Key Takeaways

• Arizona Senate Bill 1131 eliminates tenant-paid rental taxes starting in 2025, reducing monthly housing costs for renters.
• The law requires landlords to pass the tax savings directly to tenants by lowering asking rents.
• The bill was initially vetoed but later revised and passed as part of broader negotiations over Proposition 400.
• Supporters view the law as needed relief amid rapidly rising rents and growing rent-burdened households.
• Opponents warn of significant municipal revenue losses and potential cuts to city services.

Warren Petersen is an Arizona public servant and real estate professional whose career spans both private enterprise and state government. Based in Gilbert, Arizona, Warren Petersen has owned and operated a real estate firm since 2000, giving him direct experience with housing markets, rental dynamics, and property taxation. He entered the Arizona State Legislature in 2013 and advanced to the role of Senate president in 2023. In this capacity, he has played a central role in shaping fiscal and regulatory policy across the state.

During his legislative tenure, Warren Petersen has supported measures aimed at reducing tax burdens, limiting government pensions, and advancing election reforms. His work has also included efforts related to public safety, small business advocacy, and housing affordability.

Senate Bill 1131, which eliminated tenant-paid rental taxes in Arizona, reflects this focus by addressing cost pressures faced by renters while navigating the fiscal concerns of municipalities and state leadership.

Senate Bill 1131 and Tax Relief for Arizona Renters

Beginning in 2025, many Arizona renters enjoyed a decrease in their monthly rent payments as a result of new legislation banning taxes on rent. State lawmakers first proposed the law in 2023 under Arizona Governor Katie Hobbs, who initially vetoed Senate Bill 1131 on the grounds that landlords would not necessarily pass savings on to their tenants. The governor also cited concerns about how the lack of taxes would impact cities throughout the state.

However, the proposal remained on the table, and lawmakers adjusted the bill in response to Hobbs’ concerns. Among these changes, the bill shifted the burden of proof onto any landlord sued by tenants for failing to comply and continuing to tax renters. Lawmakers also moved the effective date to 2025, providing cities and landlords additional time to prepare for the change.

Hobbs, Senate President Warren Petersen, and House Speaker Ben Toma included the anti-rent tax law in their negotiations over Proposition 400, which extended the state’s half-cent sales tax on transportation projects in Maricopa County. Lawmakers ultimately signed off on SB1131 in June, and Governor Hobbs followed suit the following month. As part of the agreement, the GOP supported a legislative referral that allowed voters to consider extending Prop 400. Lawmakers reached the agreement following a historically long legislative session.

Supporters of the bill described the victory as much-needed relief for Arizona residents struggling to keep up with monthly payments. Arizona ranks among the state’s five worst states for affordable housing, according to the National Low Income Housing Coalition, along with other western states such as Nevada, Oregon, and California.

Metropolitan areas place an especially large burden on Arizona renters, with one study finding that rents in Phoenix have increased by 80 percent from 2016 to 2021. During the same period, median household income increased by just 22 percent. From 2021 to 2022, apartment rentals and single-family rentals increased by 30 percent and 20 percent, respectively, forcing many renters to spend more than 50 percent of their income on housing, well above the 30 percent threshold for rent burden.

Before SB1131, landlords, who passed the tax on to tenants, paid an average of 2.5 percent in rental taxes, or about $30 on a $1,200 monthly rent payment. The law compels landlords to reduce rental asking prices by the corresponding amount. Opponents to SB1131 pointed out the significant loss of municipal revenue, estimated at $230 million in 2025, and the subsequent need to slash city services and raise taxes elsewhere. On this note, representatives for Governor Hobbs said that she would work closely with lawmakers to ensure that the savings go to the renters, not the landlords, and to address the associated funding gaps. Meanwhile, lobbyists for the League of Arizona Cities and Towns have partnered with local governments to minimize the impact of the rental prohibition.

Other pundits noted that SB1131 is a small step toward righting the damage done to tenants over the last few years, namely the state’s skyrocketing rental prices. In 2025, at least one in three Arizonans qualified as rent burdened, an issue that many believe demands comprehensive rent control policies. The state has no laws in place regulating how landlords raise prices. For now, more than 80 percent of Arizona renters can enjoy the removal of their monthly rental tax surcharge, which averaged $38 in 2025.

FAQs

What is Arizona Senate Bill 1131?

Senate Bill 1131 is a law that bans taxes on residential rent in Arizona, effectively removing rental taxes that were previously passed on to tenants.

When did the rental tax ban take effect?

The law took effect in 2025, giving cities and landlords time to prepare for the change.

How does SB1131 help renters?

By eliminating rental taxes, the law requires landlords to lower rents by the amount previously charged in tax, reducing monthly housing costs for tenants.

Why was the bill controversial?

Critics argued that it would cost cities hundreds of millions of dollars in lost revenue and could lead to service cuts or tax increases elsewhere.

Who was involved in passing the bill?

The bill was negotiated and supported by Governor Katie Hobbs, Senate President Warren Petersen, and House Speaker Ben Toma as part of a broader legislative agreement.

About Warren Petersen

Warren Petersen is the Arizona Senate president and a longtime real estate professional based in Gilbert, Arizona. A licensed attorney and business owner, he has served in the Arizona State Legislature since 2013 and has supported legislation focused on tax reduction, election reform, and housing affordability. His background in real estate informs his work on tenant and landlord policy, while his legislative career reflects a focus on fiscal responsibility, small business interests, and limited government.