A bill is making its way through the Arizona Legislature that has the potential to cost the Town of Fountain Hills more than $100,000 a year in sales tax revenue.

HB 2254 would exempt owners of residential properties from paying transaction privilege tax on rentals.

In February the Town Council asked Town Manager Ken Buchanan to send a letter to members of the House of Representatives expressing the council’s opposition to the measure.

Buchanan’s letter states that the proposed law would “have a devastating financial impact on Fountain Hills and other Arizona cities and towns.

“The total fiscal impact to all cities and towns from HB 2254 will be more than $87 million in lost revenue per year and will result in a massive reduction of municipal general fund revenues, the majority of which fund public safety.

“If this tax is eliminated, the cost and burden for those services will be shifted to other business and homeowners.

“City services that all citizens use – including renters – are paid for with taxes.”

According to Town of Fountain Hills Finance Director Craig Rudolphy, the town received $114,793 in residential rental sales tax for fiscal year 2013/14.

Buchanan argues that the rental of property is a business transaction and therefore subject to the rules regarding TPT.

“In fact, rental taxes are classified as a business tax deduction on (property owners’) income tax,” Buchanan said.

The Arizona Multihousing Association is a major supporter of the bill. Their representatives argue that the rental sales tax is double taxation since property owners already pay property taxes.

An AMA website states that “Approximately (one third) of Arizona residents rent their homes, and those residents also pay the same taxes as homeowners (property tax, garbage fees, water fees and utility taxes included in the monthly rent) and in many jurisdictions they are also subjected to a regressive and unfair tax on rent.

“It is unfair for cities and towns to balance their budgets on the backs of renters, cities need to develop tax policies that are fair to all their residents and stop picking winners and losers.”

Fountain Hills does not collect a general property tax, only those for voter- approved bonds.

Representative Darin Mitchell, R-D13 in the West Valley, is identified as the prime sponsor for the bill.

Mitchell’s campaign website states that he is a former contractor who built custom homes and apartment buildings.

Mayor Linda Kavanagh said mayors in all communities are keeping a close eye on the progress of the bill as it moves through the House process.

“League (of Arizona Cities and Towns) mayors have been lobbying their reps on this and there are a lot on (the league) board to oppose 2254,” Kavanagh said.

“Rep. Michelle Ugenti voted no in the House Ways and Means committee and Rep. Jay Lawrence has committed to voting against it on the floor.”

Ugenti and Lawrence represent D-23, which includes Fountain Hills.

“Arizona cities and towns are barely coming out of the financial crisis that hit everyone hard,” Buchanan continues in his letter. “A bill like this would send cities back into a free fall which doesn’t benefit the citizens or the state.

“We need to be working in partnership to create jobs and communities in which people want to live. HB 2254 does not accomplish that goal.”