If you own a short-term rental in Arizona, you have likely heard the rumors that Arizona eliminated the rental tax.
While that headline is technically true, it is also dangerous if you do not read the fine print. As of January 1, 2025, the state did eliminate the Transaction Privilege Tax (TPT) for residential rentals, but this exemption applies only to long-term leases of 30 days or more. For short-term rental investors and our partners here at Stay AZ, the TPT is very much alive. For the official ADOR guidance, see the Arizona Short-Term Lodging TPT page.
In fact, with the explosion of the STR market in cities like Scottsdale, Tempe, and Phoenix, the Arizona Department of Revenue (ADOR) is stricter than ever on compliance for transient lodging. At Stay AZ, we believe that asset management goes beyond changing linens and managing bookings. It means protecting your investment from regulatory risk. This guide will walk you through exactly what the Arizona TPT is, why it is complicated, and the step-by-step process we use to handle it for our owners.
Part 1: What is the Arizona TPT?
Unlike most states that utilize a standard Sales Tax, Arizona uses a Transaction Privilege Tax (TPT). Legally, this is a tax on the privilege of doing business in the state. While it functions like a sales tax because it is passed on to the guest, the legal liability for paying it falls 100% on you as the property owner.
For Short-Term Rentals, defined as stays of less than 30 days, the tax structure is a layered system of jurisdictions. You are not just paying one rate. You are typically paying three distinct taxes:
State TPT: The base rate for the State of Arizona.
County TPT: A rate that varies by county, such as Maricopa, Coconino, or Pima.
City TPT: This is where it gets tricky. Cities often have a standard TPT rate plus an additional Transient Occupancy Tax, often called a Bed Tax, specifically for hotels and STRs.
The Double Code Complexity
When filing, revenue must be reported under specific Business Codes. Using the wrong code is the most common audit trigger we see for self-managing owners.
State and County Level: You generally report under Business Code 025 (Transient Lodging).
City Level: You generally report under Business Code 044 (Hotels) or 144 (Hotel/Motel Additional Tax) depending on the municipality.
Note: As of 2025, you no longer report under Residential Rental (Code 045) for long-term stays. If you mix long-term and short-term stays in one property, your reporting is now significantly more complex.
Part 2: The Stay AZ Compliance Protocol
Many generalist property managers shy away from taxes. They simply give owners their gross income figures and leave them to deal with the Department of Revenue on their own. We do not operate that way.
At Stay AZ, we view tax compliance as a core part of our fiduciary duty to you. Our system is designed to ensure you never underpay, which risks fines, or overpay, which hurts your ROI. Here is exactly how we handle the TPT lifecycle for our properties.
1. We Audit the Booking Source
This is the single most important step in modern STR accounting. Tax liability depends entirely on where the booking occurred.
OLM Bookings (Airbnb/Vrbo): By law, Online Lodging Marketplaces (OLMs) like Airbnb are required to collect and remit TPT on your behalf.
Direct Bookings (Stay AZ Website): For bookings that come through our direct marketing, our referral network, or our independent site, we are the merchant of record.
The Stay AZ Difference: We segregate this revenue in your monthly owner statement. We track exactly which dollars have already been taxed by Airbnb and which dollars require manual filing.
2. We Manage the Deduction Codes
Even if Airbnb pays your taxes, the State of Arizona still requires you to file a return declaring that income. You must report the gross income and then deduct it using Deduction Code 775.
If you simply do not file because Airbnb handled it, the state sees a discrepancy between the income Airbnb reported for your property and the zero return you filed. This flags you for an audit. Stay AZ ensures these informational filings are done correctly to keep your record clean.
3. We Handle the Filings (Optional Service)
For our full-service partners, we can act as your tax delegate. By filing a Form 285-PMC (Power of Attorney), you authorize Stay AZ to sign and file TPT returns on your behalf.
We calculate the tax due on Direct Bookings.
We file the monthly returns with ADOR.
We remit the payment directly from the property's operating account.
You receive a confirmation of filing in your monthly owner portal.
Part 3: Step-by-Step Guide for New Owners
While Stay AZ handles the heavy lifting of monthly management, the State of Arizona requires the TPT license to be in the property owner's name or the LLC that owns the property. We cannot take out a license for you, but we can guide you through the application.
Here is your checklist for onboarding a new property with Stay AZ:
Step 1: Register Your Entity
If you hold your property in an LLC, which we highly recommend for liability protection, ensure your LLC is in good standing with the Arizona Corporation Commission.
Step 2: Apply for the TPT License
Go to AZTaxes.gov and select "Register a New Business."
Business Activity: Select "Transient Lodging" (Short-Term Rental).
Location: You must have a separate license or location code for each physical property address. You cannot lump five properties under one generic license without specifying locations.
Fees: The license fee is generally $12 per jurisdiction (State + City). Expect to pay roughly $50 to $60 initially.
Step 3: The Factoring Decision
During setup, you will be asked if you want to Factor the tax.
Factoring: You charge the guest $100 flat. The tax is included in that $100. This is bad for margins.
Adding Tax: You charge the guest $100 plus $12.50 Tax. This is better for margins.
Stay AZ Policy: We always add tax on top of the nightly rate. This ensures your Net Operating Income (NOI) is not eroded by tax liabilities. When you set up your license, ensure you are set up to collect tax in addition to gross receipts.
Step 4: Delegate Access to Stay AZ
Once you have your TPT License Number, which is an 8-digit number, you need to grant us access.
Log in to AZTaxes.gov.
Click "Manage Accounts" and then "User Access."
Invite Stay AZ using our business email provided in your onboarding packet.
Assign us "File and Pay" permissions.
Part 4: Common Pitfalls We Protect You From
Why is professional management so critical here? Because the Arizona Department of Revenue is aggressive regarding Change of Use.
The Snowbird Trap
Let us say you rent your Scottsdale property as an STR from January to March. Then, you find a tenant who wants to stay from April to October, which is a 7-month lease.
Jan-Mar income is Taxable (Transient Lodging).
Apr-Oct income is Non-Taxable (Residential Rental, post-2025).
If you keep paying tax on the long-term rental, you are throwing money away. If you stop paying tax on the short-term rental, you are committing tax evasion. Stay AZ's dynamic accounting software automatically tags bookings based on length of stay. We ensure you only pay tax on the nights that legally require it.
The Cleaning Fee Mistake
Did you know that in Arizona, cleaning fees are taxable?
Many owners assume only the nightly rate is taxed. This is incorrect. The state views the cleaning fee, pet fee, and early check-in fee as part of the Gross Receipts. If you charge a guest $150 for cleaning but do not collect the 14% tax on it, that 14% comes out of your pocket. We configure our booking engines to automatically apply TPT to all mandatory fees, preserving your bottom line.
Conclusion: Compliance is Peace of Mind
The Arizona short-term rental market is lucrative, but it is no longer the wild west. The cities of Scottsdale, Phoenix, Tempe, and Gilbert have all implemented strict ordinances regarding tax collection and neighbor relations.
At Stay AZ, our goal is simple. We want you to look at your monthly statement and see profit, not paperwork. By standardizing the TPT process, we ensure that your asset remains compliant, your taxes are paid on time, and your audit risk is minimized.
Need help setting up your TPT license for a new property? Contact our owner support team today. We can walk you through the AZTaxes portal in under 15 minutes.
Disclaimer: Stay AZ is a property management company, not a CPA firm. While we handle tax compliance and filings for our owners, this guide is for informational purposes. We always recommend consulting with a qualified tax professional regarding your specific financial situation.