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Town enacts plan to claim unpaid rental taxes

Posted 8/8/18

The Town of Fountain Hills provides a number of programs, services and infrastructure that contributes to the quality of life for residents who live here.

The town has a variety of sources for …

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Town enacts plan to claim unpaid rental taxes

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The Town of Fountain Hills provides a number of programs, services and infrastructure that contributes to the quality of life for residents who live here.

The town has a variety of sources for revenue to pay for its operations and capital improvements. Since the town does not have a primary property tax, one of the most important sources of local revenue is sales tax.

Residential rental properties are one area for which the town is not receiving all of the potential sales tax. The town has discovered that a number of homes and condominiums in the community are rented out as short-term or long-term rentals without the property owners paying appropriate sales tax. As a result, it is estimated that the town is losing tens of thousands of dollars in sales tax revenue annually from property owners not properly paying the sales tax on the rentals.

This sales tax revenue is important because the rental of residential properties is a business enterprise. In addition, the occupants of rental properties still utilize town facilities, town services, police and fire protection and drive town streets. Essentially, other Fountain Hills residents are paying the cost of these services for others.

By law, owners must register rental properties – Under Arizona Revised Statutes § 33-1902, an owner of residential rental property in Arizona must register certain information relating to the property and its ownership with the Maricopa County Assessor’s Office regardless of who rents the property.

In addition, a property owner who does not reside in Arizona must designate a statutory agent who lives in Arizona to accept legal service on his/her behalf. Regardless of where organized, a corporation, limited liability company, partnership, limited partnership, trust, or real estate trust, must register the name of the ownership entity as well as a principal within the business entity.

The registration may be filed electronically, using an online registration form, by mail, or in person. There is a $10 fee per registration. A separate form must be completed for each parcel or roll number registered.

The Maricopa County Assessor’s Office classifies property based upon its use. If a property owner discovers that a property has been misclassified, the owner can notify the Assessor by calling 602-506-3406 to receive instructions on how to have the misclassification corrected.

All rentals are subject to taxation – income from rental of real property for 30 days or longer is subject to the 1.6 percent Fountain Hills sales tax. Income from rental of property for periods under 30 days is subject to the Town’s tax of 2.6 percent and the transient lodging tax rate of 4 percent for Fountain Hills in addition to 7.27 percent for State and County tax for a total of 13.87 percent.

Failure to register residential rental property is a violation of Town Code Section 7-11-1 and may result in civil penalties. The tax applies to all persons who lease or rent one or more properties (apartment units, houses, condominiums, etc.) within Fountain Hills.

Rental taxes are remitted to the Arizona Department of Revenue on form TPT-2 and reported using FH as the region code and 045 as the business code. Forms are downloadable from the Department of Revenue website or one can apply for the tax license online. Failure to comply with the provisions of Town Code Section 7-11-1 may result in civil penalties in accordance with A.R.S. § 33-1902. The penalty is $150 per day for each day of violation and may be imposed after the date of the most recent notice of assessed valuation and the notice prescribed by A.R.S. § 42-15103.

The Town of Fountain Hills has initiated an audit of rental properties in an attempt to recover rental sales tax, interest and civil penalties. Anyone with one or more residential properties that are rented out during the year or suspect that a nearby property is a rental should contact the Town of Fountain Hills Rental Tax Hotline at 480-397-2482 or email rentaltax@fh.az.gov. The town’s stated goal is for everyone to pay their fair share of taxes.