Hobbs vetoes GOP-backed rental tax cut

Gov. Katie Hobbs delivered a stinging rebuke to Republican lawmakers pushing a rental tax cut proposal that cities across the state warned would have devastated their budgets. 

Last week, the Republican-majority legislature passed Senate Bill 1184, which sought to  eliminate the rental tax in an attempt to mitigate rising inflation and housing costs. That effort, however, was loudly criticized by city officials as ineffective and potentially catastrophic for municipalities that depend on that revenue to fund citywide services. 

“This bill does not provide meaningful relief, will likely harm those it’s purported to help and will likely only accomplish providing a tax break for landlords,” warned Yuma Mayor Douglas Nicholls, who also is the president of the League of Arizona Cities and Towns. 

“It will not provide meaningful relief to renters,” echoed John Lewis, president and CEO of PHX East Valley Partnership. “Instead, it will force local governments to weigh increasing other local taxes or reducing services — putting the vitality of our burgeoning region at risk.” 

Republican leadership, who prioritized the measure, dismissed arguments that eliminating the rental tax would result in increased costs elsewhere, but Hobbs disagreed. In a statement, she cited the opposition from cities as a key factor in her decision to reject the proposal, adding that it falls short in accomplishing its stated intent and would only provide relief to landlords.

“If we are going to promise relief to renters, it’s important that we are able to ensure they actually receive it,” she wrote. “For working families faced with ever-increasing rental prices, this proposal just doesn’t fit the bill.” 

The measure came under fire from critics for failing to ensure that landlords wouldn’t simply pocket the tax break and do nothing to relieve the strain on their tenants. An amendment mandating landlords to reduce the rent by the tax amount was added in response, but Hobbs pointed out that legislative attorneys believed that provision could run afoul of both the state and federal constitutions. 

This is the second attempt in as many years that Republicans have advanced a rental tax exemption and failed. This year, that effort was coupled with a food tax exemption, which was just as hotly opposed by Arizona cities and may also be vetoed. 

Hobbs’ rejection of yet another GOP priority is the latest development in a fractious relationship that has been increasingly characterized by vetoes and rejections. Last week, an attempt by the Republican-majority legislature to pass a “skinny budget” that would have continued last year’s funding levels and eliminated any incentive to bargain with Hobbs over new spending was summarily dismissed. And Hobbs’ power to pick who heads various state agencies has met with a specially created Senate panel to scrutinize and grill candidates.

Sen. Steve Kaiser, R-Phoenix, who sponsored the bill, slammed Hobbs’ veto as out of touch with the struggles of everyday Arizonans in an emailed statement. 

“Rent is the costliest expense for hundreds of thousands of Arizonans, but Governor Hobbs is clearly not amongst their ranks,” he said. 

The League of Arizona Cities and Towns, which represents 91 municipalities across the state, has noted that the impact of rental taxes is minimal compared to the overall cost of rent, which has skyrocketed in recent years. The average tax rate is 2.5%, which results in a $30 addition to a monthly rent of around $1,200. 

Kaiser added that Hobbs’ own support of eliminating the tax on feminine hygiene products and diapers renders her veto ironic, and said her proposal wouldn’t offer the same relief. 

“Grocery stores, just like landlords, collect and remit tax paid for by consumers,” he said. “Unlike Hobbs, our citizens don’t have the luxury of falling back on the semantics of tax collection, they feel the hurt of onerous taxation on their wallets.”

***UPDATE: This story has been updated to include comments from Sen. Steve Kaiser.