tool to get a rate report specific to your Arizona rental’s address. The report includes the estimated total tax rate to collect from guests, number of required registrations, number and frequency of returns per year, and minimum number of rented days to qualify as a taxable stay.

It should be noted that tax rates and the rules governing them change frequently. Please consider your tax rate report to be informative rather than authoritative.

All Arizona STR operators are legally required to register with the Arizona Department of Revenue. You can register online to receive a transaction privilege tax (TPT) license as well as instructions on filing your lodging taxes.

Do I need to form an LLC?

In Arizona, you don’t need to form an LLC to register with tax authorities.

State short-term rental regulations

Arizona hosts should be aware of state rules that govern STRs, including:Short-term rental hosts must obtain a TPT license and display that license on any advertisement, or face penalties.

• STR operators must obtain a state TPT license and display that license on any advertisement.
• STRs may not be used for nonresidential uses, including for special events that would otherwise require a permit or license.

Local short-term rental regulations

STR operators in Arizona should be aware of the local regulations that apply to them, including rules covering:

• Licenses or permits
• Providing contact information to authorities
• Occupancy limits
• Zoning
• Health and safety

Homeowner associations (HOAs), condominium communities, co-ops, and landlords may also have specific rules regarding vacation rentals. It’s your responsibility to be aware of short-term rental policies that apply to your property.

Once you’re registered with tax authorities, you’re ready to start collecting lodging tax, which you’ll add to your guest’s bill when they pay for their stay.

Which lodging taxes apply to Arizona short-term rentals?

In Arizona, a number of different lodging taxes may apply to your STR, depending on your location. These can include:

What’s the tax rate?

Before you can begin collecting lodging taxes, you need to know the correct rate to charge to avoid compliance issues. Our lodging tax lookup tool can give you a rate report specific to your Arizona address.

What charges are taxable?

All short-term rental income is considered taxable for TPT purposes. Fees charged for items such as security deposits, cancellations fees, and housekeeping are considered taxable gross income once the fee is no longer refundable to the renter.

What happens when my short-term rental marketplace (such as Airbnb or Vrbo) collects taxes for me?

Arizona requires all STR online marketplaces, such as Airbnb and Vrbo, to collect and remit state and local taxes on Arizona STRs. However, all operators are still required to obtain a TPT license. Even if a marketplace collects lodging taxes for you, you’re still required to file TPT returns. If taxes aren’t being collected for you, you’re responsible for collecting and remitting them to state tax authorities.

Are guests ever exempt from taxes?

There are situations in which you aren’t required to collect lodging taxes in Arizona. For example, lodging stays of 30 days or more are exempt from lodging taxes.

In Arizona, an STR owned by a Native American and located on the reservation of which the owner is a member is exempt from TPT — unless the accommodation is booked through an online marketplace such as Airbnb.

After you’ve collected taxes from your guests, it’s time to file your tax returns with the Arizona Department of Revenue. In Arizona, you must file lodging tax returns online and pay the tax amount due by check or electronic transfer. The Arizona Department of Revenue allows credit card payments, but may charge a fee.

When do I need to file my returns?

You’ll be assigned a filing frequency and due dates when you register with the tax authority. At the state level, due dates for transaction privilege tax are as follows:

I didn’t rent my property during this filing period. Am I still required to file a lodging tax return with the Arizona Department of Revenue?

Yes. STR operators registered with the Arizona Department of Revenue are required to file returns each assigned filing period, regardless of whether you had any STR income or collected any lodging taxes. Such returns are commonly known as “zero dollar returns.” Local tax authorities may have their own requirements.

Are there penalties for filing taxes late?

Whether you choose to offer STRs through a marketplace like Airbnb or directly to the consumer, you open the door to tax liability. As tax revenue is a major source of local funding, tax authorities are becoming more aggressive in their efforts to identify individuals and businesses breaking tax laws. Failure to register with tax authorities and file lodging tax returns in Arizona on time may result in late fees, interest payments, and in extreme cases, legal action.

I’ve been offering short-term rentals without collecting lodging tax. What options do I have?

If you’re already operating an STR but not collecting lodging taxes, you may be in violation of Arizona tax laws. Take the time to review your legal responsibility (with a tax professional, if necessary) and understand the risk of continuing to not collect tax.

STR hosts in Arizona may be able to take advantage of a voluntary disclosure agreement (VDA). A VDA offers an opportunity for hosts to proactively disclose prior period tax liabilities in accordance with a binding agreement with the Arizona Department of Revenue. VDAs are offered to encourage cooperation with state tax laws and may result in some or all penalty and interest payments being waived.

Are there options for outsourcing lodging tax filing?

Yes. Many STR hosts in Arizona file several lodging tax returns every year. Filing solutions such as Avalara MyLodgeTax can relieve this burden.