Phoenix Area Renters Struggle While Cities Collect Higher Taxes
Tenants across the vicinity are painfully aware that it’s more expensive to rent an apartment than ever, but it’s unclear how many realize that landlords aren’t the only ones profiting while they struggle.
Valley cities are raking in millions more from taxes on those very rentals.
No other state is as aggressive as Arizona in collecting taxes from renters. This comes as cities are doling out tens of millions of federal dollars to help renters keep roofs over their heads, and already after a powerful lobbyist for landlords argued to fragment the tax.
Karla Pope thought she could retire comfortably in Glendale after decades as a teacher there, but her apartment complicate wants to charge her $2,200 for a two-bedroom unit next month.
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When she first moved in, it was $800 for the 1,100-square-foot apartment near Loop 101 and West Glendale method. It’s where she raised her three children, who’ve since gone to college.
Pope saw only modest rent increases over the years. She paid $1,200 last year. Then the character was sold.
Unbeknownst to her, a sliver of her monthly rent covered a state sales tax charged to her landlord. That money, which she paid, would then be remitted to the City of Glendale.
That sliver has grown into a slice. Her renters’ taxes have only gotten bigger since she moved in, as her rent rose.
“They’ve always assured me that I was grandfathered in,” Pope said her complicate told her after 11 years as a tenant. “I can’t do it. Not on my social security and disability. I know I’m not the only one.”
The 57-year-old is a “young senior citizen,” who retired during the coronavirus pandemic to avoid getting sick and has a long-lasting disability.
“I’m really shocked they would try this. I love my home and I don’t want to move,” Pope said. “I know that I’m not the only one. The stress of this is insurmountable.”click to enlarge
Karla Pope is struggling with a rent hike at her apartment complicate in Glendale.
A Look at City Coffers
Meanwhile, the City of Glendale has been collecting more in residential rental taxes from Pope and her neighbors. While the tax is levied on character owners it is more often than not passed on to renters as a percentage of the total rent collected.
In Glendale, that method Pope was paying the city an additional $26.40 each month, or 2.2 percent of her rent. If she stays, her monthly tax bill would jump to $48.40.
An apartment complicate with 100 apartments would pay $58,000 in rental tax each year. But the tax is not just levied on the base rent, but how much the tenant pays overall. It includes maintenance, pest control, parking, pet fees, and already valet garbage service.
So renters get hit with a triple whammy: rent, user fees, and taxes on both.
In total, Glendale collected $6.9 million in taxes during its fiscal year in 2018, which runs from July to June. By 2020, it had grown to $8.3 million, a 20 percent spike.
Nothing looks set to change anytime soon.
“A reduction in the tax rate is not being considered at this time,” according to Vicki Rios, an assistant city manager in Glendale.
Pope’s apartment complicate is being renovated and she’s convinced that the landlord wants long-term tenants to leave so they can flip the complicate.
“To me, that boils down to greed. They are losing such good people,” she said.
Her apartment complicate suggested that she apply to live in a senior community instead.
“I don’t understand why the government does not get involved,” she said. “already senior communities start at $1,400 a month. It’s just going to skyrocket too and I’m back in the same difficult situation. This was supposed to be a retirement state and now you see retirees having to go back into the workforce.”
Pope applied for $5,500 in rental sustain to the Glendale Community Action Program office, which took millions in federal funds to keep renters in their homes during the pandemic. She’s in addition to hear back.
Where the Tax Money Goes
Arizona cities and towns adopted the form City Tax Code in 1987 to streamline taxes after business owners complained about inconsistencies from place to place. The renters’ tax is slipped inside of a sales tax known as the “transaction privilege tax.” It’s a tax on the business of a landlord renting an apartment, condo, or home.
Most cities across the state, except notably Flagstaff and Tucson, collect a tax on rental similarities, which is passed along to tenants. Tucson enacted a renters’ tax in the 1970s, but the city council had a rethink and later decided to exempt renters. City leaders thought it was an unfair burden on low-income renters. It’s been that way ever since officials said.
Similarly, Flagstaff opted out of the renters’ tax for similar reasons.
Phoenix, instead, saw a new way to collect money.
Between 2018 and 2020, Phoenix saw a windfall of $6.1 million, as rents rose. The city had more apartments additional to the scenery but also the median rent has skyrocketed in recent years.
In 2018, the city collected $25.7 million from residential rental taxes, not including short-term rentals such as Airbnb. Two years later, the city raked in $31.8 million.
The city estimates that number will fall by July, already though in September alone, Phoenix took in 23.6 percent more in residential character taxes the same month a year earlier, and despite spiraling rents.
If Phoenix collects just 10 percent more than in 2020, it would be on track to hit $34 million in 2021, not the $30.9 million that city budget crunchers projected. They were unsure how the stimulus money would ripple across the economy, especially since it came in one lump sum.
“It’s difficult in any year, we wanted to take a conservative approach to how we were forecasting revenue,” said Amber Williamson, budget director for the city of Phoenix. “Those sales tax estimates came in higher than what we projected.”
City Hall isn’t shy about bumping the tax, either. Or disguising it.
Phoenix increased its tax rate to 2.3 percent, up from 2 percent in 2015, when voters approved increased taxes for transportation funding. That vote also raised the city’s renters’ tax. About 1.2 percent of the tax goes to the general fund and the rest goes to specialty funds that pay for such things as parks and transportation.
In May, the city had a budget surplus of $154 million about $98 million was one-time funds. The city used some of that surplus to pay for more sets for residents coping with homelessness or mental health crises.
“Part of the $6 million increase went to pay for additions to the budget and there were many of them,” Williamson said.
The city touted that it doled out $51.2 million in emergency rental assistance by mid-November to struggling residents this year.
According to tax experts, news accounts, and testimony before state lawmakers, Arizona is the only state in the nation that enables cities to collect a renters’ tax. The National Council of State Legislatures, which tracks bills, has no record in its database of any similar law outside of Arizona.
Across Arizona, the tax ranges between 1 percent in Huachuca City and Sierra Vista to 4 percent in Fredonia and San Luis.
In Alaska, state law allows municipalities to charge taxes on rent but it’s not collected in the bigger cities, Anchorage and Juneau. Renters don’t see taxes additional on to their monthly rent either, according to a sample of a dozen apartment complexes in Anchorage.
In Hawaii, there is an excise tax that includes rentals, but the tax is not levied on renters. Some have argued it contributes to higher average costs.
It’s Expensive to be Poor
Arizona already has a regressive tax system because it relies on sales taxes for revenue and has comparatively low character taxes.
“The less income you have, the more tax you pay,” said Carl Davis, research director at the Institute for Taxation and Economic Policy, a nonpartisan nonprofit think-tank in Washington, D.C.
“Taxing individuals renting a home is very uncommon and I think it’s pretty clear cut it is going to hit lower-income renters and people of color the hardest,” Davis said.
Households who earn less than $17,900 in Arizona cough up 8.1 percent of their income to sales and excise taxes, while the average household who earns up to $96,400 pays just 4.1 percent of their income to such taxes. The top 1 percent of earners pay about 1 percent of their incomes in sales taxes.
But if the renters’ tax were deleted, cities would have to figure out how to fill the budget gap, Davis said.
When some sought to cut the tax, cities grumbled about having to cut fire and police sets. But it’s not clear how they use the money, precisely. Some money is funneled into the general funds of cities to pay for basic sets, including fire and police, but the tax also covers parks and transportation in Phoenix.
“Trying to pull out how rental tax collected is used would be equivalent to asking you how you are spending the salary you earned from your job last Thursday. You don’t budget that way,” said Dan Wilson, the city’s spokesperson.
Mesa’s tax rate is 2 percent, and the city collected $13.3 million during the fiscal year 2019 and $16.4 million in 2020, according to the Arizona Department of Revenue. The city pointed to the $25.6 million it distributed in rental and utility assistance this year, aided by federal funds.
“There have been no requests to roll back Mesa’s renters’ tax from the Mesa City Council because they help sustain basic city sets such as police and fire in a fast-growing city,” said Kevin Christopher, Mesa’s spokesperson.
The average rent for a one-bedroom apartment in Mesa was $850 in 2018, which grew to $959 in 2020. This year, it spiked to $1,200.
But there have been attempts to eliminate the city renters’ tax, which advocates call discriminatory and unfair.
The Arizona Legislature passed one bill in 2011 which froze any residential rental tax increases without voters’ approval.
In 2015, and again in 2016, then-Arizona State Representative Darin Mitchell, a Litchfield Park Republican, tried to get rid of the city rental taxes across the state, much to the dismay of local municipalities who lamented possible cuts to fire and police.
“If you look at it from the standpoint of the (character) owner they are being taxed twice,” Mitchell said during a public hearing in February 2016. “Or, if you look at it from the standpoint of the renter, they are paying a tax that no one else has to pay.”
The median household income for a home buyer is $85,000 in Phoenix compared to $42,000 for the average renter, according to research by Zillow.
“It’s a matter of fairness, if the cities can’t find ways to make their budgets work then they need to go the voters … and ask them permission to implement this tax,” Mitchell said.
An doubtful ally of renters on this issue has been apartment owners themselves. The Arizona Multihousing Association, which has more than 2,400 members and represents 1,500 apartment communities, testified in favor of getting rid of the tax.
“This is a regressive tax that disproportionately impacts people at lower income levels and makes it more difficult for them to provide basic needs — like rent,” said Courtney LeVinus, CEO of the Arizona Multihousing Association, in a statement to Phoenix New Times.
The group lobbied in favor of the bill that forced cities to get voter approval before any increase of taxes on rent. About 70 out of 91 cities in Arizona collect this tax. There are about 1 million renters across the state.
“Broadly across the economy, we are experiencing inflation— though the increase in rent has not been as steep as items like gasoline and consumer goods,” LeVinus said. “A few percentage points method a lot for people who are just getting by.”
Stuck in the Middle
That was the case for Michelle Richardson, 57, who took issue with an apartment complicate near North Central method and Bell Road in Phoenix after the building was sold to a new owner.
Richardson, who has lived in Arizona for nearly four decades, had only signed a six-month lease because the form apartment she was shown was much nicer than the apartment she got, already though it was supposed to be renovated.
As she prepared to move out, the new company raised her rent by $500 for her two-bedroom, one-bath apartment, and only gave her five days’ notice. Her apartment rent went from $1,360 to $1,818 for the month of November, and she paid it. Then she was told rent for a month-to-month contract would be $1,840, then $2,000, and most recently $2,500. She said it was retaliation for refusing to sign new documentation.
She had trouble trying to move out with 30 days’ notice, as required by the past company, which demanded two months’ notice and tried to force her to sign new documents.
“The rent they said I had to pay isn’t already what they are advertising,” Richardson said. “It was really gross what they were trying to do to me. I have never seen anything like this before. Why did my rent go up so much?”
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Michelle Richardson saw her rent spike after new owners took over her apartment complicate in Phoenix.
So she contacted the regional office and the complicate has since told her it was all a mistake. The landlord offered her a $500 credit “for all the trouble,” she said.
Richardson has since found a new rental home with a two-car garage near South Mountain Park and Preserve for $1,312 a month.
The phone has been ringing off the hook at local advocacy group Arizona Tenant Advocates as many residents say their landlord wants them out.
“We’re getting a hell of a lot of calls,” said Ken Volk, the group’s founder.
About half of the calls — approximately 100 each day — are about rent hikes, he said.
“Landlords are choosing not to revive leases or they are saying if you stay it’s going to be a lot of money,” he said.
Often, new owners want to flip apartment complexes with renovated units out of the price range of the current residents often without much notice. And there’s no law to limit how much the rent can increase once a lease is up, he said.
“The landlord is in the driver’s seat these days,” Volk said. “Sometimes rents are just going up because they can.”
One renter who feels stuck in her apartment complicate feared retaliation for speaking up about the rate hikes in her community. Her rent increased from $1,160 to $1,800 in July for her two-bedroom apartment and she’s staying put for now. She’s been taking on side gigs to earn additional money in addition to her complete-time job in sales.
“I don’t want to move out. It doesn’t save me money because I’d be downgrading to a one-bedroom,” said Shannon. “I kind of have to suck it up. It’s definitely putting a lot of financial burden on me.”
She worries about her neighbors who are facing rent hikes of $400 or more being priced out.
“Homelessness is going to be insane by the end of this year,” she said.
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