In this era when it seem that taxes only go up and never disappear, I have some good news to report.
In the recently-ended session of the Arizona legislature, they have repealed the commercial rental tax paid between entities with common control. The most typical situation is where an individual owns a building, either outright or through an LLC, and leases it back to a related entity such as a closely-held corporation. As long as the ownership is at least 80% the same in each entity, the rental tax no longer applies. However, the tax will continue to apply to commercial leases to unrelated third parties.
The repeal was effective on July 1, 2013 for the City of Tucson’s 2.0% tax and is effective September 13, 2013 for the State’s 0.5% tax that was paid to Pima County. You will have to pay the City tax for June 2013 (due in July) but please modify your accounting system and invoices to reflect the repeal of this tax. You might consider cancelling both transaction privilege tax licenses if this was the only reason for having them. If you need a complete list of the Arizona “model” cities that are affected by this repeal, please contact us.
Please pass this information on to your accounting staff or bookkeeper.
David J. Cohen is a founding shareholder and Executive Vice President of BeachFleischman PC, a Tucson-based CPA firm with 125 people and two offices. He has extensive experience with real estate taxation and is a former Chairman of the Pima County Real Estate Research Council.